File C6-40 April 2016 www.extension.iastate.edu/agdm Strategic Planning Terms

Competitive advantage - What a firm does • Strategic groups - Clusters of firms within better than its competitors. Characteristics that an industry that share certain critical asset allow a firm to outperform its rivals. configurations and follow common strategies. • Distinctive competence - Special skills • Predatory pricing - Aggressiveness by a firm and resources that generate strengths that against its rivals with the intent of driving competitors cannot easily match or imitate. them out of business. • First mover advantage - The competitive advantage held by a firm from being first in a Concentration - Focus the firm’s efforts and market or first to use a particular strategy. resources in one industry. • Late mover advantage - The competitive Core business - The central or major business advantage held by firms that are late in of the firm. The core business is formed around entering a market. Late movers often imitate the core competency of the firm. Management of the technological advances of other firms or the firm’s core business is central to any decision reduce risks by waiting until a new market is about strategic direction. established. • Sustainable competitive advantage - A Core competency - What a firm does well. competitive advantage that cannot easily be The core competency forms the core business of imitated and won’t erode over time. the firm. • Group think - A tendency of individuals to adopt the perspective of the group as a Critical success factors - Those few things that whole. It occurs when decision makers don’t must go well if a firm’s is to succeed. Typically question the underlying assumptions. 20 percent of the factors determine 80 percent of the performance. The critical success factors Competitive strategy - How an enterprise com- represent the 20 percent. Also known as key petes within a specific industry or market. Also success factors. known as business strategy or enterprise strategy. Culture - The collection of beliefs, expectations, Competitor analysis - The competitive nature and values learned and shared by the firm’s of an industry. It determines how a rival will members and passed on from one generation to likely react in a given situation. another. • Barriers to entry - Factors that reduce entry into an industry. Diversification - The process a firm into new • Switching costs - The costs incurred when a products or enterprises. buyer switches from one supplier to another. • Concentric diversification - Diversification • Barriers to exit - Factors that impede exit into a related industry. from an industry. • Conglomerate diversification - • Contestable markets - Markets where profits Diversification into an unrelated industry. are held to a competitive level. Due to the ease of entry into the market.

Don Hofstrand retired extension specialist Page 2 File C6-40

Economics - Cost savings. Environmental scanning - To monitor, evaluate • Economies of integration - Cost savings and disseminate information from the external generated from joint production, purchasing, environment to key people within the firm. marketing or control. • Environmental analysis - An analysis of the • Economies of size - Fixed costs decline as environmental factors that influence a firm’s output increases. operations. • Economies of scope - The products of two • Environmental opportunity - An attractive or more enterprises produced from shared area for a firm to participate in where the firm resources which allows for cost reductions. would enjoy a competitive advantage. • Minimum efficient scale - The smallest • Environmental threat - An unfavorable trend output for which unit costs are minimized. or development in the firm’s environment that may lead to an erosion of the firm’s Enterprise - The production of a single crop competitive position. or type of livestock, such as wheat or dairy. A responsibility center. Excess capacity - The ability to produce • Primary enterprise - An enterprise that additional units of output without increasing provides the foundation of the firm. The fixed capacity. success of the primary enterprise is critical to the success of the firm. Experience curve - Systematic cost reductions • Secondary enterprise - An enterprise that that occur over the life of a product. Product supports a primary enterprise and/or the costs typically decline by a specific amount each mission and goals of the firm. time accumulated output is doubled. • Competitive enterprises - Enterprises Externalities - A cost or benefit imposed on one for which the output level of one can be party by the actions of another party. Costs are increased only by decreasing the output negative externalities and benefits are positive level of the other. externalities. • Complementary enterprise - Enterprises for which increasing the output level of one Firm vision - The collection of statements listed also increased the output level of the other. below indicating the desired strategic future for • Supplementary enterprises - Enterprises the firm. for which the level of production of one can • Mission statement - A statement of the be increased without affecting the level of reason why a firm exists. production of the other. • Goals - General statements of where the • Enterprise strategy - How an enterprise firm is going and what it wants to achieve. competes within a specific market or industry. • Objectives - Specific and quantifiable Also called business or competitive strategy. statements of what the firm is to accomplish • Transfer price - The price at which a good and when it is to be accomplished. or resource is transferred across enterprises within a firm. Innovation - A new way of doing things. • Diffusion curve - The rate over time at Entrepreneur - An entrepreneur sees change which innovations are copied by rivals. as normal and healthy. He/she is involved in • Systematic innovation - The purposeful searching for change, responding to it, and and organized search for changes, and the exploiting it as an opportunity. systematic analysis of the opportunities these changes might offer for economics and social innovation. File C6-40 Page 3

