Tuesday, May 26, 2015

Thinking Allowed: Is Iacocca’s Iconic Quote Still Pertinent Today?

Lee Iacocca is the former President of Ford and later served as the Chairman of Chrysler. He spent over 40 years in the automotive industry and was the quintessential leader. In 1988, the famous Iacocca quote appeared in Forbes, “A company with the best distribution system and the best service will win all the marbles - because you can't keep an advantage in the other areas for long” (Iacocca, Taylor, & Bellis, 1988, para. 1). Iacocca was referring to creating a sustainable competitive advantage (SCA). Iacocca went on to explain that even if an automaker created an innovative new model vehicle, the other manufacturers would copy it. So to Iacocca’s point, a competitive advantage is not sustainable if it is easily replicated. Companies that successfully create a SCA will outperform the competition over time (Liu, 2013).

Kumar, Jones, Venkatesan, and Leone (2011) argued that globalization, furious competition, mergers, acquisitions, and constant product and technological innovations characterize the current business environment. Not only must firms change, but also they must change faster than their competition. The history books are filled with examples of companies that were once household names, such as Kmart, Circuit City, and Blockbuster whose leadership was unable to sense and respond to the fast paced changes in market conditions.  These firms failed because of an inability to fulfill current and future customer needs. Simply put, these organizations did not have a market orientation.

In their seminal work, Kohli and Jaworski (1990) formally defined market orientation as involving a companywide effort to gather market intelligence on current and future customer needs, disseminating the information throughout the organization and acting upon the information. Earlier adopters of a market orientation strategy were able to transform the knowledge gained and disseminated throughout the organization into a SCA. However, since the advent of the 21st century, more and more firms have adopted a market orientation strategy. Consequently, in the current business environment having a market orientation can be considered “table stakes” rather than a SCA. As the world shifts from a product-dominant market to a service-dominant market, many companies will need to shift their thinking and innovation efforts to involve service related market oriented views (Kumar et al., 2011).

So is Iacocca’s perspective from 1988 that the firm with the best distribution and service would win all the marbles still accurate and applicable today? The opinion was appropriate and understandable within the context of the slow moving, capital-intensive 1988 automotive market in the United States. However, while service and the distribution system remains mission critical to a firm’s success, especially within a service-dominant market, Iacocca’s view is too narrowly focused for the current highly competitive global market that all businesses exist in, some three decades after his iconic statement. Moon, Miller, and Kim, (2013) argued that innovation is key to a firm’s ability to create a SCA. Consumer needs are constantly changing and more sales are generated when consumers view the product as cutting edge.

What do you think?

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Iacocca, L., Taylor, A, III, & Bellis, W. (1988, August). Iococca – In his own words, the Chrysler chairman talks candidly about Henery Ford II and GM’s Roger Smith, reflects on his four decades as an automaker, and speculates on what the 21st century holds for the business around the world. Fortune. Retrieved from http://archive.fortune.com/magazines/fortune/fortune_archive/1988/08/29/70953/index.htm

Kohli, A. K., & Jaworski, B. J. (1990). Market Orientation: The Construct, Research Propositions, and Managerial Implications. Journal Of Marketing, 54(2), 1-18. doi: 10.2307/1251866

Kumar, V., Jones, E., Venkatesan, R., & Leone, R. P. (2011). Is market orientation a source of sustainable competitive advantage or simply the cost of competing?. Journal Of Marketing, 75(1), 16-30. doi:10.1509/jmkg.75.1.16

Liu, Y. (2013). Sustainable competitive advantage in turbulent business environments. International Journal Of Production Research, 51(10), 2821-2841. doi:10.1080/00207543.2012.720392

Moon, H., Miller, D. R., & Kim, S. H. (2013). Product design innovation and customer value: Cross-cultural research in the United States and Korea. Journal Of Product Innovation Management, 30(1), 31-43. doi:10.1111/j.1540-5885.2012.00984.x