Welcome to the Strategy Glossary – a collection of the most important definitions, terms, and concepts related to strategy.
All communication can be broken into two types: violent or non-violent.
Violence is inherently destructive so I want to live in a world with as little violence as possible. To me, that means replacing violent communication with non-violent communication and that starts with making sure that you are understood by and understand your communication partners.
So I care a lot about the meaning of words. This strategy glossary is my effort to define some of the words and concepts associated with strategy that we often take for granted.
Not sure where to start? Start with the definition of strategy.
Note: This strategy glossary will grow over time.
The most famous cartel, OPEC (the Organization of the Petroleum Exporting Countries), sets production limits for each member country so that prices remain high. Without the cartel, in a free-price system, each firm would compete with one another in order to better serve their customers – by reducing prices or by making their offering more appealing in some way.
Most cartels are not stable long-term since each member has an incentive to agree to the terms but then cheat in order to accrue even more profits for themselves. However, some cartels are propped up by or even sanctioned by the threat of violence, often sponsored by governments.
Aside from the crude oil market, cartels have existed in the raisin market, the diamond market, the beer market, the Swiss cheese market, the waste disposal market, and even the US presidential debates.
A Category Killer is a firm that has specialized in a specific market or product, leveraging their narrow focus to gain a competitive edge over less focused firms through increased bargaining power, pricing tactics, large selection, and strong branding.
Before going bankrupt and shutting down its stores in 2018, Toys”R”Us was considered a “category killer” because it so aggressively defined, computed for, and quickly owned the category of a children’s toy retailer.
The term category killer can be a bit confusing – it doesn’t mean that a company killed a category. A category killer dominates (or co-dominates) it due to their focus and scale.
Collusion is an agreement between parties with the aim of reducing competition and increasing profits, typically at the expense of customers, vendors, shareholders, or employees. Collusive activities range from being illegal, ignored, accepted, and even legally sanctioned.
Examples of collusion include forming a cartel, price-fixing, bid rigging, or any other agreements to reduce competition.
The Raisin Racket
During the Great Depression, the US government gave a few lucky raisin farmers and handlers a government-protected mandate to restrict the sale of raisins and fix the price. The formation of this cartel was not only sanctioned by law but not even kept a secret. The members of the so-called “Raisin Administration Committee” were a select group of growers and handlers – creating further incentive for rent-seeking.
While the stated purpose of the cartel was to “stabilize” the price of raisins (which it did by price-fixing), the consequence was that customers overpaid for raisins (and every product that uses raisins as an input) for nearly 80 years, until the law was overturned by the Supreme Court in 2014.
The Commission on Presidential Debates
After the US Presidential election of 1992, when Independent candidate Ross Perot took 19% of the vote from Republican George H. W. Bush and Democrat Bill Clinton (which some believe cost Bush his reelection), the Commission on Presidential Debates created a new rule that prevented candidates from being allowed in the nationally televised debates unless they had 15% of the votes in 5 national polls leading up to the election.
The commission was, of course, created in order to “[turn] over the sponsorship of Presidential debates to the two major parties” and the commission was originally chaired by the heads of the Republican and Democratic parties. The polls that would be used to select candidates were, of course, selected by the commission's members.
This legal collusion has been extremely effective at controlling who has a serious shot at running for president and who ultimately becomes president.
To compete is to “strive to gain or win something by defeating or establishing superiority over others who are trying to do the same.” Competition is the activity or condition of competing.
com + petere
Latin competere, from com “with, together” + petere “to strive, seek, fall upon, rush at, attack”
Interestingly, competition and competence have the same root.
In Decision Analysis, a decision is an irrevocable allocation of resources, where the resources are completely under the decision maker’s control.
We make decisions constantly and even doing nothing is a decision.
The word decide comes from the latin dēcīdere (de + cidere) which means “to cut away.” This etymology alludes to the fact that sometimes the most important part of a decision is deciding what not to do – what to cut away.
