The Traditional Viewpoint Mission is a broad term that refers to the total perspectives or purpose of a business. The mission of a corporation was traditionally framed around its product line and expressed in mottoes: “Our business is textiles,” “We manufacture cameras,” and so on. With the advent of marketing orientation and technological innovations, this method of defining the business mission has been decried. It has been held that building the perspectives of a business around its product limits the scope of management to enter new fields and thus to make use of growth opportunities. In a key article published in 1960, Levitt observed: The railroads did not stop growing because the need for passengers and freight transportation declined. That grew. The railroads are in trouble today not because the need was filled by others (cars, trucks, airplanes, even telephones), but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad-oriented instead of transportation-oriented; they were product-oriented instead of customer-oriented. According to Levitt’s thesis, the mission of a business should be defined broadly: an airline might consider itself in the vacation business, a publisher in the education industry, an appliance manufacturer in the business of preparing nourishment. Recently, Levitt’s proposition has been criticized, and the question has been raised as to whether simply extending the scope of a business leads far enough.

The Boston Consulting Group, for example, has pointed out that the railroads could not have protected themselves by defining their business as transportation: Unfortunately, there is a prevalent notion that if one merely defines one’s business in increasingly general terms such as transportation rather than railroading the road to successful competitive strategy will be clear. Actually, that is hardly ever the case. More often, the opposite is true. For example, in the case of the railroads, passengers and freight represent very different problems, and short haul vs. longer haul are completely different strategic issues. Indeed, as the unit train demonstrates, just coal handling is a meaningful strategic issue. In the early 1980s, Coca-Cola extended its business mission from being a soft drink marketer to a beverage company. Subsequently, the company bought three wine companies. A few years later, the company decided to leave the wine business. What happened is simply this: Although soft drinks and wine both are parts of the beverage industry, the management skills required to run a soft drink business are quite different from those required for the wine business. Coca-Cola overlooked some basics. For example, because wine must be aged, inventory costs run much higher than for soft drinks. Further, grapes must be bought ahead of time. Coke added to its work by vastly overestimating the amount of grapes it needed. Another key characteristic of the wine business is a requirement for heavy capital investment; Coke did not want to make that investment. As the Coca-Cola example illustrates, the problem with Levitt’s thesis is that it is too broad and does not provide a common thread: a relationship between a firm’s past and future that indicates where the firm is headed and that helps management to institute directional perspectives.

The common thread may be found in marketing, production technology, finance, or management. ITT took advantage of its managerial abilities when it ventured into such diverse businesses as hotels and bakeries. Merrill Lynch found a common thread via finance in entering the real estate business. Bic Pen Company used its marketing strength to involve itself in the razor blade business. Thus, the mission cannot be defined by making abstract statements that one hopes will pave the way for entry into new fields. It would appear that the mission of a business is neither a statement of current business nor a random extension of current involvements. It signifies the scope and nature of business, not as it is today, but as it could be in the future. The mission plays an important role in designating opportunities for diversification, either through research and development or through acquisitions. To be meaningful, the mission should be based on a comprehensive analysis of the business’s technology and customer mission. Examples of technology-based definitions are computer companies and aerospace companies. Customer mission refers to the fulfillment of a particular type of customer need, such as the need for basic nutrition, household maintenance, or entertainment. Whether the company has a written business mission statement or not is immaterial.

What is important, however, is that due consideration is given to technological and marketing factors (as related to particular segments and their needs) in defining the mission. Ideally, business definitions should be based on a combination of technology and market mission variables, but some companies venture into new fields on the basis of one variable only. For example, Texas Instruments entered the digital watch market on the basis of its lead in integrated circuits technology. Procter & Gamble added over-the-counter remedies to its business out of its experience in fulfilling the ordinary daily needs of customers. To sum up, the mission deals with these questions: What type of business do we want to be in at some future time? What do we want to become? At any given point, most of the resources of a business are frozen or locked into current uses, and the outputs in services or products are for the most part defined by current operations. Over an interval of a few years, however, environmental changes place demands on the business for new types of resources. Further, because of personnel attrition and depreciation of capital resources, management has the option of choosing the environment in which the company will operate and acquiring commensurate new resources rather than replacing the old ones in kind. This explains the importance of defining the business’s mission. The mission should be so defined that it has a bearing on the business’s strengths and weaknesses.

Defining the Business Mission: A New Approach

In his pioneering work on the subject, Abell has argued against defining a business as simply a choice of products or markets. He proposes that a business be defined in terms of three measures: (a) scope; (b) differentiation of the company’s offerings, one from another, across segments; and (c) differentiation of the company’s offerings from those of competitors. The scope pertains to the breadth of a business. For example, do life insurance companies consider themselves to be in the business of underwriting insurance only or do they provide complete family financial planning services? Likewise, should a manufacturer of toothpaste define the scope of its business as preventing tooth decay or as providing complete oral hygiene? There are two separate contexts in which differentiation can occur: differentiation across segments and across competitors.

