Nimble, Focused, Feisty. Sara Roberts
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to take breaks, under Keyes’ reign, retail employees had to clock in and out under extraordinarily strict guidelines, regardless of how busy the store may have been at the time. They also were mandated to restock damaged DVDs despite customer complaints and, to cut costs, were deliberately understaffed on peak weekend nights, so they did not even have time to restock or tidy shelves. They knew, better than anyone insulated at the top, that Blockbuster customers were eager for better alternatives, yet they were not allowed to do anything about it.8
Keyes was blind to these problems and probably believed his own words when he said, “Blockbuster is a turnaround explosion just waiting for a spark. If we exceed the expectations of our customers, we will in turn exceed the expectations of our shareholders.”
Of course, this statement reads like a bad joke today now that Blockbuster is gone and Netflix is worth more than ten times what Blockbuster was at its peak.
OLD WAY VS. NEW WAY
Why did Keyes stop Blockbuster from attempting a new way? I believe it was because he saw the traditional Blockbuster culture—a brick-and-mortar business model built to leverage scale and brand—as a permanent strength, and structured the organization and its strategy accordingly. But it was this same locked-in culture that didn’t allow the company to react and innovate when it needed to adapt. Keyes and his team refused to look at or internalize the current truths they faced in the marketplace, and they wouldn’t take the time to understand emerging technologies or shifting consumer behaviors that threatened to completely disrupt the home-entertainment industry. Keyes’ personal leadership style, best characterized as a “don’t question me and let’s execute” mentality, made it easy for everyone to put on blinders and plow ahead. And, whenever employees got glimpses of market truth, the company wasn’t positioned or structured to respond. In the end, changing its business model to survive in a new reality was going to cost money, resources, and creative energy that Blockbuster was unwilling and unable to spend.
As we all know, this narrative is not an isolated one. Many big companies that were incredibly successful in the twentieth century are failing and floundering in the twenty-first. Pundits and journalists usually point to a lack of execution and innovation. Yet it’s the organizational culture that large companies built in the process of becoming successful and powerful in the twentieth century that is now defeating them in this new era. Many such companies continue to fixate on doing more or better at what has made them successful in the past—offering a particular product or service at scale—while not yet recognizing that today the how of a company—what it stands for, what matters to it, how it tends to the changing needs of its people and customers—is infinitely more important.
Many companies fixate on doing more or better at what has made them successful in the past—offering a particular product or service at scale—while not yet recognizing that today the how of a company—what it stands for, what matters to it, how it tends to the changing needs of its people and customers—is infinitely more important.
Much of the inertia of traditional companies can be traced back to their cultural roots. Who were they when they first started? What were their goals? What was the mindset of these formidable pioneers? What worked in the twentieth century?
Winning in the twentieth century required getting big and then managing for stability. Companies were focused on the what—their strategy or their product. And they had plenty of time and resources to do the what well. The world moved much more slowly than it does today, so in general it was possible to pick a strategy, execute it well, and become successful as a result. Accordingly, twentieth-century companies built their organizations to meet quality, quantity, and cost drivers, and they produced products to meet clear demand, while distributing in a mass market, and standardizing all processes and outputs to maximize efficiency.
Enterprises operating this way today are clinging to the same mindset that James Keyes held on to—a belief that scale, mass, and efficiency will provide an eternal advantage. In contrast, Netflix has actually developed a theory to describe why success in business eventually leads to failure.9 Netflix believes that growth increases organizational complexity and the potential for chaos, and that companies naturally respond by specializing on a narrower range of success factors and putting more processes in place to dampen the chaos. However, this restricts what makes working for a particular organization interesting, creative, and engaging and drives talent and diversity of thinking out. The long-term outcome of failure isn’t seen at first because as this is all happening, the business continues to perform well or even better, and short-term outcomes are improved. But when the market shifts—as it is bound to do—the company is left without the talented people, emotional commitment, or creative range to respond. A focus on what has smothered the reliance on how.
Mark Parker, the CEO of Nike, sees cultural inertia as a very deadly, self-perpetuating, and existential threat. He says, “One of my fears is being this big, slow, constipated, bureaucratic company that’s happy with its success. Companies fall apart when their model is so successful that it stifles thinking that challenges it. It’s like what the Joker said—‘This town needs an enema.’ When needed, you’ve got to apply that enema, so to speak.”10
While that may be a more vivid depiction than many care to imagine, it’s critical that we understand how culture can cause a company to resist, adapt, or lead in this new environment.
It’s easy to think that companies like Apple and Google are “winning” now because they’re smarter at product, packaging, and positioning. In reality, it’s their how that propels their unique what. It’s their culture—the principles behind how they do what they do, and think what they think, as an organization—that makes them successful.
Dig more deeply into these organizations and you’ll see that for them culture is a verb, not a noun. It isn’t about ping-pong tables and Happy Hour Fridays. It’s about leveraging culture as the key driver to success. Culture is how they operate and consciously create an environment and organization that enables them to innovate according to market needs, execute the strategy they think is best, and deliver on their purpose.
Cracking the code on that how and reinforcing it in everything the organization does is the most important thing any leader can do today to help his or her organization survive and thrive.
THE CULTURE DIFFERENCE IN A COMPLEX WORLD
If culture is so critical to the performance of the most successful organizations today, why isn’t that more self-evident to people working in business?
I believe it’s because culture is highly intangible and abstract compared with other business concerns. Hard-nosed business leaders—and all of us with pressing challenges and urgent priorities who are under stress to “make the numbers”—can easily overlook culture because it is difficult to observe, measure, and manage, and frankly touchy-feely in nature.
Even the concept of culture is abstract. I think of it as the set of tacit understandings and beliefs that drive behaviors, ways of thinking, and ways of talking and interacting that the people within a particular group perceive are right or normal. These, in turn, shape the practices of the group, the outputs of its work, and its reputation or brand. In other words, I see culture most tangibly in how people act, including how they make decisions, how they treat colleagues and customers, how they define and reward success, talk about problems, view the world, plan for the future, develop products, etc.
We’re exiting a world in which culture was largely left untended to grow organically. The culture of a society—whether it’s a small tribe or a church group or a modern nation-state—often forms in this way. Slowly, over time, due in part to the insular nature of the group and its identification as being separate from the rest of the world, distinctions form, get reinforced, and become marks of uniqueness. That uniqueness is the culture’s particular how—how it thinks, how it acts, how it defines what’s right.
When you think of culture as developing through a slow, organic process, it’s easy to grasp how that particular approach mapped well with the rise of the twentieth-century organization.