COMPANIES THAT COMPETE BEST These killers will do just about anything for another percentage point of market share. They will innovate, emigrate, and acquire. Hell, they'll even restructure the company.
By Bill Saporito REPORTER ASSOCIATE Cynthia Hutton

(FORTUNE Magazine) – CALL THEM market giants, dominant players, or, more viscerally, ''killer'' competitors: These are companies you don't want to come up against in your worst nightmare. In the businesses they're in, they amass crushing market share. Then they amass some more. Some bear familiar names: Eastman Kodak, Perrier, Emerson Electric, a powerhouse of the electric motor business. Others you may have heard of only if you've had the bad fortune to try to sell against them: Unifi, the big guy in selling textured polyester yarn; Jostens, the class act in class rings and other school memorabilia; AMP, manufacturer extraordinaire of electrical connectors. In their managerial tenets, they all have a lot in common. Their watchwords: -- Market share matters. The 90th share point isn't as important as the 91st, and nothing is more dangerous than falling to 89. ''We don't like to hear 'We have such a large market share' as an excuse for complacency,'' says Don C. Lein, president of Jostens. ''There are companies that are market leaders who grind out a little bit larger share year after year.'' -- Understand and remember precisely what business you are in. This is harder than it sounds. What business is Perrier in? Water? Nope. Soft drinks? Wrong again. Try natural beverages, a subtle distinction that means approaching customers quite differently. Would-be rivals, including Anheuser-Busch, Nestle, and Coca-Cola -- no marketing slouches -- missed it. -- Whether it's broke or not, fix it -- make it better. Not just products, but the whole company if necessary. Emerson and AMP both have decades of success behind them and long histories of steadily increasing dividends. Laurels to rest on? Hardly. Over the past five years each has put itself through wrenching structural and strategic changes to meet the challenges of the marketplace. -- Innovate or evaporate. Particularly in technology-driven businesses, nothing quite recedes like success: An upstart's product or marketing improvements can undermine a leading position in months. Kodak recently introduced its best film ever, Ektar, just two years after introducing another world's best, Kodacolor Gold film. Company executives pledge to repeat the process again soon -- before Fuji Photo Film does. -- Acquisition is essential to growth. Forget the not-invented-here syndrome. Emerson evaluates 600 companies a year as possible acquisitions, even though it typically ends up buying fewer than ten. The most successful purchases, the killer competitors say, are in niches that add a technology or a related market. -- People make a difference. Tired of hearing it? Too bad. Both high- technology outfits such as AMP and low-tech ones such as Perrier and Jostens spend abundant time and money on selecting, training, and motivating workers. -- There is no substitute for quality and no greater threat than failing to be cost competitive on a global basis. These are complementary concepts, not mutually exclusive ones. LONG USED to dominating their markets in the U.S., the killer competitors increasingly appreciate that they must now do the same on a global basis (see The Economy). In his 15 years atop Emerson Electric, Chief Executive Charles ''Chuck'' Knight, 53, ratcheted the company's motor business -- for power tools, appliances, and industrial purposes -- from third place in the U.S. to first by 1980. To get there, Knight invested heavily in motor technology and manufacturing and infused his managers with his own impatience. By 1984, though, Knight was watching his market share being nibbled away by Japanese and Taiwanese competitors that underpriced Emerson by 30% in some appliance components. Knight and his managers reacted with a sweeping realignment that reverberates to this day, creating a world-class competitor in a hurry. ''Man, we moved this company,'' says the effervescent Knight. Literally. Knight moved more than 3,000 jobs offshore, closed 49 of some 250 plants, and vowed that never again would Emerson let itself get pushed into such a vulnerable cost position. ''Our response was to get our costs down so that we were better than anyone else in the world,'' says Knight. ''It was not a fun time.'' Of such short-term pain is long-term success made. Knight won few fans when he shifted one-third of the 600 jobs at the company's Therm-O-Disc operation, which makes components such as temperature controls, to a Mexican factory to take advantage of lower wage rates. Sure, the company could have lowered the price on its domestically manufactured components, protecting share temporarily and keeping the jobs in the U.S. But then, argues Knight, it would have been only