Do companies actually understand their core strengths? Surprisingly the answer is not an unqualified “yes”. In his seminal work “Marketing Myopia”, Theodore Levitt talked about how companies misunderstand even what business they are in. One of his famous examples includes the railroad industry in its early days in America. For many years, they thought that they were competing against each other within the same industry. They completely ignored the advent of air travel as a competitor. In actual fact their core business was not railroads, it was transportation. So they pretty much got wiped out because they didn’t see it coming. Another obvious example was of the Cola war where two of the biggest brands in the world, Coke and Pepsi slugged it out for market share of the cola industry. But what was overlooked was that they were losing market-share to Iced-tea, Milk, Orange-Juice and Dairy products. It was only once they realized that they were actually in the beverage business, not the Cola business that they created appropriate products and strategies to expand their business.

And then there’s the example of CDs. I don’t think anyone who’s buying a music system for the house will buy a CD player anymore. Most will choose to build their systems around the Ipod. Digital convergence, which has been so exciting over the last couple of years and continues to be, is putting an intense focus on bringing out the right product, in order to stay in that race. The iPhone, iTouch, iPad, are all wiping out entire business models. The technology, the mix, and the convergence is constantly changing. One of the most fascinating examples of true leadership in understanding destructive innovation is that when Welch took over GE, in 1981. He announced that he was going to radically change the company. Everyone said he was crazy, as GE was one of the most admired companies for 5 years in a row at that time. That’s when Welch showed them the list of the top 100 companies, 100 years prior to that year, and also 50 years prior, and guess what … very few of those companies even existed anymore. This simply meant that it was serendipity that a particular company had the right product that the market wanted at that time. But that alone didn’t really build a great company. His vision was to build a great company that would be great forever. That is when he went back into the fundamental levers of greatness.

In my personal life I have witnessed two organizations which have had enormous losses, in fact one of those companies almost ceased to exist. This was principally because they did not take good care of their core product, and misunderstood where they could compete and where they could not.