The Myth of Market Share?

J Scott Armstrong from the Wharton School of Business and co-author Kesten C Green have published a new study that discusses how too much focus on competition and gaining market share can harm profitability.

Sound management thinking has often stated that if a company must chase market share if they are to achieve greater profitability. Beating the competition is a common mindset in corporations. Jack Welch, the former CEO of General Electric, famously stated that GE would not be in any business in which it could not be first or second in market share, and who would refute the success of Jack Welch?

Scott's work goes back as early as a study published in 96 which showed that for competitive-oriented objectives were negatively correlated with ROI. In other words he more managers tried to be the biggest in their market, the more they harmed their own profitability. Although the results of this study were criticized and ignored, they are now back with more research to back up the original claim. Plus there are now some very real world examples that have been very public which seem to back this claim...

Toyota:
Toyota is a profitable company and expects to build more vehicles than any other automaker in 2007, but grabbing market share is apparently not one of its goals. An Associated Press story on Toyota's imminent rise to the top described Kazuo Okamoto, executive vice president, as being "nonchalant" about Toyota's achievement. "We aren't that concerned about vehicle numbers," Okamoto told the AP. "But we are determined to go at it to develop cars that make a lot of people happy."

Nintendo:
In a December 4, 2006, article in The New Yorker by James Surowiecki, the magazine's business writer. Surowiecki describes how Sony, with its PlayStation 3, and Microsoft, maker of the Xbox 360, are beating each other's brains out trying to capture the biggest share of the video-game market. Meanwhile, third-place Nintendo, with its new game console called Wii (pronounced "wee"), has quietly become the most profitable game console company in Japan.

To me this has a lot to do with Blue Ocean Strategy and thinking. Focusing on the competition whether it be about the products you make or the services you offer is a red ocean strategy, and not optimal for success. This study appears to back this concept nicely. Focusing on competition and therefore existing market share puts you into a red ocean. Blue ocean strategy allows you to create new market share, so you don't have to think about the competition beyond determining the right new direction to follow. What do you think about the 'Myth of Market Share'?

Understandable & Effective Business Strategy

Business strategy is often one of those things talked about in an executive office, but often not taken out to the organization (large or small). Whether it is so complex that only executives can understand it or the perception that is too complex to communicate by those developing it varies, however strategy works best when everyone is aware of it and understands it. Not everyone can or should participate in developing it, but execution works best when everyone is driving towards the strategic goal.

Even the term strategy congers up advanced diagrams, and complex thinking, that scares many in a company to leave it to the leaders in the organization. This is also wrong. Business strategy doesn't have to be complex.

Here is a simple model that can be used to communicate strategy to the organization that is simple but effective for both large and small organizations. Startups especially, can use this to help the team think about something beyond the current month or what will happen after the beta release. If you become a market leader in a new space, you still need to be thinking about the day when your differentiation will be copied or 'commoditized'.


The model works on the simple principal of always thinking ahead. Of course if you are a startup, you initially need to be focused on getting something to market. This required focus and some thinking about market segment targeting. However once you have went to market, there are 3 key curves in which you should be thinking about.

Defend and Extend: This is the hear and now. Many companies spend their entire effort in this curve, only to be surprised by the competition, and forced into a commodity market, which is a losing battle. Spend 60 % of your effort in this curve at any given time. This is your sweet spot and where the business makes the majority of its money. For most companies in the current competitive environment, you should assume this will be a 6-12 month window.

Build Emerging Businesses: Emerging business's are in the 1-2 year time horizon. This is the next big offering that will keep your business on top, once your current cash cow is a commodity. You should be spending about 30% of your efforts in this space, so that when the time is right, these offerings will become your core business.

Invest in Future Options: Future options are in the 2+ year horizon. This is your companies R&D. It is especially important for services businesses, as it is often forgotten. You want about 10% of your effort in this space right now. If you are a startup, this could be as simple as getting the team together for drinks after work and coming up with a few ideas on where your product could get to. The key point is to be thinking about it. As your emerging business becomes your core, so to does your best R&D item become your next emerging business option, and so the cycle continues.

