Railroads quite literally built America. At their peak, they dominated the transportation industry, moving the vast majority of goods and people across the United States. With such a solid foothold and commanding control of the transportation industry, how did American railroads nearly disappear by the 1970’s? By the early 1960’s rail passenger travel declined by over 80% compared to 1945, and by the mid ’60’s, fewer than 5% of Americans used trains as their preferred mode of transportation. By 1978, the railroads’ share of freight haulage dropped to well below 40% as merchandise rapidly shifted to trucks and airplanes. A trend that happened right under the noses of railroad executives and company shareholders.
In hindsight, the cause of the railroads’ demise is abundantly clear: They did not understand or fully embrace the changes and evolution in transportation infrastructure and technology, nor did they see themselves as logistics solutions providers. Instead, the railroads held on to the belief that they were purely in the business of moving goods and people by rail. Compounding the problem was a resistance to adopting business systems and process innovations, which may very well have sustained their presence and profitability. Enter the Federal Highway Act of 1956, trucking companies, and airlines and the rest is history.
Contrary to the plight of America’s railroads, IBM represents a case study in how a major organization can pivot their strategy and business model to ensure sustainability and strong growth in a rapidly changing competitive environment. IBM’s initial success was the result of innovation in mainframe computing and eventually personal computers (PCs). However, if they stayed on that track, they would surely have suffered a similar fate to the railroads. Instead, IBM understood that computing hardware was quickly commoditizing, so they shifted to providing IT-based consulting and business solutions.
At their inception, both the railroad companies and IBM were indeed breakthrough innovators. However, the railroads got caught in “identity stagnation” and only began to truly innovate again when their hands were forced by a series of large bankruptcies, fumbled mergers and acquisitions, and federal government intervention. IBM on the other hand did not rest on their laurels. They consciously re-defined themselves as an IT solutions provider rather than a PC or hardware-only manufacturer. IBM, like most businesses, had their ups and downs, but they fortunately never came to the hairy edge of insolvency before being forced to innovate and change.
So how does this all translate to the HVAC industry? It should serve as a warning shot to some and a strong motivation and reinforcement to others. If we are honest with ourselves, the HVAC industry has not changed considerably since Willis Carrier first commercialized air conditioning in 1906. With the exception of perhaps large commercial air conditioning and transportation refrigeration, the HVAC industry still very much reflects the early years of IBM…an industry primarily focused on manufacturing and selling hardware. Solution selling is beginning to be discussed in the context of residential and light commercial applications, but only superficially and not by the majority. It will be incumbent upon the entire HVAC industry to steer itself in the direction of IBM’s growth revival and not in the direction of the decline and subsequent struggle of America’s railroads.
The next chapter for HVAC manufacturers, distributors and dealers must be about embracing change while developing and delivering integrated solutions that meet the evolving needs of end users. As happened during the golden age of railroads, the HVAC business environment is changing under the noses of the industry: Increasing demands and opportunities for decarbonization, greater energy efficiency, cost reductions, air quality and purification, and advances in home and building integration and automation. These will all continue to grow in importance and if the HVAC industry does not recognize and address them, the opportunity may be seized by an adjacent or altogether unforeseen business sector.
For HVAC manufacturers, continued success will involve focusing a large percentage of their resources on R&D and potentially M&A to augment product innovation with the development and delivery of integrated solutions to end users. Most HVAC manufacturers understand this reality and have already begun a transition, but changing course is often like turning a battleship. Similarly, successful HVAC dealerships will begin thinking of themselves as solution and service providers rather than simply installers of furnaces, air handlers, ductwork, line sets, and condensing units. In simplistic terms, the winners will follow IBM’s model, while the less successful will go down the well-worn tracks of America’s railroads.
A last thought, particularly for HVAC dealerships is that innovating your business requires innovating your business systems and processes, innovating your organization, innovating your sales strategy, and innovating your partnerships with distributors and manufacturers. Before making any major shifts, ask yourself some fundamental questions…Do you have a robust business software platform? Are you leveraging e-commerce and electronic inventory management? Do you have CRM and fleet tracking systems? Is your organization structured and trained to sell and deliver integrated solutions to customers? Are you working with the right manufacturing and distribution partners? To achieve success with any strategic shift, the entire business must be aligned, capable, and ready.
So, embrace the innovations and changes we all see unfolding under our noses. Leverage them as opportunities to differentiate, separate, accelerate, and succeed. Keep one eye on your day-to-day operations but keep the other keenly focused on the horizon. Most importantly, don’t be railroaded by the past.
About the Author
Paul M. Berman, President & CEO of Commerce Health Business Consulting, holds an MS in Experimental Psychology from the State University of New York and an MS in Business Management from Rensselaer Polytechnic Institute (RPI). Before starting his consultancy, Paul worked in leadership roles at Carrier Corporation, Johnson & Johnson, and Stryker. He specializes in providing business and marketing consulting to HVAC manufacturers, distributors, dealerships, and companies in the consumer goods and healthcare sectors.
Paul M. Berman
President & CEO
Commerce Health, LLC
CommerceHealthConsulting@gmail.com
(561) 609-5082
www.CommerceHealthConsulting.com
