Preferring Change to Stagnation

What does a market leading firm do when it is faced with stagnating revenue growth? The ongoing global economic recession is forcing firms to think of how to continue to maximize shareholder value during these lean times. Stringent regulatory issues, pricing pressure, dwindling pipelines and increasing genericization of the market has ensured that firms in the pharmaceutical industry face some of the most gruelling times in recent memory. But, hold on right there! Are the times really as dreary as they sound? Is it still impossible to chart an unbelievable growth story when everybody is sounding the death knell? Where does the answer lie? What does a true market leader do?

One possible (practical?) way could be to take a long hard look at your business model and ask a few tough questions. More importantly, answer those questions as honestly as you can! Is this the best that this firm can do? Is there something better we can do? Are there greener pastures that can help us outlive this trough? etc. etc. Agreed! This is extremely tough, especially for a market leader to do. Its easier to say, “We lead the damn market! Lets hold on for a while and everythings going to get better!”. However, chances are that your closest competitors, who have more spunk than you (assumption, I accept) are working overtime to grab slices of marketshare that are tiny enough to keep them off your radar and yet sizeable enough to cleave your customers away from you! Like Charles Henry Harrod, founder of Harrods, famously said, “There is no customer loyalty that a discount cannot buy”. Extreme times call for extreme measures!

Yet true market leaders are those who can think out of the proverbial box. For instance, during the 90s, in Finland, there emerged a remarkable manufacturing story. Nokia, once a heavy industrial conglomerate, began producing mobile phones that captured consumer imaginations across the globe. By the turn of the millennium, Nokia became almost the generic mobile phone. It was the essence of a market leader.

Being a market leader is cause for great jubilation. But if we look beyond the immediate advantages, a more disturbing picture emerges. Throughout history, one challenge has done more damage to leading firms than any other: SUCCESS. Becoming the number-one firm in any market brings with it new, potentially fatal dilemmas. The first is prominence: getting to the top puts you directly in the sights of every competitor. This can leave you vulnerable to imitators that ape your winning strategies and then improve upon them. This was the case with Nokia. Just as it was about to attain its goal of 40% global market share, major competitors such as Motorola and Samsung began to fight back with superior products.

Market leadership also leaves you vulnerable to smaller, specialist players that can aim for just one of your many customer segments and lure them away with a tighter, more specific offering.
There is also the realisation that the only way to go is down. Many of the leaders responsible for creating a market leading firm may seek out new challenges, because they feel retaining the number-one spot is not half the challenge of getting there in the first place.

Compounding this potential exodus is the fact that, as employees of the number-one firm, your staff are now much more attractive to recruiters. One of the main reasons that Marks & Spencer’s fortunes have declined is that almost every member of the fantastic management team that was responsible for its original turnaround, including chairman Luc Vandevelde, has been headhunted away to new pastures.

Another problem is complacency. Many leading firms have foundered by assuming that market forces and customer loyalty would remain eternally unchanged. IBM dominated the computer industry for 40 years, only to cede the lucrative PC market in the 80s because it did not anticipate how easily competitors could produce computers and how fickle customers would be in response.

Success breeds the assumption of success, and that can blind a brand to strategic threats and market changes. Allied to complacency is risk aversion. Firms soon get used to their number-one status and seek to retain, at all costs, their existing position and well-worn strategies. This can result in conservative decisions that are easily countered by an aggressive competitor. The number-one status of Coca-Cola during the 70s was one of the key reasons it was unable to respond to the growing threat of Pepsi.

Market leading firms must continue to take the most risks and act the most aggressively, even though it has the most to lose from failure. On achieving market leadership, chief executives and marketing directors should thank their employees for their efforts. Maybe even have a drink or two. Then they should set their alarms 30 minutes earlier, because life as market leader is about to become even tougher. Are there any takers in the pharmaceutical industry?

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