In an episode of The Ken’s Two by Two podcast, Professor Rishikesha Krishnan of IIM Bangalore shares an interesting case study while discussing strategy with Ather Energy’s founder Tarun Mehta.

This is a 50-year-old example.

There’s this company which was the first to build CAT scanners, or CT scanners, on a commercial basis. EMI was a gramophone company in the United Kingdom, this was a diversification outside their traditional business.

But they made the first CT scanner machine in the world, and they did exactly what you just described.

They were vertically integrated. They had this beautiful platform.

They created really good images, and they thought that they were going to really own the whole CT scanner business.

The greatest irony is, five years later, EMI was a marginal player. The whole business had been taken over by Phillips and Siemens and all the big guys in the medical imaging industry.

Why did this happen?

Because, in a way, EMI got very fixated on one or two things.

They thought that product quality is really their thing, and they focused on that, whereas the existing players knew that things like support, service, distribution… just being able to give a better ROI to the hospital that was using the scanner… all of that was much more important than just image quality.

And in the time EMI spent working on making the image quality better and better, these guys had really gone on to a third generation of the machine, and they had made it much simpler.

They had made the ROI much better.

And of course, they had much better distribution than EMI could ever dream of creating, and they were out there owning the business.

The crowning irony was that the guy who led the team at EMI was a guy called Hounsfield.

And the year he won the Nobel Prize for medicine, EMI had to close down their CT scanner business.

The key takeaway for me from this case study is – that the most important factor influencing buying decision of a business when purchasing a tool is RoI.

Focus on product features and quality cannot be at the expense of TCO (Total Cost of Ownership) and RoI (Return on Investment).

At the same time, lack of focus on product features and quality increases the real TCO and decreases the actual RoI for the buyer.