As we noted last month, Peter Drucker believed that every company’s “theory of the business”—that is, the basic assumptions it makes about its mission and the market—eventually needs to be reconsidered.
In a 1994 Harvard Business Review article, Drucker explained that in order to sustain itself for the long term, a company must be prepared to move in a whole new direction. It needs to “rethink a theory that is stagnating and to take effective action in order to change policies and practices, bringing the organization’s behavior in line with the new realities of its environment,” Drucker wrote.
We were reminded of this insight once again this week when we read a fascinating piece in The Wall Street Journal about Zippo Manufacturing, producer of those iconic, rectangular, windproof cigarette lighters. Facing a declining number of smokers and the rise of legislation limiting public smoking, 78-year-old Zippo is trying to reinvent itself as “a lifestyle-products company.”
[EXPAND More]But Zippo is finding the transition difficult. It is now aiming to sell cologne, casual clothing and watches, along with outdoor offerings that are more closely linked to lighters: hand warmers and devices for lighting grills, torches and camp fires. But so far, the Journal pointed out, “Zippo hasn’t yet found another ‘home run’ to rival its” longtime signature product.
What Zippo is discovering, of course, is just how hard it is for a company to get its zip back once its theory of the business begins to wane. Among other things, Drucker wrote, the enterprise must develop or acquire new core competencies—those areas “where an organization must excel to maintain leadership.”
“It usually takes years of hard work, thinking and experimenting to reach a clear, consistent and valid theory of the business,” Drucker asserted.
Zippo, in fact, has been seeking to branch out for decades. “In the 1960s and 1970s,” the Journal reported, the company “tried to spread its bets by making tape measures, key holders and belt buckles, but all were later discontinued. Zippo even considered making golf-ball warmers to increase driving distances, only to conclude that the legal liability would be too great if the heated projectiles bounced off people’s heads.”
What about your experience? Have you ever worked for an organization that successfully remade its theory of the business—and, if so, how did it pull it off? Have you worked for a company that tried to revamp its theory and failed?[/EXPAND]