For much of his tenure at GE, Jack Welch’s famous mandate to every business unit was to be either number one or number two in their market. If you weren’t meeting that standard, you were replaced.
As you might imagine, the leaders of business units that weren’t a leader in their industry got crafty. Since they couldn’t find ways to grow market share (or at least not fast enough to retain their job), they started to redefine their markets in ways that allowed them to be either number one or number two.
What happens when you’ve redefined the market so that you are number one or two? Often you end up having 40 or 50 percent share of the market. One major side effect is that you limit your market opportunities. By defining the market too narrowly limits your ability to identify new opportunities that are outside of your narrow definition. Overall growth shrinks.
Legend has it that at one point the GE Nuclear business claimed to have 100% of the control room business in new facilities despite the fact that a new facility hadn’t been built in the US in 20 years. At that point Mr. Welch realized that he needed to change the mandate. Instead of being number one or two in the market, he wanted to see a market definition for each business where they had no more than 10 percent market share. He recognized the need to open the company to new growth.
I would contend that neither definition alone was adequate; you should actually have both definitions. The small definition will enable you to monitor your core business for threats and overall health of the business. The larger definition will help you to identify opportunities for growth.
The takeaway for any company is to think about how you define your market and how that is (or isn’t) contributing to your ability to grow. The question is, where does that potential exist?
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