Race to the top or Race to the bottom – how your business model strategy determines success
Part 1 – Creative Destruction or just destruction?
This morning I read that Blockbuster filed chapter 11. I wondered what took them so long. Two years ago my office contacted them offering to help them realign their business model pro bono. All we wanted was the ability to publish the case study. They declined.
My first thought as I read the headline on my IPAD while shaving was that the inevitable had finally happened. However, the tragic truth is that it was not inevitable; just another company trapped in an existing business model and afraid to engage in creative destruction. Fear of innovation maybe be a greater hazard than innovation itself.
What do I mean by “trapped” in its current business model? Your business model can trap you with golden handcuffs in the sense that when you are making good money with the current structure; you don’t want to risk change. Change can destroy your cash cow, cost money, and the new model may not work; scary business.
No wonder innovation often comes from outside insurgents. Netflix didn’t have any great new technology when they first came on the scene; they used the antiquated distribution system of the post office to leverage their business model. The traditional movie theaters didn’t go out of business when VCRs were invented; they just enhanced the experience of movie-going. Business models don’t have to involve the latest technology or great investment but they do require a realistic assessment of the current and future environment and the courage to change before you are forced to.
We’ve all known for years that it was just a matter of time before you could get movies on your computer, IPAD, phone, Kindle, cable TV or probably soon, wristwatch. So what was Blockbuster waiting on? Another way your business model traps you is by virtue of the assets or competencies you have invested in. If you have invested in retail outlets for movie distribution, what is core to your business? Is it the retail outlets themselves? is it relationships with content providers? is it entertainment? It always comes back to knowing what your core strategy is so you can take the leap of faith and engage in creative destruction to reinvigorate your business model. If Blockbuster was in the movie business they should be at the forefront of converging technologies. But interestingly, it wasn’t actually new technology that threw the first body punches; it was the leveraging of the post office (Netflix) and a vending machine model (Big Red Box).
In business you are either growing or dying. Part of the art of management is recognizing decay and decline before it shows up on the income statement and balance sheet. Creative destruction is an important part of business strategy. Next blog will discuss innovative leading and innovative following.