PIMS Strategy Framework Tutorial

What is PIMS?

The Profit Impact of Market Strategy (PIMS) program is the largest and longest-running study of business strategy ever conducted. Starting at General Electric in the 1960s and continuing through Harvard Business School and the Strategic Planning Institute, PIMS analyzed over 3,000 business units across diverse industries to discover what really drives profitability.

Unlike anecdotal business advice, PIMS findings are based on statistical analysis of real business outcomes. The research identifies which strategic factors actually correlate with profitability—and which don't.

The Key Findings

1. Market Share Matters

PIMS research found a strong positive correlation between market share and profitability. Businesses with dominant market positions typically earn significantly higher returns.

2. Quality is the Strongest Driver

Relative perceived quality—how customers view your quality vs. competitors—is one of the strongest predictors of profitability. High-quality businesses can charge premium prices and enjoy stronger customer loyalty.

3. Investment Intensity Hurts Returns

Counter to intuition, capital-intensive businesses typically earn lower returns. Heavy investment in fixed assets and working capital creates pressure to utilize capacity, often leading to price competition.

4. Productivity Drives Results

Value added per employee is a key differentiator. More productive businesses generate higher margins and can reinvest in quality and market position.

Understanding Par ROI

"Par" ROI is one of PIMS' most powerful concepts. It represents the expected return on investment for a business given its specific strategic characteristics—like a golfer's expected score based on the difficulty of the hole.

The 15 factors that determine Par ROI are:

1. Relative market share
2. Relative product quality
3. Relative price
4. Marketing expense to sales ratio
5. R&D expense to sales ratio
6. Investment intensity
7. Capacity utilization
8. Productivity (value added per employee)
9. Vertical integration
10. Market growth rate
11. Industry concentration
12. Customer concentration
13. New product percentage
14. Manufacturing vs service
15. Geographic scope

Strategic Implications

Don't Sacrifice Profitability for Market Share

While market share correlates with profitability, aggressively buying share through price cuts often destroys value. The winners in PIMS research built share through quality and customer value, not price wars.

Quality Beats Price

Competing on quality is more sustainable and profitable than competing on price. High-quality businesses can command premium prices and build customer loyalty.

Be Capital Efficient

Lower investment intensity improves returns. Consider asset-light strategies, outsourcing, and working capital optimization.

Match Strategy to Position

Market leaders and followers need different strategies. Leaders should defend share; followers should find profitable niches or invest heavily to challenge leadership.