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version: 2
last_updated: "2026-03-31"
source: manual
status: established
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# Business Domain — Concept Dictionary and Interpretation Rules

This document defines the canonical meanings of terms used across the business domain.
When another file needs a definition, benchmark, or homonym distinction, this file is the source of truth.

## Strategic Management Core Terms

- **Strategy** = the pattern of choices that allocates resources, defines where to compete, and states how advantage will be earned over time.
- **Porter's Five Forces** = a framework for industry attractiveness based on rivalry, supplier power, buyer power, threat of substitutes, and threat of new entrants.
- **Generic Strategy** = Porter's cost leadership, differentiation, or focus posture. A business that cannot state which posture it is choosing is at risk of being stuck in the middle.
- **Competitive Advantage** = a value-creating position that competitors cannot easily match or erode. An advantage claim is incomplete unless the mechanism of defense is stated.
- **Core Competency** = a reusable capability that creates customer value across products or markets. It is broader than a single product feature.
- **VRIO** = Value, Rarity, Imitability, Organization. All four must hold for an advantage to be sustainably realizable.
- **Dynamic Capabilities** = the ability to sense change, seize opportunities, and reconfigure assets faster than competitors.
- **Ansoff Matrix** = market penetration, market development, product development, and diversification. Risk rises as both market novelty and product novelty increase.
- **BCG Matrix** = Star, Cash Cow, Question Mark, Dog. A portfolio logic tool, not a single-business strategy substitute.
- **Blue Ocean Strategy** = a strategy for creating uncontested demand rather than competing only within existing category boundaries.
- **ERRC Grid** = Eliminate, Reduce, Raise, Create. The concrete design tool used to express value innovation.
- **Business Model Canvas** = a nine-block view of customers, value proposition, channels, relationships, revenue, key resources, key activities, partners, and cost structure.

## Marketing Core Terms

- **STP** = Segmentation, Targeting, Positioning. The core sequence for deciding whom to serve and how to be preferred.
- **Segmentation** = grouping the market by meaningful differences such as needs, behavior, willingness to pay, or usage context.
- **Positioning** = the place the offering should occupy in the customer's mental comparison set relative to alternatives.
- **4P** = Product, Price, Place, Promotion. The base commercial design of an offering.
- **7P** = 4P plus People, Process, and Physical Evidence for service-heavy businesses.
- **Customer Journey** = the path from awareness to evaluation, purchase, onboarding, repeat use, and advocacy. It is a sequence of conversion and retention moments, not a single funnel chart.
- **Brand Equity** = the economic and behavioral premium created by brand trust, awareness, associations, and loyalty.
- **Willingness to Pay** = the maximum value a specific customer segment is prepared to exchange for the offering.
- **Customer Acquisition Channel** = the mechanism that brings first attention and first conversion, such as direct sales, marketplaces, search, partners, or product-led self-serve.
- **Retention Loop** = the mechanism by which product usage, switching costs, habit, or embedded workflow keep the customer active over time.

## Finance Core Terms

- **NPV** = Net Present Value. The present value of future cash flows net of required investment.
- **IRR** = Internal Rate of Return. The discount rate that makes NPV equal to zero.
- **WACC** = Weighted Average Cost of Capital. The blended opportunity cost of equity and debt used to discount cash flows for the enterprise.
- **Cost of Equity** = the return equity investors require, often estimated through CAPM or comparable-risk logic.
- **Capital Structure** = the mix of debt, equity, and equivalent financing claims used to fund the business.
- **Working Capital** = current operating assets minus current operating liabilities.
- **Cash Conversion Cycle (CCC)** = days inventory outstanding + days sales outstanding - days payables outstanding.
- **Break-even Point** = the output or revenue level where contribution margin covers fixed costs.
- **Contribution Margin** = revenue minus variable cost attributable to one unit, customer, order, or transaction.
- **ROI** = the ratio between return and investment. The numerator and denominator must refer to the same scope and time window.
- **DCF** = Discounted Cash Flow. A valuation method that discounts forecast cash flows at a discount rate consistent with risk.
- **Real Options** = the value of managerial flexibility under uncertainty, such as waiting, staging, scaling, or abandoning an investment.

