- Strategy and entrepreneurship
Is your business benefiting from – or being restrained by – a levee? V.P. Kochikar and M.P. Ravindra studied a seldom-examined concept and explain how walls, or “levees”, can be potential disruptors as well as bases for innovation.
It’s called “a free market”, but is it? We have researched companies and marketplace dynamics in the US, Europe and Japan; in many cases, we found “levees”, abstract barricades that inhibit the free play of market forces and hold back legitimate environmental pressures from being transmitted to a business.
Talking about business levees may seem odd, even arcane, but these levees can impact your business in at least two ways. First, when rendered no longer effective, they can be potential, even probable, disruptors to your business performance. But there’s another, more exciting, reason to learn about levees: used creatively, the levee can also serve as a basis for innovation. We’ve found that significant business-model innovation is often driven by would-be marketplace entrants or audacious challengers breaking down the levees shielding entrenched players.
Levees of the nature we describe currently receive very little focus in organizational discourse. That needs to change.
High, strong walls
The ancient city of Troy was surrounded by high, strong walls. After an unsuccessful 10-year siege, the Greeks resorted to the subterfuge of the Trojan horse. The Trojans willingly opened the gates, and the city fell within a day.
Protective walls can also be found in the business world. Consider these introductory examples:
Until 1978, the US government regulated many areas of commercial aviation and limited the entry of air carriers into new markets. The Airline Deregulation Act did away with many of these controls, and within a few years the number of major carriers in the US had shrunk by more than half.
In the past, personal computers (PCs) were distributed using a network of resellers, retailers and other intermediaries who typically added generous mark-ups before selling to end users. In the mid-1990s, Dell Computer introduced its direct sales, build-to-order model, bypassing the intermediaries with resounding success.
Digital Equipment Corporation (DEC) in the 1980s depended for revenues on the customer lock-in engendered by its proprietary, closed technologies. Faced with open technologies from IBM, Microsoft and other rivals, its market share plummeted.
The examples above illustrate only three of the “walls” we found in business. We are not speaking, of course, about the physical walls that make up our offices, factories or warehouses; instead, we have been focusing on the abstract barricades that inhibit free play of market forces or prevent legitimate environmental pressures from being transmitted to a business.
These “walls” may be external, such as government-conferred protection from competition, or internal, such as “golden handcuffs” that prevent key employees from leaving. They may also be both, such as control of a key standard that shields a technology from competitors or a market dominance that allows us to be inattentive to customer needs. Consciously or otherwise, we allow these walls to function as dams or levees, shielding us from the turbulent world outside.
Where levees lead
When a business levee is taken away, the result can be dramatic – and costly. As the above examples teach, when such a bulwark is lost, breached or ineffective, the consequences are often traumatic.
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