(by Theodore Levitt, from "HBR's 10 Must Reads: The Essentials")

What business are you really in? A seemingly obvious question--but one we should all ask before demand for our competitors' products or services dwindles.

The railorads failed to ask this same question--and stopped growing. Why? Not because people no longer needed transportation. And not because other innovations (cars, airplanes) filled transportation needs. Rather, railroads stopped growing because railroads didn't move to fill those needs. Their executives incorrectly thought that they were in the railroad business, not the transportation business. They viewed themselves as providing a product instead of serving customers. Too many other industries make the same mistake--putting themselves at risk of obsolescence.

How to ensure continued growth for your company? Concentrate on meeting customers' needs rather thna selling products. Chemical powerhouse DuPont kept a close eye on its customers' most pressing concerns--and deployed its technical know-how to create an ever-expanding array of products that appealed to customers and continuously enlarged its market. If DuPont had merely found more uses for its flagship innovation (nylon), it might not be around today.

We put our businesses at risk of obsolescence when we accept any of the following myths:

Myth 1: An ever-expanding and more affluent population will ensure our growth. When markets are expanding, we often assume we don't have to think imaginatively about our businesses. Instead, we seek to outdo rivals simply by improving on what we're already doing. The consequence: We incrase the efficiency of making our products, rather than boosting the value those products deliver to customers.

Myth 2: There is no competitive substitute for our industry's major product. Believing that our products have no rivals makes our companies vulnerable to dramatic innovations from outside our industries--often by smaller, newer companies that are focusing on customer needs rather than the products themselves.

Myth 3: We can protect ourselves through mass production. Few of us can resist the prospect of the incresaed profits that come with steeply declining unit costs. But focusing on mass production emphasizes our company's needs--when we should be emphasizing our customers'.

Myth 4: Technical research and development will ensure our growth. When R&D produces breakthrough products, we may be tempted to organize our companies around the technology rather than the consumer. Instead, we should remain focused on satisfying customer needs.

(Examples: petroleum, automobiles, electronics industries.)

No organization can achieve greatness without a vigorous leader who is driven onward by a pulsating will to succeed. A leader has to have a vision of grandeur, a vision that cna produce eager followers in vast numbers. In business, the followers are the customers.

In order to produce these customers, the entire corporation must be viewed as a customer-creating and customer-satisfying organism. Management must think of itself not as producing products but as providing customer-creating value satisfactions. It must push this idea (and everything it means and requires) into every nook and cranny of the organization. It has to do this continuously and with the kind of flair that excites and stimulates the people in it. Otherwise, the company will be merely a series of pigeonholed parts, with no consolidating sense of purpose or direction.

In short, the organization must learn to think of itself not as producing goods or services, but as buying customers, as doing the things that will make people want to do business with it. And the chief executive has the inescapable responsibility for creating this environment, this viewpoint, this attitude, this aspiration. The chief executive must set the company's style, its direction, and its goals. This means knowing precisely where he/she wants to go and making sure the whole organization is enthusiasically aware of where that is. This is a first requisite of leadership, for unless a leader knows where he/she is going, any road will take him/her there. (And if any road is OK, the chief executive may as well go fishing--if the organization does not know or care where it is going, it does not need to advertise that fact with a ceremonial figurehead, for everybody will notice it soon enough.)

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Last modified 02 June 2021