Three questions every business manager needs to ask

When industry knowledge matures, copycats always catch up. In other words, pioneers of great ideas and great products get disrupted and left behind. Two dueling piano companies shed light on why a pioneering product isn't enough to outlast the competition. And which questions are crucial to retaining the competitive edge.

Are you asking the right questions? 

-- By Howard Yu, author of LEAP: How to Thrive in a World Where Everything Can Be Copied, LEGO professor of management and innovation at the IMD Business School in Switzerland, and director of IMD’s signature Advanced Management Program (AMP).

 

When industry knowledge matures, copycats always catch up. Because latecomers often inherit a lower cost structure without the legacy assets, they exert competitive pressure on industry pioneers. That's why Steinway can't compete against Yamaha, even though it has always made the finest pianos in the world.

 

Being the best doesn't protect your business from disruption

To more than 90% of concert artists, including such legendary virtuosos as Vladimir Horowitz, Van Cliburn, and Lang, a Steinway grand piano is the instrument of choice. Arthur Rubinstein, who is considered by many as the greatest pianist of the 20th century, once declared, "A Steinway is a Steinway, and there is nothing like it in the world."

Despite these remarkable achievements, over the past five decades, Steinway's financial results have been anything but stellar. Its management experienced crises after crises which characterized a prolonged downward spiral. In 1926, Steinway sold 6,294 pianos, an all-time high; in 2012, it sold just over 2,000. The company changed ownership three times between 1972 and 1996 before Steinway went public in 1996, to be listed on the New York Stock Exchange, but then it went private when the hedge fund firm Paulson & Co. bought it for $512 million in 2013. Over the same period, Steinway helplessly auctioned off, one after another, many of its buildings that had historically been part of the Steinway Village in northern Astoria in Queens. The original 400-acre campus was slowly chipped away and eventually reduced to a redbrick factory complex at the end of Steinway Street that we know today.

 

A disruptor in a sheep’s coat, is still a disruptor

During post-war reconstruction, Yamaha, which was once an obscure manufacturer, focused on upright pianos to cater to the space-conscious Japanese, producing small home-use pianos that were infinitely different from the Steinway concert grand piano that graces Carnegie Hall or the Smithsonian museums.

But inside Yamaha's factory, manufacturing processes were all but automated, stamping out as much human interference as possible. The entire process was designed with minimal variations in production, a system that couldn't be more different from that of the heartbreakingly labor-intensive craftsmanship at Steinway and Sons.

By the time Yamaha entered the concert grand segment in 1966, it was already the largest piano builder in the world, with a production volume of 200,000 musical instruments every year, vastly overshadowing Steinway's 6,000. With a far bigger balance sheet, a diverse set of technologies, and many advanced production techniques, Yamaha could marshal more resources in marketing, distribution, recruitment, and production. The money it gained from the low-end segment became the wellspring that allowed it to enter the top-end segment, the concert grand pianos, the "lifeblood" of Steinway.

 

Mature industry knowledge is ripe for disruption

Steinway's difficulties might be mourned only by piano lovers, but there is a lesson in it for all of us. When industry knowledge matures, copycats will always catch up. There has been no fundamental change in piano making. A piano consists of hammers striking strings to make sound, as it always has.

It didn’t happen overnight, it took years but once it did, Steinway would never be able to catch up let alone keep the competitive edge. All Steinway could hope for was survival in the increasingly crowded instrument market.

 

3 critical questions 

As a recount in my book, Leap, managers must ask themselves what knowledge discipline is the most fundamental to their company. What is the core knowledge of their business? And how mature or widely available is it?

It’s only by answering these questions that managers remain vigilant against the threat of disruption, foreseeing which of the product lines are ripe for disruption. Yamaha constantly diversified its product lines by leaping into new knowledge disciplines to consistently keep the competitive edge.

Outlasting the competition is difficult: learn to leap and master the art of delivering today while building for the future with IMD’s Advanced Management Program.  

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