The PIMS Principle: Linking Strategy to Performance

Since 1972 the PIMS (Profit Impact of Market Strategy) Program, working with an extraordinary data base of 450 companies and 3,000 business units, has developed a set of principles for business strategy so effective and consistent that they must now be considered part of the basic education of managers in a free-enterprise system. In this important new book, authors Buzzell and Gale summarize and explain PIMS methodology and applications in by far the most comprehensive and penetrating look at PIMS yet published, to help managers understand and predict how strategic choices and market conditions will affect business performance. The use of PIMS to explore the general relationship between strategy and performance is accepted worldwide as a proven method to produce greater effectiveness for individual firms and the economy as a whole. Taking into account three kinds of information -- market conditions, competitive position, and financial and operating performance -- PIMS rejects the notion that there are "formulas" for management decision-making or that "easy wins" can be had by applying general rules to specific problems. Instead, the PIMS approach is based on studies of the actual experiences of businesses that have been documented in a unique data base. The principles drawn from this data base provide a solid foundation for the situation-specific analysis that managers must perform to arrive at good decisions. Unlike Portfolio Planning methods, PIMS explores many possible dimensions of strategy and market environment, such as investment intensity, product or service quality, labor productivity, and vertical integration, all of which have powerful effects on business performance. For example, PIMS shows how the quality edge boosts performance two ways and earns superior profit margins. It verifies how market share and profitability are strongly related but also shows why that does not mean that every business can or should strive to increase its share, as demonstrated by the disastrous "kamikaze attack" launched in the early 1980s by Yamaha on the market leader Honda. Most important, it analyzes why forecasts of cash flow based solely on the growth-share matrix are often misleading and why, in fact, many so-called "dog" and "question mark" businesses actually generate cash, while many "cash cows" are dry. Finally, Buzzell and Gale discuss the PIMS measure of "long-term value enhancement," which has been applied to more than 600 businesses in the PIMS data base over seven or more years, to uncover any conflicts between maximizing current profitability and building long-term values. Whether it's looking at market leaders or followers, picking profitable markets, or developing well-positioned business clusters whose synergy creates advantages for lasting shareholder value, PIMS is made simple and understandable in this incisive, comprehensive volume that is an invaluable addition to every personal and business library.

Robert D. Buzzell is Sebastian S. Kresge Professor of Marketing at the Harvard Business School and a trustee of the Strategic Planning Institute. He also serves as a director of Chelsea Industries; General Nutrition, Inc.; United States Shoe Corporation; and VF Corporation.