From billions to bankruptcy: Never ignore the need to innovate

January 8, 2019 | Holly Pennebaker | HCI
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Slumber parties ruled the weekends when I was young. The minute Friday’s school bell signaled the start of a weekend, my friends and I knew it wouldn’t be long before the fun began.

The evenings started with outdoor adventure and when the sun went down, we’d ride (with an adult driver) to the nearby Blockbuster video rental store to browse the astounding aisles and pick out an epic VHS to watch together over snacks, snuggled in sleeping bags and dressed in the most stylish sleepwear.

I don’t remember what we ate or what we wore, but I distinctly recall the case that held our ever-so-special video tape. It was white, with a royal blue and yellow graphic of a film strip. Inside the case, we’d find a (PG or PG-13 rated) 2-hour escape to an unforgettable tale of laughter, fright or mystery.

My friends and I lived for weekend memories made around fun times that finished with a movie. We thought that sure-bet source of entertainment would always be there for us, just down the street.

But times changed. The year 2010 rolled around and because the video rental market was transformed by digitalization and innovative entertainment providers, our legendary video store filed for bankruptcy and closed its doors. 

The company’s customers were left without traditional movie rentals, but I can imagine the hardest hit was felt on the inside – Blockbuster employees no longer had jobs.

This company, which reportedly made $6 billion in revenue, failed to do the one big thing that might have kept it from the catastrophic closure of about 9,000 stores: tactically plan for change, and adapt its workforce to a new business strategy.

Blockbuster’s leaders had a subconscious deaf ear and a blind eye to the innovation happening around them.

“We neglect to look closely at what led to demise and learn valuable lessons,” said Greg Satell, author of “Mapping Innovation.”

“It is by learning the true sources of failure that we can hope to overcome it.”

The expiry of traditional video rental started with the absence of an online presence, and ended with the lack of means needed to enter the digital world with a strong business strategy.

Traditional video rental, which carried a reputation plagued by late fees when customers failed to return their movies on time, soon faced a new threat: companies that took late fee worries away and allowed customers to watch movies AND TV shows online or stream to their own television set.

It was innovative entertainment technology at its finest. No more trips to the store, no more penalties for delayed returns, no more errands needed to make the returns (even the convenient drop slot no longer cut it).

Fun, unforgettable nights of watching movies no longer required what they did decades ago during slumber parties for late Gen X’ers and the earliest Millennials. Instead, memories started being made by hangouts (tea, couches and yoga pants > snacks, sleeping bags and PJ’s), grabbing an electronic doohickey and pushing a few buttons before showtime.

The new, modern way of watching movies came with a very pretty price tag … and the company’s leaders were oblivious to the demand of digital disruption and just how big it would become.

They chose to bypass a strategy that may have kept the company out of the red. They chose not to change their delivery of product, even though they saw an immediate sign of success in doing so.

“[The company’s] Investors didn’t like the costs associated with the program, and franchisees were wary about the threat to their businesses,” Satell tells

The mistake was made when top management focused on the retail side of things – the actual stores and customary sales models – and were unable to comprehend the difference a move to digital services could make. They simply missed the memo, almost as if the new and unfamiliar ways wouldn’t hang around.

“If the silly fat-cat executives were paying attention, all would have been well,” Satell says. “The reality is that senior leadership came up with a viable strategy, but couldn’t manage the internal networks of forces that derailed it.”

The story doesn’t stop with new tech, evolving social trends, change in demand or even shifts in policy.

To hear the rest of this tale, and learn how to strategize your business and talent strategies when things change, join us for the final #StorytellingTuesday webcast, set for Feb. 12 at 3 p.m. ET.