The Breakthrough Imperative
The Breakthrough Imperative
The Breakthrough Imperative
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Mark Gottfredson & Steve Schaubert Buy the book  |  |  Contact

Market followers occasionally overtake market leaders. Leaders occasionally fall back into the pack. Companies that are not the largest in their industry, and that may not enjoy the lowest costs, nevertheless earn higher returns than might be expected. The case examples of Tesco vs. Sainsbury, Nielsen vs. AGB and Playstation vs. Nintendo all demonstrate battles between market leaders and followers.

Managers have to make choices about which levers to pull to improve performance. But too many do so in a vacuum. Performance-improvement strategies are successful when they reflect a company's position in the market and rely on specific insights as to which actions can improve it in the eyes of the company's customers.

One of the most powerful ways to chart your own and your competitors' positions in a market is to map where you fall on a simple chart. The chart shows return on assets or another measure of economic performance against relative market share—your market share divided by the share of your largest competitor if you are not the leader, or by the share of the number-two company if you are number one. Plot these two indicators against each other and you find that companies line up in a handful of typical positions, each with its own opportunities and vulnerabilities.

Among other things, this chart shows how market leaders usually earn disproportionate returns, and what you have to do if you are not a market leader. Jack Welch began his term as CEO of General Electric by slashing costs—that's when he was known as "Neutron Jack"—and thus driving every business down to where it should be on the experience curve. Then he developed his famous strategy that GE should be number one or number two in every business in which it competed. These two approaches together accounted for much of GE's extraordinary success under Welch.

As a manager, your first task is to diagnose where you and your competitors are. The second task is to know why you and your competitors occupy the positions you do. The final task is to decide on the options available to you given this position.

Great managers know where they fall on the chart and what it implies for their performance-improvement options.

Implications for the general manager:

  • Use the ROA/RMS chart (more information on doing so is included in the book) to assess your competitive position.
  • Your competitive position determines your options for realistic performance improvement. It also determines the likely resource requirements and performance expectations for your business. Your competitors' positions determine theirs. Know the opportunities and vulnerabilities you and your competitors face, and make decisions accordingly.
  • Consider all the potential improvement options for advancing your position in key customer segments including innovation actions, high-road tactics, niche strategies, and tactics to increase customer loyalty.
  • If you're in corporate management, use this analysis to assess your portfolio and determine any changes you might consider based on a business unit's value to you as compared with its value to others.
  • Don't take your competitive position for granted. Leadership is probably your most important asset, and your competitors (both traditional and nontraditional) are likely to employ some or all of the performance-improvement strategies listed in this book to unseat you.

Read about the third law, "Profit pools don't stand still"

Tesco vs. Sainsbury: Tesco counterattacks
Nielsen vs. AGB: Nielsen fights back to stay on top Playstation vs. Nintendo: Sony takes over number one.
Is your profitability as high as your relative market share justifies?
Market share trends:
Where are you gaining or losing share versus competitors?
Key capabilities
What are the 2 or 3 most important capabilities you need to develop or strengthen in the next 3 years?
Bain & Company