Levitt vs. Geertz

Dell I’ve been on the road 33 of the last 44 days.  I have neglected blog comments.  I read them, certainly, but I don’t always have enough time or presence of mind to reply.

I mean to do better, starting now. 

Yesterday, Auto offered on comment on Friday’s post.  He wondered whether Theodore Levitt warrants the fuss lavished on him in managerial and marketing circles.  He wondered whether Levitt is perhaps less interesting, less significant that the anthropologist to whom I had compared him, Clifford Geertz.

I would argue that Levitt is more important to business than Geertz is to anthropology, and intellectually more interesting, in any case.  There are several ways to make this argument, but here’s one. 

Let’s consider a "case study" from the pages of Friday’s Financial Times. 

Dell is a $56 billion collosus.  Last year it grew 14% on revenue and 21% on earnings.  As we know, Dell managed this success story by supply chain management and a disintermediation of intermediate parties.  In this industry, to use the words of the famous video, Dell so commandeers the supply chain, it could argue, "All your base (and profit) are belong to us."

But things are no longer quite so rosy.  Dell’s massive price advantage has diminished.  With recent successes at HP, Acer and Lenovo, that advantage may now be as little as 5%.  (So speculates Richard Gardner of Citigroup in the Financial Times.)  Results in the last 3 quarters have disappointed and shares have fallen more than 40% in the last 12 months.

Now, in these circumstances, companies typically respond by doing what they have always done better than they have ever done it.  Indeed, Dell has squeezed $3 billion worth of savings out of what must have been a very lean system. 

But this is sometimes the road to disaster, especially when the competition is playing a discontinuous, Christensenian game, as most now do in the "innovation economy."

But at some point, the corporation sees that old tactics and strategies are no longer working.  Typically this is the moment that Levitt’s question begins to tug at the edges of senior managers’ consciousness. "What business are we in?"

In my experience, this question usually provokes a certain literalism.  In Dell’s case, likely, a surprised, "well, um, we make personal computers."

But this is of course the wrong answer.  Indeed, it is, or may be, the very assumption that now makes life difficult for the corporation.  Corporations are magnificent problem solving machines, but they are obliged, in a Batesonian way, to make some assumptions. Only thus can we "get down to business."  These assumptions will remain in place unless and until some crisis, or the Levittian question, forces them to the surface.

The power of Levitt’s question, then, is that it always elicits the wrong answer.  It is, I think, designed to reveal the invisible and therefore fatal assumption that is the corporation’s new place of competitive disadvantage.  Levitt’s question matters because it reveals, to use the buddhist’s notion, the error with which wisdom must begin. 

Let us examine what might be the course of Dell’s self examination.  Dell can’t be in the "personal computer" business.  After all, the personal computer is an historical accident and a fleeting thing.  The PC looks and feels like an indisputable, inevitable fact but it is an artifact shaped by accidents that "just happened" and "path dependencies" that have long since disappeared.  In point of fact, the personal computer is the unholy child produced out of wedlock by a brief and unlikely indiscretion on the part of IBM and Microsoft (with genetic contributions from Intel, Xerox, and Apple), and shaped ever since by a technological race to see what improvements could be made coaxed out of a "standard package" that is not, as I say, very standard at all.

If there is any doubt on this one, we have in the last few years watched as computer chips insinuate themselves into cars, household appliances, clock radios, Xboxes, iPods, PDAs and cell phones.  These are personal computers, too.  Indeed, they are more personal than the PC.

People at Dell are alive to the fact that the culture and the consumer have changed. Ro Parra, the head of Dell’s consumer business, watched his teenage daughter getting ready for her exams.

She was listening to music on the internet, she was chatting with her friends online, and she was doing research at the same time.  There is a dramatic change going on in the way people use computers. You can argue our products probably lost some of their sizzle and lost excitement relative to our competitors.

The marketer within cringes at the idea that Parra got the news from his daughter.  I mean really this is what marketing research is for.  But, very good, Dell is on notice.  The world is changing. 

Perhaps Dell is now poised to grasp additional opportunities, especially the MPC (more personal computer).  But fully to accept Levitt’s challenge, Dell will also have to get in touch with culture and consumers on a continual basis.  It is no longer enough merely to find the one true successor to the beige box but to engage in product development that contemplates and auditions a vertible stream of successors.  This will take new kinds of marketing research and strategy.  Finally, Dell will have to embrace a new level of design intelligence.  The iPod demonstrates that a new product must instruct the consumer in what it is and how it works in a single glance.  Dell did introduce a music player (Jukebox, pictured) a couple of years ago.  It was an impressively bad piece of design.  Design is a way of delivering novelty without provoking astonishment. 

These urgent tasks are not necessarily implicit in Levitt’s question, but the marketer cannot embrace them until he or she understands that the world has changed and that the old order has passed. 

In sum, Levitt’s question matters because it an opportunity to climb out of once profitable but now mistaken assumptions.  Climb out?  Bail out, more like it.  Mistaken assumptions will carry us to a terrible end if we don’t part company.  So, yes, it’s an important question. 

