Idea 50 - What business are you really in?
Every once in a corporate blue moon a truly revolutionary idea comes
along, one that makes every thinking company look at what it is doing through a
new pair of spectacles. And a vision corrective was exactly what Theodore
Levitt offered managers with his scornful, provocative and hugely influential
article 'Marketing myopia', when it appeared in the Harvard Business Review in
1960. Its subject may have been marketing but, as much as anything, it was
about strategy.
There
is surely not a business in the developed world that doesn't 'focus on the
customer', or at least claim to. So it may be hard to remember, or conceive of,
a time when that simply wasn't so. But that's just how it was at the start Of
the 1960s, when Levitt chose to shake US industry by the scruff of its
collective neck. He began by pointing out that every major industry was once a
growth industry. Some still were, but had the spectre of decline looming over
them. Others had already stopped growing. In either case, the reason was not
market saturation but a failure of management, right at the top. His Exhibit A
is worth quoting in' full:
Entertainment, not movies Hollywood had survived the birth of
television, but only by the skin of its teeth. All the big studios had gone
through drastic reorganizations and some had disappeared. The cause of their
troubles, however, was not television's inroads but the studios' myopia. They
thought they were in the movie business when they were really in the
entertainment business. They dismissed television when they should have
welcomed it as an opportunity. Levitt asked: 'Had Hollywood been
customer-oriented (providing entertainment) instead of product oriented (making
movies), would it have gone through the fiscal purgatory
it
did?' He doubted it.
Levitt
insisted that there is no such thing as a growth industry, only companies that
can create and capitalize on growth opportunities. Dead and dying 'growth'
industries had believed in one or more of these four myths:
·
our growth is assured by an' expanding and more affluent
population;
·
there is no competitive substitute for our industry's major
product;
·
we can protect ourselves through mass production and rapidly
declining unit costs as output rises;
·
excellence in technical research and development will ensure
our growth.
Levitt
noted that a growing market keeps the manufacturer from having to think very hard or imaginatively.
If your product has an automatically expanding market, you may be tempted not
to think about how to expand it yourself. He berated the oil industry for
believing in the first two myths and for concentrating on improving the
efficiency of getting and making its product, rather than improving the generic
product or its marketing.
Bye-bye buggy whip There is no guarantee against product obsolescence, he
warned, and if a company's own research doesn't make a product obsolete,
someone else's will. With the advent of the automobile, no amount of product
development was going to save the buggy whip industry. Had it thought of itself
as being in the transportation industry, however, it might have turned to
making, say, fan belts.
In
mass production industries, Levitt noted that volume can be a snare and a
delusion. 'The prospect of steeply declining unit costs as output rises is more
than most companies can usually resist ... All effort focuses on production.
The result is that marketing gets neglected.' A fixation with research and
development can be as dangerous, producing the illusion that superior product
will almost sell itself. Again, marketing is a neglected afterthought, the
uncared for stepchild. In all these instances, companies think of themselves as
producing goods and services, not customer satisfactions. They should be
thinking the reverse. 'An industry begins with the customer and his or her
needs, not with a patent, a raw material or a selling skill.' Having started
with the customer's needs, an industry should develop backwards, through
delivery, creation and, finally, finding the raw materials.
Selling is not marketing Levitt didn't mean that selling was being ignored.
'But selling, again, is not marketing', he said. 'Selling concerns itself with
the tricks and techniques of getting people to exchange their cash for your
product. It is not concerned with the values that the exchange is all about.
And it does not, as marketing invariably does, view the entire business process
as consisting of a tightly integrated effort to discover, create, arouse and
satisfy customer needs.'
Levitt
said that building an effective, customer-oriented company involved far more
than good intentions or promotional tricks. It involved profound matters of
human organization and leadership. The company needed a 'vigorous', driven
leader, one with a vision than could produce eager followers in vast numbers.
'In business, followers are the
customers.'
In
Levitt's refocused company, management has to think of itself not as producing
products but as providing customer-creating satisfactions, and it has to push
that idea - and everything it means - into every comer of the organization. It
must think of itself as 'buying customers' and it's the chief executive who has
responsibility for creating this attitude and aspiration. 'The chief executive
must set the company's style, its direction and its goals', Levitt concluded.
'This means knowing precisely where he or she wants to go and making sure the
whole organization is enthusiastically aware of where that is. This is a first
requisite of leadership, for unless a leader knows where he is going, any road
will take him there.'
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