Where Did This Question Come From, and Why is it Relevant?
It’s a simple but powerful question. It was first asked in the ‘70s by management consulting guru and thought leader, Peter Drucker. And it continues to be asked today by most forward-thinking CEOs.
About the same time Drucker was consulting, renowned founder of modern marketing and Harvard Business Review editor, Theodore Levitt, also made a strong argument that companies should stop defining themselves by what they produce, and instead reorient themselves toward customer needs.
Here’s what Levitt had to say in a 1960 Harvard Business Review:
“Every major industry was once a growth industry. But some that are now riding a wave of growth enthusiasm are very much in the shadow of decline. Others that are thought of as seasoned growth industries have actually stopped growing. In every case, the reason growth is threatened, slowed, or stopped is not because the market is saturated. It is because there has been a failure of management…The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.
An expanding market keeps the manufacturer from having to think very hard or imaginatively. If thinking is an intellectual response to a problem, then the absence of a problem leads to the absence of thinking. If your product has an automatically expanding market, then you will not give much thought to how to expand it…”
The question, “What business are you in?” is an important gateway question for you to ask and for your team to get right.
Companies That Didn’t Get It Right
There are many case studies of companies that did not answer this question correctly. Kodak today is largely out of the photography business. Blockbuster was in the business of renting movies. Record companies once offered a disruptive technology—selling recorded music. They were moved aside by digital start-ups that came from nowhere to provide customer value in a new and better way.
Big box retailers, such as Home Depot and Lowe’s, have methodically identified product categories once dominated by name brands that started stagnating. The first step in those brands’ stagnation occurred when US manufacturers moved their production to China to meet the margins required by the retailers. Then, as innovation languished and the category looked more like a commodity, the big box retailers built large offshore sourcing departments and began sourcing the same products from the same suppliers, leaving brand name manufacturers with few, if any, points of differentiation.
Regarding differentiation, Levitt wrote:
“There is no such thing as a commodity. All goods and services are differentiable. Though the usual presumption is that this is more true of consumer goods than of industrial goods and services, the opposite is the actual case. The usual presumption about so-called undifferentiated commodities is that they are exceedingly price sensitive.”
One exercise your company can use to discover points of differentiation is to look for unpleasant customer transactions in your business or industry. Buying gas is unpleasant. It’s more like paying a tax for the convenience of driving. So, if there was a more pleasant alternative, the entire industry would change in a heartbeat!
I recently wrote about how CEOs in 2017 are embracing disruptive business models and technologies. In previous years CEOs were skittish about disruptive technologies in their marketplace. Today’s CEOs view disruptive technology challenges as opportunities to create advantage. They embrace disruptive technologies as a way to stay relevant. Effective CEOs are the very ones to disrupt their own business for a positive outcome—before someone else does it and takes their customers. At BOLTGROUP, our specialty is helping clients explore opportunities, weigh benefits, and develop technologies for disruptive new product lines.
So, what business are you in? Do you define your business by the product you sell or by the value you create for your user?
In the ‘80s I had the good fortune of working for a very smart, forward-thinking senior management team at Techsonic Industries, home of Humminbird depth finders.
We asked the “What business are you in?” question often as a means to help evaluate our business direction, and identify the products and services that would support that direction. It allowed us to think independently of our production facilities and current product lines and focus more on the customer base we served and what might bring them value. By defining the business more by the needs and problems of customers than a specific product, we were able to take advantage of emerging technologies that would better meet those needs and solve problems. The result was a disruption to the fish finder market. By adopting the new technologies (LCD displays and microprocessors), Humminbird offered customers a product experience that was much easier to learn and understand. Within one year the company went from a long-standing number two market positon to a dominant number one. The easier to use and understand product line greatly expanded Techsonic’s overall market size.
BOLTGROUP also helped Hunter Fan, the market leader in residential fans, ask and answer the question, “What business are we in?” Results of that exercise prompted the question, “What business should we be in?” The exploration of both questions, along with BOLTGROUP’S experience in the builder and consumer markets, allowed Hunter to break out of its brand box. Our ethnographic research techniques revealed insights and potential new product features and benefits. That led to the development of innovative fans for the construction industry. Hunter Fan SVP, Jim Barrett, shared, “The resulting product line was selected for a national rollout with a large DIY chain, and touted as the most innovative fan product at the annual line review.”