5.3 New Business Orientations in one business sector
Mutual triggering of new discoveries can happen across business sectors (a project for the U.S. Army → a microwave oven as a kitchen appliance) and within one sector (a new safety solution for a Formula 1 racing car → new safety measures for passenger cars).
New discoveries or methods within one sector could lead to a “new” Business Orientation in that sector. This development can be demonstrated in the computer industry:
The first computers were huge machines prepared as special individual solutions for big clients by Experts. The software was an integral part of the Expert’s solution.
The invention of the PC turned the computer into a Product available to the general public, thus opening a “new” Business Orientation within the computer industry. Software became a separate product and was provided to PC makers and consumers by independent software companies.
The possibility of self-assembling a PC via telephone or the Internet has opened a Self-Service Orientation within this sector. Software could be downloaded from Internet Self-Services.
Producers of “no-name” computers have helped to turn computers into a “computing” Commodity.
Static parts of computer production, such as assembling, became commoditized and were delegated to third parties who thus played the role of Commodity suppliers to the computer industry.
Outsourcing of computing equipment and tasks by big corporate Clients appeared as a new form of Expert Orientation in the computer sector.
Later, small and medium businesses got the possibility to “outsource” their computing tasks by online connection to Self-Services of “Software as a Service” providers.
When Expert Orientation prevails, an industry is structured vertically—meaning that a single business supervises, produces, and sells everything directly to the final customer. Just as individual cobblers once crafted entire shoes and sold them directly to consumers, the first computer manufacturers built both the main hardware and software components themselves.
With the emergence of personal computers (PCs), computers became products, and so did their components. Chips, operating systems, and software applications were no longer just hidden parts of a final product—they became products in their own right. Some even gained enough recognition to have their logos displayed on PC cases. At this stage, the computer industry transitioned to a horizontal structure, where a computer became a composite of multiple independently developed products.
Over time, the industry evolved further into the Self-Service stage. Hardware became available as a Self-Service option when Dell abandoned the traditional dualistic model of “Product Maker → Self-Service (store) Organizer” and adopted a purely Self-Service approach. Customers configured their PCs—first via phone, then through Dell’s website—and paid Dell directly. (Direct payment is a defining characteristic of Self-Service, as discussed in Chapter 3.3.) However, Dell briefly reverted to Product Orientation when it resumed selling through third-party retailers. This shift caused an internal cultural crisis, forcing the company to abandon the approach.
The Internet also transformed software. It was no longer just a solution provided by an Expert or a periodically reinvented Product. Instead, software applications became continuously improved services available online for short- or long-term use as a Self-Service. Small and medium-sized businesses could select their applications from a menu and pay a fixed monthly fee.
The computer industry not only embraced Self-Service but also helped the broader economy develop new forms of Self-Service, particularly through Internet connectivity.
If Expert Orientation structured the industry vertically and Product Orientation structured it horizontally, then Self-Service Orientation represents the intersection of the two, embodied in the Internet.
Self-Service thrives best when Products have matured into commodity-like goods. Introducing Self-Service too early may not work. For example, after successfully implementing Self-Service for desktop computers, Dell attempted to apply the same model to laptops. The initial attempt failed because laptops were not yet commoditized enough, forcing Dell to postpone the move for a few years.
Self-Service plays a key role in finalizing the commoditization process. When Self-Service begins to dictate prices—directly or indirectly—to Product-Oriented businesses, Products tend to become commoditized. This is why Dell is sometimes “accused” of having commoditized the PC business. However, Product Orientation still plays a crucial role in the industry, as new brand-name Products continue to drive innovation and quality.
The introduction of a new Business Orientation in an industry is often accompanied by significant cost and pricing disruptions. Many companies fail to recognize what is happening. They assume they are merely facing a new, unusually cheap competitor in their traditional business model, without realizing that this competitor is operating under a different Business Orientation.
For instance, traditional brand-name PC manufacturers initially believed they were competing with Dell within the Product Orientation model. In reality, Dell had already shifted to Self-Service Orientation, changing the fundamental rules of the game while operating within the same industry. Similarly, Expert-oriented businesses were caught off guard when Product-oriented PC makers first entered the market.
These disruptions do not always follow a linear progression toward lower prices. For example, IBM moved in the opposite direction when it launched IBM Global Services, shifting to Expert Orientation and reshaping the entire sector. Instead of focusing solely on selling IBM products, the company prioritized custom solutions for clients. Although these complete solutions were more expensive than individual products, they delivered greater overall effectiveness. In doing so, IBM partially returned to the Expert Orientation that had originally defined the early computer industry. As the PC sector became highly commoditized, IBM eventually sold its Product-Oriented PC business to a Chinese manufacturer.
The introduction of a new Business Orientation within an industry is typically driven by one or more companies—whether from the outset of their existence or as a strategic shift from their previous orientation.
Note:
Explore these blog posts for more on this topic:
“Music Industry Evolution: Business Orientation Mapping.”
“Printed vs. online news(papers)
“Fast fashion – commoditization of fashion exclusiveness”
“The Betting Revolution: From “Purchased Products” to a “Sentiment Exchange for Future Outcomes”