Every business sets out to make a profit for its shareholders for as long as its doors are open. But today's quick-fire business world and its volatile markets are at their unpredictable best, so it is difficult to see a clear path to profit without the benefit of hindsight.
But what if there was a way to find out the chances of your strategy being profitable beforehand?
Step into the Profit Impact of Market Strategy (PIMS), a database that has profiled countless Strategic Business Units (SBUs) to get insight into their strategic direction. And in this article, we'll show you how to put the wealth of information in this database to profitable use.
What is it?
The Profit Impact of Marketing Strategy (PIMS) is a framework that offers a look into the strategies that influence the profitability of any business. It is a database that provides a continuous review of the performance of the strategic business units of more than 400 companies. And it uses critical variables like market and profit share, product and service quality, pricing, and other factors to determine the profitability of the profiled companies.
The performance of the profiled companies and their SBUs across these variables provide us with relevant strategy-shaping insight. And these insights can help you scale up the profit potential of your business strategy. It can also help you determine how profit is distributed across your company and at what rate.
When do we use it?
We use the PIMS model for the following purposes.
To Carry Out a Profitability Analysis
As its name implies, the PIMS model determines the profit potential of certain business strategies. Using it, you can predict with a degree of accuracy whether a business proposition or approach will yield rewards.
To Chart future business strategy directions
We can use it to decide which business moves will likely make headway and which will hit the rocks in the long run.
To Access Risk Factors in Business ventures
The PIMS model can help you identify the risks associated with your next business move. It does this by providing a tested template for measuring risk factors.
To evaluate business performance
The PIMS model can help identify performance gaps while mapping the performance of your SBUs against industry standards. You can also identify what levers to pull to close the gaps and raise the performance bar across various operational sectors.
What business questions is it helping us to answer?
Using a PIMS framework will help to provide answers to the following business questions.
How profitable will my business be in the long run?
The PIMS uses several variables and data to map the profit potential of the strategies once used by the business units in its database. Using the data that best mirrors your business reality, you can find out to a large extent if you can achieve similar success.
What are the cost implications of my intended business strategy?
The PIMS framework offers a proven way to check whether your allocated budget for a planned venture is sufficient. It helps identify the costs associated with any business activity and the proven cost-effective measures to take.
What opportunities for growth and expansion does my business portend?
Most managers want to foresee profitable growth opportunities in whatever venture they have lined up. This way, they know whether to pursue that course and what strings to pull to forge ahead.
What strategy alternatives are viable and more profitable
The PIMS profiled thousands of business units and their strategy. So there's no shortage of strategic alternatives to try out should you look at finding one. You can be sure to find a less complicated, more efficient, and cost-effective strategy than the one you have planned.
How do we use it?
Using any of the four elements described below, you can shape your business strategy according to data found in the PIMS.
Customer Value
Measure your product's (or service) performance against that of your closest competitors. This way, you know how your competitors fared in the market and what reception to expect when you roll out your products.
The concept of par performance
This deals with the question of what strengths, weaknesses, and profit potential is available to a company. This helps you address your business unit's performance level as key to making crucial strategic decisions.
Look-alike analysis
Use the experiences of similar companies in the PIMS database to evaluate the profit potential of your business.
General findings and targeted research
Study the findings that have brought success to the profiled businesses.
Practical Example
A vehicle manufacturer looks to the PIMS database for strategic direction on issues related to its price control and marketing strategy. Using look-alike analysis, it can observe the strategy used by the pricing and marketing business units of similar companies in the PIMS database.
It discovers several effective techniques used by these companies and takes a few cues from them. It settles on a customer segmentation approach to fix prices and opts for a more aggressive marketing campaign. In the end, it can capture increased market share and command better profit returns in the future.
Advantages
It enables informed decision-making on critical issues
So you plan to follow a certain business direction without being clear on key issues affecting your plans. Wouldn't getting guidance from people who've once towed a similar path be nice? Because if you did, you'd be better placed to make the right moves.
It helps you avoid business pitfalls
The path to the next big break is often riddled with pitfalls and other obstacles. But with the benefit of foresight, you can avoid them all. You get this when you study the PIMS report for those successful businesses.
It can help you appraise your workplace performance
The PIMS database is well stocked for companies that set the standards across various industry lines. What better way to find if your work performance is up to mark than measuring against these standards?
It can help you identify the profit potential of your business
Do you have questions about the profitability of your next business plan or project? You can stack your odds against several related companies in the PIMS database to check how they once fared. You should get the much-needed clarity in the future.
Disadvantages
There are questions about the validity of the database
Nowadays, questions are being raised about whether the findings of the PIMS report hold water today as they did then. The answer to this is that the data continues to be updated by the participatory companies. And that the findings have also proven reliable over time.
It seems more suited for big companies
This critique of the PIMS model draws from the financial (data surveys, financial consulting) and organizational requirements of using it. Also, you can argue that the companies represented in the PIMS study were traditional and big, like those in the manufacturing sector.
It is not a shoe size that fits all
What works for Companies A, B, and C may not work for Company D. So, you must be careful to compare against the business units that best mirrors yours, or risk using mismatched data.
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