Page 162 - Accelerating out of the Great Recession

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mill competitors. As companies strove to reduce their cost
base in the inflationary environment of the late 1970s and
early 1980s, Nucor’s lower prices persuaded customers to
abandon their long-standing relationships with integrated
U.S. steelmakers.

Shift from Selling Products to Selling Services or Outcomes
Another way to transform a company in a low-growth economy
is to shift from the sale of products to the offering of services or
outcomes. Rather than buying the product and obtaining a
service from it, this model turns the equation on its head by
using the product to sell either a service or a specific outcome.
IBM in the Great Depression and Cessna Aircraft in the down-
turn of the early 1980s are good examples of companies that
transformed themselves in this way.
IBM’s offer to rent accounting machines rather than selling
them was very successful because it reduced the up-front capi-
tal expenditure for companies. Accounting machines were pop-
ular because they improved efficiency and reduced costs for
companies—but they were costly to purchase outright. Renting
the machines also enabled IBM to lock in more customers to
whom it could sell its high-margin paper punch cards—a pric-
ing mechanism with which users of modern printer cartridges
are all too familiar. But in order to make this service business
work, IBM had to develop a completely different cash-flow
equation, a different pricing and sales process, and a different
approach to residual value and inventory management.
In the early 1980s, when Cessna’s business jet division was
heavily affected by the economic downturn, it launched a new
business-jet leasing program. By bundling jet leasing with the
offer of hangar space, jet refueling, and pilots, Cessna improved

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