This may say enough to make the argument, but a couple more words. Clifford Geertz is one of the great architects of anthropology’s interpretive turn.  His elegant essays and books help us see the ways in which culture and meanings form the social world.  This is precisely the sort of thing that is removed by economic man models, to hat’s off to this aspect of his work and his influence.  (I should also acknowledge that I am a Geertzian as everyone trained in the 1970s must be, and that I became an anthropologist largely on the strength of his influence.)

The thing about Geertz is that his actor is almost always a theatrical actor, playing out dramas and meanings.  There isn’t much room here for agency and absolutely no room for cultural forms that emerge from the concatenation of economic actors and activities "on the ground."  This is of course an important "site of production" in contemporary, First world cultures and while the Geertzian influence has a beneficial effect on the students on traditional societies, it is not much help when it comes to the rest of the world.

Indeed, ours is a culture in which everyone and not just the corporation routinely discovers that favorite assumptions no longer actually seem to apply.  Everyone, not just the corporation, is having to ask "what is it that I am, what is that I do" on a continual basis.  This suspends the actor not in a web of meaning but in a set of a conflicting, largely inscrutable agenda and the dynamism that these agenda set in train.  First we must read the world, guessing at codes, grasping at interpretations.  And then we must decide what and who we are.  What makes sense?  What makes sense?  What’s our best hope? 

Levitt’s question applies not just to the corporation but to culture, and we cannot answer it without giving the actor the agency, the self interest, and the active intelligence that Geertz and anthropology seem sometimes to have taken out.

References

Allison, Kevin.  2006.  Can Dell Succeed in getting its mojo back.  Financial Times.  June 29, 2006, p. 17.

4 thoughts on “Levitt vs. Geertz”

  1. Frankly, I find this post nothing short of brilliant. Your explanation of why Levitt’s questions are important is startlingly clear and exactly on the mark, in my view.

    I have bookmarked your blog and will be reading you regularly. Thank you so much for a very stimulating and interesting post.

  2. There is always a tension in business strategy between starting with ends or starting with means, and both of these are caught up in the “identity” of the firm. Starting with ends is customer-oriented–“what is our target market, what set of needs are we trying to fill, how will we fulfill these needs better than others?”. Starting with means is capability-oriented–“what are especially good and bad at? How can we apply our strengths to new areas? How can we address our weaknesses without destroying the specialization that makes us strong? How can we get the highest return on the assets we own now?”

    The problem with the pure Levitt approach is that it cuts with only one blade of the scissors. Dell is not going to be successful running social networking sites even if they do turn out to be the Next Profitable Thing. This is because Dell lacks the internal capabilities to be successful there. If there really were a trend toward more radical customization of computers, Dell would have a big advantage because of its make-to-order manufacturing system; I’m skeptical of this supposed trend, however.

    I guess I think that a marketing perspective is insufficient for thinking clearly about business strategy, although it’s usually necessary. Even if you decide you’re in a different business and sell off all your existing assets, whoever buys those assets is going to be right back in the problem you “escaped” by asking the Levitt question. Business identity isn’t that easy to shed, for it ends up being conserved somewhere.

  3. Hi Grant,

    Just back after a vacation so let me expand on earlier offhand dissin’ of Levitt.

    My read of him — based on what I remember from business school marketing classes — is that he regards corporations as sufficiently plastic that all schemes to reinvent themselves are possible. And that if senior execs throw enough ideas at the wall, a good one will eventually stick. Or am I doing violence to his thinking?

    Go back to his famous railroads example. He casually tosses out that they should have seen they were in the transportation business, that this would have enabled them to respond to the rise of airlines and trucking.

    My anti-Levitt approach comes out of Chicago finance/modern portfolio theory. If I think the railroads are going to hell and that airlines are the future, then I’m better off investing in United airlines myself than in having the Union Pacific railroad start acquiring airliners. (Let’s set aside that Congress specifically banned the railroads from owning any airline that had contracts to haul US mail.)

    Just as if I think portable music players are a terrific business, I’d rather invest in Apple than see the managers of Dell piss away resources trying to design what will likely never be more than a third-rate iPod.

    Levitt, as I remember him, doesn’t think like a Merton Miller. Levitt sees no reason why Dell can’t do what it takes to respond to any and all competitive threats. To him, it’s all just a matter of management doing some brainstorming at a corporate retreat.

    So if Michael Dell wants to build fighter planes AND sell kitty litter — why the hell not?

    In some unexpected way, I think of Levitt as an apologist for the 1960s conglomerate craze, in which empire builders like Tex Thornton and Charles Bluhdorn acquired all sorts of unrelated assets about which they had so littel understanding and passion that they almost necessarily had to manage them according to financial and accounting metrics.

    I read that thick description essay in the fall of freshman year and again in the late spring of senior year, bookending my college education. Oh, and I read it twice more in between those years. Geertz was a ubiquitous presence in the late 1970s.

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