## Operations Management Core Terms

- **Lean** = a management philosophy that eliminates non-value-adding work and improves flow.
- **Waste** = work that consumes effort without increasing customer value. Classic categories include overproduction, waiting, transportation, over-processing, inventory, motion, and defects.
- **Six Sigma** = a measurement-driven quality-improvement method focused on reducing variation.
- **DMAIC** = Define, Measure, Analyze, Improve, Control. The standard Six Sigma improvement sequence.
- **Theory of Constraints (TOC)** = a systems view in which overall performance is limited by the current bottleneck.
- **Drum-Buffer-Rope** = a TOC scheduling concept that protects the bottleneck and synchronizes upstream and downstream flow to it.
- **Supply Chain Management** = design and control of procurement, production, logistics, inventory, and supplier relationships across the end-to-end fulfillment path.
- **Service Level** = the target reliability of delivery, availability, or response promised to customers or downstream functions.
- **Automation** = replacing or augmenting manual work with software, machines, or rule-driven systems. It includes a scope boundary and an authority model, not just a technology choice.
- **Baseline Measurement** = the pre-change measurement used to compare the effect of a process intervention or automation project.

## Organization/HR Core Terms

- **Mintzberg's Structures** = simple structure, machine bureaucracy, professional bureaucracy, divisionalized form, and adhocracy.
- **Coordination Mechanism** = the dominant way work is synchronized: direct supervision, standardization, mutual adjustment, or professional norms.
- **Span of Control** = the number of direct reports a manager can effectively supervise.
- **Agency Theory** = the analysis of goal misalignment, information asymmetry, and incentive design between principals and agents.
- **Stakeholder Theory** = the view that the firm must account for the interests of those affected by its actions, not only shareholders.
- **Competency Model** = the structured definition of knowledge, skills, and behaviors required for performance in a role family or level.
- **Talent Pipeline** = the mechanism for identifying, developing, and securing successors or candidate pools for important roles.
- **Decision Rights** = who has authority to decide, who must be consulted, who executes, and who is accountable for the outcome.
- **Change Readiness** = the organization's practical ability and willingness to absorb a planned change.
- **Kotter's 8 Steps** = urgency, coalition, vision, communication, obstacle removal, short-term wins, consolidation, and institutionalization.
- **ADKAR** = Awareness, Desire, Knowledge, Ability, Reinforcement. A change model at the individual adoption level.

## Innovation Management Core Terms

- **Sustaining Innovation** = improvement that helps incumbents serve existing customers better on established performance dimensions.
- **Disruptive Innovation** = improvement that starts in low-end or non-consumption segments and later redefines the basis of competition.
- **Technology Adoption Lifecycle** = innovators, early adopters, early majority, late majority, and laggards.
- **Chasm** = the adoption gap between early adopters and the early majority, where many technology products fail to generalize.
- **Whole Product** = the full solution, support, integration, and operational completeness required for mainstream adoption.
- **Design Thinking** = a user-centered approach using empathy, framing, ideation, prototyping, and testing.
- **Open Innovation** = purposeful use of external ideas, partnerships, and commercialization paths alongside internal R&D.
- **Ambidexterity** = the organizational ability to pursue exploration and exploitation simultaneously without collapsing one into the other.

