134 Collins came to see that it could be the best in the world at servicing the backrooms of businesses within the broader concept of "messaging" It also came to see that sophisticated back-office products, like high-end faxes and specialized copiers, played right into its economic
engine of profit per customer, building off its extensive sales and service network. Allen and his successor, George Harvey, instituted a model of disciplined diversification. For example, Pitney eventually attained
45 percent of the high-end fax market for large companies, a hugely profitable cash Harvey began a systematic process of investment in
new technologies and products, such as the Paragon mail processor that seals and sends letters, and by the late
Pitney consistently derived over half its revenues from products introduced in the previous three Later, Pitney Bowes became a pioneer at linking machines to the Internet, yet another opportunity for disciplined diversification. The key point is that every step of diversification and innovation stayed
within the three circles. After falling 77 percent behind the market from the consent decree to its darkest days in 1973,
Pitney Bowes reversed course, eventually rising to over eleven times the market by the start of 1999. From 1973 to 2000, Pit- ney Bowes outperformed Coca-Cola, Johnson & Johnson, Merck, Motorola, Procter Gamble, Hewlett-Packard, Walt Disney, and even General Electric. Can you think of any other company that emerged from the protective comfort of a monopoly cocoon to deliver this level of results didn't. Xerox Even IBM didn't.
Pitney Bowes illustrates what can happen when a company lacks the discipline to stay
within the three circles and, conversely, what can happen when it regains that discipline. In contrast, we found alack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies. Every comparison either lacked the discipline to understand its three circles or (2) lacked the discipline to stay within the three circles.
Good to Great R. J. Reynolds is a classic case. Until the R. J. Reynolds had a simple and clear concept, built around being the best tobacco company in the United States-a position it had held for at least twenty-five Then in 1964, the Surgeon General's Office issued its report that linked cigarettes with cancer, and R. J. Reynolds began to diversify away from tobacco as a defensive measure. Of course, all tobacco companies began to diversify at
that time for the same reason, including Philip Morris. But R. J. Reynolds' wanderings outside its three circles defied all logic. R. J. Reynolds spent nearly a third of total corporate assets into buy a shipping container company and an oil company (Sea-Land and
Aminoil), the idea being to make money by shipping its own Okay, not a terrible idea on its own. But what on earth did it have to do with R. J. Reynolds' Hedgehog Concept It was a wholly undisciplined acquisition that came about in part because Sea-Land's founder was a close friend of R. J. Reynolds' After pouring more than
$2 billion into Sea-Land, the total investment nearly equaled the entire amount of net stockholders' Finally, after years of starving the tobacco business to funnel funds into the sinking ship business, RJR acknowledged failure and sold One Reynolds grandson complained "Look, these guys are the world's best at making and selling tobacco products, but what do they know about ships or oil I'm not
worried about them going broke, but they look like country boys with too much cash in their To be fair, Philip Morris did not have a perfect diversification record either, as evidenced its failed purchase of UP. However, in stark contrast to R. J. Reynolds, Philip Morris displayed greater discipline in response to the 1964 surgeon general's report. Instead of abandoning its Hedgehog Concept, Philip Morris
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