“Life After Late Fees” and Other Strategic Failures

Recently, I passed a building that had a shredded blue and yellow awing; it was the dead husk of the once mighty and ubiquitous Blockbuster Video chain. The sight reminded me of one of the great business blunders of all time, committed by Blockbuster in response to a changing business landscape.

In the waning days of Blockbuster, they rolled out a strategy for dealing with the upstart Netflix, which was still mailing DVDs to homes. It was called “Life After Late Fees” and it was an unmitigated disaster. Blockbuster made money charging late fees for videos that weren’t returned on time, Netflix did not, so Blockbuster, with much fanfare, waived the fees only to find this not only deprived them of current revenue from the fees, but also deprived them of future revenue because they didn’t get their videos back on time and could not rent them to others. It was a lose/lose proposition and bankruptcy, in due time, followed.

Why did they not see this coming? Further, why have so many businesses staffed by intelligent well-paid people with plenty to  lose stumbled head long into disaster even though they had all the advantages and plenty of money and, usually, lots of time to react to the dangers they faced? What explains these catastrophic failures of formerly deep-pocketed incumbent businesses?

Here are a few ideas:

Surely, one reason is the “sinecure” effect. A sinecure, as the word is currently used, is a position that requires little or no work but has a benefit, usually an impressive title and high pay. In a mature industry, especially in a monopoly, sinecures abound and there are many people hiding out in these presumably safe spaces. Facing facts and making painful adjustments to a business plan is not what these office holders signed up for. That kind of calorie burning is not what led them to take and hold their positions in the first place, so the hard work of adjusting to reality is left undone.

As the television advertising business has inched closer to disaster, I have heard it said multiple times, “I just need this business to hold on a few more years until I retire.” This is raw, rank, deadly sinecure thinking. Sinecure comes from the Latin phrase sine cura which means ‘without cure.’ Anyone protecting a comfy sinecure is not looking for cures and therefore, won’t find them.

Nearly all jobs in government are, by definition, cozy sinecures.

Another likely factor has to do with who gets put in to positions of power and why. A long-observed trend is that people tend to promote people like themselves, and organizations reward a certain kind of aggression. However, if there is no relationship between perception and aggression, then a company is eventually staffed with very aggressive but strategically blind people. As the business starts to show signs of decline, whipping the staff becomes the default mode. Internal blaming becomes self-reinforcing because it produces a marginal improvement, but harder work cannot overcome a flawed or missing strategy in the long term. Smart people flee thus leaving behind the aggressors and their captives.

Finally, I suspect much strategic failure comes from the basic fact that people are bad risk estimators and consistently overestimate their abilities to handle challenges. It is said that the best predictor of the future is the past and that is true, right up to the point when it isn’t. Things decline slowly, and then quickly. Sometimes, organizations decline so slowly that by the time someone realizes how much trouble they’re in, it’s too late.

Overestimation occurs in individuals, organizations, and governments. And, even if disaster is in sight, no one wants to look like Chicken Little or be called a “naysayer,” so all keep quiet about what everyone knows. Even though the diminished future has come into full view, there is a conspiracy of silence about what is really going on until the walls cave in.

As the old joke goes, “Denial is not a river in Egypt.” Imagine the denial at Blockbuster in it’s final year.

Human beings are amazing creatures; we are so consistent that the literature of antiquity still describes the people of today, and yet so adaptive and variable that what is lauded in one culture is so shameful in another that banishment or even suicide is required. Technology changes our habits but not our natures. A strategic thinker has to cut though all of those inconsistencies and contradictions to see a higher pattern or purpose in human behavior. Such people are extremely rare and, I suspect, cannot be cultivated. They bring vision up from the heart and must be willing to be in constant conflict with most of the people around them.

In my work life, I have met very few real strategic thinkers, and only for a short time because they moved on, or I did. I have been employed at Kodak (bankrupt and gone forever), Sony (formerly the darling of consumer electronics, overtaken by Apple and others), Cox Media (which owns radio stations, a few TV stations and some dwindling cable systems), Sinclair Broadcasting (consolidated the broadcast industry to stave off decline), and what was Post-Newsweek until the Graham family sold the prestigious but financially failing Washington Post to Amazon and now mostly operate broadcast TV stations, which are projecting, inwardly, a period of decline.

I’ve seen many plans come to grief and will see more as the great information economy chugs forward, rolling over rivals and defying the plans of people seeking safety.