, by Theodore Levitt
, is one of the most important works ever to come out of academia
. This essay
has forever changed the business world
and the way business is done. Today, most businesses are based on Ted Levitt's theory that firms that define themselves to narrowly dig their own graves.
The main example he gives in his essay is the railroad industry, which today is very minor. The railroads were once hailed as one of the key commercial infrastructure aspect in the United States. Without the railroads, the US wouldn't be able to do the vast amount of business it currently conducts. However, today, the railroads are virtually insignificant, and were on the verge of bankruptcy before being nationalized by the government.
Levitt explains the downfall of the railroads as a result of defining their industry to narrowly. They saw themselves in the 'Railroad Industry,' and thus only focused on competition from other railroads. They became too comfortable when they should've been looking for ways to keep their competitive advantages. When the interstate highway system was underway and trucking and air transport became available and cheap, the railroads were caught with their pants down.
If the railroads defined themselves as being in the Transportation industry, they would have perceived the threat of the competition from outside and would have acted accordingly. Today, most industries define themselves broadly so as to aviod the same fatal error as the railroads.
An example of this is the photography companies. Companies like Eastman-Kodak and Polariod saw themselves too narrowly as being in the photography industry. Now, they are facing severe competition from electronics firms that make scanners and digital cameras. If they defined themselves as being in the memory preservation business, they would have seen this trend early on and would not be experiencing the woes that they currently feel.
A good example of a success story is Harley-Davidson. They saw that being in the motorcycle industry was too narrow, and changed to the more broad 'brand image' industry while keeping the motorcycles. They sell their bikes through the image the bike portrays so as to differentiate themselves from regular motorcycles and competition from the Japanese and German producers.
As a result of Levitt's publishings, the business world has become stronger and more flexible than ever. Consumers were the real winners as companies were forced to deal with competition and improve the items consumers want. Many companies dodged huge bullets, while others have met a fatal end from being too narrow and myopic. Ted Levitt's work is something that has changed the world of capitalism today.