## Governance/Risk Core Terms

- **Governance** = the allocation of decision authority, accountability, oversight, and escalation within the business.
- **Internal Control** = the policy, process, approval, or monitoring mechanism designed to prevent, detect, or correct failure or misconduct.
- **Corporate Governance** = governance at the ownership-management-control layer, typically involving board oversight, audit logic, and formal decision rights.
- **Risk Appetite** = the amount and type of risk the business is willing to accept in pursuit of objectives.
- **COSO ERM** = an enterprise risk management framework covering governance, strategy, performance, review, and information.
- **Residual Risk** = the risk that remains after mitigation or control is applied.
- **Control Owner** = the person or role accountable for operating and monitoring a control.
- **KPI** = Key Performance Indicator. A metric tied to a defined objective and a decision cadence.
- **Leading Indicator** = a metric that signals likely future outcomes through current activity.
- **Lagging Indicator** = a metric that records the outcome after the fact.

## Platform/Subscription/AI Extension Terms

- **Network Effect** = the increase in value created when more participants join a platform.
- **Direct Network Effect** = a same-side value increase, such as more users making a communications network more useful.
- **Indirect Network Effect** = a cross-side value increase, such as more sellers attracting more buyers.
- **Liquidity** = the probability that a participant can successfully match with the other side of the platform at the right time and quality.
- **Take Rate** = the percentage of gross transaction value captured by the platform as revenue.
- **Multi-homing** = the extent to which a user or seller can participate in several competing platforms at once.
- **Subscription Economy** = a recurring-revenue model where value is delivered and monetized over time instead of primarily at a one-time sale.
- **MRR** = Monthly Recurring Revenue.
- **ARR** = Annual Recurring Revenue.
- **Churn Rate** = the rate at which customers or revenue leave over a period.
- **Net Revenue Retention (NRR)** = revenue retained from an existing cohort after expansion, contraction, and churn.
- **LTV** = Lifetime Value, typically the gross-profit contribution expected from a customer over the usable relationship horizon.
- **CAC** = Customer Acquisition Cost, including the cost of sales and marketing needed to acquire a customer.
- **CAC Payback** = the time required for gross margin from the customer to recover CAC.
- **Data Moat** = an advantage created by data volume, uniqueness, feedback loops, and operational embedding that rivals cannot easily reproduce.
- **Model Economics** = the unit economics of an AI offering, including inference cost, latency, throughput, quality, and human-review overhead.
- **AI Governance** = the control system governing model risk, explainability, data rights, appeal paths, and regulatory compliance.

## Benchmark Registry

This section is the source of truth for time-sensitive numeric anchors used elsewhere in the business domain.
Benchmark roles:
- **[ref]** = reference value for context only
- **[thr]** = threshold value allowed in PASS/FAIL criteria
- **[ctx]** = case-specific context value, not a general decision threshold

### Cost of Capital and Valuation Benchmarks

| Benchmark | Value | Role | Interpretation |
|---|---|---|---|
| Market-wide average WACC | 6.96% (as_of: 2026, source: Damodaran) | [ref] | Broad U.S. market context, not a direct acceptance rule |
| Semiconductors / internet software WACC | >10% (as_of: 2026, source: Damodaran) | [ref] | Higher business-risk sectors require higher hurdle rates |
| Healthcare products WACC | 7-9% (as_of: 2024-2026, source: KPMG; Damodaran) | [ref] | Mature, relatively stable sector context |
| Energy-sector WACC | 6.3% (as_of: 2024, source: KPMG) | [ref] | Lower regulated-utility context, not applicable to all energy models |
| Platform-business WACC | 9-14% (as_of: 2024-2025, source: KPMG; Phoenix Strategy) | [ref] | Reflects network-effect uncertainty and regulatory risk |

### Working Capital and Cash Management Benchmarks

| Benchmark | Value | Role | Interpretation |
|---|---|---|---|
| Amazon CCC | -32.21 days (as_of: 2025, source: MarketXLS) | [ctx] | Negative CCC can finance growth through supplier float |
| Dell CCC | -40.11 days (as_of: 2025, source: MarketXLS) | [ctx] | Build-to-order models can outperform standard working-capital assumptions |
| Negative CCC | Less than 0 days (as_of: 2025, source: industry guides) | [ref] | Usually indicates strong payable timing or cash collection leverage, not automatically "good" in every model |