Internal scanning - Looking inside the business Strategic - Maneuvering yourself into a and identifying strengths and weaknesses of the firm. favorable position to use your strengths to take advantage of opportunities. Operations management - Focuses on the • Strategic audit - A checklist of questions performance and efficiency of the production that provide an assessment of a firm’s strategic process. It involves the day-to-day decisions of position and performance. the business. • Strategic myopia - Management’s failure Portfolio - A group of enterprises within a firm to recognize the importance of changing that are managed as individual responsibility external conditions because they are blinded centers. by their shared, strongly held beliefs. • Portfolio analysis - Each product and • Strategic thinking - How decisions made enterprise is considered as an individual today will affect the business years in the responsibility center for purposes of strategy future. formulation. • Strategic predisposition - A tendency • Portfolio management - Management of a of a firm by virtue of its history, assets, or firm’s individual enterprises and resources culture to favor one strategy over competitive across these enterprises. possibilities. • Strategic decisions - A series of decisions Proactive - Seek out opportunities and take used to implement a strategy. advantage of them. Anticipate threats and neutralize them. Strategic management - The act of identifying markets and assembling the resources needed to Responsibility center - An enterprise whose compete in these markets. The set of managerial performance is evaluated separately and is held decisions and actions that determine the long- responsible for its contribution to the firm’s run performance of the firm. mission and goals. • Cost center - An enterprise that has a man- Strategic planning - A comprehensive planning ager who is responsible for cost performance process designed to determine how the firm will and controls most of the factors affecting cost. achieve its mission, goals, and objectives over • Investment center - An enterprise that has the next five or ten years or longer. a manager who is responsible for profit and • Business planning - A plan that determines investment performance and who controls how a strategic plan will be implemented. It most of the factors affecting revenues, costs, specifies how, when, and where a strategic and investments. plan will be put into action. Also known as • Profit center - An enterprise that has a man- tactical planning. ager who is responsible for profit performance Strategy - A pattern in a stream of decisions and who controls most of the factors affecting and actions. revenues and costs. • Dominant strategy - A strategy that is Restructuring - Selling off unrelated parts of a optimal regardless of the action taken by business in order to streamline operations and one’s rival. return to a core business. • Emergent strategy - Unplanned strategy that emerges from within the organization. Stakeholder - Individuals and groups inside • Intended strategy - Planned strategy devel- and outside the firm who have an interest in the oped through the strategic planning process. actions and decisions of the firm. Page 4 File C6-40

• Realized strategy - The real strategy of a firm • Strengths and weaknesses - Strategic factors that is either an intended (planned) strategy within the firm are categorized as strengths of management or an emergent (unplanned) or weaknesses of the firm. strategy from within the organization. • Strategic fit - Fit between what the environ- • Strategy formulation - The development ment wants and what the firm has to offer. of long-range plans for the management of • Strategic alternatives - Alternative courses environmental opportunities and threats, of action that achieve business goals and in light of the strengths and weaknesses objectives, by using firm strengths to take of the business. advantage of environmental opportunities. • Strategy implementation - The process by which strategies and policies are put into Vertical integration - The process in which action through the development of programs, either input sources or output buyers of the firm budgets, and procedures. are moved inside the firm. • Strategy control - Compares performance • Backward (upstream) integration - Input with desired results and provides the sources are the firm. feedback for management to evaluate results • Forward (downstream) integration - and take corrective action. Output buyers are the firm. • Firm strategy - How a firm will reach • Contractual integration - Separate firms its goals and objectives by using firm in the various stages of production link the strengths to take advantage of environmental stages through contractual arrangements. opportunities. • Full integration - Where one firm has full • Enterprise strategy - How an enterprise ownership and control over all the stages in competes within its specific market the production of a product or industry. Also called business or • Quasi-integration - A firm gets most of its competitive strategies. requirements from an outside supplier that is • Niche strategy - A strategy serving a under its partial control. specialized part of the market. • Tapered integration - A firm produces part of its own requirements and buys the rest SWOT analysis - Analysis of the strengths and from outside suppliers. weaknesses of the firm, and the opportunities and threats of the firm’s environment. Vertical coordination - The stages in the • Strategic issues - Trends and forces which production of a product are linked by more occur within the firm or with environment than open markets but less than ownership and surrounding the firm. control by one firm. • Strategic factors - Strategic issues expected • Vertical merger - Firms in different stages to have a high probability of occurrence and of the production and distribution chain are impact on the firm. linked together. • Opportunities and threats - Strategic factors in the firm’s external environment are catego- rized as opportunities or threats to the firm.

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Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Cath- ann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa.