Question: Choice Of Company Growth Metric (Revenue Vs. Market Share)

In the past, our group of auto-repair franchises has driven performance against easily measurable targets — like revenue, operating profit and various cost elements.

Invariably, we have found situations where the right decision was not made by a branch manager, since he/she was more focussed on pursuing the assigned targets in his or her location.

We are thinking of moving to targets which help us achieve our overall objective as a growth company — of gaining market share. Luckily, the data on market share is available every quarter.

Is such a change advisable? If yes, can you advice us on how we can align the whole company and various branches around that one metric?

6 Expert Insights

I'm not crazy about market share as a metric at all levels of the company.

Is the level of "situations where the right decision was not made by the branch manager" acceptable enough? Or can they be addressed by another means besides asking the branch managers and employees to do executives' thinking for them? I'm thinking that you really want to measure people at every level by what they can legitimately affect by their own behaviors.

Market share is a "resultant measure" of performance and employees still need to be motivated to accomplish goals in "lead measures" of performance. That is, how do you measure branch managers and employees the other 89 days of the quarter to anticipate achieving market share objectives?

My thinking is that the knowledge workers/leaders higher up in the hierarchy need to develop a (better) model that correlates daily controllable tactics with the desired strategic outcomes.  Communicating up and down the chain of command that "market share is important" is great.

Showing employees at all levels their particular role in achieving market share objectives is even better. Ensuring that their particular role is within their authority and capacity - is priceless!

Driving performance by looking at revenue, operating profit and various cost elements is fine for a tactical, short-term, approach, but what are the long-term goals? What strategies are you using to achieve these? In other words, increasing revenue by discounting prices below your cost might help grow revenue. Operating profit is a good metric but in relationship to...?

When branch managers are focused on pursuing the assigned targets, yet these targets don't help the overall company goals, there is certainly misalignment between them.

Before you start moving targets it is time to step back, perform a strategic assessment to see where you actually are & what long-term goals you want to set. Then use a tool, like a Balanced Scorecard to lay out your long, medium & short-term goals, how they are to be measured as well as how they cascade down to the smallest reporting unit. This way everyone can align their individual goals with the next higher unit all the way to the company goals. Periodically internally publish the results so everyone can see the progress on what is working & adjust what isn't, yet they will be in sync.

Gaining market share can't be the only goal, because anyone can "buy" market share temporarily through lowering prices below cost. You can't last too long doing that. What tool(s) (quality, speed, efficiency, etc.) are you going to leverage to achieve sustainable market share increases?

Use our APCIMAIR(SM) model as a starting place: Assess, Plan, Communicate, Implement, Measure, Adjust, Improve, Repeat.

I don't know your situation, but frankly, given what you have asked, I don't think using just one metric is smart, especially if it is market share.  What if you have 80% market share and the market isn't large or profitable?  That doesn't work for anyone.

Whether it is in life or business, people need targets to meet.  Market share is a "feel good" metric, but may not tell you everything you need to know, e.g., 10% market share of a $1B market is $100M, but is that good if you are not profitable?    

Remember, you get what you measure.  If your goal is to gain market share, great - use that.  However, if you want to remain profitable, use EBITDA / profitability, etc., in conjunction with market share.   Using just one may not be the way to go.  

Market share is tricky - it can be units or US$, it keeps changing and, has nothing to do with profitability. The root issue is that you want to increase sales and profitability. Given a more or less fixed market size, increasing sales normally increases market share. Thus, I would expect your branch manager to be the #1 sales person and focus on increasing sales (within princeliest) while someone else does the numbers for him.

In addition, note that if each branch is profitable, it does not necessarily mean that the company is. Thus, overall profitability should be considered looking at issues like inventory reduction and faster inventory turnaround to reduce financing costs; and faster service especially when uncommon parts are considered to increase sales and client loyalty. This can be easily done when you have a central warehouse.

There are several proven methodologies you can use to resolve such issues providing branch managers with better tools to increase sales, for example 'Theory of Constraints' that considers global efficiency.

In my experience in the Consumer Package Goods industry, market share is a nice measure, but you can't take it to the bank.

I would absolutely focus on revenue and profit growth first.  I would use market share as a measure to keep tabs on competitive activity, trends, and source of volume.  Also, market share is important, but how you define your market is even more important.

Here's an example from Pillsbury.  Their refrigerated cookie dough had an 80% share in the refrigerated cookie dough category. (with private label making up most of the rest of the share).  Great!  Except there was no room for growth.

When they stepped back and redefined their category to include all cookies (ready to eat, store bakery) - a much larger category than refrigerated - their share dropped precipitously.  However, now their growth options were enormous!

The good news is they were now able to segment the "new" competition, determine which flavors on which to focus, resulting in a new strategic plan to drive significant revenue gains by targeting huge brand like Chips Ahoy, etc.

So, focus on rev / profit growth first and use market share to identify trends and growth opportunities.  But, ensure you have your market defined correctly.

All businesses exist because they own and/or control an asset that can be used in a product or service that provides customers with a competitive advantage. That is, the asset somehow makes the customer's life easier or less uncertain in some way. The busy part of the business involves putting in place processes that make that asset usable to the customer, and managing the risks inherent in the business. The business survives when all this is done and an excess of value is produced, otherwise known as profit, allowing the company to pay for the cost of capital, return money to investors and reinvest in its future.

As a multi-franchise operator your metrics are the cost of the franchise (license, build out,...) and the competitive advantage provided to customers. However, your hands might be tied by the standard operating procedures and quality control standards imposed by the franchise agreement. I would recommend determining exactly what levers you do have influence over and incorporating them into your KPIs.