Friday, February 8, 2013

Discontinuous change and the Role of Leaders

During a recent brief holiday, I visited a whaling museum.  This museum chronicled every aspect of the development of the whaling industry from the late 1700's to it's decline in the late 1800's.  This museum made it clear that the whaling industry declined, not because of an exhaustion of a finite resource or environmental concerns. Although baleen, the fingernail-like material that comprises the jawbone, was used in the production of collar stays, buggy whips, parasol ribs and corset stays, the decline of the whaling business wasn't driven by a decline in demand for these products.. It was due to the discovery of of oil.  The primary financial driver of the whaling business was the demand for whale oil derivatives as a source of light.  Petroleum replaced whale oil as a source of light and the whaling business largely disappeared.

Conversely, those in the petroleum business in the late 1800's faced a similar challenge as electricity replaced petroleum as a source of artificial light.  They were able to shift their focus from being in the "artificial light business" to being in the energy business supporting the development of the internal combustion engine and the shift from coal to oil in large scale shipping.

The classic example of this challenge often cited is becoming obsolete like those who were in the "buggy whip" business in the 1920's.  More recently, Roberto Goizueta as CEO of Coca-Cola drove a shift to acquire a greater share of the "liquid consumable market" rather than just the "soft drink market". This has led them to develop "a wide choice of products so people can decide which of our beverages best meet their needs and lifestyle"

Theodore Levitt, in a classic titled "Marketing Myopia" makes the case that these dramatic changes don't have to be catastrophic for a business.  He uses examples of railroads declining not because of the automobile but because their leaders could not see themselves more broadly in the transportation business.  Or Hollywood producers who were overtaken by television because they saw themselves as in the motion picture business rather than the entertainment business.  I've attached a link to a 20 page excerpt of his ground breaking work.  The book itself is only 90 pages long, available in paper back thru Amazon and well worth the short read.

Levitt's point, and mine, is that leaders make a difference.  Businesses and enterprises can be affected by shifts in technology, or market saturation but their growth and sustainability is dependant on leadership...not inevitable consequences of developments beyond their control.


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