Successful companies don’t adapt, they shape the future

In 1960, Harvard professor Theodore Levitt published a landmark paper that urged executives to adapt by asking themselves, “What business are we really in?”

He offered the railroad companies and Hollywood studios as examples of industries that failed to adapt because they defined their business incorrectly.

But today the railroads don’t seem to be doing too badly. Union Pacific, the leading railroad company in the United States, has a market capitalisation of more than $80 billion, about 60 per cent more than Ford or GM.

Disney, the leading movie studio company, has a market capitalisation of about $150 billion. That doesn’t seem too shabby either.

While nimble start-ups chasing the next trend are exciting, companies rarely succeed in the long run by adapting to market events. Rather, successful firms prevail by shaping the future. The truth is that once you find yourself in a position where you need to adapt, it’s usually too late.

Consider the case of Microsoft, which failed horribly to adapt to mobile computing, dominated by Apple. Other attempts to adapt to Apple’s innovations, such as the Zune mp3 player, didn’t gain traction either.

Misreading the market

You would think that by so totally misreading the market, Microsoft would be near bankruptcy, but actually the opposite happened. Over the past 10 years, the company has grown revenues at the impressive annual rate of about 10 per cent and maintains margins of nearly 30 per cent. Those are strong numbers.

Take a look at Microsoft’s cloud business and you’ll understand why. The company recently reported that it’s growing at an annual rate of more than 100 per cent. This is not a new initiative but a direct consequence of Microsoft’s old servers and tools business that it began building for more than a decade ago.

Microsoft is not a nimble company. It doesn’t impress anybody with brilliant market forecasting or slick branding. What it has done is that it has made substantial investments in the research division it set up in 1991.

Dominate

When you are building capacity in your business decades ahead of time, you really don’t need to be that fast.

Apple didn’t create the first digital music player, the first smartphone or the first tablet computer, yet it came to dominate each category.

Amazon wasn’t the first to sell books on the internet, either. These companies succeeded not because they were faster, but because they developed products that were demonstrably better than their competitors.

Truly great companies don’t scramble to adapt to the future, because they create the future. Take a look at any successful business: what made it great wasn’t the ability to pivot but a dedication to creating, delivering and capturing new value in the marketplace.

So it’s okay if your company is late to the party: the important thing is to prepare the ground for the future. Success will follow.

– Copyright Harvard Business Review 2016

From Irish Times (4/11/2016)