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.
- Blue Ocean Strategy
- Category Killer
- Competitive Advantage
- Competitive Analysis
- Competitive Landscape
- Core Competencies
- Digital Transformation
- Disruptive Innovation
- Game Theory
- Hidden Competition
- Innovation Strategy
- Market Segmentation
- Moneyball (Strategy)
- Scenario Planning
- Strategic Alignment
- Strategic Alliance
- Strategic Resource Allocation
- Strategic Diversification
- Strategic Fit
- Strategic Implementation
- Strategic Inertia
- Strategic Metrics
- SWOT Analysis
- Table Stakes
- Value Chain
- Value Proposition
Arbitrage is the practice of exploiting price differences for the same asset in different markets to generate profit with minimal risk. From a strategic standpoint, arbitrage involves identifying and capitalizing on market inefficiencies. An example of arbitrage is currency arbitrage, where traders buy a currency in a market where its value is lower and sell it in a market where its value is higher, profiting from the exchange rate differential.
Blue Ocean Strategy
Blue Ocean Strategy is a strategic framework that emphasizes creating new market spaces instead of competing in existing ones. The term “blue ocean” signifies unexplored markets with minimal competition, allowing businesses to innovate and differentiate themselves. This approach contrasts with Red Ocean Strategy, where businesses compete in crowded markets.
For example, Cirque du Soleil applied Blue Ocean Strategy by reimagining the circus industry. Instead of competing with traditional circuses, they combined elements of theater and art to create a unique entertainment experience. This shift allowed them to tap into a new market segment, attracting audiences seeking a different kind of performance.
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.(back to terms)
Competitive Advantage refers to the unique qualities, resources, or capabilities that differentiate a company from its competitors in the market. It allows a company to outperform rivals and achieve superior performance. For example, Apple’s distinctive design, user experience, and ecosystem give it a competitive advantage, attracting loyal customers and setting it apart from other technology companies.
Competitive Analysis involves assessing the strengths and weaknesses of competitors to gain insights into their strategies, capabilities, and market positioning. It helps organizations identify opportunities for differentiation and competitive advantage. For example, a fast-food chain might conduct competitive analysis to understand the pricing, menu offerings, and customer experience of rival restaurants.
Competitive Landscape refers to the overall structure and dynamics of a market, including the existing competitors, potential entrants, and substitutes. Analyzing the competitive landscape helps organizations understand their position and make informed strategic decisions. For instance, a smartphone manufacturer considering entry into a new market would assess the competitive landscape to gauge market saturation and identify key players.
Contango refers to a situation in futures markets where the future price of a commodity is higher than the expected spot price. In the realm of strategy, understanding contango is crucial for organizations involved in commodity trading or supply chain management. For instance, an oil company may use strategies to mitigate the impact of contango by optimizing its inventory and delivery schedules to align with future price expectations.
Coopetition, a portmanteau of cooperation and competition, is a strategic concept where organizations collaborate with competitors to achieve mutual benefits while simultaneously competing in the market. This approach recognizes that there are opportunities to share resources and knowledge while still maintaining competitive rivalry. Microsoft and Apple practiced coopetition by developing Microsoft Office applications for Apple devices, enabling both companies to expand their user base and enhance their offerings.
Core Competencies are the unique strengths and capabilities that an organization possesses and excels at. They provide a foundation for competitive advantage and strategic growth. For instance, Google’s core competency in search algorithms and data analysis enables its dominance in the search engine market.
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).
Digital Transformation is the process of leveraging digital technologies to fundamentally change how an organization operates, delivers value, and interacts with customers. Uber’s digital transformation revolutionized the transportation industry by using technology to connect riders with drivers, enabling seamless booking and payment through a mobile app.
Disruptive Innovation refers to the introduction of new products, services, or technologies that disrupt existing markets and value networks, often by targeting underserved or overlooked customer segments. Netflix’s disruptive innovation revolutionized the home entertainment industry by offering online streaming as a convenient alternative to traditional cable TV, gradually reshaping consumer viewing habits.
Fitness in the context of strategy involves the alignment and coherence between an organization’s internal capabilities and its external environment. A strategic fit ensures that a company’s strengths and resources match the demands of the market and its competitive landscape. A technology startup that leverages its expertise in artificial intelligence to develop innovative healthcare solutions demonstrates fitness by addressing industry challenges with its core competencies.
