What is the Key to Sustained Business Success?

In our previous blog post, we discussed the relative frequency with which business “stalls” occur. But we did not discuss the causes for these stalls in the first place. Like when approaching a decrease in sales, there is no “right” answer to avoiding a stall. But there are things businesses can do to mitigate their risk.

The world is ever changing and evolving, and businesses must be cognizant of the fact that what works at one point in time may not work in the future. As a result, it is important to have a willingness to be flexible and adapt when the situation calls for it. But this can be easier said than done. When faced with declining revenues, it may be tempting for businesses to stay the course and utilize the strategies and tactics that have made them successful in the past. In situations like this, given a history of prosperity, it is easy for organizations to imagine that any downturn will course correct over time. But having the capacity and willingness to innovate, even if things appear to be going well, is essential to continue being profitable over the long term. 

One prime example of this failure to innovate is Kodak. For arguably the entire 20^th century, Kodak was the leader in the film photography industry. The company’s influence was so great that “Kodak moments” became a part of U.S. culture, and the organization was seen as the undisputed category leader with a significant competitive advantage. But, as the 21^st century began, Kodak was not well-positioned for the digital age. While the company had developed the first digital camera in 1975, the organization’s leaders dismissed its creation as a cute gimmick that should be hidden away and not developed further. In 1981, following Sony’s release of the first electronic camera, the organization performed a significant study on the future of digital photography. Researchers found that while digital would ultimately make inroads in the sector, significant changes were likely about 10 years away. But, when the board of directors chose a new CEO in the late 1980’s, the organization opted for one who was committed to their current method of business, rather than one with significant digital savvy. Ultimately, Kodak’s lack of willingness to innovate lead to their downfall. After enjoying a $31 billion market cap as late as 1997, the company had been reduced to a $140 million cap in January 2012 and filed for bankruptcy later that month, having not turned a profit since 2007. 

Another example of a brand that experienced a failure of imagination was Blockbuster. Through much of the 1990’s and early 2000’s, Blockbuster was the leader in the video rental industry. As technology advanced, the prospect of video on demand (VOD) as a threat to the traditional movie rental format became a reality. Brands like Netflix (which, as a fledgling company, suggested a partnership with Blockbuster in 2000), saw the potential of making people’s lives simpler by bringing content directly to consumers and not imposing time limits on them. While Blockbuster attempted to modernize themselves by creating an online platform and eliminating late fees, the effort was ultimately sabotaged by the company’s board of directors given the upfront costs that those moves created. The result was that Blockbuster continued down their traditional method of business and ultimately went bankrupt in 2010. Meanwhile, Netflix, which innovated from a DVD by mail service to an organization focused on streaming and the creation of original content, is worth $28 billion.

Even if brands do decide to make adjustments in response to perceived threats, some organizations make “easy” changes, such as simplifying operations or potentially cutting corners to reduce costs. While this may lead to a better bottom line in the short run, the pitfalls that such “easy” actions have the potential to lead to, such as a lesser quality product or worse customer service, among many others, make this a decidedly risky undertaking for long-term brand health. Further, particularly in large organizations where CEOs are expected to meet various revenue goals, there can be extreme pressure to meet these target numbers no matter the consequences, which very well may lead to dire repercussions of their own. For example, given that these leaders are often hired by and report to a seasoned board of directors that certainly has a vision of how the company should proceed, questioning the way of doing business most likely is not the first response that a new senior executive would have. The result very well may be an organization that remains stuck in its ways while the landscape around it continues to evolve. While focusing solely on what has been successful in the past may certainly work out for some organizations, it can foster a culture that ultimately hinders the brand rather than one that works to improve it. 

So, how does a business prepare for and adapt to a changing business landscape? By recognizing that risks exist and having a plan to address them. It can seem easier to make surface level changes that do not fundamentally impact an organization’s business model, but such changes will surely lack the necessary innovation required to sustain the business and may involve simplification of processes, which can actually impede brand growth. Most importantly, continuing to understand trends and new innovations, as well as making investments for future development, is key to long-term business growth.