Blockbuster or Netflix: Which Is Your Organization?
CEO & Founder at Denim®
Jim Collins, author of Good to Great argues that good is the enemy of great.
Harvard Business School professor Michael Tushman argues that success leads to inertia.
Why do some organizations fail to adapt to change and become mired in inertia while others continually reinvent themselves and create sustainable, growing and profitable businesses?
These and similar organizational culture, strategy and innovation questions are topics of continual discussion and debate by scholars and business leaders alike. I recently had the opportunity to study under two of the world's leading scholars in the area of organizational ambidexterity at the Stanford Graduate School of Business. HBS' Tushman and Stanford GSB's Charles O'Reilly are world-class experts on helping big business develop and excel as an ambidextrous organization using dual strategies known as exploit and explore.
An exploit strategy is one in which the organization doubles down on its competitive advantage to win over and over at what it does best. This stick-to-our-knitting approach has proven a successful strategy for many organizations. The problem with this strategy can be found when disruptive technologies (often introduced by non-traditional competitors) reinvent the market, that at the time of entry, the successful organization did not consider viable or valuable to the market.
This scenario can be illustrated in numerous companies over the past couple of decades. For example, let's look at Blockbuster and Netflix. In 2002, Blockbuster generated about $5 billion in revenue. That same year, Netflix went public. Analysts and reports indicated that while Netflix had approximately 600,000 subscribers, they had amassed over $140 million in net losses by 2002. Could Blockbuster have reinvented themselves and their brick-and-mortar movie rental business into a mail-order DVD rental service? Of course the could have, but they didn't. Blockbuster chose to stick-to-their-knitting, considering Netflix a non-traditional competitor that wouldn't have staying power. And as the saying goes, the rest is history. In 2010, Blockbuster declared bankruptcy and have since closed the last of their U.S. stores.
An explore strategy is one in which the organization establishes a structure to test, learn and innovate for the future. This intrapreneurship (i.e. corporate entrepreneurship) approach allows the organization to stay focused on innovating in new markets, building new businesses not otherwise explored by the day-to-day core business. The explore strategy sets the stage for organizations to win consistently over the long-term.
An example of an organization that utilizes the explore strategy is IBM and its focus on Emerging Business Opportunities. Since the implementation of its explore strategy, IBM has successfully reinvented itself from a technology company to becoming one of the world's largest and best known business services organizations. Harvard Business School's Tushman, wrote an insightful blog post on this topic for the Harvard Business Review.
Great organizations deploy both exploit and explore strategies to win, maintain relevance and continually grow. This dual strategy methodology is also known as organizational ambidexterity, a term coined by Tushman and O'Reilly.
So... Blockbuster or Netflix – is your organization ambidextrous?