by Adam Hartung | Oct 18, 2004 | Defend & Extend, In the Whirlpool
Blockbuster’s competitors are making it difficult for the company to make strides toward profitable growth. Netflix, the leading online DVD rental business, just announced a price cut in an attempt to double the size of its business (a bad move, but that’s another story…). And Blockbuster, in order to not be under-cut, dropped its own prices in response.
This is the problem with Defend and Extend management. While Blockbuster is busy fending off competitors to its current business, it is consuming scarce investment dollars and organizational attention that cannot be applied to meeting the real threat, which is video on demand.
Even if Blockbuster succeeds against Netflix, how will they out duel Wal-Mart on price in this space? And now Amazon.com is rumored to be getting into the market, and Netflix may find a deep-pocketed buyer. Can Blockbuster keep this up indefinitely? Of course not. Instead of chasing around after paper-thin margins in a business that has no future, the company needs to wake up to the reality that it doesn’t have a Success Formula that can win in the long run and act now to reinvent it.
by Adam Hartung | Oct 14, 2004 | Defend & Extend, In the Whirlpool
What do you think; does Blockbuster’s Success Formula have a chance of being saved? The company IS innovating and CEO Anitoco’s recent investor tour was centered around convincing shareholders that the company has a plan to reinvigorate the business… but really, who are they kidding (besides themselves)?
Blockbuster’s innovations are clever and will certainly put some more dollars on the top-line (at least temporarily). These include increasing game rentals (competing with stores such as Gamestop), allowing people to trade-in their old movies, a subscription service to allow people to keep movies indefinitely (to compete with Netflix). Ultimately, the company is saying that it is changing its business from “a place you rent a movie to a brand where you rent buy or trade movies and games, used or new, in-store or online.”
We don’t think its going to be enough. Why? Because there are too many alternatives for renting movies, but the really big show-stopper is a disruptive technology: video on demand. Blockbuster claims that it has certain advantages over video on demand such as a two-month lead on getting new movies. But even this is based on the assumption that movie theaters fear cannibalization of retail sales. And that can change overnight.
Blockbuster’s actions won’t work over the long-term because they aren’t addressing the challenge. In essence they are just extending the old business model which is to have lots of brick and mortar retail outlets providing entertainment-related products for home use. It’s the lock-in to all the real estate that’s killing the company. What will happen when sales drop precipitously due to the rising popularity of streaming video that can be downloaded in the comfort of your home? It’s inevitable.
What else could they do? Stop investing in their dead business model–the current business model is in the Whirlpool and has no future. Instead it can start selling off valuable real estate and use the money to experiment with leading-edge business concepts. What would you do if you were CEO?
by Adam Hartung | Aug 27, 2004 | Defend & Extend, Leadership
As the world watches the Olympics this week, I was struck at how different sporting competition is from business competition. Those business leaders that make positive analogies are doomed for problems – and most likely failure.
The Olympic gymnast is a great athlete. Designed and practiced to be the best at his sport. He might have been a great baseball player, or swimmer, but he is, today, a finely tuned athlete capable of competing – and winning – at gymastics.
Likewise, the Olympic Greco Roman wrestler is a great athlete. He too is practiced to be the best at his sport. And, he too could have been a football player, or other competitor. But today, due to repetitive practice and a determined focus he is ready to compete in his one sport of wrestling.
Both of these are potential gold medal winners. But which is the more “fit”? That is impossible to say, for each is now finely tuned to a narrow field of competition. What would happen if the coach asked them to switch sports? It would be disastrous. They are capable of winning at one game, and have limited competitiveness in any other area.
What will become of these athletes when the game ends? Both will hope for endorsements and great fortune. Perhaps they will have one – at most two – more possible trips to the Olympics. And endorsements may last for a year or two. But they are almost sure to not compete in any other athletic endeavor. For, as good as they are, they are so highly specialized that their skills are not transferable to compete in another game. They will have to find entirely new careers in short order.
For business this is a recipe for disaster. Specialization leads to obsolescence. Any business that optimizes itself to compete so specifically will find itself upset by another competitor that makes a slight alteration in the “rules of the game.” The dynamism of markets, and competition, assures us that no highly specialized competitor can survive long. Glory may reign for a short time, but the specialized competitor will be upset in short order.
Today’s business success requires adaptability in the face of changing market conditions and competitors. New rules are created often, and the abilty to move across markets with wide skills is required for any business to remain powerful for more than a few years. Even great size, as with the wrestler, will not protect the competitor when the rules change slightly favoring speed or agility over size.
Business is not an Olympic sport. We should not confuse the testosterone laden thrill of a gold medal with the success of creating returns for shareholders. Instead, we should remember that Olympic winners are the 1 in 100,000 that made it to success. The odds were stacked far against them before they began. In business, the ability to change the competitive rules means that the odds can be stacked in your favor – as long as you remember to be adaptive in thinking and behavior in order to keep your competitor guessing and yourself in the lead.
by Adam Hartung | Aug 20, 2004 | Defend & Extend
You’re either “Green and Growing” or “Ripe and Rotting.” Unfortunately most companies and even entire industries are Ripe and Rotting — they’re locked into obsolete Success Formulas and innovative companies are putting them out of business. Do you know how many of the top 500 hundred companies on the 1994 Fortune 1000 list of companies are still there today? What would you guess… 90%? 85%? Wrong. It’s about half — 55%.
That’s really amazing when you think about it. These are our biggest and most successful companies… how could this happen? What explains this? That is the question Adam and I have been trying to answer together since 1999, and that’s what this blog is dedicated to exploring.
Ripe and Rotting companies — which in our language would be companies in the “Swamp” and “Whirlpool” parts of our “River” lifecycle metaphor — cannot transform themselves because they are locked-in. They are unable to reinvent their business even when they want to, although most don’t. What they do want is to make their old Success Formula vibrant and effective again, and they do this through what we call Defend & Extend Management (D&E).
D&E management is a way of responding to marketplace challenges that enables companies to keep doing what they’ve always done; only maybe they make it better faster or cheaper. Well, it doesn’t work in today’s economy—it did 30-50 years ago when these management concepts originally became codified and eventually hardened into dogma—but not today. And that’s why so many companies are failing, and almost every company is struggling. Their basic assumptions about the economy and how to compete have become obsolete and they—and in fact the business world at large—have not made the leap to a new set of principles that does work.
That’s why the investment community tries to squash Google’s IPO instead of finding a way to transform themselves to prosper in a world where the Dutch auction is the standard for IPO’s. It’s why music companies sue their customers instead of adapting to a world where downloading individual digital songs is the norm. It’s why the major airlines cling to their hub-and-spoke business model instead of ditching it and experimenting to find a new approach where they can make some money.
Oh, and about Google’s IPO… well apparently it was successful after all. And now the media is reporting that other companies may go this route with their IPO’s (oh really??!). And the big investment companies? Their D&E response was to stay away from the IPO… and in doing so missed out on this tremendous business opportunity.