a matter of time before all 600 jobs were lost: ''The thing that we didn't really understand when we started this process was that by moving the 200 we not only protected the other 400, but the move put us in a position to get more market share.'' Exporting the jobs lowered average cost, allowing Emerson to cut price. With the resultant additional business and more favorable currency rates, the company has been able to add back the 200 jobs, plus 400 more. The same attitude that Emerson takes toward competitors -- in your face, approximately -- also prevails in company councils. ''We are very confrontational. The minute you back off, a little of the intensity drops,'' says Knight, whose own intensity level is about 327 on a scale of 1 to 10. Emerson executives tread carefully if they want to add plant capacity. Don't measure the anticipated return based on what the existing plant does, Knight warns them. That's falling for the dreaded low-cost delta syndrome -- comparing yourself against yourself, rather than against the world best. WHEN EXECUTIVES at Emerson's In-Sink-Erator division in Racine, Wisconsin -- it makes kitchen disposers -- sought to add capacity, Knight wanted to know what the return would be compared with that of a competitor's Taiwanese plant. If the In-Sink-Erator folks couldn't beat the world cost, they would not get funds. They could and did. Says Knight: ''There are very few executives wandering around Emerson not knowing what's expected.'' In-Sink-Erator may have an in-sipid name, but it demonstrates Emerson's competitive philosophy. Emerson bought the company in the Seventies, when it had a decent 30% market share. Last year In-Sink-Erator commanded more than 70% of the market. With statistical process control, just-in-time inventory, and make-it-right-the-first-time tactics, the Emerson division has lowered its in-plant quality costs by over 25% per unit produced. Service claims have dropped to 0.4 per 1,000 units per month, down from 2 per 1,000. By making improvements like these, Emerson has turned more than half its products into market leaders; 84% are either first or second. It's a figure the company pays attention to: Emerson has pushed the number up almost a point a year over the past ten years. In 1988 the company increased revenues 8% to $6.65 billion, while profits climbed 13% to $529 million. And with a 10%-a- year average growth in revenues, Emerson has added nearly 6,000 jobs in the U.S. IN THE SUSQUEHANNA Valley of central Pennsylvania, rarely mistaken for Silicon Valley, sits the world's leading manufacturer of electrical and electronic connecting devices -- at their simplest, the plugs at the end of computer cables. More complex connectors represent as much as one-third of the cost of some computer subassemblies. Simple or complex, they are made by AMP, a killer competitor worldwide. Its traditional strength has been in design and production -- the ability to manufacture whatever the customers want. ''We engineer the hell out of everything,'' says Harold McInnes, the cheerful mechanical engineer who is AMP's vice chairman. That attitude has made AMP the largest player in a fragmented industry, with about 20% of a market fought over by more than 500 competitors. AMP's competitive advantage begins long before products hit the market. The company spends an enormous amount of money, 9% of sales, on its research and development and engineering, and funds development work for Digital Equipment, IBM, and other original equipment manufacturers. By getting a seat at the design table, AMP has a hand in engineering the connecting devices that it hopes to supply. Neat trick. The company also works diligently to have a voice in the development of industry standards. This is particularly critical where technologies are evolving, such as on the interconnect devices used in local area networks of computers and telecommunications. The folks at newly competitive AT&T thought they had a good chance of bending the standards committee their way, but AMP was ready. Its products became the standard connector on major networking systems such as Ethernet and IBM's Token Ring system. AMP began in the Forties as a manufacturer of electrical terminals and expanded rapidly during the electronics revolution. Now, with the electronics industry growing 10% to 12% a year, down from 15% to 20%, AMP must eat somebody else's market share if the company is to sustain its traditional 15% a year growth. Says Walter Raab, the company's quietly confident chief executive: ''When you start talking about growing 15% in a year, to $2.7 & billion in revenues, you are talking about adding a company the size of one of our competitors, which we have done.'' Many of the manufacturers that AMP sells to are bent on eliminating all but a few of their suppliers by raising quality and delivery requirements even as they put the screws on price. In response, AMP