Lenguaje Corporal

It is a common practice of many companies

to focus their attention on grabbing market

share from their competitors. But such efforts

can actually be detrimental to the firm’s

profitability, according to Wharton Marketing

Professor J. Scott Armstrong.

For years, Armstrong has been conducting

research showing that competitor-oriented

objectives, such as setting market-share targets,

are counterproductive. After co-authoring a

paper in 1996 that reached this conclusion, he

and a different co-author, Kesten C. Green of

Monash University in Australia, have written

another paper summarizing 12 new studies that

add additional weight to the original conclusion.

Their study is entitled “Competitor-Oriented

Objectives: The Myth of Market Share.”

Business has long been likened to warfare,

Armstrong says, so it is hardly surprising that

companies want to beat their competitors.

In the 19th century, it was common for many

American executives to strive for revenue

maximization. To see how well they were

doing, companies compared themselves to

competitors in their industries. But in the mid-

20th century, some academic scholars began

to question the widespread focus on market

share. In 1959, one researcher “lamented

the common use of market-share objectives

and discussed the logical and practical flaws

of pursuing such objectives,” according to

Armstrong and Green.

In the 1996 paper, Armstrong and Fred

Collopy of Case Western Reserve University

summarized a host of studies by other

researchers that examined the prevalence of

competitor-oriented objectives.

For instance, several researchers in the 1950s

and 1960s had groups of subjects play repeated

games in which cooperation was necessary to

maximize profits. The researchers found that

when they provided feedback to subjects on

other subjects’ performance, nearly 90 percent

of the choices that the subjects made were

competitive and hence low profit. In another

example, Armstrong and Collopy asked 170 MBA

students over a period of years whether the

“primary purpose of the firm is (a) to do better

than its competitors, or (b) to do the best it can.”

One-third of the students chose (a), suggesting

that a large number of the students believed that

beating the competition is more important than

other goals, including profitability.

In their 1996 study, Armstrong and Collopy also

analyzed data amassed by scholars to measure

the level of competitor orientation of 20 major

corporations, as stated by the companies

themselves, and how the level of competitor

orientation was related to the firms’ aftertax

return on investment (ROI) for five 9-year

periods beginning in 1938 and ending in 1982.

“Competitive-oriented objectives were negatively

correlated with ROI for these data,” Armstrong

and Collopy concluded. In other words, the more

managers tried to be the biggest in their market,

the more they harmed their own profitability.

For example, companies whose only goal was

profit maximization—DuPont, General Electric,

Union Carbide, and Alcoa—posted stronger

returns on investment than did the other firms

studied. By contrast, the six firms whose only

goal was market share—National Steel, the

Great Atlantic & Pacific Tea Company, Swift,

American Can, Gulf, and Goodyear—fared

worse in terms of ROI. Indeed, some of these

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