Joshna Basant, Gail Espinosa-Mora, Dulce Figueroa, Houman Kargar LDR/531 September 8, 2014 Robert Foley FAILURE ANALYSIS/CHANGE STRATEGY 2
Failure Analysis/Change Strategy Change has always been present in the business world; however, the intensity in which change has impacted the business world has made it difficult for organizations to adapt. The prosperity of an organization depends on how well they can adapt to changes. Companies such as Blockbuster are an example of an organization that was not able to adapt to the changes; whereas, Facebook has been able to succeed and continue to adapt to global changes. Examining Blockbusters and Facebooks mission, key indicators for the organizations failure and success and leadership, will provide an insight as to why one organization succeeded and the other failed. Taking into consideration the forces that caused Blockbusters failure, using the John Kotters 8- step plan for implementing change could have avoided the demise of the company. Blockbuster Video was founded amidst severe decline in the oil and gas business of 1985. Founder David Cook opened the first store in Dallas Texas. From being bought by investors in 1987 and since becoming the largest video rental company in 1992, having well over 2,800 stores. Growing via acquisition of companies and having an objective of building their central industry in video rental. ("Tripod", n.d.). Driven by the vision of becoming the number one name in video rentals with accessibility through its traditional video stores. The company while being led by its very retail savvy CEO John Antioco claimed success, the leader failed to understand his downfall; "networks of unseen connections" ("A Look Back At Why Blockbuster Really Failed And Why It Didn't Have To," 2014, para. 3). Ultimately Blockbusters CEO may have himself ignored proven reasons for failure and instead of accepting a deal by owner of Netflix, Reed Hastings, who founded Netflix because of a $40 late fee charged by Blockbuster, setup the failure of his organization. FAILURE ANALYSIS/CHANGE STRATEGY 3
The deal included having Blockbuster become a part of Netflix's online brand and Blockbuster operating the promotions of Netflix via its stores. Today Blockbuster has missed out on a $28 billion industry, which has grown ten folds to the size of Blockbuster. Blockbusters model of operating including a large portion of its earnings earned from customer late fees, the company was building its revenues by penalizing its customers. A large reliance on an unstable revenue source and being one dimensional may have ultimately cost Blockbuster its failure. Whether if Blockbuster's analysis team ever considered or even understood the threshold model of collective behavior was never known. This model explores how the initial resistance of customers to a service such as Netflix, however trying it with its drawbacks; customers found they were very satisfied leading to customer telling others about the service who tried it and loved it too. Overtime Blockbuster's CEO John Antioco recognized the threat from Netflix and the smaller Redbox and used his position to eliminate customer late fees. To increase revenues Antioco proposed to the board at Blockbuster to waive customer late fees and launch an exclusive digital platform, the both together would cost the company around $400 million. These strategies were not supported by the board, and ultimately John Antioco was accused of hurting the company's bottom line. Then in 2005, Antioco was fired after a reported conflict over compensation, his strategies were reversed and within five years the company went bankrupt. (A Look Back At Why Blockbuster Really Failed And Why It Didn't Have To, 2014). Blockbuster was operating on a very tight knit model; relying heavily on customer penalties for revenues. Not recognizing changes in technology and customer preferences, Blockbuster failed to have a strong research and marketing team, cost analysis, budgeting and FAILURE ANALYSIS/CHANGE STRATEGY 4
investment departments who did not have a corporate culture of promoting innovation and adaptability leading for the collapse of the company. Two indicators can be used to illustrate the success of Facebook. The first pertains to a continued effective implementation of the company's mission, objective, and vision. Facebook's mission is to give people the power to share and make the world more open and connected. Regarding the vision and objectives of Facebook (O'Brien, 2012), Zuckerberg includes words about honest and transparent dialogue, direct empowerment of people, more accountability for officials, creating solutions to world problems, all which allow people to "make their voices heard on a different scale from what has historically been possible". These collective statements come to fruition at the sheer international scale of Facebook. An average of 1.3 billion people uses Facebook each month, with an average of 130 friends each. Twenty- eight percent of people aged 18-34 check Facebook even before they get out of bed (Statistic Brain, 2014). The other success indicator is the financial component. Facebook currently valued at $148.9 billion and has grown from a gross income of $554 million in 2009 to $5.97 billion in 2013 (Market Watch, 2014). In an effort to explain, the success of Facebook, leadership theories based on the charisma of the leader are key. Consider this analysis of Zuckerberg's approach to creating Facebook (Blodget, 2012): "He didn't write a business plan. He didn't endlessly ask friends and advisors what they thought of the idea. He just built a cool product quickly and launched it. He correctly identified the things that could kill Facebook--and he made certain not to fall prey to it. He continually turned away advertising clients, because he didn't want ads to muck up the service. Facebook has always been controlled by Mark Zuckerberg. And Zuckerberg has always FAILURE ANALYSIS/CHANGE STRATEGY 5