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.
Game Theory is a mathematical framework that studies decision-making and strategic interactions among rational individuals in competitive situations. In the field of strategy, game theory helps analyze various choices and outcomes to make informed decisions. For example, a pricing strategy based on game theory might involve a company considering its competitor’s potential reactions to determine the optimal pricing point that maximizes profits.
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
Innovation Strategy outlines how an organization will foster creativity and develop new products, services, or processes to stay competitive and meet evolving customer needs. Apple’s innovation strategy emphasizes design excellence, user experience, and ecosystem integration, resulting in groundbreaking products like the iPhone and App Store.
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.
Market Segmentation involves dividing a market into distinct and homogeneous segments based on factors such as demographics, psychographics, or behaviors. This enables organizations to tailor their marketing strategies to specific customer groups. For instance, a fitness apparel brand might use market segmentation to target active individuals with different preferences and lifestyles, offering specialized products and messaging.
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.
Scenario Planning involves exploring multiple possible future scenarios to prepare for uncertainties. It helps organizations anticipate challenges and adapt strategies accordingly. A financial institution might use scenario planning to assess the impact of economic fluctuations on investments and devise strategies to mitigate risks.
Strategic Alignment refers to the harmonization of an organization’s goals, resources, and activities to ensure they are all working in tandem to achieve a common strategic vision. It involves connecting different parts of the organization to work cohesively towards shared objectives.
For instance, a technology company aiming to lead in innovation should align its research and development efforts with its marketing and customer support teams. This ensures that the products developed align with customer needs and preferences, enhancing the company’s competitive advantage and market positioning.
Strategic Alliance is a cooperative partnership between two or more organizations to achieve shared goals. It allows companies to leverage each other’s strengths and resources. An example is the Starbucks and Spotify partnership, where Starbucks customers can discover and play music from Spotify’s catalog while in-store.
Strategic Resource Allocation
Strategic Resource Allocation involves distributing an organization’s resources—such as budget, talent, and time—across different projects and initiatives to optimize outcomes and achieve strategic goals. A pharmaceutical company might allocate resources to research and development, marketing, and production based on the potential impact on revenue and market share.
Strategic Diversification involves expanding an organization’s product or service offerings into new markets or industries to reduce risk and capitalize on growth opportunities. For example, a financial institution might engage in strategic diversification by offering investment services, insurance products, and wealth management alongside traditional banking services.
Strategic Fit assesses the alignment between an organization’s internal capabilities and external opportunities in the market. It ensures that a company’s strategies, resources, and capabilities complement its competitive environment. Zappos achieved strategic fit by focusing on exceptional customer service and creating a distinct corporate culture that resonates with its online retail business model.
Strategic Implementation is the process of executing the strategies outlined in a strategic plan. It involves aligning resources, processes, and activities to achieve the desired outcomes. Walmart’s strategic implementation involves optimizing supply chain logistics, store operations, and pricing strategies to deliver low-cost products and a seamless shopping experience.
Strategic Inertia refers to an organization’s resistance or inability to change its strategies, even when faced with changing market conditions. It can lead to missed opportunities and competitive disadvantages. An example is a traditional bookstore chain that failed to adapt to e-commerce trends and suffered declining sales due to strategic inertia.
Strategic Metrics are measurable indicators used to track progress toward strategic goals and evaluate the effectiveness of strategies. They provide quantitative insights into performance. An example of a strategic metric for a software company could be customer retention rate, which reflects the success of customer satisfaction initiatives and long-term value generation.
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.”
SWOT Analysis is a strategic framework that assesses a company’s internal strengths and weaknesses, as well as external opportunities and threats. It guides decision-making and helps companies understand their competitive position. For example, an automobile manufacturer might use SWOT analysis to identify strengths in brand reputation and weaknesses in supply chain disruptions.
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.
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
Value Chain represents the sequence of activities that an organization undertakes to design, produce, market, deliver, and support its products or services. It involves adding value at each stage of the process to create a competitive advantage. The automotive industry value chain includes design, manufacturing, distribution, sales, and after-sales services, with each stage contributing to the final customer experience.
Value Proposition is the unique value and benefits that a product or service offers to customers. It answers why customers should choose a particular offering over competitors. Amazon Prime’s value proposition includes fast shipping, exclusive content, and other benefits that incentivize customers to subscribe.