A few key things to understand about decisions:
- Decisions aren’t made until resources are actually allocated. For example, say you’re researching which projector to buy to replace your bulky television. The act of adding this projector to your Amazon cart is not a decision to buy it – it’s a decision to add it to your cart. The decision to buy happens when you actually hit the “Place your order” button because that’s when you allocate your money.
- Irrevocable doesn’t mean that the decision can’t be reversed. It means that the decision can’t be reversed without some additional allocation of resources. For example, say you make the decision to buy the projector above but then realize that you prefer a more portable projector. You can cancel your original order and then purchase another projector but you would had to allocate new resources to do this. If the original projector had already been shipped, then you would have to return it (which costs time and money). Even if the projector hadn’t been shipped when you canceled your order, you still have to take the time to cancel the order. The charge to your credit card will have to be reversed as well and if you make a habit of canceling orders, Amazon and your payment processor may decide that you’re a customer not worth having. Irrevocable means that the world has changed as a result of your decision.
- Decisions are personal. There’s no such thing as a “right” decision. There are only better and worse decisions for specific decision makers in specific scenarios. For example, you may prefer to get married in Italy while your twin may prefer to get married at a local winery. Preferences are an essential input to a high-quality decision making process and preferences vary from individual to individual.
- Decisions are not outcomes. We should judge the quality of an individual decision based on the process used to make the decision, not the outcome.
- Good decisions can lead to bad outcomes. Since there’s an element of uncertainty in all non-trivial decisions, even good decisions frequently lead to bad outcomes. For example, say you’ve had too much to drink at a New Year’s party and you decide to drive home. If you arrive home safely (good outcome) that doesn’t mean that you made a good decision. Alternatively, say you decide to take a Lyft or Uber home instead and your driver gets in an accident. While your decision resulted in a bad outcome, that doesn’t mean that your decision was bad. Uncertainty can make a good decision appear bad and vice versa.
- Probability helps clarify and quantify uncertainty. In the driving example above, you are deciding either to drive yourself home after too many drinks or to hail a car to take you home. Now imagine making that you could choose each option 1,000 times and look at the results. Maybe driving drunk 1,000 times results in you getting into an accident 200 times and being driven home by someone else results in an accident 10 times. This information allows us to calculate probabilities for this specific scenario which may help you make a better decision. Unfortunately, we usually don’t have empirical probabilities for our specific scenario. While we know that flipping a fair coin has a 50% chance of landing on heads or tails, we can’t so easily determine the odds of driving home safely while inebriated at a specific time and date, under specific weather conditions, with other drivers (including law enforcement) on the road.. etc. The best we can usually do is to start with more general probabilities (ie the number of accidents per 1,000 miles driven) and then attempt to adjust those numbers for our specific scenario (you and other drivers are impaired because it’s New Year’s eve, the roads are wet, it’s dark outside.. etc).
The future is “the set of all moments yet to come” (Thiel, Zero To One).
The etymology of “future” comes from the latin futurus the irregular future participle of esse, meaning “to be.” So the future is “that which will be” – a bit of a circular definition.
We use this word casually all the time, but it’s important to understand that the future is – in part – ours to create.
Hidden Competition is simply competition that’s not overt or obvious. As industries evolve, hidden competition is almost always a real threat to existing players.
For example, when Southwest Airlines first started flying in 1971, they weren’t really competing with the major interstate airlines, whose customers were mostly businessmen with large expense accounts. Southwest’s quick flights between Dallas, Houston, and San Antonio were actually competing with Greyhound buses and other surface travel options.
For Greyhound, Southwest represented hidden competition and was a key reason Greyhound is only a fraction of its former self and filed for bankruptcy in 1990. Part of Southwest’s strategy – in addition to very tight alignment – was to avoid direct competition with the other major airlines at the time.
See also: Competition
Luck is “success or failure, apparently caused by chance.”
This definition is from Tina Seelig’s June 2018 Ted Talk on how to increase your luck. Seelig emphasizes that the appearances of a situation often don’t accurately represent reality. For example, when your friend gets a huge promotion at work, you may think it was luck. However the extra work she did on week nights and weekends and the effort she invested in building her relationship with her manager may not be immediately visible or obvious to you.