I have found that this is a simple and effective strategy model that can work in large organizations down to a bootstrapping startup. It is a simple effective visual that gets people thinking the right way about sustaining your business, and can be easily communicated.

Internet Evolution

Putting the Web into numeric releases has become very popular to indicate a new evolution on the Internet, although somewhat of a misnomer. It implies a specific point in time for transition (like a software release), when it seems more like a loosely defined time period (like geological periods) characterized by the by the thinking and technology of the time. Maybe we should come up with names that are less finite, however until that happens we seem to be stuck with numbers. Web 2.0 is the current period of evolution that we are in and although there are still Web1.0 companies around, most are either evolving or will become extinct, as newer breeds of applications take over as survival of the fittest takes hold.

The next evolution known as web 3.0 is also thrown around, and often by people that have no idea what it really means (mostly people in the media), but is it their fault or a fault of the people that are supposedly driving the evolution? Maybe the technical people driving the next evolution forward need to come up with better ways of describing it, or maybe they shouldn't be driving it at all... For example - Web 3.0 has also been called the semantic web. I consider myself a technically savvy person, and have done some research into this arena, but in the beginning I had trouble understanding it once you get beyond the elevator pitch, [Websites that are smart about what they are and what they contain], and I still have trouble describing it to others in any type of detail. It sounds great, but what does it really mean? These evolutions need to be described in ways that communicate to people the value that future evolutions can offer, which will in turn likely move us in that direction more quickly.

Seth Godin, talks about Web 4.0. No - its not something you will find exhaustive writing about in the WC3, however after reading his post, although I am not a big fan of the 'release notation' I feel like I have a better idea of what 4.0 could be. He describes it not with a definition statement or a long white paper, but with a series of needs that he (and likely many others have) that could be solved by a future evolution of the Internet.

... it is about activity, not just data, and most human activity takes place offline....

Example of one of his listed needs:
I'm booked on a flight from Toledo to Seattle. It's cancelled. My phone knows that I'm on the flight, knows that it's cancelled and knows what flights I should consider instead. It uses semantic data but it also has permission to interrupt me and tell me about it. Much more important, it knows what my colleagues are doing in response to this event and tells me. 'Follow me' gets a lot easier.

As a whole, its not clear nor succinct, however to me a list of needs does a better job at stimulating thought, than any technical definition someone could come up with, primarily because it give businesses and entrepreneurs a starting point for innovation. Who needs a definition really and besides, why try and box in the future? If we move to create business value, the evolution will happen and we can worry about creating a definition for it after we get there.

The Evolution & Integration of Search

Yes, I am sure we are all getting tired of the predictions for 2007, but here is an interesting post on the continuing evolution of search from Lynetter. Search is really what is enabling the Internet. It is now the starting point for most people who use this medium. In reality however it is still in its infancy. Lynetter has some interesting thoughts on how it will evolve over the next year. We all use it, but how much do we really understand it. As a company, I feel that understanding Search, and SEO will become extremely important to any business that needs to communicate to its customers (ie - all). Now that I am in the business of search, I find it fascinating how entire models and discussions around software design and development revolve so much around how design decisions will impact/enhance/impede search. I believe that this thinking actually goes beyond software, to many other business decisions. Anything from company name to how data/content should be structured, or defining marketing plans. Search is becoming as important to business as any other tool out there - how can it be more effectively utilized in your business strategy?

Re-Thinking Traditional Media Channels

In a world where advertisers are scrambling to move to the new media channels, it is important to remember that although the Internet is growing rapidly, people still get out, and get away. Also, it is very likely that in more traditional settings advertisers may get better eye contact. On the Internet you may be bombarded with dozens of ads within a few minutes which makes people often immune to these items. But take roadside billboards. It is unlikely that drivers are doing much more multitasking that they have always done - talking on a phone, or listening to some form of audio, but their eyes are only focused on driving. They aren't scanning content, or flipping from topic to topic in seconds. Still a decent way to advertise, and now with a bit of technology, it may just get even better. Mini is now bringing some personality to billboards. Other traditional media will likely soon follow.