been more focused on building his long-term vision than on capitalizing on short-term financial rewards. One way to ensure that your company won't get pulled off course is to maintain control of it, (Blodget, 2012). Charismatic leaders excite their followers in such a way to make personal sacrifices to engage in a mission and outperform expectations. These leaders value self-esteem, which includes a sense of competence to the extent that people believe they can actually control their environment. Leaders with this amount of charisma view other peoples' reactions to their overwhelming performance as its reward. As a result of such near-narcissistic leadership, Zuckerberg broke the mold of organizational culture. Reynolds (2012) gives a great example of the behaviors held in esteem at Facebook. Zuckerberg called it "hacker Culture explained as "an approach to building that involves continuous improvement and iteration. Hackers believe that something can always be better and that nothing is ever complete. They just have to go fix it often in the face of people who say its impossible or are content with the status quo. Fueled by beer and Chinese food, these giant brainstorms have been responsible for some of Facebooks biggest breakthroughs, (Reynolds, 2012). By simply participating in such collective corporate effort, members of the FB organization found an expression of a collective identity, which then becomes an intrinsic motivational factor. Mark Zuckerberg excelled at inducing such behavior, simply by being himself. As Chief Executive Officer of Blockbuster, I would take the opportunity to make changes to lead the organization in the change process to prevent future failure of our business. In a quickly changing and increasingly powerful global marketplace, correctly anticipating market changes and consumer desires is paramount to maintain prolonged existence. In anticipating FAILURE ANALYSIS/CHANGE STRATEGY 6
these changes throughout the global marketplace, Blockbuster must make the necessary changes and put forth new business strategies and create new products in order for Blockbuster to sustain over time. Changing the way Blockbuster conducts business keeping in mind, what the average consumer is trending towards in the world of technology. Changes will begin with a new business strategies. Business strategies must change in order to conduct business well into the 21 st century. Business strategies will consist of proceeding with a new vision and mission. Our new vision is to become to most well-known and sought after company for digital technology by our average consumer in the 21st century. The mission will be to provide the best customer service, while providing up-to-date technology advances when it comes to digital video entertainment streaming. Acknowledging the rise of competitors such as Google, Amazon, Apple, YouTube, cable and satellite paper view, it is important to diversify the company and get a foothold into the video streaming market. As CEO of Blockbuster, I will be speaking to the board of directors about the purchase of the video-streaming conglomerate, Netflix as I believe this is a wise business move for the future of Blockbusters success. Identification of potential barriers that Blockbuster may face during the change process is that of the board of directors and push back on negotiations of purchasing Netflix. As Chief Executive Officer, I will have to sell the purchasing of Netflix to the board of directors in order to get his or her buy-in, and once I have his or her buy-in to purchase, I will negotiate the purchase with the Netflix company owners. In selling the acquisition of Netflix to the board of directors, I will mention to them that I will make sure that we follow all the guidelines to gain approval from the United States Federal Trade Commission. Another potential barrier that could arise is that of Netflix's price tag. As Chief Executive Office, I would have to plan on several FAILURE ANALYSIS/CHANGE STRATEGY 7
rounds of negotiation on the purchase price such as shares, cash, or a percentage of stake in the company still with Netflix and the board of directors of Blockbuster. In evaluating the power and political issues within the organization, the boards of directors have the ability to cancel the acquisition of the conglomerate Netflix, as they have the power to do so; therefore, I must ensure the purchase goes as smooth as possible and in the favor of both Netflix and Blockbuster's board of directors. The board of directors has the power to make the changes they see necessary within the organization, and at any time. The political issue that may arise is that of the management staff and the changes that he or she will have to encounter with the purchase and changes within the company. The changes were consisting of the vision, mission and added responsibilities with bringing on Netflix if the purchase should transpire. Change will be difficult at first for all management staff; therefore, I am purposing a plan to address all management staff about the changes, immediately as they happen, as well as trainings to help employees adjust and learn any new systems put into place with the purchase. In describing the steps that I will follow to implement the organizational change based on John Kotter's 8-step plan for implementing change is as follows: "Step One is establishing a sense of urgency" ("The 8-Step Process For Leading Change", 2012), is to convince others such as board of directors, management, etc., that the research conducted is indicating consumer trends are growing in the direction of streaming movies and that the company must act fast because of the anticipation of changes that are occurring throughout the global marketplace. The fact that the average consumer is longer renting videos but instead video-streaming. In order for Blockbuster to sustain its business, this is the way the company must turn for the betterment of the organization. FAILURE ANALYSIS/CHANGE STRATEGY 8
