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CAPACITY UTILIZATION - refers to activities and assets with substantial fixed costs. Generally, unit costs fall with increasing volume. CAPITAL REQUIREMENTS - the amount of financial resources required to compete in a given business (or to enter the industry). Capital requirements include more than just production facilities and personnel. (Example: providing customer credit.) The higher the capital requirements, the higher the barrier to entry (assuming everything else is equal). CASH FLOW - is equal to Cash Inflow minus Cash Outflow. CHANGE IN SHAREHOLDER VALUE - is the change in shareholder value over the forecast period. Value creation results from corporate or SBU investment at rates in excess of the cost of capital required by the capital market (the owners). CHANNEL - the immediate buyer; an alternative means of distribution employed or potentially employed to reach end buyers. For example, a new company with a new food product must persuade the retailer (the channel) to give it space on the supermarket shelf in order to reach the consumer (end buyer). In the insurance and real estate industries, agents and brokers are often used as a distribution channel. A channel is one of the variables used to define strategically relevant buyer segments (the others are buyer type and geographic buyer location). CHANNEL ABILITY TO INFLUENCE BUYERS' PURCHASING DECISIONS - refers to the additional buyer power that distribution channels have if they can influence the end-users' decision-making process. [Source: M. Porter] CHANNEL LINKAGES - refer to linkages between the firm's activities and channel activities (such as advertising, sales, order entry, and outbound logistics). The goal is to coordinate and optimize all channel linkages in order to lower costs or enhance differentiation. [Source: M. Porter] CHANNEL POWER - see Buyer Power and also see Channel Ability to Influence Buyers' Purchasing Decisions. CHIEF INFORMATION OFFICER - manager of knowledge architecture and knowledge sharing. CLIENT SERVICE - see Customer Service. COMPETITIVE ADVANTAGE - refers to something a firm can do more cheaply (a cost advantage) or uniquely (differentiation) that will provide higher margins. Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Competitive advantage stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product. Each of these activities can contribute to a firm's relative cost position and create a basis for differentiation. [Source: M. Porter] (For scoring: Competitive Advantages One, Two, and Three represent, in priority order, the three most important competitive advantages the business is attempting to create and/or sustain.) COMPETITIVE POSITION - refers to the relative competitive advantage a firm possesses vis-à-vis its competitors. (For scoring, use: Very High (5); High (4); Medium (3); Low (2); Very Low (1).) COMPETITIVE SCOPE - There are four dimensions of competitive scope. They are segment scope, vertical scope, geographic scope, and industry scope. Competitive scope can have a powerful effect on competitive advantage because it shapes the configuration and economics of the value chain. Broad scope can allow a firm to exploit the benefits of performing more activities internally, and to exploit interrelationships between the value chains that serve different segments, geographic areas or related industries. Narrow scope can allow tailoring of the value chain to serve the target segment in a unique way. [Source: M. Porter] COMPETITIVE STRATEGY - aims to establish a profitable and sustainable position against the forces that determine industry competition. The four basic alternative competitive strategies from which a business should choose are: Cost Leadership; Differentiation; Cost Focus; Differentiation Focus. [Source: M. Porter] COMPETITOR INTERRELATIONSHIPS - stem from the existence of rivals that actually (or potentially) compete with a firm in more than one industry. A multipoint competitor may compel a firm to match an interrelationship or face a competitive disadvantage. [Source: M. Porter] COMPETITOR RIVALRY - refers to the relative level of competition within an industry. (For scoring: Polite (5); Slightly Competitive (4); Moderately Competitive (3); Very Competitive (2); Warlike (1).) COMPLEMENTARY PRODUCT - a product which is used in conjunction with another and promotes its use. Complementary products (the opposite of substitutes) raise important strategic issues in terms of: 1) control over complementary products ("we sell both"); bundling ("we sell both together only"); and 3) cross-subsidization ("we sell one to sell the other"). [Source: M. Porter] COMPUTER RISK - The risk that a computer outage can disrupt operations leading to financial loss. This includes hardware, software or telecommunications problems, as well as any event that impacts the operation of the computer. CONCENTRATION AND BALANCE - refers to the number of competitors (a few or many) and the market share distribution. When the industry is highly concentrated or dominated by one or a few