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Knowing Your Place

Optimize Blog - May 11, 2015 - 2 comments

When considering strategy a great number of businesses misread the environment and overestimate their skill and control of what is going on around them. Sometimes they don’t even truly understand what industry they are in. Think about the railroads who thought that they were in the railroad industry. If they had realized earlier that they were in the logistics industry they may have seen some of the competition from trucks sooner….
Getting strategic decisions wrong like this can lead to dire consequences. When we undertake our strategy programs with clients one of the first examples we give is that of the video rental company, Blockbuster.
In the spring of 2000 a promising start-up approached Blockbuster’s management with an offer to sell itself for $50 million and join forces to create a “click-and-mortar” video-rental model. Its name? Netflix. As a former Netflix executive recalled, Blockbuster “just about laughed [us] out of their office”. Famously Jim Keyes the CEO of Blockbuster had this to say – “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.”
Netflix is now worth over $25 billion. Blockbuster filed for bankruptcy in 2010 and has since been liquidated.
Perhaps in retrospect, it is easy to put this decision down to a lack of vision by Blockbuster’s leadership. But at the time, things must have looked very different. Netflix was not the video-on-demand business it has since become. There were really no high-speed, high bandwidth internet connections of the kind we now take for granted, and widespread use of video streaming would have seemed like a futuristic idea.
Nevertheless, thinking the world will stay pretty much the same is a flawed approach. Change is becoming ever greater every year and particularly where technology is concerned. If Blockbuster had not made the same mistake as the railroads they may have taken a different view on the potential to partner with Netflix when the opportunity arose. Instead of considering themselves in the industry of video rentals, they should have understood that they were in the home entertainment industry. This is why during the strategic planning phase and through ongoing monitoring, understanding exactly what industry you are in and considering a wide range of future scenarios is key.
Once you understand what industry you are in and what the future possibilities are, you are much more able to understand the competition, the industry drivers, the potential risks and potential opportunities.
Make sure that you know what industry you are in, what might happen in that industry and have sophisticated monitoring programs to detect any changes that impact your assumptions. To do things differently could ensure you end up as a memory just like Blockbuster……

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  1. Sitting in the Board of Directors in a number of companies – and as a advisor for several other companies – I have so often seen that strategy is made without a reasonable analysis. Typically we see strategic planning being made on a one day workshop for filling in a SWOT analysis and a decision to “do as we use to with minor corrections”.
    I do recommend to take the time to see things from a higher perspective and make a thorough analysis.
    It you have a lack of time or resources for this, hire or offer internship to relevant students, and you will have the basic work done without too much trouble.
    The advantage of getting help from students are, that they often ask the questions which we forget because we find the answer is obvious. As e.g. which industry we are in – and it is not always obvious!!!
    Kim Møller Rasmussen

  2. Optimize

    Thanks Kim. totally agree with your sentiments.

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