The Principle of Exploitation Applied to Business


It is amazing how many companies come up with innovations and breakthroughs in products and services and then put them aside or fail to exploit them fully in a competitive market. They are then astonished when rival companies emerge into the market with similar ideas and leapfrog them and the rest of the competition to take a commanding lead in customer service and satisfaction. For example, in 1960, the Swiss Chronological Institute in Geneva developed the first quartz watch. At that time, there were 62,500 professional Swiss watchmakers, and Swiss watches were the most popular and highly respected watches in the world. When the Swiss Chronological Institute developed the quartz watch, traditional Swiss watch makers dismissed it as a novelty that had no commercial application. After all, Swiss watchmakers claimed, it lacked the sophisticated internal workings of gears, springs, stems, and other mechanical parts that everyone “knew” had to be included in a watch. Who would be interested in a watch mechanism made of quartz, with virtually no moving parts?

Representatives of a Japanese company visited the Swiss Chronological Institute and were shown the new watch. They saw its potential and offered to purchase the rights from the Swiss Chronological Institute. Believing that its invention was worthless, the Institute sold it to the Japanese company for a small royalty.

The Japanese company had seen something the Swiss hadn’t: an opportunity to manufacture watches that were highly accurate and inexpensive as well as attractive. Within a few years, they were mass producing quartz watches and selling them worldwide at a fraction of what the Swiss watchmakers were charging. Within a decade, the Swiss watch industry had been decimated. The number of Swiss watchmakers dropped from 62,500 to 12,500, and Japanese companies took a commanding lead in the production of watches throughout the world. The Swiss Chronological Institute had had the initial advantage because they developed quartz watches, but they gave it up by failing to exploit it fully in the world market.

In 1959, Ford Motor Company brought out the Edsel, one of the biggest mistakes in car manufacturing history. Eight years passed from the time it was conceived by the engineers and the marketers to the time it was released. The market changed completely, and when released, there was no demand for the Edsel. Ford lost more than $250 million dollars and the name Edsel became a synonym for a major marketing mistake.

Some years later, another engineer at Ford developed an idea for a minivan that would replace the station wagon. Many people at Ford, including Lee Iacocca, the president at that time, thought that the minivan had tremendous potential. But far more people at Ford, remembering the disaster with the Edsel, were afraid of making another mistake by committing to a new and untried product. If there was a real demand for a minivan, they figured, car buyers in America would be writing in and telling Ford what they wanted.

However, this scenario is seldom true. It is quite common for customers to have no idea that they want a particular product until the product is available. This is true of most high-tech products, most foods, fashion, and concepts like Federal Express and thousands of other market innovations. Often, you have no choice but to press forward in the faith and confidence that your product or service will find a ready market when you bring it out.

Lee Iacocca moved on to assume the presidency of Chrysler Corporation and turned the company around. He had a clear objective, he took aggressive action, and he concentrated on financial results. He unified the company under his command, acquired accurate market intelligence, got everyone working together proactively, secured his financial flanks, economized on operations, surprised his competition, and turned huge losses into profits in less than three years.

Once Chrysler was profitable again, the engineer at Ford who had pioneered the minivan project came to Iacocca and asked if he would be interested in looking at it again. Iacocca jumped on the project immediately, and soon thereafter Chrysler introduced into the market the first American family- style minivan, the Aerostar.

It was a huge success from the very beginning. Today, Daimler-Chrysler Corporation has almost 50 percent of the American market for minivans and has earned billions of dollars of profit from sales. No other company has been able to catch up with them. They saw an opportunity, took full advantage of it, and they exploited it to the full.