LEK Decodes the Hide-and-Seek Value Game
 |
Stuart Jackson, a partner at LEK Con¬sult¬ing and head of the Chicago office, doesn't exactly play the contrarian in his book Where Value Hides: A New Way to Uncover Growth for Your Business (Wiley, October 2006). How¬ever, he clearly gives a different twist to what on the surface appears to be classic management strategy.
For example, classic management strategy says that greater market share leads to greater profitability. Not so, Jackson argues, citing his latest research. "It's how you define and measure greater market share. Not all definitions of greater market share lead to higher profitability," he says.
Case in point: the fitness club business. It would be more profitable, according to Jackson, to concentrate 10 clubs in each of three markets than to put three clubs in each of 10 markets. The local concentration allows the company to achieve greater market share by maximizing its media advertising, increasing utilization of its exercise equipment, and sharing common administrative overhead. In this case, achieving greater market share in each local market indeed leads to greater profitability.
However, in an industry like electronic gaming, there is little to be gained from building market share in individual markets. Here, market share must be measured worldwide. "Electronic gaming is truly a global business. Players play the same game all over the world. The company can leverage the same research and development and manufacturing globally," he says.
Both fitness clubs and electronic gaming illustrate Jackson's strategic market positioning (SMP) theory, which he details in his book. According to Jackson, SMP combines principles of customer preference, producer economics, and corporate finance to produce an accurate picture of a company's health, thereby making business success predictable and transparent. Jackson applies SMP to everything from oil exploration to the competition between Wal-Mart and Kmart.
The concept of SMP first emerged when Jackson opened the Japan office of LEK. The firm had an office of the same size in Italy,
but Jackson's Japan office grew faster. The difference in performance resulted from different strategy. In Italy, LEK operated a general practice, while in Japan LEK focused on one industry, medical devices. This focus allowed LEK Japan to cultivate and capitalize on a more concentrated network of relationships, much as the local fitness club leverages its geographic concentration to achieve greater profitability.
For Jackson, greater market share can lead to greater profitability — but only if you define market share correctly.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.