firms, the leader(s) can often impose discipline including price leadership. (Example: "There are approximately 80 competitors in the XYZ industry and the top 10 competitors account for 75% of the industry's total revenue. The trend in the number of competitors can be described as shrinking due to mergers and acquisitions.") CONFIGURATION - refers to where each activity in the value chain is performed. [Source: M. Porter] [Also see related topic: Coordination.] CONTROL ISSUE - any process that management requires proper procedures in order to avoid exposure to loss resulting from fraud or negligence. COORDINATION - refers to how like or linked activities performed in different locations are coordinated with each other. [Source: M. Porter] [Also see related topic: Configuration.] CORPORATE LEVEL STRATEGIC PLANNING - has a portfolio orientation. The concern is with allocating resources among the various businesses so that the overall value of the portfolio is improved. Strategic planning at the corporate level also concerns itself with acquisitions, divestitures, internally developed new business ventures, or changing the mix of capital allocated to the company's existing businesses. Besides organizational and operational restructuring, companies are frequently involved in financial restructuring like swapping debt for equity. (Compare with Strategic Business Unit Planning and Strategic Horizontal Unit Planning. Also see Horizontal Strategy.) CORPORATE VALUE - the total economic value of a corporate entity. Corporate Value = Shareholder Value + Debt. Corporate value consists of three components: 1) the present value of cash flow from operations during the forecast period; 2) the current value of marketable securities; and 3) residual value, which represents the present value of the business attributable to the period beyond the forecast period. [Source: A. Rappaport] CORPORATE GOVERNANCE - the ability of institutional and individual shareowners to better govern corporations, enhancing both corporate accountability and the creation of wealth. Shareholder proxy voting rights are subject to the same fiduciary standards as other plan assets. Key institutional investors are shifting from trading to owning. In Nell Minow's words, "boards of directors are like subatomic particles--they behave differently when they are observed." For corporate governance and related subjects, click here. COST DRIVERS - are the structural determinants of the cost of an activity. Cost drivers determine the behavior of costs within an activity, reflecting any linkages or interrelationships that affect it. Cost drivers include: economies of scale, the pattern of capacity utilization, learning, linkages, interrelationships, integration, timing, discretionary policies, location, and institutional factors. [Source: M. Porter] COST DYNAMICS - the measure of how the absolute and relative cost of value activities will change over time independent of its strategy. [Source: M. Porter] COST FOCUS - a generic strategy where a firm sets out to become the low-cost producer in a segment (or in a few segments) of its industry in which the segment(s) have fewer needs (or require less to service). COST LEADER - a firm with a competitive strategy based upon Cost Leadership. [Source: M. Porter] COST LEADERSHIP - a generic strategy where a firm sets out to become the low cost producer in its industry. [Source: M. Porter] Sample sources of low cost strategies include: efficient size production facilities; low cost design; automated assembly; low overhead; global scale over which to amortize R&D or advertising; plentiful source of low cost labor; efficient training procedures in high turnover industry; cheapest telecommunications system; cheapest delivery system; most effective strategic planning methodology for maximum allocation of resources. COST OF CAPITAL - the weighted average of the costs of debt and equity capital. It is often used for discounting the company's cash flow stream. Estimating the cost of capital is often used for establishing the minimum acceptable rate of return or hurdle rate that management requires on new investment proposals. COST OF COMPROMISE - the cost of having to compromise with other SBUs that want things done differently. Performing an activity in a consistent way has its benefits, but in some cases it is not optimal to an SBU's specialized approach. [Source: M. Porter] For example, sharing a sales force may mean that the sales representatives are less knowledgeable about either product than a dedicated sales force would be. COST OF COORDINATION - includes time, money and personnel costs involved with coordinating the schedules, priorities, and resolution of problems between two more SBUs. [Source: M. Porter] COST OF INFLEXIBILITY - takes two forms: (1) potential difficulty responding to competitive moves, and (2) raises exit barriers. [Source: M. Porter] COST OF SHARING - includes: cost of coordination; cost of compromise; cost of inflexibility. [Source: M. Porter] COUNTRY RISK - the risk of loss due to governmental action or social, political or