Some industry leaders have lower returns than the smaller competitors

Symptom: Some industry leaders have lower returns than the smaller competitors.

Implications for the market:

  • Size alone does not create better returns. In the average mature industry, less than a third of share leaders also lead their industries in returns on investment. In hostile market, that proportion ins even lower.

  • Share leaders fail to lead in returns for two principal reasons:

    • Poor customer screening: These leaders accept all customers, including those who will never return their cost of capital and who force the leader to offer benefits that do not pay for themselves.

    • Ineffective cost management: These leaders have failed to force the creation of the economies of scale their relatively large size should permit.

  • Low cost starts with the pursuit of customers that the company can serve well and finishes with a management system that ensures unit costs fall as unit sales rise.

Recommended Reading
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Analyses:

Perspectives: Conclusions we have reached as a result of our long-term study and observations.