Differentiation across segments measures the degree to which business segments are treated differently. An example is personal computers marketed to young children as educational aids and to older people as financial planning aids. Differentiation across competitors measures the degree to which competitors’ offerings differ. These three measures, according to Abell, should be viewed in three dimensions: (a) customer groups served, (b) customer functions served, and (c) technologies used. These three dimensions (and a fourth one, level of production/ distribution) were examined at length in Article 5 in the context of defining market boundaries and will not be elaborated further here. An example will illustrate how a business may be defined using Abell’s thesis. Customer groups describe who is being satisfied; customer functions describe what needs are being satisfied; technologies describe how needs are being satisfied. Consider a thermometer manufacturer. Depending on which measure is used, the business can be defined as follows:

     Customer  Groups  Customer Functions  Technologies Used
  Households  Body temperatureMercury-base
  Restaurants  Cooking temperatureAlcohol-base
  Health  care facilities  Atmospheric temperatureElectronic-digital

The manufacturer can confine the business to just health care facilities or broaden the scope to include restaurants and households. Thermometers can be provided only for measurement of body temperature or the line can be extended to offer cooking or atmospheric thermometers. The manufacturer could decide to produce only mercury-base thermometers or could also produce alcohol-base or electronic-digital thermometers. The decisions that the manufacturer makes about customer groups, customer functions, and technologies ultimately affects the definition of the business in terms of both scope and differentiation. An adequate business definition requires proper consideration of the strategic three Cs: customer (e.g., buying behavior), competition (e.g., competitive definitions of the business), and company (e.g., cost behavior, such as efficiencies via economies of scale; resources/skills, such as financial strength, managerial talent, engineering/manufacturing capability, physical distribution system, etc.; and differences in marketing, manufacturing, and research and development requirements and so on, resulting from market segmentation).

Typology of Business Definitions Abell proposed defining business in terms of three measures: scope, differentiation across segments, and differentiation across competitors. According to Abell, scope and both kinds of differentiation are related to one another in complex ways. One way to conceptualize these interrelationships is in terms of a typology of business definitions. Three alternative strategies for defining a business are recommended: (a) a focused strategy, (b) a differentiated strategy, and (c) an undifferentiated strategy.

• Focused strategy A business may choose to focus on a particular customer group, customer function, or technology segment. Focus implies a certain basis for segmentation along one or more of these dimensions, narrow scope involving only one or a few chosen segments, and differentiation from competitors through careful tailoring of the offering to the specific need of the segment(s) targeted.

• Differentiated strategy When a business combines broad scope with differentiation across any or all of the three dimensions, it may be said to follow a differentiated strategy. Differentiation across segments may also be related to competitive differentiation. By tailoring the offering to the specific needs of each segment, a company automatically increases the chance for competitive superiority. Whether or not competitive differentiation also results is purely a function of the extent to which competitors have also tailored their offerings to the same specific segments. If they have, segment differentiation may be substantial, yet competitive differentiation may be small.

• Undifferentiated strategy When a company combines broad scope across any or all of the three dimensions with an undifferentiated approach to customer group, customer function, or technology segments, it is said to follow an undifferentiated strategy. Each of these strategies can be applied to the three dimensions (customer groups, customer functions, and technologies) separately. In other words, 27 different combinations are possible: (a) focused, differentiated, or undifferentiated across customer groups; (b) focused, differentiated, or undifferentiated across customer functions; (c) focused, differentiated, or undifferentiated across technologies, and so on. A focused strategy serves a specific customer group, customer function, or technology segment. It has a narrow scope. Docutel Corporation’s strategy in the late 1960s exemplified a focused strategy relative to customer function. When Docutel first pioneered the development of the automated teller machine (ATM), it defined customer function very narrowly, concentrating on one function only cash dispensing. A differentiated strategy combines broad scope with differentiation across one or more of the three dimensions. Adifferentiated strategy serves several customer groups, functions, or technologies while tailoring the product offered to each segment’s specific needs. An example of a differentiated strategy applied to customer groups is athletic footwear.

Athletic footwear serves a broad range of customer groups and is differentiated across those groups. Tennis shoes are tailored to meet the needs of one specific customer group; basketball shoes, another. An undifferentiated strategy combines a broad scope across one or more of the three dimensions. This strategy is applied to customer groups in a business that serves a wide range of customer groups but does not differentiate its offerings among those groups. Docutel’s strategy was focused with respect to customer function but not with respect to customer groups: they offered exactly the same product to commercial banks, savings and loans, mutual savings banks, and credit unions. To sum up, the strategy that a business chooses to follow, based on the amount of scope and differentiation applied to the three dimensions, determines the definition of the business.