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"