Published On: Tue, Aug 23rd, 2011

The Business of Doing Business

By: Gerald J. Sherman

Because of the many requests for a rerun of this article, I am submitting the following. We would like to hear from you about “What business are you in?”– and help you define your business.

You may say that’s an easy question to answer! Asking industry leaders this question seems basic and simplistic. Is it? This is one of the classic questions that should be answered in depth for any business to survive and prosper in this turbulent marketplace.

 Many years ago the railroad companies were faced with serious financial problems; they were losing their market share for passenger travel and freight business. The trucking industry was making headway delivering freight across the nation and airlines were taking away a good portion of their passenger and freight business.  We have to credit the marketing genius of Theodore Levitt, who coined the expression, “What Business Are You In?” Levitt used the railroad industry as an example of an industry not knowing the business they were in as a reason for their failure to prosper. (Theodore Levitt, “Marketing Myopia”, Harvard Business Review 38 (July-August 1960), 45-57, at 45, (Levitt 1960).

As the story goes, the railroad industry leaders called upon consultants to find ways of dealing with declining revenues and thus save their business.  After studying the situation, the consultants asked the railroad tycoons the question, “What business are you in?” “We are in the railroad business,” they answered, “and we certainly didn’t need a consultant to ask us that.”

Finally the consultants told them that the problem was that they are not in the railroad business but they are in the “Transportation Business.” The railroad execs were presumed to say, “What else is new?” What the consultants were trying to convey to the railroad executives is that being in the ‘transportation business’ meant that they would have to compete with the airlines and trucking companies. They also advised them to invest in ground and air transportation, by buying an existing trucking company or airline or organizing a new company. Marketing by other means of transportation than theirs would be crucial in these changing times. How about B & O Airlines & Overland Trucking services?

But lo and behold the railroad folks would not take that advice and the rest is history! Although the railroad industry today remains part of the transportation industry, total track-miles have fallen from 319,000 in 1970 to 170,000 and trucks still have to be called on to get most goods to a final destination.”

Think of the possibilities if railroad companies acquired other means of transportation to relate to the changing times. The railroad companies that remained have not shared in the growth of the booming transportation business. The railroad industry was on the wrong track!

Another example of a business defining itself and taking action is the telecommunications business. As we all know, today’s telephone companies do not see themselves as only providing service of dial tone telephone access but own and partner with Internet providers, cable TV and satellite companies. They are not in the telephone business but in the electronic communication business and will be into any and all related electronic communication services to satisfy the demand of the virtual market place.

It is time that companies must redefine their business and ask themselves the question: What business are you in? By finding answers to this question you will be opening up new doors for future opportunities to expand your business.

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