Two successful companies arrived at two critical decision points. Only one recognized that they were at such a point. Only one of their companies is still in business.
In 1985, Intel made the bold decision to exit the memory chip business.
While this had been the company’s “bread and butter” product line for many years, it was losing both market share and profitability. Worse yet, Intel chips were not as reliable as those coming from Japan. Then-CEO Andy Grove, against the advice of many within his leadership team, decided to change course and bet the company’s future on a small, but very promising new product line it was selling – microprocessors. Since then, the company has become the dominant player in this industry and its market value has increased from approximately $10 Billion to $155 Billion.
The other company was Blockbuster.
Off to an incredible start since it opened for business in 1985, the video rental giant was valued at $5 Billion at its peak in 2002. Then the landscape started to change. Rather than facing a new competitive threat from overseas, Blockbuster’s threat came from a small upstart company in Silicon Valley – Netflix. But rather than fully exploring how online movie delivery technology might be the wave of the future, Blockbuster’s CEO, John Antioco, decided to double-down on the company’s retail store model, including its much-maligned revenue stream from late fees. In 2010, the company filed for bankruptcy. How could one company get it right and the other get it so wrong? Was one just luckier than the other or was it something more?
Over the past few years, there has been plenty of attention paid to the subject of unconscious bias.
But in most cases, the conversation has been around the kind of biases that affect our treatment of and behaviors around people who are different from us. These would include biases based on gender, age, ethnicity, religion or socio-economic status. While this category of biases can be exceptionally damaging to our efforts at recruiting and engaging the best talent possible for our organizations, it does not include an equally dangerous strain: tactical biases. Tactical biases are shortcuts in thinking and decision making that typically cause both individuals and teams to either ignore, undervalue or just plain not see critically important variables that are likely to impact our business fortunes in the future.
In the case of Intel, it would have been extremely easy – even defensible – for the company to stick with the tried and true strategy of continuing to bank on memory chips. It was certainly the product that the company knew best, it was what Intel’s sales and marketing team knew how to sell, and the manufacturing infrastructure was already in place to continue down this path. And this might have been the path that then-CEO Andy Grove chosen had he not intentionally separated from the powerful emotion of what “felt right” and instead pursued a path dictated by a more objective analysis of the company’s competitive environment.
A mentor of mine told me years ago that people are more rationalizing than rational. And so it was with Blockbuster.
In the years between 2002 and when it finally declared bankruptcy in 2010, the company was approached not once, not twice, but three times by Netflix CEO Reed Hastings. His message? Don’t compete with us…buy us for the bargain price of $50 Million. Convinced that paying that much money for a small, debt-ridden company with a “fad” technology was a bad move, John Antioco and his leadership team politely declined. As of October 1, 2014, Netflix had a market value of over $25 Billion. Blockbuster is simply an interesting case study.
