Academics and consultants call it “organizational inertia.” The rest of us say that successful companies decline because they keep doing what used to work for them even after it stops working. In the Summer 2019 issue of Business History Review, Peter Scott, Professor of International Business at the University of Reading (UK), showed how this worked in the American vacuum cleaner industry in the 1920’s and 1930’s.

Hoover advertisement in Woman’s Home Companion, 1919

The vacuum cleaner business developed in America in the first decade of the 20^th century.  Hoover began production in 1908, and Eureka was established the next year.  Before the late 1930’s, these two companies dominated the industry, together accounting for about 40% of the market.

In those days, “vacuum cleaner” meant the upright model.  New companies had difficulty entering the market because the product could not be manufactured without a license for a fundamental patent, which was tightly controlled.  Even after that patent expired in 1924, entry was difficult because existing companies had developed formidable sales forces and owned numerous patents to popular vacuum features. (Eureka, for example, had paint-spraying and hair-drying attachments.) There was little if any price competition, with profits plowed back into sales and marketing.

The manufacturers soon found door-to-door sales more effective than relying entirely on dealers, but managing this sales force was difficult.  Pay was low for all but the most elite salesmen—they were almost all men—and the vast majority took the job because they couldn’t get anything else. Since the companies saw manpower as the key to success, they devoted considerable resources to recruiting, training, and retaining salesmen.

This challenge of a low-skilled and ever-changing workforce led manufacturers to develop standardized sales systems.  It also meant that management had to sell the sales job to the salesmen almost as much as it had to sell the vacuums to the customers.  Accordingly, the companies became quite attached to their sales cultures, and believed that their top executives should come from the sales ranks.

The vacuum cleaner world changed after 1929.  Partly this was because the Great Depression led to a marked decline in unit sales. But a major factor was the arrival of Electrolux, a Swedish company with a factory in Connecticut, that sold tank-type cleaners which were much easier to use than uprights.

In this new environment, the market leaders struggled.  Electolux’s ease-of-use advantage was inherent to the tank-type cleaner, but Hoover and Eureka still pushed the accessories to the upright cleaner on which they leaned for so many years.  Their sales pitches, painstakingly developed for the sales forces, continued to tout superior cleaning power rather than the convenience for which consumers were increasingly looking.

And since senior executives had risen in the business under the old ways, there were no independent voices to challenge it. The emphasis was on increasing sales, not profits.

The incumbents never recovered their former positions.  This happened many times before and since, and as long as people are people, will continue to do so.

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Article: Peter Scott, “Rethinking Business Models in the Great Depression: The Failure of America’s Vacuum Cleaner Industry.” Business History Review 93:  (Summer 2019), pp. 319-348.

Further Reading: Phyllis Palmer, Domesticity and Dirt: Housewives and Domestic Servants in the United State, 1920-1945. (Temple University Press 1989); Walter A. Friedman, Birth of a Salesman: The Transformation of Selling in America. (Harvard University Press 2004).