A couple of days ago, in the WSJ, I noticed an ad for Chevron. They claimed to be getting out of the dirty energy business into the clean energy business. The other day I was surprised to see that Nike Plus has embraced a new model that dispenses with one of their revenue sources, the chip.
Nimble business are learning to abandon the existing business model before someone rips it out from under them.
This marks a move away from the literalism of capitalism. The old corporation was founded to make a particular widget and these widgets came to define this corporation’s essential concept of itself, its identity, sometimes its very soul. People who made heavy equipment saw themselves (sexist language warning) as "tractor guys forever." A company like this might branch into monorails, say. But they were unlikely ever to contemplate book binding.
But I think that has to change. Especially if we are a big corporation. To survive in a really dynamic marketplace, we have to be prepared to reinvent ourselves very substantially. That might be the only path to survival. So the corporation can no longer say, "we’re in this business." The best it can hope for is, "we’re in business."
Even Theodore Levitt’s famous dictum, "What business are you in?" is beginning to feel a little literal. He asked this question of the people who owned the trains. When they came up with the wrong answer ("the train business?"), the Professor was obliged to chide them, "You are in the transporation business."
Yes, Levitt helped them out of the literalism, but "the transportation business" is still too narrow. Even this larger idea is too small.
The trouble here is that it is a deep familiarity with one particular industry or sector that makes some companies so good at what they do. The devil is in the details, and these companies know the details all the way down to the nitty gritty. This matters a lot less now that so much is outsourced, but this problem remains a problem. And I intend to set it aside.
I think every company has a purview. This is the part of the world that’s visible while it gets on with business as presently defined. (If we make heavy equipment, we can "see" monorails. Bookbinding, probably not.) The corporation doesn’t act on everything it sees in this purview but it has this ambit or peripheral knowledge. The purview is all the knowledge the corporation ends up knowing in order to know things it really needs to know about. Whew.
The trouble with the purview is that it may be partial but it’s just so very available. Indeed, the purview may even masquerade as a comprehensive view of the world. In any case, this is where the average corporation is going to go looking for new opportunities when it is having second thoughts about its present ones.
Bad luck. The purview is spectacularly partial knowledge. Nothing appears here unless it happens to be near useful knowledge. Or let’s put this another way. The corporation is a kind of glass bottom boat. It makes a window on the sea. But what gets into this window depends entirely on proximity. The new opportunity, the new industry, may well not be visible from here.
We know that there are very good reasons for the corporation to have something like a 360 degree view of the world. After all, blind side hits can come from anywhere. To pick them up early, we need to be looking everywhere. But now it looks as if there is a positive reason to have a comprehensive view of the world. Only this will guarantee that we see all our options in the event that we will have to up and suddenly change our stripes.
And this will take a Chief Culture Officer and a big board.
Levitt, Theodore. 1986. Marketing Imagination, New, Expanded Edition. Free Press.
McCracken, Grant. 2009. Chief Culture Officer. Basic Books.
We’ve been talking about this a lot. One way we’ve been looking at is “mission driven” businesses. Do you make a widget or do you have a mission? If you have a real mission, and it’s more than just words on paper — then the widget is simply a means to an end. You aren’t locked into being a widget maker.
Of course that also means your mission statement probably shouldn’t begin with words like, “To create long term shareholder value…” That’s from a real mission statement. They get around to mentioning the customers in the second sentence.
The grain of truth here needs to be accompanied with several grains of salt.
First, there is no ethical reason for a public corporation to put a priority on organizational survival over shareholder return. If the business you are good at is no longer viable, how about giving your capital back to the investors and winding things down? Then all the resources of the firm can be redeployed to higher-valued uses and raise the national standard of living. The railroads would have really sucked at making cars, building roads, or operating airlines. Moving into those areas would have resulted in a massive extra increment of real wealth destruction. Compounding that with the suggestion of searching even farther afield, say to nightclub management or cosmetics manufacture, simply increases the absurdity.
Second, there is a fallacy of equivocation in identifying just what is “surviving” when a firm radically shifts its business from one industry to another. If I close my steel plants, terminate the workers and their supervisors, and migrate into web-based entertainment, the only thing that has survived is (some) of the top management team and possibly the corporate name and letterhead. (If instead of closing the old operations I sell them off to someone else who continues to operate them in pretty much the same way, then no adaptation is taking place, either. We’ve simply swapped assets, changing the match between top management teams and operating units but not fundamentally altering the pattern of economic activities.)
Third, while entering a new business that looks good but has no relationship to your existing business may allow you to do something valuable and entrepreneurial, it has nothing to do with adaptation or survival. The same new business would have been just as good an idea for a new firm and perhaps better for someone who already possessed complementary capabilities. In the meantime, somebody still has to figure out how to get the most out of the assets of the existing business.
The vision exercise the post suggests is most valuable when it identifies opportunities for applying existing assets and capabilities, suitably modified, to new areas where they can bring in high returns. That type of entrepreneurship genuinely promotes both shareholder return and real survival of the organization’s operational core. But it means that the firm’s “purview” is precisely the correct starting point for opportunity search.
Your second point (and third point, which is essentially an expansion of the same idea), especially, I think is important here. Such a drastic redefinition is just that, a redefinition; it is more a lateral change than forward.
I would like to add to this that the post itself does not really include examples that support the premise. The two examples given at the outset seem to follow the heavy equipment guys getting into the monorail business more than the same guys moving to book-binding. And, I would say, the examples are less than that, they are an example of “tractor guys forever” becoming “tractors forever” or “tools for life”.
Pingback: Grant McCracken: What Business Are We In? Just Business, Actually - PSFK
This is basically the direction oriented marketing.
Late Prof. Levitt believed in this . But opportunistic stances must be taken by firms. GE has been very very successful in doing that.
There are limitation too in this,what’s possible for GE may not be possible for others.
Thanks & Regards, Deb