Strategic Benchmarking 4.0
The basic principles of PIMS®:
Businesses and markets interact in the same ways across time, place, & industry. Deviations from the norm are temporary. Managers should track “strategic lookalikes” who faced similar challenges before. Like Bismarck, you should aim to learn not from your own mistakes but from other people’s.
Competitive strength, market attractiveness, supply chain fitness, and human responsiveness are what matter. Their impacts on performance can be quantified empirically. The peers to learn from are the ones like you on the intrinsically unchangeable elements of the four factors.
It is better to be a medium fish in a small pond than a big fish in a huge pond. Relative, not absolute, scale is what matters.
The PIMS® tool can be used for:
- What would we expect costs and margins and working capital in the business to be?
- Where are we out of line?
- What is the right mix of advertising, promotion and salesforce effort?
- Where do winning lookalikes concentrate their efforts differently from losers?
- How are businesses in our portfolio performing versus potential?
- What are the priorities for operational improvement?
- Which businesses should we invest in and how? Which should be divested?
- Which price and quality attributes matter most to our customers?
- What are our strengths & weaknesses compared to competitors? Do we offer value?
- What are the likely costs and benefits of improving key attributes? How do competitors respond?
- What are the different customer clusters/segments and how should we address them?
- What are the potential synergies? How much extra value does the combination create?
- How much should we pay?
- What are the priorities for post-merger integration?
- What are our competitive strengths?
- What is the likely competitive reaction to new entry?
- How quickly can we penetrate the market?
- Will we achieve acceptable returns after entry?
The four key elements of PIMS®:
The key to a strategy is “big on quality, little on price” . There is no point in being the most efficient producer of a product no one wants to buy. PIMS maps businesses from the customer’s point of view, relative to competitors.
Based on empirical multivariate modelling, how should a business like ours perform? What are our strategic strengths and weaknesses? Once we know our par, we can separate strategic from operational factors.
Moving from diagnosis to prescription: what has worked and not worked for others facing challenges similar to ours?
With data on 500 variables, there are 62 million possibilities for examining the interactive effect of x and y on z. We can quickly get unique insights on a potential effect of particular concern to us – and if it isn’t significant, it isn’t significant.
The PIMS® beginnings
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 strategic benchmarking. PIMS® “yields solid evidence in support of both common sense and counterintuitive principles for gaining and sustaining competitive advantage” Tom Peters and Nancy Austin.
The project was originally conceived by senior managers in General Electric. They wanted to know why their strategy of investing in “large, growing and profitable markets” had resulted in multibillion 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. ROI (the profit per unit of tied capital) was used as the measure of success. In 1972 the project was transferred to the Marketing Sciences Institute (then under the wing of Harvard Business School), which extended it to other companies. Following various buyouts, it is now part of Malik Management in St Gallen, Switzerland.
To find out more about Profit Impact of Market Strategy in detail, please have a look on our brochure.
The PIMS® database
The database gives each PIMS® consultant 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 500 factors over a period of 3+ years. The companies in the PIMS® database contribute financial data as well as information on customers, markets, competitors, and operations on their companies at the SBU level. The SBUs in the database are separated into eight classifications: producers of consumer durables, consumer non-durables, capital goods, raw materials, components, or supplies; wholesale and retail distributors; and providers of services. Specific companies and industries are not identified. Each SBU profile includes financial data from the income statement and balance sheet, as well as information about quality, price, new products, market share, and competitive tactics.
Connect with our experts
We would be delighted to meet with a leadership team to give an overview of the PIMS® Strategic Benchmarking software, and to explore how you might structure your SBU definitions to best benefit from participation.