Shareholders in Thomas Cook – a company that traces its roots back to 1841 – face being wiped out. This contains lessons for all investors, especially those who think they are stockpickers for the long term.
Thomas Cook’s troubles arise in part from the same thing that made it successful for decades. This thing is organisational capital. This is the set of systems, know-how and goodwill that make companies more valuable than just a collection of machines and contracts. For some companies, such as WalMart or Ocado, this capital consists in large part of the ability to run efficient supply chains. For others, it is brand loyalty or patents. And for others it is the good use of IT: Boston University’s James Bessen has shown that differences in the ability to do this are a big reason why some companies thrive and others don’t.
For decades, Thomas Cook had great organisational capital. Millions of people trusted it to organise their holidays well. But then technology changed. Websites such as Airbnb and booking.com mean we no longer need Thomas Cook’s expertise to book flights and accommodation. We can do so ourselves. Thomas Cook failed to respond to this, and so has been on the wrong side of what Joseph Schumpeter called creative destruction.