Shifting Paradigms

Paradigms are a set of assumptions, concepts, values, and practices that constitutes a way of viewing reality for the community that shares them. (From a definition found at www.thefreedictionary.com/paradigm.)

When a paradigm in an industry changes, the business “winners” after the change most often are not the old-line companies who were the winners before the change. They are fresh new entities with new ideas for satisfying the market. The winners have no entrenched personal empires, no buildings and factories to amortize, no rigid ways of doing business – all of which prevent the old companies from changing.

What the new companies do have is a large dose of outside-the-box thinking, a willingness to take risks, the energy to get things done quickly, few layers of management….

Old, classic examples of paradigm changes include the railroaders who hauled passengers but thought of themselves as railroaders, and who were overwhelmed by the airlines who entered the business of hauling passengers in airplanes instead of trains. How would our landscape look now if the railroads, instead of scoffing at the airlines, had become the movers of passengers by airplane as well as trains?

Consider the Swiss, whose paradigm of a watch included a spring, escapement, gears, hands and a dial face. Enter the Japanese, whose paradigm for a watch includes a battery, a chip and a digital readout. The watch making business all but disappeared from Switzerland in its rush to Japan. The Swiss, who were offered the digital watch designs but passed on them, had a capital and emotional attachment to the old paradigm. Later, of course, the Swiss adopted many of the features of electronic timekeeping and do continue to make many fine watches. The volume market, though, theirs for many years, is now owned by companies in the Far East.

Almost every day paradigm shifts are taking place.

Consider the impact of NetFlix, with a new paradigm for distributing movies for the home market, had on the video store of the old paradigm. How many video stores remain, and how big a share does NetFlix have of the market? In watching the postal worker put mail in the boxes near my home, and seeing NetFlix envelopes in almost half the boxes, the question is answered.

Another recent shift is the advent of Craig’s List, the Internet classified advertising giant. From a small beginning in San Francisco, Craig’s List now has free nationwide classified advertising. It is very effective. Newspaper owners are crying about the demise of their classified advertising revenue, lost to Craig’s free list. Why did the newspapers not start the free lists? Did their thinking not go out of the box? What would be the situation if they had been the ones to start the free list, and receive advertising revenue for display ads on their pages? Would they be in such dire straights as they are now?

Now we see several paradigm shifts in the auto industry. Fuel prices will soon rise again, creating greater and greater demand for fuel efficient vehicles. Electric cars, and hybrid-electric cars will eventually dominate. Lithium ion batteries will replace older technology. Are the old-line battery companies leading the charge to lithium ion? It does not seem so – the bulk of the companies manufacturing them are in the Far East.

There will be many paradigm shifts resulting from the deep economic recession. The next posts to this blog will explore ideas about them.