Outsourcing Strategies & Rural Development

An article recently in business week where a company in India is pushing outsourcing from the major cities to the rural areas to both reduce costs and at the same time bring a better standard of living and quality of life to people who want to stay closer to family or pursue community roles. The article focus's on GramIT (gram is the Sanskrit word for "village") who is seeking to transplant India's tech services boom to some of the country's 600,000 villages.

It is a win-win if they can make it work. To me it isn't a lot different than the concept of homesourcing that some companies in the US utilize, but what makes it interesting is how quickly India is innovating in this way, especially given the lack of infrastructure to these locations.

I think this movement could also be advanced in North America to bring back life to rural areas. Not everyone wants to move to the city for work and most are willing to earn a little less to stay in rural areas if given the opportunity. I am a big proponent of outsourcing, but its important think about your options - offshore may not be the solution to everything. Think about the skills and services you require, and then come up with an outsourcing strategy that can both reduced costs and make life better for all parties involved.

Personal Shift

My blog has been quiet this past week - This is due to a career move that started monday. I have taken a position with a local startup Balihoo, and my mind has been swollen, and tired trying to weave myself into the team fabric as quickly as possible, leaving little time for me to put thoughts into the blog. The first week of a new job is always tough, but for me working with this small team where everyone from the CEO down is dedicated and driven and working together to make the company a success makes every day exciting. It is the most 'alive' I have felt at work in a very long time, and that is exactly why I will likely never move back into a large company environment. Timelines are in days or weeks, not months or years. You see the impact of what you are doing to improve company value quickly and clearly. Customer focus is everything - not something on a powerpoint slide, and passion as well as creativity are the rule, not the exception. I look forward to applying my learnings to future posts.

Don't Be a Player

The new year is a great time for blog reading. Everyone is back from needed time off fresh with new thoughts and ideas. Here is a great analogy about how companies/brands often treat their customers by Alain Thys. He uses the analogy of a one night stand, or in this case a 'one night brand. where the company appears to be intersted...

"They advertise, promote, seduce and sell to get us to trust and believe them. And once we have fallen for their charms, we get a box with product and a customer service number which doesn't really want to answer our calls."

Companies often act like 'players' to their customers, often without even knowing it. Just remember players either eventually grow up, or then end up old fat and single still trying to play the same old tricks, but getting nowhere. Talk AND act like the kind of company your customer will want to have a relationship with.

Social Media and Business

Most companies know about social networks, and have heard the terms social media and social software, but has it went any further than a buzz word for most? These tools are more than just a way for your teenage kids to spend more time talking to your friends, post their 'deep' thoughts or pictures online. The Net Savvy Executive has created a Social Media Midterm Exam. Now by the very fact that you are reading this post either online or through an RSS reader, already puts you ahead of the game, but pass it on to some others in your organization. It may get a needed discussion going - how these tools can be applied to making your business more effective. The first two questions alone should be enough to invoke the conversation:

1. Describe each of the following:
   1. Blog
   2. Del.icio.us
   3. Digg
   4. Flickr
   5. LinkedIn
   6. Mashup
   7. MySpace
   8. Podcast
   9. RSS
   10. Second Life
   11. Technorati
   12. Wikipedia
   13. YouTube
2. How could you use each of the items from question 1 as a marketing tool? What are the risks associated with each?

Business often follows consumer trends with software, and typically for good reason, but its time to take a serious look. It doesn't mean that all will apply to your business, but with some innovative thinking you might be able to either make your current strategy more effective or open up new opportunities. Second, whether you use them or not other people are so you need to listen. Third, don't just think about your external interactions (eg marketing), think about uses internally for increasing efficiencies, building a better culture or relationship with your employees. Related to this - think about expectations of new employees. As consumer and business productivity software begin to blur, new employees will be expecting to have access to these types of productivity tools. It will not be sufficient for an 'innovative' company to just block access to youTube or state that they are not approved applications.

Wisdom of Crowds = Collective Intelligence

I am nearing the end of 'The Wisdom of Crowds' by James Surowiecki, and this morning I came across a great post by Kathy Sierra on the Dumbness of Crowds. She doesn't disagree with Surowiecki, but she does point out the mis-perception that many people have about what the wisdom of crowds really means. (ie. Read the book, don't just quote the title).

