Tuesday, August 25, 2015

Should You Pursue Market Share in Fast-Growing Industries?

Mark Chussil of Advanced Competitive Strategies has an interesting post on Harvard Business Review this month.  He questions several myths about competitive strategy.   He writes, "Say you are competing in a fast-growing industry. How much do you care about profits versus market share?  It’s a common rule of thumb that businesses should go for market share in fast-growing in­dustries. It’s conventional wisdom, though, not a law of physics; you don’t have to go for share."  

Chussil examines the wisdom of pursuing growth vs. profits using a complex computer simulation.  He finds the majority of people tend to pursue growth in fast-growing industries (55% vs. 45%).  What happens when people aim for market share gains.  Chussil writes, "And yet in over 173 million tournament simulations – every unique combination of the 700+ strategies for the three competitors in the fast-growth industry – the quest for market share led to price wars 90% of the time, subtracting value from the industry. In other words, following the “rule” produced results worse than if the participants had taken naps and done nothing at all." 

Chussil does not argue that you should always prefer profits to growth.  Instead, he simply makes the point that we should not blindly follow conventional wisdom.   For instance, he points out that the conventional wisdom suggests we should keep our strategies secret from our rivals. Yet he describes the situations in which revealing our strategies can actually be value-enhancing.  He offers good advice.  Beware the conventional wisdom when it comes to formulating competitive strategy.  You simply cannot boil strategy down to a formula or a few rules of thumb. 


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