RELATIONSHIP BETWEEN BUSINESS DEFINITION AND THE LONG‐TERM GROWTH OF COMPANIES: IS LEVITT RIGHT?

Koji Wakabayashi

Pacific Economic Review, 2005, vol. 10, issue 4, 577-589

Abstract: Abstract. Theodore Levitt argued that organizational growth can be threatened because firms define their businesses incorrectly. He believed that businesses should be defined in terms of ‘needs’, not ‘products’, if they are to survive in the long term. In this paper I investigate the relationship between business definition and the long‐term growth of companies in order to prove Levitt's idea. I statistically analyse relationships between past business definitions and financial performance up to the present using 50 Japanese electric/electronics companies. I find that there is a clear relationship between ‘functionality’ of a business definition and long‐term growth in sales and aggregate market value.

Date: 2005
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