Theodore Levitt, a highly respected business academic who died in 2006, famously scolded railroad companies that were run over by airlines for not recognizing that they were in the transportation business rather than the railroad business, as if this expanded sense of strategic purpose would have moved them to enter the airline business ahead of Pan Am and United Airlines. Levitt was wrong (he was right about some other important topics so may be forgiven for the lapse, but it is a common lapse to which his work may have contributed). Successful, large companies lose business flexibility quickly as they grow; the number of large companies who successfully find a new business equal to the one they have when market conditions start the road to ruin are very few; in fact it is hard to think of one in America. IBM is not its former self, Kodak barely breaths, Xerox is all but dead, the computer companies holding forth before the personal computer are all gone, the communications companies before IP networking are all gone.
Our particular problem may be more easily seen in efforts by so many companies to diversify and fail (the figure is well over 90%). The problem is that companies very successful in the upper end of growth markets or the whole of mature markets tend to be more owned by their markets than control them, their internal practices, training, culture, and leadership conditioned by how their products are perceived, sold, and serviced, which practices and culture cannot be easily changed. Levitt actually gets near this topic when he discusses what makes a product—not what the company thinks but what the buyer thinks, and the buyer often values things that are not even part of the product, like fashion, word of mouth, opportunity, position on a shelf.
What follows from this brief introduction is that company practices and cultures, established over a long time with a history of success, become very difficult to change. Ask any McKinsey consultant about how their recommendations for change are actually implemented, and hence producing the effects projected in their slide presentations. The answer will range from “never” to “not as much as we hoped.” Telecommunications companies operated in a climate of regulated monopolies for fifty years. In that climate service, along with everything else, was a cost, but one never really pressured by consumer prices. It took so many people to keep networks running, answer phone calls, send out service people, or just answer questions, and these costs were built into prices. Then the 1996 Act happened, and all of sudden telecommunications was thrown into the maw of price competition. It was not just natural, but seen as mandatory given market history and the maturity of the market itself, that service remain a cost, not a product, or a significant part of a product. Thus the internal pressures on service are pressures to reduce costs, not improve service. Competitive markets have also increased the difficulties of service, with increasingly complex product ranges and profiles, technology changing more rapidly than service operations can absorb, and the irresistible urge to automate service with all of the unseen and awkward problems such automation naturally engenders.