Key Terms

barriers to entry

Industry factors (such as high start-up costs) that can prevent new firms from successfully launching new operations in that industry.

buyer power

In the relationship between a firm and its customers, buyers with high power can negotiate product price or features, while buyers with low power cannot.

capabilities

A firm’s skill at coordinating and leveraging resources to create value.

competition

Business actions a firm undertakes to attract customers to its products and away from competitors’ products.

competitive advantage

When a firm successfully attracts more customers, earns more profit, or returns more value to its shareholders than rival firms do.

competitive environment

Factors and situations both inside the firm and outside the firm that have the potential to impact its operations and success.

cost-leadership strategy

A generic business-level strategy in which a firm tightly controls costs throughout its value chain activities in order to offer customers low-priced goods and services at a profit.

demographics

Part of PESTEL that includes facts about the income, education, age, and ethnic and racial composition of a population.

differentiation strategy

A generic business-level strategy in which firms add value to their products and services in order to attract customers who are willing to pay a higher price.

economic factors

PESTEL category that includes facts (such as unemployment rates, interest rates, and commodity prices) about the state of the local, national, or global economy.

environmental factors

PESTEL category that examines a firm’s external situation with respect to the natural environment, including pollution, natural resource availability and preservation, and alternative energy.

environmental scanning

The systematic and intentional analysis of a firm’s internal state and its external environment.

external environment

The aspects of the world at large and of a firm’s industry that can impact its operations.

external factors

Things in the world or industry environments that may impact a firm’s operations or success, such as the economy, government actions, or supplier power. Strategic decisions can be made in response to these things but normally cannot directly influence or change them.

focus strategy

A generic business-level competitive strategy that firms use in combination with either a cost-leadership or differentiation strategy in order to target a smaller demographic or geographic market with specialized products or services.

generic business-level strategies

Basic methods of organizing firm value chain activities to compete in a product market that can be used by any sized firm in any industry.

industry

A group of firms all offering products or services in a single category, for example restaurants or athletic equipment.

industry rivalry

One of Porter’s Five Forces; refers to the intensity of competition between firms in an industry.

internal environment

Innermost layer of a firm’s competitive environment, including members of the firm itself (such as employees and managers), investors in the firm, and the resources and capabilities of a firm.

internal factors

Characteristics of a firm itself, such as resources and capabilities, that the firm can use to successfully compete against its rivals.

legal factors

In PESTEL, the laws impacting business, such as those governing contracts and intellectual property rights and illegal activities, such as online piracy.

macro environment

The outermost layer of elements in a firm’s external environment that can impact a business but are generally beyond the firm’s direct control, such as the economy and political activity.

micro environment

The middle layer of elements in a firm’s external environment, primarily concerned with a firm’s industry situation.

new entrants

One of Porter’s Five Forces, the threat of new entrants assesses the potential that a new firm will start operations in an industry.

opportunity

A situation that a firm has the resources and capabilities to take advantage of.

PESTEL

A strategic analysis tool that examines several distinct categories in the macro environment: political, economic, sociocultural, technological, environmental, and legal.

political factors

PESTEL factor that identifies political activities in the macro environment that may be relevant to a firm’s operations.

Porter’s Five Forces

Evaluates the interconnected relationships between various actors in an industry, including competing firms, their suppliers, and their customers, by examining five forces: industry rivalry, threat of new entrants, threat of substitutes, supplier power, and buyer power.

primary activities

Firm activities on the value chain that are directly responsible for creating, selling, or servicing a product or service, such as manufacturing and marketing.

resources

Things a firm has, such as cash and skilled employees, that it can use to create products or services.

sociocultural factors

PESTEL category that identifies trends, facts, and changes in society’s composition, tastes, and behaviors, including demographics.

strategic analysis

Process that firms use to study and understand their competitive environment.

strategic group

Businesses offering similar products or services and following the same generic competitive strategy.

strategic positioning

Firm’s decisions on how to organize its actions and operate to effectively serve customers and compete against rivals.

strategy

Process of planning and implementing actions that will lead to success in competition.

strengths

Resources and capabilities of a firm; what it is good at.

substitutes

One of Porter’s Five Forces; products or services outside a firm’s industry that can satisfy the same customer needs as industry products or services can.

supplier power

One of Porter’s Five Forces; describes the balance of power in the relationship between firms in an industry and their suppliers.

support activities

Value chain activities that a firm performs to sustain itself; do not directly create a product or service but are necessary to support the firm’s existence, such as accounting and human resources.

switching costs

Penalty, financial or otherwise, that a consumer bears when giving up the use of a product currently being used to select a competing product or service.

SWOT

Strategic analysis tool used to examine a firm’s situation by looking at its strengths, weaknesses, opportunities, and threats.

technological factors

PESTEL category that includes factors such as the Internet, social media, automation, and other innovations that impact how businesses compete or how they manufacture, market, or sell their goods or services.

threat

Anything in the competitive environment that would make it harder for a firm to be successful.

value chain

Sequence of activities that firms perform to turn inputs (parts or supplies) into outputs (goods or services).

VRIO

analytical tool that evaluates a firm’s resources and capabilities to determine whether or not it can support an advantage for the firm in the competitive environment: value, rarity, imitation, and organization.

weaknesses

Things that a firm does not have good capabilities to perform or gaps in firm resources.

Source contents: Principles of Management and Organizational Behavior. Please visit OpenStax for more details: https://openstax.org/subjects/view-all