Is the goal of business to do the best you can or to beat others? A surprising number of people seem to think business is about beating others. The technical term is competitor orientation — when your ultimate objective is to beat your competitors. The point is that pretty much whatever your view of business, beating rivals should not be your goal.
Why Is Competitor Orientation Wrong?
Let us start by assuming you are a shareholder value type person. If you believe your duty is to your shareholders you should maximize profits (shareholder value). To be clear the goal is not to merely try to gain more profits than a competitor.
Think about it which is better for your shareholders?
- A) $10 million in profit when a rival gets $12 million, or
- B) $8 million in profit when a rival gets $6 million?
It is easy math to see $10 million profit is greater than $8 million.
What Does The Stakeholder View Have To Say?
Similarly, if you believe that you have a duty to a wider range of stakeholders then should you be competitor orientated? The advice is that you should do your best for the stakeholders. The advice from this is clear, don’t just try to do better than a rival.
In 1996 Armstrong and Collopy ran a study where they gave participants a choice between:
- A) Earning more than a rival but gaining a small profi, or
- B) Earning less than a rival but gaining a large profit.
Lots of respondents choose relative success and lower earnings — option A. What theory of business are they following? I have no idea.
End Goals And Means To These
Of course, relative success — high market share — could lead to profits but it isn’t necessarily so. For example, if you must slash prices to gain volume then there it is easy to imagine situations where high share is accompanied by low profits. My suggestion, if profits are your ultimate goal then aiming for profits seems more logical than aiming for market share. Market share on a good day, with a following wind, if you are lucky, might eventually lead to profits. Better still just aim directly for profits.
Beating Rivals Should Not Be Your Goal
Despite the logic of this, it remains a battle to wean my students off their love of market share objectives. Read Armstrong and Collopy’s work and see if you agree with their core advice: “Do not use market share as an objective“. (Armstrong and Collopy 1996)
Read: J. Scott Armstrong and Fred Collopy, Competitor Orientation: Effects of Objectives and Information on Managerial Decisions and Profitability, Journal of Marketing Research, 33 (2) May 1996