Beyond Strategy – how to avoid ‘death by mistaken identity’ by seeing what business you’re really in
Most organisations and their advisors regard strategy formulation as the foundation for everything else. But to avoid ‘death by mistaken identity’ it’s important to look beyond strategy to understand what business you’re really in.
Two centuries ago, ice from New England ponds was a valuable commodity for cooling drinks and preserving food. Ice harvesting was little more than a cottage industry. Individual families, or their servants, cut ice by hand and stored it in underground cellars for use in the summer.
Then in the early 19th century a Boston entrepreneur called Frederic Tudor saw the commercial potential for New England ice. As a result, Tudor decided that rather than going to Harvard he would set up The Tudor Ice company instead. In doing so he created a new industry – the New England ice cutters.
Tudor’s strategy was one that would be familiar to many entrepreneurs. He sought to achieve sustained profitable growth by applying technology to the cutting, storage and shipping of ice. Focused on this key success factor, Tudor hired inventor and fellow Bostonian Nathaniel Wyeth. Tudor and Wyeth’s innovations massively boosted efficiency, productivity and growth over the next several decades.
Tudor used the cost advantages that followed to undercut competing suppliers. He even gave away free ice to bartenders, then started charging once their customers were hooked on cold drinks.
Beyond strategy – seeing how yesterday’s keys to success become tomorrow’s factors for failure
In 1806, Tudor sent a cargo of ice to Martinique in the West Indies. Although he lost money on the venture it opened a new market that would eventually become highly profitable.
Twenty years later, The Tudor Ice Company was shipping 12,000 tons of ice a year and Frederic Tudor was now known as “the Ice King”.
In 1833 he exported 200 tons of ice on a 180 day journey to India. The ship exploited sawdust-based thermal insulation, another Tudor/Wyeth innovation. Half the shipment survived, and even though it sold at a net loss, the Ice King’s empire was expanding.
Tudor constructed above-ground ice storage facilities incorporating Wyeth’s thermal insulation. One of these ice houses in Chennai, India still stands as a local monument to Tudor’s ingenuity and entrepreneurship.
In 1857, at the age of 74, Tudor still saw a bright future. He told the Boston Board of Trade that the ice harvesting industry was ‘yet in its infancy’.
He saw no reason why the strategy of the previous fifty years should not continue to succeed. The key success factor – continuous innovation in the ways and means of cutting, storage and shipping ice – showed no sign of slowing.
But even as he spoke, the first ice-making plants were coming on line in the United States. Blinded by their past success, The Tudor Ice Company failed to see the threat that this new technology posed to their business.
The number of machine-made ice plants grew exponentially to several thousand by 1920. And by then, the New England ice cutting industry had melted away.
Beyond strategy – the end of an industry due to death by mistaken identity
On one level, this story is just one example of how disruptive innovation can destroy established market leaders. How new technologies comes along that change the basis of competition to the disadvantage of those with a lot invested in the success factors of the past. And whilst that’s a fair assessment of what happened to ice harvesting, it’s worth exploring why the prolifically innovative Tudor failed to exploit refrigeration technology.
When you think about it, The Tudor Ice Company had a lot going for them as potential adopters of refrigeration. They had an established international market for ice and a very strong existing customer base. They had the international transport and logistics network needed to service and extend that market. All they would have had to do was phase in machine-made ice as harvested ice gradually became less competitive.
The deeper reason that the Tudor Ice Company failed was that they were caught in a seeing-being trap. (My senior executive’s 20-minute video guide describes these traps, how they hold organisations back and how to escape their influence. You can access this for FREE here). As a direct result of this trap, they failed to see beyond strategy to address the deeper, generative question of which business they were in.
In a case of death by mistaken identity, they thought they were in the ice cutting, shipping and storage business. This being prevented them from seeing refrigeration technology as relevant to them because it did not help in cutting, shipping and storing ice. They simply weren’t interested in cheaper ways of producing ice. So, when a way of doing that came along, they went out of business.
Beyond strategy – your business is not what you’re selling, it’s what your customers are buying
There’s an old story in marketing that when customers buy a 1/4 inch drill they don’t want the drill, they want a 1/4 inch hole. But if you’re a drill manufacturer, especially a leading drill manufacturer, it’s easy to forget.
It’s also easy to stick to a strategy based on drill production skills. The legacy of being a leader in metallurgy, alloys, heat treatment, volume manufacture, etc. makes it hard to see lasers or high-pressure water jets as competing technologies, even though they both have potential to produce the holes that customers want.
For ice businesses like Tudor, the importance of going beyond strategy doesn’t stop with the realisation that customers want ice. The next level of insight would be to see that what customers really wanted was not ice per se, but a way to cool drinks and preserve foodstuffs.
Equipped with this insight, home refrigeration would become a technology of interest. And, as we know with the benefit of hindsight, the availability of domestic fridges subsequently eliminated the need for ice production, shipping and storage. Only those businesses able to go beyond strategy for ‘ice production’ would retain the business of customers who wanted ‘cold’ (rather than ice).
And at the next level of insight, what some customers really wanted might have food preservation rather than ‘cold’ per se? In that case aseptic packaging would become a technology of interest…
Beyond strategy – what business are you really in..?
The history of human enterprise is littered with examples of organisations called to go beyond strategy to see what business they were really in. Some responded to that call and others failed to heed it, or maybe didn’t hear it at all. Some of my personal favourite examples are:
- Black & Decker – who rejected Ron Hickman’s collapsible workbench idea that became the ‘Workmate’. A big hit with users for holding work steady, as a ‘power tool company’ B&D couldn’t see its relevance as it had no motor. They only woke up and acquired the rights after Hickman launched the product himself.
- Kodak – world leaders in mass-market photography for over a century, with a motto of ‘share moments, share life’ that seems to go beyond strategy. Unfortunately, it was just an advertising slogan and never drove the business. Heavily invested in wet chemistry on film, Kodak were slow to shift to digital. They were ultimately killed by the next major technology disruption to their business – when cameras got subsumed into smartphones.
- Xerox – who, despite investing hugely in technology for the paperless office, still failed to go beyond the strategy of a copier company. Ironically, Xerox developed most of the technologies used in the personal computer, but failed to commercialise them.
- Procter & Gamble – who threatened to fire the internal champion of the “silly diaper idea” that became Pampers due to the legacy strategy of being a soap company.
Like the above examples, you are probably pretty clear on what your business is selling. But what is it really that your customers are buying?
What business are you in..?
Are you sure?
In 2014, a group of entrepreneurs resurrected and reinvented The Tudor Ice Company as ‘one of the world’s oldest startups’. Aiming at the craft cocktail market they process water to remove dissolved gas and other impurities. Then they package this ‘unfrozen ice’ into 24 large cubes or ice sticks for customers to freeze and serve. Their branding leverages the history of the Tudor Ice Company – “Established 1806”. Frederic would have approved.