SPI, The Strategic Planning Institute, and PIMS, The Profit Impact of Market Share
Part I The origins
Part II SPI's own strategy - Apple redux?
Part I The origins
The Strategic Planning Institute offers its PIMS model (Profit Impact of Market Share) to clients to assist them in forming strategy on the basis of empirically tested hypotheses. One runs split tests and scenarios against the historical data in the PIMS database.
PIMS began as an internal project at General Electric (GE) in 1960. Fred Borch, then a marketing vice-president and later the CEO, initiated a project to quantify what factors led to success in GE´s diverse businesses, from toasters to turbines, with sales already at $4 billion and expected to more than double in a decade. (They did.) The original computer model, which took five years to develop, was named PROM: profitability optimization model. The data include information on markets, competitors, quality, structure, environment and financial performance. Cross-sectional regression analysis is a favored technique for verifying an hypothesis. A key initial finding was that market share was a major driver to profitability.
From 1972 to 1974 the on-going research was organized as a project at Harvard Business School, giving birth to the Strategic Planning Institute, SPI. At the beginning of 1974 the PIMS project was organized as an independent non-profit organization, the Strategic Planning Institute. By the middle 1980s the PIMS model had 400 items of information drawn from a minimum of four years of operative and competitive information on 2,700 strategic business units (sbu´s). On the basis of this research, SPI could then run scenarios for clients by entering different assumptions into the PIMS computer model.
The website has a clear explanation of its services, including a good one-page tutorial about what one can use its database for. Surprisingly, there is very little information about SPI itself or about its consulting arm, PIMS Associates Inc., both presumably still based in Cambridge, Mass. Its best known CEO was Bradley T. Gale, who with Robert D. Buzzell wrote The PIMS Principles, Linking Strategy to Performance, Free Press, 1987. The lucid concepts are very much relevant today. However their relative importance and timing may have changed. Unfortunately a revised edition of this book updating the research findings has not been published. The closest to that in book form is The Profit Impact of Market Share Project: Retrospect and Prospects, Cambridge Universty Press, 2004, edited by Paul F. Farris and Michael J. Moore. It is a collection of 11 articles about PIMS.
Two questions to ask SPI before becoming a long-term subscriber are:
1) How is the database actualized? The website, 2011, mentions a databasie of 3,000 sbu´s, only 300 more than in the 1980s? (The sbu's come from about 1,200 different corporations.)
2) How heavily are the data weighted towards U.S. operations of the Fortune 500, how much to SMBs, and how much to foreign (European, Asian, South American) sbu´s?
* If your company is a start-up and strapped for cash, here is where your summer intern who is writing a Masters thesis on your industry can be useful. A student may subscribe to the database for $50 a month (as of 2011). Otherwise an individual subscription costs $995 a month. "Look over the shoulder" as the research about your industry and markets is conducted. By doing so, your company has a reasonably priced learning curve before switching to conventional usage.
What does the PIMS "black box" say will happen if I raise my advertising budget by 10%, versus doubling it? When do I reach the point of diminishing returns? Inferences are drawn, to present a hypothetical example, from 300 sbu´s of this size in that market. When the economy turned down, were the advertising budgets increased, decreased, or maintained? What was the outcome X months, Y years later?
The original PIMS research indicated that the two key factors to profitability are market share and perceived quality. Perceived quality is, in turn, a key driver for obtaining market share. Objective, scientifically tested quality is one thing, the perception of the customer of that quality is another. It is the latter that counts. You build the best Widgit in the business. However you send it to the customer in ugly, cheap packaging and weeks late. He does not perceive your quality as great.
Build the best Widget in the business with beautiful packaging, promptly delivered, but the salesman was unprepossessing, just an order taker and not a "solution seller" at all. Again, the customer is far less likely to perceive the quality as great. In other words, the total customer experience is what determines the perception of quality.
There is more about PIMS and an interesting study on the subpage "B. Blue Star Start-up Strategy for Entrepreneurs (the leap!)" at VI. Start-up Strategy.
Part II SPI's own strategy - Apple redux?
SPI and Apple make for an interesting strategic comparison. Steve Jobs, the co-founder of Apple, brought in John Sculley as a CEO in 1983. Two years later John Sculley won a power struggle with him, and Steve Jobs resigned (to start NeXt). In the mid 1980s John Sculley took the decison not to license the OS operating system. This decison has been called the "$500 billion dollar blunder," one of the biggest in the computer industry. This blunder is widely regarded as having cost Apple the chance to become at the very least an equal player -- if not the leader -- in the personal computer (PC) market. Its success today is driven by other products, not by its less than 10% share of the PC market.
The Strategic Planning Institute took a similar decision not to license its PIMS model to other consultancies. Granted the PIMS model is not particularly helpful in making inspired quantum leaps, in finding new "blue ocean" market space. Off-setting this weakness are three developments:
1) On-line data collection of all kinds is an order of magnitude more efficient today than in the 1970s when PIMS was starting out.
2) Far more sophisticated data analysis (artificial intelligence) and scenario modelling (with probability density functions) have become practical as computer power has repeatedly doubled and re-doubled. (Moore´s law is that the number of transitors that can be placed on a chip doubles every two years, i.e. the data density doubles. This phenomenon has occured over the past 50 years and is expected to continue, at a somewhat reduced rate, untll 2020.)
3) The Internet has become ubiquitous, leading to a global market for PIMS analysis.
Therefore one would expect SPI and its consulting arm, PIMS Associates Inc., to have enjoyed a surge of popularity congruent with Internet expansion. Seizing the global opportunties would have led to the same spectacular growth enjoyed by the premier strategy consulting firms: McKinsey & Company, the Boston Consulting Group, and Bain & Company. These all surged from the 70's and 80's onwards. Their (2009) ranges are:
a) Staffs - from 4,400 to 9,000,
b) International Reach - offices in 27 to 60 countries,
c) Revenues - from one to over six billion dollars annually.
However SPI with its PIMS database has not been able to capitalize on its USP of empircally supported strategy formation to achieve anything even approaching this kind of growth.
PIMS has been marketed to the Fortune 500. However any large city has, all by itself, more than 500 consultancies. Take Munich as an example, which, with a population of 1.35 million, is by no means a giant city. Yet there are about 2000 various consultancies with offices in Munich. The top ten percent of these firms would surely be a market to offer the PIMS model to as a service for their own clients.
SPI could have used a dual track approach for rapid growth. First, it could have licensed its model to the major management consulting firms. Second, it could have introduced a franchise system aimed at small consultancies. There are more than 400 cities in the world with populations of over one million. One could select 50 of them, say 10 in the U.S., another couple of dozen (out of 36 candidates) in Europe and the last 16 from the rest of the world - Australia, Africa (Egypt, South Africa), South America, Asia (China, Japan). Why limit oneself to 500 multinationals when one can market to 10,000 + consultancies?
The legal research tool LexisNexis is a case in point. Begun in 1970, at first its services were expensive and the system only available at large law firms and the leading law school libraries. Two forces led to its becoming widespread. The first was improvement in content management and on-line delivery. The second was the understandable desire of smaller law firms to have the same research capability as the larger ones. This "me-too" effect would also have been a powerful marketing tool for SPI after PIMS was being used by the major management consulting firms.
This dual-track approach does not at all involve "thinking outside the box," and, for any strategy professional, is intuitively obvious. It certainly had to have been considered by the senior management of SPI. It would be interesting to know the reasons this approach was not taken, or, if attempted, why it never gathered momemtun and was abandoned.
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