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Beyond the Conference Room Solution

January 23, 2013

When Corporations Cannot Adapt (aka Fear the Kid in the Black t-shirt)

In 1917, Forbes published its first list of the 100 most valuable companies. Here we are, almost a century later, and only 15 of those companies still exist (with several of them struggling mightily to endure troubled conditions). One company, US Steel, which in 1917 towered above the other 100 companies with three times the holdings of the second closest on the list, today has an adjusted value of just one-fifth that of 1917. True, it has entered its second century of doing business, an impressive accomplishment, whereas 85 of the 100 were acquired, went bankrupt, or otherwise sunk to the bottom of the corporate sea. Still, US Steel’s once tremendous might has ebbed as it employs less than one-fifth the number of people as it did in 1917.

Only one company, General Electric, has consistently outperformed the market for its more than 130-year history, its stock remaining one of the most valued in the world. According to Bill Rothschild, former GE senior strategist, two of the five primary strategies that have led to the company’s persistent success are an ability to adapt and being proactive to the changing environment.

A story by Sean Patterson @St_Patt informed us that last week Blockbuster U.K. announced that it would be entering administration and begin looking for a buyer for its 528 stores across the U.K.   Deloitte, the firm administering Blockbuster, has announced that 160 Blockbuster stores in the U.K. will be closing. The possibility of more store closing announcements in the near future was not ruled out.

“Having reviewed the portfolio with management, the store closure plan is an inevitable consequence of having to restructure the Company to a profitable core which is capable of being sold,” said Lee Manning joint administrator of Blockbuster U.K at Deloitte. “We would like to thank the company’s employees for their support and professionalism during this difficult time. We are also grateful to the customers for their continued support.”. The closings mean around 1,000 Blockbuster employees will soon be out of work or shuffled to other stores.

Yesterday, Blockbuster announced plans to close hundreds of U.S. stores in the coming weeks and expects to shed thousands more jobs.

But the saddest part of the story is not that Blockbuster has become virtually irrelevant, but that it had plenty of opportunity to rewrite its own destiny. In the year 2000, Blockbuster could have bought Netflix for $50 million—peanuts, considering Blockbuster’s IPO in 1999 was $5 billion.  Since then, the video-rental chain has unnecessarily lost much of the value of its brand. Why? Inability to adapt quickly led this once ubiquitous chain to fail to keep up with videos by mail, dollar-a-night video vending machines, and videos immediately available via iTunes, Hulu, Amazon, and many more. Filing for chapter 11 bankruptcy, a brand that could have evolved has shuttered many of its locations, was acquired by Dish Network for $320 million.

Much has been written about Blockbuster's failures, but the intent here is not to lament but to learn. Regardless of strength of brand or industry position, no company is safe from change.  The phrase I repeatedly tell my clients is "do not obsess about your strongest competitor (you already know what to expect from them).  Worry instead about the creative kid in the black t-shirt (with nothing to lose) fervently working in his parents’ garage to redefine your industry.”

In 1998, Reed Hastings was the kid with the black t-shirt when he started Netflix.  He was simply an unhappy Blockbuster customer who was tired of the insidious late fees and thought he could do better with a new approach to movie rentals.  By contrast, Jim Keys, who was the CEO of Blockbuster stated, ”I’ve been frankly confused by this fascination that everybody has with Netflix …Netflix doesn’t really have or do anything that we can’t or don’t already do ourselves.”

The great companies, Google, Apple, Amazon programatically inject dynamism into their organizations to reinvigorate themselves.  And for the others such as Blockbuster, well let's just say tonight is not going to be a Blockbuster night.

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"When I have fully decided that a result is worth getting I go ahead of it and make trial after trial until it comes." - Thomas A. Edison

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How does an established organization filled with long-time employees, a deeply entrenched culture, and a history of drawn-out planning and development cycles become nimble, innovative, and responsive in today’s challenging business climate? Published by Bibliomotion, The Q-Loop: The Art & Science of Lasting Corporate Change delivers an actionable strategy to help your company rapidly achieve lasting transformational change.

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