### Subscription and SaaS Benchmarks

| Benchmark | Value | Role | Interpretation |
|---|---|---|---|
| LTV/CAC healthy floor | >3.0 (as_of: 2025, source: SaaS benchmark studies) | [thr] | Below 3 often indicates weak unit economics or inefficient acquisition |
| NRR growth floor | >100% (as_of: 2025-2026, source: SaaS benchmark studies) | [thr] | Existing customers alone expand revenue base |
| Strong public-SaaS NRR | 110-120% (as_of: 2025, source: Benchmarkit; industry studies) | [ref] | Indicates strong expansion revenue and retention quality |
| Usage-based pricing effect | NRR roughly 10% higher, churn roughly 22% lower (as_of: 2025, source: Benchmarkit) | [ref] | Context marker, not a guaranteed outcome |

### Platform Benchmarks

| Benchmark | Value | Role | Interpretation |
|---|---|---|---|
| Uber average take rate | About 42% (as_of: 2025, source: compiled industry reporting) | [ctx] | Marketplace economics must be interpreted with subsidies, regulation, and insurance structure |
| Airbnb effective split-fee take rate | About 17-19.5% combined (as_of: 2025, source: compiled industry reporting) | [ctx] | Lower apparent take rate may still be healthy if liquidity and trust are strong |
| Positive contribution margin per transaction | Greater than 0 (as_of: 2025, source: industry unit-economics practice) | [thr] | Required before platform scale can improve enterprise economics |

## Homonyms Requiring Attention

- **cost**: accounting cost (expense) != economic cost (including opportunity cost) != implementation effort != inference cost for AI
- **value**: customer value != enterprise value != shareholder value != brand value
- **performance**: financial performance != operational performance != strategic outcome != model performance
- **model**: business model != financial model != operating model != competency model != AI model
- **risk**: strategic risk != operational risk != financial risk != regulatory risk != model risk
- **governance**: corporate governance != ESG governance != platform governance != AI governance != IT governance
- **innovation**: sustaining innovation != disruptive innovation != process innovation != business model innovation
- **automation**: workflow automation != manufacturing automation != decision automation != AI-assisted work
- **criteria**: decision criteria != review criteria != benchmark threshold != diagnostic signal

## Interpretation Principles

- A claimed competitive advantage is incomplete until its durability mechanism is named. Value without rarity or imitability resistance is not sustainable advantage.
- A strategy statement is incomplete until it names both what will be pursued and what will not be pursued.
- Time saved is not cost saved unless capacity is actually removed or redeployed to a productive activity.
- Governance and ESG overlap in oversight structures, but they answer different questions: decision control versus stakeholder impact.
- A negative CCC is a context signal, not a universal target. It can reflect bargaining power, business model design, or hidden fragility.
- `LTV/CAC > 3` is a decision threshold only for businesses that truly have recurring-revenue behavior and measured gross-margin retention logic.
- Platform take rate cannot be judged in isolation. It must be read together with liquidity, side-specific value, subsidy level, and multi-homing risk.
- AI data moat claims are weak unless the business can explain why the data is unique, how it improves outcomes, and why competitors cannot reproduce the loop.
- Detailed revenue-recognition policy and financial-statement compliance belong to the accounting domain; this domain interprets their business consequences.
- When scale is unknown, use generic structural interpretation and defer tier-sensitive conclusions rather than pretending scale does not matter.

## Related Documents

- `domain_scope.md §Major Sub-areas` and `domain_scope.md §Scale Tier Definitions` — where these terms are consumed and filtered by scale
- `logic_rules.md §Financial Decision-Making Logic` and `logic_rules.md §Platform Business Logic` — the main rule sections that depend on these concepts
- `structure_spec.md §Authority and Responsibility Separation` and `structure_spec.md §Digital Business Structure` — structural implications of these concepts
- `dependency_rules.md §Source of Truth Management` — authority rules for benchmark and operating data usage
