Strategic Benchmarking 4.0
The basic principles of PIMS®:
The market rules always apply independent of time and location. The strategic position of each business is more important than which industry it is in.
The market rules can be ascertained but not learned. Assumptions used to base one’s own actions can be validated against the success and failure of other businesses (“Learning from others’ mistakes”).
The markets have rules that dictate how output changes in relationship to input. Quantifiable causal relationships exist between the key success factors and business performance. The rules are empirically based on over 4200 established strategic business units.
The PIMS® tool can be used for:
- How much money should we make?
- What would we expect costs in the business to be?
- What is the right mix of advertising, promotion and salesforce effort?
- Where must the business concentrate its efforts to improve overall performance?
- What is the expected performance of the businesses in the portfolio?
- What businesses should we invest in?
- How can we improve operational effectiveness in a poorly performing business to achieve an acceptable return?
- What businesses should be divested?
- What matters most to your customers and how well do you perform on those factors?
- What are your strengths & weaknesses, compared to competitors?
- Do you offer value?
- What are the customer clusters/segments and how should you address them?
- What is the acquisition worth?
- What are the potential synergies?
- What is your competitive position?
- What is the likely competitive reaction to new entry?
- How quickly can you penetrate the market?
- Will you achieve acceptable returns after entry?
The four key elements of PIMS®:
Customer Value analysis allows you to compare the performance of your product/service in the market place relative to its competitors, assess its strengths and come up with an overall relative value position. This concept is key to our view of strategy, there is no point in being the most efficient producer of a product no-one wants to buy. Our analysis assesses your performance from the customers point of view and relative to your competitors.
What should a business like mine earn? What are my strategic strengths and weaknesses? Once you know whether your business is over or under-performing, making and monitoring key decisions becomes easier.
In a complex world, it is difficult to predict the likely outcomes of decisions. Look-alike analysis uses the experiences of similar businesses in the PIMS database to assess the chances of success and also to look for other strategies.
PIMS is famous for linking market share to profitability, but there are other ‘lesser known’ findings and evidence that can be applied successfully by all businesses. Additionally, the databases are used within our assignments to analyze specific market and business situations.
The PIMS® background
Profit Impact of Market Strategy (PIMS®) is a project that uses empirical data to determine which business choices make the difference between success and failure. PIMS® is used to develop strategies for resource allocation and marketing. Obviously one of the most surprising findings is that the same factors work in the same way across different industries, countries and decades, which makes it ideal for a strategic benchmarking. PIMS® “yields solid evidence in support of both common sense and counter-intuitive principles for gaining and sustaining competitive advantage” Tom Peters and Nancy Austin.
The project was originally initiated by senior managers of General Electric. Clearly they wanted to know why their strategy of investing in “large, growing and profitable markets” had resulted in multi-billion dollar losses in the IT market. Under the direction of Sidney Schoeffler, an Economics Professor hired by GE for the purpose, the PIMS® project was launched in the 1960s as an internal empirical study. The aim was to see what could be learnt by comparing across GE’s large and diverse portfolio of strategic business units (strategic benchmarking).
Since GE was highly diversified at the time, key factors were sought that would have an impact on economic success regardless of the product. In particular, the ROI, i.e. the profit per unit of tied capital, was used as the measure of success. 1972 the project was transferred to the Marketing Sciences Institute (then under the wing of Harvard Business School, which extended it to other companies). In the year 1976, the American Strategic Planning Institute in Cambridge, Massachusetts, took charge of the project.
The PIMS® database
PIMS® analysed the gathered data to identify the options, problems, resources and opportunities faced by each strategic business unit (SBU). Based on the positioning of each business on factors describing its competitive strength, market attractiveness and supply chain fitness. Particularly it was found that the data could be drawn from similarly-positioned businesses in similar enough environments, to provide empirical evidence of which strategies and operational improvements yield the best results. Today the PIMS® database continues to be updated and drawn upon by academics and companies.
Whereas in the beginning 2600 SBUs from around 200 companies took part in the surveys and provided key figures for the project, nowadays our database comprise around 12,570 observations for 4200 SBUs. Since the 1990s PIMS Associates in London has been the worldwide competence and design centre for PIMS® . In 2005 it has been part of Malik Management in St. Gallen (Switzerland).
This gives PIMS Associates Limited currently over 25,000 years of business experience at the SBU level (i.e. where the customer interface takes place and where marketing and investment decisions are made). Each SBU is characterized by hundreds of factors over a period of 3+ years. These factors include market share of itself and its competitors, customer preference, relative prices, service quality, innovation rate, vertical integration and capital intensity. As well as a number of market attractiveness factors and fairly detailed income statement, balance sheet and employee data. Hence, the PIMS® database enables us to carry out an industry cross functional strategic benchmarking.
Contact us today
Should you be interested in PIMS® Strategic Benchmarking, please contact us today or get in touch with one from our Consultants. We would be delighted to set up a meeting with the leadership team to give a detailed overview of the PIMS® Strategic Benchmarking software and the benefits of participation.