Seelig relates luck to a wind that you can either be prepared to capture in your sails or not – a wind that can capsize you or drive you quickly to your destination.
The “Moneyball” strategy is a statistical approach to finding a hidden advantage within a competitive ecosystem, typically by identifying variables that are over-valued or under-valued by the rest of the market and making resource allocations accordingly.
The 2002 Oakland A’s implemented a Moneyball strategy (also called Sabermetrics) to earn their spot in the playoffs with a player salary budget of approximately one-third of the largest-budget teams.
Their phenomenal results and return on investment (ROI) were a result of the team’s desperate challenge to run a team on such a (relatively) small budget. Instead of implementing the same strategy that the wealthiest teams were already implementing – a game Oakland couldn’t win – they chose a different route.
The team came to realize that certain traditionally-valued properties – a player’s subjective characteristics (does he have a “good face”?) and even many of his objective statistics (RBIs, steals, etc) – were dramatically overvalued. Similarly, they discovered several player statistics that were consistently undervalued (walks, pitches per at-bat).
By focusing on the demonstrable value that a player brought to an organization (primarily runs or proxies for runs like getting on base), the Oakland A’s were able to afford a team that won 103 games during the regular season – tying the NY Yankees for the most wins that season.
Michael Lewis brought the story to the public eye in his 2003 book Moneyball: The Art of Winning an Unfair Game which was made into a very entertaining film in 2011.
Read more about Moneyball.
Defining strategy is a difficult task.
The first problem is that there is no other word in the english language like it and the closest synonym, plan, falls way short. We’re literally lacking in nuanced vocabulary.
The next problem with the word is that it is both an output of a process and the process itself. You have both a strategy for putting a man on the moon by the end of the decade and the process by which you created that strategy. One word – strategy – has to stand in for both of those related but different concepts.
The last problem I’ll address here is that the word has been coopted by the naive, the malicious, and the careless. They use the word to sell their poorly written business books, stock trading BS, and get rich quick schemes. They use it to sell their political candidates, their CEOs, their gurus. They use it when they actually mean “plan,” “tactic,” or something entirely different.
So what is Strategy?
Strategy is the process of creating a set of well-aligned activities with the aim of occupying a valuable position within a competitive landscape.
It follows then that a tactic is one of those activities and that a strategy is the output of the process of strategy.
Etymology of Strategy
The etymology of strategy is from the Ancient Greek strategia, meaning "office or command of a general.” Strategia’s roots are stratos and ago.
Stratos means "multitude, army, expedition, encamped army," literally "that which is spread out” – which explains the meaning behind words like stratum and stratosphere.
Ago means “to lead”
Taken all together, one nice english translation is: “to lead that which is spread out.”
Table Stakes are the resources that are required in order to participate in a competition. Typically, additional resources are required to compete well and the table stakes can be used to prevent potential competitors from competing at all. When structured in this way, table stakes can be a form of moat or barrier to entry.
Example: In poker, the chips a player must bet in order to sit at the table and play the game – the ante – are the table stakes.
Example: Given how many US voters watch the presidential debates, participating in the debates is a table stake for having a shot at being elected president. Ratings agency Nielsen estimated that 84 million people watched the first presidential debate of the 2016 election, representing 36.4% of all eligible voters and 60.5% of actual voters in the 2016 election.
Read an entire article on the presidential debate table stake.
A tactic is an activity that, when combined with other well-aligned activities, aims to result in a valuable position within a competitive landscape. From the Greek taktike meaning an "arrangement" or the "art of arrangement," a tactic is a component of a strategy, not a strategy itself.
Confusing a single tactic with an entire strategy is one of the most common strategic failures , hence the importance of understanding the difference between the two.
For example, Elon Musk’s The Boring Company sold 20,000 flamethrowers in 2018. That tactic brought a lot of attention to Elon and his company, which plays into his larger public relations strategy (which in turn is just an element of the company’s broader strategy). If you believe that you too can sell flamethrowers or other such devices and expect the success that The Boring Company has recently had, then you would be mistaken. The flamethrowers are simply an element of the strategy, not the strategy itself.
See also: Strategy