The first category (market attractiveness) contains factors in the business situation which affect performance. Customer bargaining power, market complexity, market growth and innovation are obvious examples. The second group describes how a business differs from its competitors. Share position, customer preference relative to competitor’s offering, market coverage and product range all has an effect.
The third category is value added structure which converts input into output. It includes investment intensity, fixed working capital split, employee productivity, capacity use and vertical integration. Fourth category is hands-on-experience with people and organization. This is an area in which PIMS has only recently built up comparable data, includes managers’ attitudes, skill and training mix, personnel policies and incentives.
To test whether the profile of a business can explain its profit, irrespective of the industry in which it operates, PIMS looked at the performance of business with ‘weak’ and ‘strong’ profiles in each of the four sectors (Table 3.6).
Weak and strong profiles were picked in terms of position on each of the fifteen variables in Figure 3.21. The results surprised everyone. In every industry sector where there were enough observations to test, a business with a weak profit made a 6 per cent ROS or 10 per cent ROCE over a four-year period.