In what is potentially the most misleading book/idea title in the history of the world, the "Crowds" in "The Wisdom of Crowds" was never meant to mean "mobs", "groups acting as one", "committees", "consensus" or even "high collaboration"

This becomes very important today with Web 2.0 because giving power to the community (the crowds) is a key tenant of its makeup. Letting the community make decision. But community consensus does not equal collective intelligence. Kathy posts a number of great examples to highlight the different between collective intelligence vs 'the dumbness of crowds'.

"Collective intelligence" is a pile of people writing Amazon book reviews.

"Dumbness of Crowds" is a pile of people collaborating on a wiki to collectively author a book.

"Collective Intelligence" is all the photos on Flickr, taken by individuals on their own, and the new ideas created from that pool of photos

"Dumbness of Crowds" is expecting a group of people to create and edit a photo together.

"Collective Intelligence" is about getting input and ideas from many different people and perspectives.

"Dumbness of Crowds" is blindly averaging the input of many different people, and expecting a breakthrough.

She goes on to say:
It's the sharp edges, gaps, and differences in individual knowledge that make the wisdom of crowds work, yet the trendy (and misinterpreted) vision of Web 2.0 is just the opposite--get us all collaborating and communicating and conversing all together as one big happy collaborating, communicating, conversing thing until our individual differences become superficial.

The entire discussion is extremely relevant in our current environment of web 2.0 tools. Its important to make sure that the tools make their best effort to harness collective intelligence instead of creating a large group decision acting together as a single entity.

If the Wisdom of crowds is relevant or potentially relevant to your business read/listen to the book closely - it will make you think.

Creative Thinking + Heart = Success

No matter where you are, there are sporting events that prove that history and longevity don't always guarantee success in a championship game. Underdogs often pull off amazing wins and luck has often very little to do with it. Both teams have skilled players, but often the difference lies with some creative thinking and a large amount of heart and spirit. Take the US College football Fiesta Bowl last night where the Boise State Broncos pulled off an incredible win over the Oklahoma Sooners. After looking like they were about to blow a narrow lead with a turnover, they came back with some amazingly innovative plays to tie again with 7 seconds and then win in overtime. However great the creative play-making was, this isn't what allowed them to take home the win, it was the heart, drive and commitment that allowed them to triumph over the heavily favored competition.

In your company it is important to be innovative, but you also need heart. Trying to build an innovative organization is hard enough - building heart and spirit on a team is even more challenging since there is no guaranteed way to create it, and often you don't know its there until you are faced with a challenge that could make or break you.

Take a lesson from sports and think about building heart as well as creative thinking in your organization.

Blockbuster Using Its Assets For Innovation

Watching my home team Boise State play in the Fiesta Bowl tonight, I noticed the sponsorship by Blockbuster and its new offering Total Access Service which is competing against the current leader in mail order movies - Netflix. Blockbuster has had a similar offering to Netflix since 2005, but although they could replicate the basic model, their service and efficiency wasn’t as good as Netflix, and the results were less than stellar. Some companies would just regress back to their legacy model, but Blockbuster evolved its Total Access Service into a new business model innovation.

They replicate the model of Netflix, but then they add an additional service that takes advantage of their existing brick and mortar assets. Not only can you mail your movies back once you finished, you can bring them back to store, and pick up new movies from their as well. Instead of trying to compete with their existing legacy movie delivery model alone, or trying distance themselves from the model that built the company and move to compete on the same service as Netflix they combine aspects of both models to offer business value that cannot be replicated by Netflix.

Many such as Tech Crunch blogger Michael Arrington are deciding that Total Access is a much better option and are switching. They use a great play from the startup playbook on this current add campaign. They compare their sevice directly to a known player (Netflix) in the commercial, and then explain how their offering is better. This is compelling for Netflix users, as well as current blockbuster customers who are thinking about using a mail order movie service.

In an era where many traditional business are being impacted by digitization and internet business models, its great to see examples of companies using current expertise coupled with creative thinking to create competitive advantage. Their next challenge is when broadband infrastructure becomes robust enough to deliver movies purely in digital format.