Eddielogic

– Thoughts on Strategy and Management

Market Share Orientation vs. Profit Orientation

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Today I read an announcement for a new book from German management consultant and thought leader Hermann Simon. As it says, he urges managers to shift their primary focus away from market share orientation towards profit orientation. Simon argues that aggressive strategies that aim for higher market shares can cause price wars, which destroy profits for all players. This is particularly relevant in mature markets. Further on, Simon demands to change management education as well. Universities and business schools should abandon from what he calls a dogma and an obsession with market shares and sales volumes.

Well, two things came to my mind when reading this:

Why is everything either … or?

This is how management hypes are born – forget what you had learned before, there is a new truth. Management consultants are known to use this strategy to sell new tools and consulting approaches. To be fair, when I read the lines a second time, I noticed one single sentence that stated that market share is an important measure. However, profit should receive a higher priority that market share. I can live with that. Maybe this press release was just a bit too pushy and the book might be more balanced.

What is so new about that?

One of my former employers is as ‘brick and mortar’ as it gets, successful but by no means a thought leader. They had announced their corporate objective number one to be ‘profitable growth’ already four years ago. For them market share did matter. As a global manufacturer they had to achieve some economies of scale (i.e. volume, i.e. market share) in order to operate profitable. They once even had the deliberate strategy to increase their share at the expense of one particular competitor which they wanted to squeeze out of the market. But in the end of the day management required every investment and every strategy to proof its profitability.

To give you another example: Look at the well-known Boston-Box model. It is all about market share and profitability. The model was developed in the early seventies.

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