Industry ‘power curves’ for real competitive strategy

Now here’s a really useful tool from McKinsey. Using ‘power curves’ to assess industry dynamics shows the value of seeing the size-distribution of competitors in an industry. It shows the tool for banking, chemicals, software and biotech. You can do much, much more with this though.

Merely seeing the pattern is interesting but so what? This is a fundamental tool for something virtually no companies do well – truly competitive strategy.

The basic principles are simple:

  • Trying to do a bit better than everyone, at everything, to get a bit more market share [as most firms do] is hopeless – very costly, everyone can see what you are doing and does the same, and it just doesn’t work.
  • Competitors vary in their scale and strength, and therefore in the benefit you would gain if they weren’t around.

… so it is clearly best to pick your 1-2 key victims and focus competitive efforts just on those – for which the ‘power curve’ is the ideal tool. Having picked which wounded wildebeest to take down, some simple principles help identify how to do it.  These are explained in chapter 5 of Strategic Management Dynamics, and you can download the extract that explains how to destroy competitors [the power curve is what you need for Figure 5.27].

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