is in the second phase of a quality-improvement campaign that began with the goal, set in 1984, of improving quality by a factor of ten in five years. Last year the company turned the heat up again, demanding of itself another tenfold improvement over the three years ending 1990. This is not a campaign consisting of slogans and buttons but a highly technical program measuring some 50 variables across all functions from engineering through secretarial. So far AMP has lowered its ''cost of quality,'' the amount spent getting things right, from slightly more than 16% of sales to about 10%. UP AGAINST the likes of Nestle, Coca-Cola, and Anheuser-Busch, it should be all but impossible for a smaller company to gulp market share and profits in the bottled-water business. But Perrier Group of America has done so. Perrier is best known as the importer of fizzy French H2O, but the company's still- water business runs much deeper: It owns nine brands of bottled water, including Poland Spring, Great Bear, and Ozarka, that have combined U.S. market share of some 20%. No other company is close. Perrier is growing fast too, faster than the bottled-water industry's 15% a year rate, which means it's taking business from others. Like most successful competitors, Perrier has a basic understanding of all phases of its business -- in its case, really two businesses. The first is sparkling water, an alternative to soft drinks or alcohol. The other is a tap- water replacement. Perrier's still-water business has less to do with classic consumer product marketing. Most product is delivered to homes and offices and dispensed through water coolers. That business, says Ronald V. Davis, president of Perrier's U.S. operations, more closely resembles package delivery a la Federal Express than it does pushing soft drinks. The quality of service is just as important as the quality of the water. So Perrier outfits its route drivers in all-American uniforms and trains them as if they were going to deliver caviar rather than H2O. Profitability hinges on service and the efficient management of the route system. For example, when Perrier first took over Poland Spring, an average truck might drive 50,000 miles a year, each day delivering 40 to 50 bottles -- admittedly watercooler-size bottles. Perrier stepped up sales by advertising and referrals, improving its efficiency in the process. The company can run a truck 10,000 miles a year, delivering 150 to 200 bottles of Poland Spring a day. The profits are in the logistics, so building and holding on to the customer base is vital. Says Davis, diplomatically: ''This is a different business than Pepsi and Coke are used to.'' Busch took on Perrier's Calistoga and Perrier in California in 1986 but abandoned the business last year. Nestle tried to market Montclair on the East Coast and Vittell in California but washed out, selling Montclair to Perrier in February. Coke has owned Belmont Springs brand, sold in Massachusetts, since 1969, but Perrier's Poland Spring zoomed past it. Busch's and Nestle's distribution systems were geared more to supermarkets and other retail outlets. Great for soda and beer, less so for water. In its other business Perrier is practically a generic term for mineral water, although the company spends less than $5 million a year on advertising. The beverage from France represents 70% of the imported-water category, according to the Beverage Marketing Corp. consulting firm. In the past ten years at least 20 companies have taken a run at the green bottle, sans success. Davis is more concerned with expanding the category. To do that, the company has worked hard at shifting the brand's image from chic to healthy, so as to make the brand more acceptable to the masses. Perrier has also taken on the soda crowd by introducing flavored waters. Sales of products bearing the Perrier label are growing faster than the 4.5% growth rate of soda sales nationally. Jostens also sells products but defines itself as in the ''recognition'' business: The company is the preeminent purveyor of school rings, caps and gowns, and yearbooks. Somewhere along the way, Jostens management recognized that its biggest competitive asset is people. The company loves to hire teachers tired of measly pay. It thus has a core of former educators selling to educators. The most critical contact isn't with students or parents but with the school administration. Most school systems allow only one company to sell rings to students. So Jostens's sales pitch to administrators is based on the ''no problem'' premise: that the company can provide a full line of high-quality rings, yearbooks, graduation announcements, and pictures delivered on time, so the school administrators won't have to deal with any complaints from parents and kids. The company has a manufacturing advantage too: five plants spread regionally across the country, making on-time delivery easier.