"Step two is creating the guiding coalition" ("The 8-Step Process For Leading Change", 2012) as Chief Executive Office, I will create of a management team apart from the board of directors that will help lead the organization with its new vision, mission, and new business into the 21 st century , to succeed throughout the company and global marketplace. Step three is developing a change vision (The 8-Step Process For Leading Change, 2012) which as CEO, I have created a new vision and mission for all of leadership to live by and guide the entire organization of employees on a daily basis. When change happens, communication is vital and leading by example is highly important in the change process; therefore, my leadership team that I have put together will be the team to communicate this vision, mission, and lead by example for the entire organization. "Step four is communicating the vision for buy-in" ("The 8-Step Process For Leading Change," 2012) which is as CEO; I have communicated my new vision and mission not only to the board of directors whom I have buy-in from, but also to my leadership team. This team will spread throughout the organization that same vision and mission on a daily basis to the company's front-line staff. Step five is empowering broad-based action (The 8-Step Process For Leading Change, 2012) which is as CEO, I encourage my leadership staff to make the changes necessary in leading by example our new vision and mission. I also encourage them to take the necessary risk that is for the betterment of the company when communicating with front-line staff about the new changes that are occurring. Step six is generating short-term wins (The 8-Step Process For Leading Change, 2012) is empowering my leadership staff to reward those employees that are exhibiting and leading by examples the new changes that have been set forth by our top leaders such as myself. FAILURE ANALYSIS/CHANGE STRATEGY 9
Step seven is never letting up (The 8-Step Process For Leading Change, 2012) which is driving the vision and the mission of the company by not only our leadership staff but also our front-line staff, every day. By encouraging my leadership staff to drive change through leading by example, the results will be astonishing for both our entire organization but for the average consumer as well. I will encourage them to be creative within his or her departments and incorporate trainings where they see is necessary. Step eight is incorporating changes into the culture (The 8-Step Process For Leading Change, 2012) which is making sure that the new culture has been created with each one of our employees. Also, that not only is the organization going to be successful but success will come from our employees who put for the effort every day because of our leadership team communicating and leading by example. As a company, as long as we invest in our employees through employee training and career development, our employees will invest in our company through great customer service which will take our business to a whole different level. In today's ever-changing technological world, change is evitable. Some organizations can adapt easily. Companies such as Facebook have been successful in evolving and innovating along with the global demand for change; however, the same cannot be said about Blockbuster. Blockbuster was not able to adapt to the changes that technology brought forth to consumers. It is important for organizations to develop strategies that may help with change. Using the John Kotter's 8-step plan for implementing change can lead an organization thought the change process and ultimately success.
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References A Look Back At Why Blockbuster Really Failed And Why It Didn't Have To. (2014). Forbes, (), Retrieved from http://www.forbes.com/sites/gregsatell/2014/09/05/a-look-back-at-why- blockbuster-really-failed-and-why-it-didnt-have-to/ Blodget, H. (2012). 13 Secrets to Facebooks Success. Business Insider. Retrieved from http://www.businessinsider.com/secrets-to-facebooks-success-2012-5?op=1. Market Watch. (2014). Retrieved from http://www.marketwatch.com/investing/stock/fb O'Brien, T. (2012). Engadget. Retrieved from http://www.engadget.com/2012/02/01/zuckerberg- outlines-idealistic-facebook-mission-in-ipo-filing/ Reynolds, S. (2012). The Secrets to Facebooks Success. Forbes. Retrieved from http://www.forbes.com/sites/siimonreynolds/2012/05/02/the-secret-to-facebooks- success/2/. Statistic Brain. (2014). Retrieved from http://www.statisticbrain.com/facebook-statistics/ The 8-Step Process for Leading Change. (2012). Retrieved from http://www.kotterinternational.com Tripod. (n.d.). Retrieved from http://studies.tripod.com/DISC4370/project.htm