Which business are you really in? This was a question that was posed in 1960 by Harvard Business School professor Theodore Levitt in a seminal paper titled Marketing Myopia.
In the paper, Prof Levitt (now late) argued that sustained growth for any business depended on how broadly the business defined its scope as well as how carefully it assessed and attended to customer needs.
At the time of writing the paper, Levitt used the example of the railroads that had stopped growing. This is how he summed it: “The railroads stopped growing. Why? Not because people no longer needed transportation. And not because other innovations like cars and planes filled transportation needs. Rather, railroads stopped growing because the executives incorrectly thought they were in the railroad business rather than in transportation business.” They viewed themselves as providing a product instead of serving customers. Too many other industries make the same mistake thereby putting themselves at risk of obsolescence.
Today, 60 years later, in a digital world where industry boundaries are being blurred by the day, the question posed by Levitt remains even more relevant to business leaders and their organisations. What business are you really in?
Many managers still define their businesses by the products/services they offer or by the competitors in the industry. Ask around and you will hear such responses as: “I am in the media industry. I am in manufacturing. I am in the banking or financial services sector. I am in the hospitality industry. I am in the Telcos.”
Of course there is nothing wrong with defining the business you are in this way because that is what you actually do anyway. But a narrow definition of your business coupled with a focus on what you currently offer limits your potential for growth as an organisation because as American scholar Noam Chomsky put it, the structure of language determines not only the thought but reality itself.
Let me shine the spotlight on the media industry (oh, there we go, again!) in Kenya (and by extension the East Africa region) where I have worked for a considerable period of time. If you assess the enterprises, you will note that they mainly operate from the same rulebook: a media house will ideally have a newspaper or two, a few radio and TV stations as well as the some versions of the same products online (wrongly called digital assets). It is true that some have tried to shore up their fortunes by investing in certain areas like sports betting but such efforts have been feeble at best and disjointed at worst. So the firms have largely defined themselves around three product offerings- radio, TV broadcasting and newspaper. And the business model has majorly been reliant on adverting revenue.
Yet because of digital technology, other non-media enterprises (in the traditional sense) like Facebook, Google, Instagram and YouTube are taking a huge portion of this ad revenue. When you define your business narrowly, you are like a farmer who expects the tree he has planted to grow forever and probably touch the sky!
Let’s now pick the example of the so-called Telco industry and specifically zero in on a company like Safaricom in Kenya. Among the services that Safaricom offers to customers today include mobile telephony, mobile money transfer (MPesa), consumer electronics, ecommerce, cloud computing, data, music streaming, and fibre optic services. More offerings are definitely in the pipeline. Notice that unlike the enterprises in media - okay, Safaricom is also media company- Safaricom has leveraged its core capabilities to extend and expand its offering to customers. These services do not fit the narrow definition of the offering of a telecommunications firm. The one thing they do is that they increase switching costs for customers. While announcing the Safaricom results for the financial year ended March 2020, immediate former CEO Michael Joseph said, “we have stayed the course, given consumers more value and put the customer first by delivering relevant products and services.” Safaricom announced a profit of Sh 74 billion, a record profit for a local company. It is all about the customer and what they need to transact life events; that is what a next generation enterprise does.
MIT digital research leaders Peter Weill and Stephanie Woerner have described a next generation enterprise as a “destination for customers navigating life events rather than a place they go to make a transaction”.
One more example. Which business would you say Amazon is in? Lets try; you would say Amazon is a store for books and electronics in which case its competitors would be the likes of Best Buy, Walmart or Barnes & Noble. Amazon is also in the ad network business directly competing with Google. When it comes to being an App store, Amazon is competing with Google and Apple. Amazon’s video on demand (VOD) service directly competes with Hulu and Netflix, among others while Amazon Web Services (AWS) is a direct competitor to IBM and Microsoft.
Amazon Studio is in direct competition with any studio that produces video content! This list isn’t exhaustive, but it gives you the picture of a next generation enterprise. It is impossible to define Amazon in the traditional sense because it has always expanded its scope around customers and not industry or competitors.
Business Imperatives in the digital age
Prof Sunil Gupta, the Cochair of the Executive Program on Driving Digital Strategy at Harvard Business School advises business executives to bear in mind three things about business competitive advantage in the digital age.
First, competition is not anymore defined by traditional boundaries. Uber might not have been so successful had taxi companies kept in touch with consumer needs and provided a convenient way to order and pay for a cab, he says.
Secondly, competitive advantage no longer comes from low cost and product differentiation as management guru Michael Porter once advised. Your sustainable competitive advantage shall ensue from a deep knowledge of customers, and this can be attained by leveraging digital technologies to mine customer data. The organization must continually invest in and upgrade its capabilities, including people, to be prepared to serve customers in new ways.
Thirdly, if a firm can be able to provide a system of complementary products and also create a platform with strong network effects it will have a strong competitive advantage.
That is what the likes of Safaricom and Amazon are doing- they continue to exploit the core while at the same time exploring the “white spaces” as business model innovation expert Mark Johnson, a cofounder of Strategy and Innovation Consultancy firm Innosight, would put it.
So once again, what business are you really in?
The writer is manager and student of innovation and digital transformation.