The First Strategic Question Every Business Must Ask

What business are you in?  It seems like a straightforward question, and one that should take no time to answer.  But the truth is that most company leaders are too narrow in defining their competitive landscape or market space.  They fail to see the potential for “non-traditional” competitors, and therefore often misperceive their basic business definition and future market space.

This is because it is much easier to see the world through the lens of today — and through the lens of research analysts who make comparisons to the competitors that look most similar and sell the most similar products. But the biggest threats usually come from oblique competitors that are solving the same problem, in a different way with an alternate offering, for the customer.

Examples help make this clear.  In the late ‘90s, with the Internet’s commercial revolution in its first heyday, my colleague Dick Harrington was running the Thomson Corporation, a holding company with substantial assets in newspapers.  The simple but critical and powerful insight by Dick at the time was that Thomson was not really in the newspaper business, but in the advertising business.  The real competition wasn’t really other large newspaper and print publishers. It was everyone taking aim at newspapers’ revenue sources — classifieds, display ads, job postings. At the time that meant Craigslist, it meant eBay, it meant Monster.com. A few years later it meant Google.Especially Google.

It was this understanding that led Dick to sell off the group’s newspapers in the early 2000s and begin Thomson’s transformation into the information services behemoth that is now Thomson Reuters. If he had seen his world only as newspaper publishing, Thomson would instead still be looking for a strategy for long-term survival alongside other struggling publishers.

Similarly, traditional broadcasters and cable companies are now facing the reality of a host of non-traditional competitors.  This was a core theme at the Online Publishers Association’s recent annual summit, where I spoke. Some of its members (think the largest broadcast network names you know) can see the writing on the wall:  YouTube, Netflix, and any other network sourcing or producing original programming content are the competition. Just as there has been a massive share-shift away from newspaper advertising, the billions of dollars of advertiser spend on traditional broadcast and cable TV is also up for grabs. And even though executives in the industry know all this, it’s still hard for them to break away from the NBC-vs.-ABC-vs.-CBS mindset and focus on their future market rather than the present one.

Getting your business definition and competitor set right requires two things: first, an understanding of who your customer is, and second, an honest view of both the high level and detailed use-case problem you are solving for them.  Back to the newspaper example, our customer was not the end-user reader, but the advertisers. The higher-level problem we were solving was getting the right quality and quantity of audience (the readers) connected to their ads.  The detailed use-case issue was understanding when we were providing national or broad reach exposure versus detailed local or regional targeting.

Some of the most highly valued modern-day businesses owe their success to their leaders’ ability to evolve their businesses into areas that are at first not necessarily obvious.  Zappos, for example, is less of an e-commerce business than an exceptional customer service company, which has allowed it to go well-beyond its start as an online shoe retailer to sell a broad range of items. And Zappos’s parent company, Amazon, is becoming as much a provider of online infrastructure (Amazon Web Services) as it is an online retailer.

Industries and companies disappear when they underestimate oblique and non-traditional competition.  This concept of getting the right business definition and relevant competitive set iscertainly not new, and it’s not limited to industries being disrupted by new technologies. Take the soft-drink industry, which has been using the concept “share of stomach” to emphasize that innovation and competition are always around the corner.  Functional beverages, anyone?  Enhanced water?  New juicing/cleansing beverages?

Figuring out where things are going next isn’t as easy as just asking your customers, either. As Henry Ford is reputed to have said, “If I had asked my customers what they wanted, they would have said a faster horse.” Instead, he gave them mass-produced cars, and changed the world — not to mention the competitive landscape for transport providers.

Today, that kind of world-changing innovation seems to be happening faster and faster.  New megatrends are fundamentally altering market dynamics and business definitions.  These trends include the share economy, crowdsourcing, the mobile and tablet revolution, Big Data, and what I sense will be perhaps the most disruptive of all to business definitions — the Internet of things. Some 50-plus billion devices, by Cisco’s estimate, will be Internet-enabled and connected over the next decade. Google’s recent $3.2 billion purchase of smart-home device maker Nest is clearly a bet on this trend of a ubiquitous and always-on Internet across an infinite array of devices.

The megatrend of the Internet of things may challenge or even revolutionize the search interface as we know it, since we will be in a world with more contextualized information and ability for marketers to “sense” and “respond” in new untethered and increasingly screenless internet spaces. Whether those interactions are by voice or touch and feel, there is no doubt that existing web incumbents that are part of the screen-based web need to make investments to prepare for a radically different modality of searching and marketing information.

So the critical question for businesses to ask — more now than ever — is not what business you are in today, but what business you should be in tomorrow.

Harvard Business Review