But people are the key. Says H. William Lurton, chairman and CEO: ''You have to keep people motivated to continue to get share. And we have the best training program in the industry. One of the best in any industry.'' The company also claims the lowest turnover in the industry, critical to maintaining long-term relationships with schools and teachers. Jostens's 40% market share in rings has been twice its nearest competitor's. Its return on equity last year was an astounding 50.5%, the 12th highest in the FORTUNE 500. The company earned $89 million on sales of $596 million. OCCASIONALLY even Jove nods, and it takes the interloping of a lesser being to wake him up. The experience worked wonders for Kodak, which has 80% of the U.S. consumer film market, 50% of the global business. Says Kay Whitmore, Kodak's president: ''Even with a very high share, there is no such thing as maintaining market share. There are two alternatives: Grow it, or it will decline.'' In the film business one point of global market share amounts to $40 million in revenues. As the inventor of film photography, Kodak enjoyed a head start few companies could match. But all that history meant nothing to Fuji Photo Film. In a celebrated marketing coup, Fuji outbid Kodak to become the official film of the Los Angeles Olympic Games in 1984. The move gained Fuji immediate recognition that the company backed with a full advertising, promotion, and retail campaign. Kodak got the picture. Since then, Kodak has poured it on, unleashing a series of product improvements that culminated most recently in Ektar 25, 125, and 1,000 films. These films, demonstrably the best ever made, should give Kodak at least a year's breathing space over Fuji and its other international rivals, Agfa-Gevaert and Ilford. To keep the improvements coming, Kodak shifted from functional management to business units in 1985. It has refocused its photographic products division into six distinct units that address separate sectors of the business -- professional photographers, for instance, and the motion picture industry. The company has also changed its strategic focus from single-minded concentration on the end consumer to working on other parts of the business as ; well. For example, Kodak now uses ubiquitous comedian Bill Cosby to advertise to consumers a program called Colorwatch. The hook is that the print quality is guaranteed if consumers patronize photofinishers that use Kodak's chemicals and paper. Colorwatch and the acquisition of other photofinishers have increased Kodak's world market share in chemicals and paper about seven points, to 48%, says B. Alex Henderson, a security analyst at Prudential- Bache. Kodak used acquisitions in its campaign to head off Fuji. Over the past three years the company has bought a number of independent film processors, such as Fox Photo, American Photo Group, and CX. The company also entered a joint venture with Fuqua Industries, combining Kodak's U.S. photofinishing operations with Fuqua's Colorcraft not so much to ram more chemicals and paper through them but to make sure that the Japanese don't. Says analyst Henderson: ''The worst thing that could have happened to Kodak is for Fuji to have made Fuqua an offer they couldn't refuse.'' Killer competitors wisely use their preeminent positions to strike deals others can't. Riddell has around 65% of the market for football helmets, a share butted away from some 20 competitors over two decades of head banging. But the company still competes as though it were protecting a one-point lead. This year the company signed an agreement with the National Football League that gives Riddell the exclusive right to feature the company's name prominently on each of its helmets in exchange for discounts on helmets and other gear made by Riddell and its part-owner, MacGregor Sporting Goods. Riddell Chairman Frederic H. Brooks says the advertising value of just one Superbowl of such exposure could be worth as much as $4 million. Riddell is hoping to capitalize on this brand-name awareness in a couple of other businesses. The company recently bought an outfit that makes shoulder pads. It is also aiming to get in on the lucrative consumer athletic-wear business in what promises to be a true test of its competitive spirit. Brooks seeks only the high-end performance gear, though, where Riddell can protect its heavyweight image. ''We don't want people to put on our wear like they do a Nike or Reebok running suit and then go to the supermarket,'' says Brooks. ''We don't want couch potatoes wearing our clothes.'' Some of the roughest, toughest competitors have emerged by holding their own in shrinking markets. Unifi, of Greensboro, North Carolina, is one of the last ^ survivors of over 50 competitors that entered the Seventies as makers of texturized polyester. Such manufacturers take the raw yarn, bulk it up, and make it more elastic so it can be woven into fabric. Two things happened to the business, both bad. First, good taste prevailed and double knits died. Polyester lost its appeal as a fabric, and demand for textured polyester began dropping, from 1.2 billion pounds per year in the mid-Seventies to 650 million pounds by 1985. Second, foreign producers of finished apparel, which didn't always buy from U.S. sources, gained market share. These two negatives were too much for the likes of Hoechst, Celanese, and Rohm & Haas, which decided to take their money elsewhere. ''The returns just weren't there, unless you had a real conviction of what the future was going to bring,'' says Unifi President William Kretzer. That conviction has brought Unifi about 70% of the yarn sales market.

UNIFI HAS INVESTED heavily in the business, adding capacity five times in the past ten years. The company spent big to decrease its costs while increasing product quality. Machines that once spilled out 10,000 pounds of poly per week now do more than 70,000. The company also scoured the marketplace to find nonapparel uses for its out-of-fashion product: Most of its sales now come from business, such as home furnishings -- sheets, drapes, and upholstered fabrics, for example. Perhaps the greatest danger for these competitive winners is that they have won the game, up until now. But most realize the minute they start to ease off is the minute they start to become losers. Says Kodak's Whitmore: ''Even with a high market share, you must get out there and say, 'I am trying to gain new customers. I am trying to meet new needs.' You have a more forward-looking, more opportunistic approach. You may end up only protecting your market share, but you will, in fact, protect it.'' Ray Kroc, the legendary founder of McDonald's, put it another way. If a competitor is drowning, he said, stick a hose in his mouth.