Core Competency – The key, or “best”, operational output of a given company. It should be the key focus of the company, and other operational activities shouldn’t interfere with the success of this function.
Network Effects – The changes that occur based on the increased number of users on a given network or system. These effects can be either positive or negative (or even both at times.) For example, a positive and negative network effect exists with a service like Skype. With each additional user, there is increasing benefits to current users who can now connect with more people, and more people will become attracted to using a widely used communication system. However, a negative network effect exists with each additional user, in that it puts increased demands on Skype’s servers which could decrease the quality of connection for the existing users.
Porters Five Forces – Another critical tool of the MBA. Porter’s Five Forces is a framework for analyzing a given companies given industry. The five forces to be considered are: Competitors, Threats of Substitutes, Threats of New Entrants, Bargaining Power of the Customer, and Bargaining Power of the Suppliers.
Willingness-to-Pay (WTP) – A determination of how much your customers are willing to pay for your product or service. This value may not be the same for all customers, and offers an opportunity to segment your customers to extract the maximum value. For example, an early adopter may be willing to pay more for your product than a later buyer. In this scenario, you could conceivably charge the early adopter more, for the exclusivity they value from being the first to own the product. A firm views willingness-to-pay from two distinct angles. First a company wants to develop an attractive enough product to raise their customer’s WTP above their own cost to produce the product (i.e., so they are actually earning money on their product’s sale.) Secondly, they would like to price their product as close to this WTP number, as possible, so as to not leave money on the table that they could be earning.
Low Cost – A method or strategy of competition. Following a low cost strategy means that you intend to source, produce, or distribute products/services so efficiently that you can offer these products at a price lower than your competitors. This strategy typically is followed at the expense of product margin’s, in the hopes that product volumes will justify this choice. (Ex: You could sell a widget that earns your company 100 dollars once, or you could sell a widget that earns your company 25 dollars four times, earning the same total profits. The danger here is that you could be unnecessarily lowering costs, and engaging your competitor in a race to lost profits.)
Differentiation – A product or service strategy that revolves around the idea that your product/service is markedly different, more innovative, or more valuable than your competitors. This strategy is considered the alternative (and opposite) of the low cost strategy.
Dual Advantage – The nearly impossible notion that your company offers both a differentiated product as well as the low cost product in a given market. First, if your product is differentiated enough, it should stand that your company could charge customers more for it, and thus you would not be engaged in a low cost strategy. Secondly, if your company is focused on a low cost product offering, they would likely achieve this through dropping product features, options, or quality which would exclude you from a differentiated product strategy.
Barriers-to-Entry (BTE) – This is one of Porter’s Five Forces that evaluates how difficult it would be for a competitor to enter your market. Ideally, you would prefer to have high barriers to entry to avoid as many new competitors as possible. Examples of BTE include intellectual property (patents, copyrights), government restrictions (licensing, industry regulations), economies of scale, and controlled resources (oil wells, precious metal mines).
Supplier Power – One of Porter’s Five Forces that evaluates the amount of power that suppliers have in a particular industry. For instance, if you were in the soda business, you would look at bottle manufacturers, cap manufacturers, water providers, and syrup suppliers. You would then evaluate how much pricing and volume power that they have over your operations. For example, how aggressively can you push back on pricing and service levels?
Buyer Power – One of Porter’s Five Forces that evaluates the amount of power your customers have. In this evaluation, you must ensure that you view customers and consumers differently if necessary. For example, if you sold protein bars you are more interested in the power of grocers and retail chains, and not the person actually eating the protein bars (the consumer) in this particular evaluation.
SWOT Analysis – Along with Porter’s Five Forces framework, understanding and using this tool is critical for an MBA’s success. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. One uses this tool typically to analyze a particular company vs. an entire industry like with Porter’s Five Forces. A user of the tool would list out the strengths and weaknesses of their target company and then the opportunities and threats given competition, new regulations, changing technology, etc. This tool is often used to evaluate your own company, or to dissect your competition.
Competitors – A component of Porter’s Five Forces. These are the companies that are offering products and services in your same market. It is equally as important to determine who your competitor is, as it is to determine who your competitor isn’t. If you define your own market too broadly you will be attempting to defend against too wide of a swatch of competitor’s unnecessarily straining your available resourc