Top 3 or out

In an interview in Economic Times (7/3/2008), Aditya Birla stated his criteria for being involved in an industry. He said that he will only participate in an industry only if they have 1,2 or 3 position otherwise they will quit. Well this is nothing new. Actually, its a criteria borrowed from Ex GE’s chairman (I am forgetting his name. Sure sign that I am getting old) who built GE based on the same criteria. However, I do not think this makes sense.

Why? Logically speaking if you are serving a niche market in an industry, one can have a number of profitable players. Lets take it a step forward. You could have “n” number of profitable players in an industry, all with a different viable positionings and still be profitable. The issue of profitability only comes up when you don’t have distinquishing positioning.

Let me explain this with the example of the radio industry in India. Apart from one, MEOW radio and a couple more, all the other players numbering to nearly 140 do not have a distinquishing positioning. Let’s say, Radio Mirchi has the positioning of radio station for all. Add to this, a couple radio stations which are local language based. If we take Aditya Birla’s criteria, then nearly 140 radio stations should get out of the radio business because they cannot attain 1, 2, or 3 position. However, I can think of a number of radio station who can actually prosper provided with a distinquishing positioning. For instance, sports radio station, a cricket radio station, a bollywood radio station, political radio station, a headline news radio station, a ghazal radio station just to name a few. I feel that all these radio stations will make money.

On the other hand, 7-8 years back you could have been a leader in the telecom business but you would have been losing money. So I think the criteria for staying in a particular business should be financial (return on investment) and whether you have the core competencies to stay competitive in that business and not whether you are 1, 2 o3.

Yes, I have heard of the PIMS database. But remember, it also talks about the market share of the “served market.”

Avinash Narula
www.management-talk.com

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