economic upheaval in a given country. CRITICAL SUCCESS FACTORS - or CSFs, are those things which must go right for the organization to achieve its mission. CSFs are: a simple concept which help focus attention on major concerns; easy to communicate; and easy to monitor. CSFs should be derived from the firm's strategic plans; and they may be established for the company, the business unit, the department, or an individual. CSFs are categorized as those which monitor current results and those which build for the future. Sources of CSFs include: industry CSFs resulting from specific industry characteristics; strategy CSFs resulting from the chosen competitive strategy; environmental CSFs resulting from economic or technological changes; temporal CSFs resulting from internal organizational needs. CSFs should be associated with one or more primary measures for monitoring. [Source: John F. Rockart] CROSS SELLING - is when one business helps another business sell products and services. Usually the businesses are within the same corporate family, but joint ventures and other arrangements are also used to promote sales. CROSS SUBSIDIZATION - is when a firm deliberately offers to sell one product (the base product) at a low profit or loss in order to sell a more profitable item (the profitable product). CUSTOMER ACTIVITIES AFFECTED BY THIS INDUSTRY - represent not only those customer activities that directly use the purchased product or service, but all activities that are affected by the purchase. For example, if a company purchases notebook computers for every sales representative, then the work flow of the administrative secretaries will likely change as well. A thorough understanding of the customer's activities (value chain) affected by the industry's products is key to successful product development and marketing activities. CUSTOMER CONCENTRATION AND CUSTOMER VOLUME - The fewer and bigger and more coordinated buyers are (via buyer groups) the more power they have (assuming everything else is equal) and the more likely they will lower industry profitability. CUSTOMER DECISION MAKING PROCESS OVERVIEW - describes the steps the buyer goes through prior to purchasing the industry's products and services. An understanding of this process is key to successful marketing efforts. A few common actions taken prior to purchasing include: reading newspapers and industry magazines; watching television; listening to the radio; attending industry trade shows; seeking the advice of a lawyer, accountant, banker, or spouse; calling references; establishing a purchasing task force to analyze alternatives; and hiring a consultant. CUSTOMER DEFAULT RISK - the risk of loss resulting from customer non-payment, less than full payment, or late payment. CUSTOMER INFORMATION - refers to whether the buyer has information about demand, actual market prices, and other information which yield the buyer greater bargaining leverage than when information is poor. CUSTOMER FOCUS GROUPS - involve talking with customers in order to gain a true understanding of their needs and opinions regarding the industry, its products, competitors, and any other relevant information. In some cases, the firm sponsoring the customer focus group is made known to the participants. In other cases, third-party vendors are employed to conduct the focus group without revealing the identity of the sponsoring firm. Most often, current competitors use customer focus groups to test new product ideas. However, focus groups have been used to gather a wide variety of marketing input by not only current competitors, but by potential entrants and industry analysts. CUSTOMER POWER - refers to the relative amount of influence customers have vis-à-vis firms in the industry. (For scoring, use: Very Low (5); Low (4); Moderate (3); High (2); Very High (1).) CUSTOMER PROPENSITY TO SUBSTITUTE - refers to the likelihood that buyers will use a substitute product even when it is cost justified. Influences that affect a customer's propensity to substitute include: technological orientation; resources; risk profile; intensity of rivalry; generic strategy; and success in previous substitutions. [Source: M. Porter] CUSTOMER SERVICE - a primary activity associated with after-sale support to enhance or to maintain the value of the product or service. CUSTOMER SERVICE STRATEGY- refers to the targeted level of service the firm plans to provide, as well as a clear description of how the target level will be achieved. When developing a customer service strategy, it is useful to appreciate, from the point of view of the customer, how the firm delivers value to the customer, especially at every point of direct contact the firm has with customers. CUSTOMER TYPE - encompasses such things as the buyer's size, industry, strategy, and demographics; the types of end buyers that purchase, or could purchase, the industry's products. [Source: M. Porter] A variable used to define strategically relevant segments (the others are product variety, channel, and geographic buyer location). |
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