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Published 14 June 2012 04:03, Updated 15 June 2012 00:01
Among the many things a company chief executive needs to get right to achieve world best practice profitability are focus and the organisation’s positioning in the industry in which it operates.
There are 509 classes of industry in Australia (720 in the United States) and staying in one of them is important for reasons of focus, or “sticking to the knitting” as Tom Peters of In Search of Excellence fame pointed out three decades ago.
IBISWorld, in assisting BRW with its Top 1000 analysis each year, has verified this advice over and over again.
But just as critical, perhaps more so, is securing a safe position in the industry so as to be master of one’s own destiny rather than forever looking over one’s shoulder at competitors.
The analysis of many thousands of companies over the past 35 years by IBISWorld has identified just four safe positions, which have been summarised in the graph.
A major player (25 per cent-plus of an industry’s revenue) needs to have a 35-50 per cent share of the product groups in which they choose to compete: a mass market, economy of scale position.
A niche player (5 per cent of an industry’s revenue) needs to dominate a market segment (50 per cent-plus share), usually product based but it can sometimes be geographic based: a segment specialist position, often a pricier one at that.
An ultra-niche specialist (1 per cent of an industry’s revenue) dominates a product group with a 75-100 per cent share: a product group or product specialist that “owns” the position. An even pricier zone again.
A boutique or “exotic” operator (0.1 per cent share of the industry’s revenue) owns a product line outright with no competitors.
Quality and/or uniqueness and prices of the offering need to increase as an operator chooses to come down this order of size from a major to a boutique operator.
Positioning in the above safe positions gives a degree of dominance by being, as suggested earlier, master of one’s own destiny rather than a captive of someone else’s.
Any of the four safe positions can generate profitability of more than four times the bond rate (on an after-tax basis), consistently.
Of course, there are other factors in being successful.
They include innovation and the accrual of unique intellectual property that builds and maintains a competitive advantage.
Another vital attribute in our new century – with a very different and peripatetic younger workforce – is a unique organisational culture that leads to staff looking forward to coming to work each day, wanting to stay with the firm and suggesting to their mates that they join as well.
This is particularly important with the net generation (the under-30s), the best educated, most internet-savvy work cohort in history; a group that doesn’t tolerate fools gladly and readily votes with its feet if it feels unhappy or frustrated.
And culture stems from the top, meaning that leadership by the chief executive is as critical as it always has been but being focused and getting the enterprise to a safe competitive position is still the best start on the road to consistently good profitability.