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Failure Analysis/Change Strategy

Joshna Basant, Gail Espinosa-Mora, Dulce Figueroa, Houman Kargar
September 8, 2014
Robert Foley

Failure Analysis/Change Strategy
Change has always been present in the business world; however, the intensity in
which change has impacted the business world has made it difficult for organizations to adapt.
The prosperity of an organization depends on how well they can adapt to changes. Companies
such as Blockbuster are an example of an organization that was not able to adapt to the changes;
whereas, Facebook has been able to succeed and continue to adapt to global changes. Examining
Blockbusters and Facebooks mission, key indicators for the organizations failure and success
and leadership, will provide an insight as to why one organization succeeded and the other failed.
Taking into consideration the forces that caused Blockbusters failure, using the John Kotters 8-
step plan for implementing change could have avoided the demise of the company.
Blockbuster Video was founded amidst severe decline in the oil and gas business of
1985. Founder David Cook opened the first store in Dallas Texas. From being bought by
investors in 1987 and since becoming the largest video rental company in 1992, having well over
2,800 stores. Growing via acquisition of companies and having an objective of building their
central industry in video rental. ("Tripod", n.d.). Driven by the vision of becoming the number
one name in video rentals with accessibility through its traditional video stores. The company
while being led by its very retail savvy CEO John Antioco claimed success, the leader failed to
understand his downfall; "networks of unseen connections" ("A Look Back At Why Blockbuster
Really Failed And Why It Didn't Have To," 2014, para. 3). Ultimately Blockbusters CEO may
have himself ignored proven reasons for failure and instead of accepting a deal by owner of
Netflix, Reed Hastings, who founded Netflix because of a $40 late fee charged by Blockbuster,
setup the failure of his organization.

The deal included having Blockbuster become a part of Netflix's online brand and
Blockbuster operating the promotions of Netflix via its stores. Today Blockbuster has missed out
on a $28 billion industry, which has grown ten folds to the size of Blockbuster. Blockbusters
model of operating including a large portion of its earnings earned from customer late fees, the
company was building its revenues by penalizing its customers. A large reliance on an unstable
revenue source and being one dimensional may have ultimately cost Blockbuster its failure.
Whether if Blockbuster's analysis team ever considered or even understood the threshold model
of collective behavior was never known. This model explores how the initial resistance of
customers to a service such as Netflix, however trying it with its drawbacks; customers found
they were very satisfied leading to customer telling others about the service who tried it and
loved it too.
Overtime Blockbuster's CEO John Antioco recognized the threat from Netflix and the
smaller Redbox and used his position to eliminate customer late fees. To increase revenues
Antioco proposed to the board at Blockbuster to waive customer late fees and launch an
exclusive digital platform, the both together would cost the company around $400 million. These
strategies were not supported by the board, and ultimately John Antioco was accused of hurting
the company's bottom line. Then in 2005, Antioco was fired after a reported conflict over
compensation, his strategies were reversed and within five years the company went bankrupt.
(A Look Back At Why Blockbuster Really Failed And Why It Didn't Have To, 2014).
Blockbuster was operating on a very tight knit model; relying heavily on customer
penalties for revenues. Not recognizing changes in technology and customer preferences,
Blockbuster failed to have a strong research and marketing team, cost analysis, budgeting and

investment departments who did not have a corporate culture of promoting innovation and
adaptability leading for the collapse of the company.
Two indicators can be used to illustrate the success of Facebook. The first pertains to
a continued effective implementation of the company's mission, objective, and vision.
Facebook's mission is to give people the power to share and make the world more open and
connected. Regarding the vision and objectives of Facebook (O'Brien, 2012), Zuckerberg
includes words about honest and transparent dialogue, direct empowerment of people, more
accountability for officials, creating solutions to world problems, all which allow people to
"make their voices heard on a different scale from what has historically been possible". These
collective statements come to fruition at the sheer international scale of Facebook. An average
of 1.3 billion people uses Facebook each month, with an average of 130 friends each. Twenty-
eight percent of people aged 18-34 check Facebook even before they get out of bed (Statistic
Brain, 2014). The other success indicator is the financial component. Facebook currently valued
at $148.9 billion and has grown from a gross income of $554 million in 2009 to $5.97 billion in
2013 (Market Watch, 2014).
In an effort to explain, the success of Facebook, leadership theories based on the
charisma of the leader are key. Consider this analysis of Zuckerberg's approach to creating
Facebook (Blodget, 2012): "He didn't write a business plan. He didn't endlessly ask friends and
advisors what they thought of the idea. He just built a cool product quickly and launched it. He
correctly identified the things that could kill Facebook--and he made certain not to fall prey to it.
He continually turned away advertising clients, because he didn't want ads to muck up the
service. Facebook has always been controlled by Mark Zuckerberg. And Zuckerberg has always

been more focused on building his long-term vision than on capitalizing on short-term financial
rewards. One way to ensure that your company won't get pulled off course is to maintain control
of it, (Blodget, 2012). Charismatic leaders excite their followers in such a way to make personal
sacrifices to engage in a mission and outperform expectations. These leaders value self-esteem,
which includes a sense of competence to the extent that people believe they can actually control
their environment. Leaders with this amount of charisma view other peoples' reactions to their
overwhelming performance as its reward.
As a result of such near-narcissistic leadership, Zuckerberg broke the mold of
organizational culture. Reynolds (2012) gives a great example of the behaviors held in esteem at
Facebook. Zuckerberg called it "hacker Culture explained as "an approach to building that
involves continuous improvement and iteration. Hackers believe that something can always be
better and that nothing is ever complete. They just have to go fix it often in the face of people
who say its impossible or are content with the status quo. Fueled by beer and Chinese food,
these giant brainstorms have been responsible for some of Facebooks biggest breakthroughs,
(Reynolds, 2012). By simply participating in such collective corporate effort, members of the
FB organization found an expression of a collective identity, which then becomes an intrinsic
motivational factor. Mark Zuckerberg excelled at inducing such behavior, simply by being
As Chief Executive Officer of Blockbuster, I would take the opportunity to make changes
to lead the organization in the change process to prevent future failure of our business. In a
quickly changing and increasingly powerful global marketplace, correctly anticipating market
changes and consumer desires is paramount to maintain prolonged existence. In anticipating

these changes throughout the global marketplace, Blockbuster must make the necessary changes
and put forth new business strategies and create new products in order for Blockbuster to sustain
over time. Changing the way Blockbuster conducts business keeping in mind, what the average
consumer is trending towards in the world of technology. Changes will begin with a new
business strategies. Business strategies must change in order to conduct business well into the
century. Business strategies will consist of proceeding with a new vision and mission. Our
new vision is to become to most well-known and sought after company for digital technology by
our average consumer in the 21st century. The mission will be to provide the best customer
service, while providing up-to-date technology advances when it comes to digital video
entertainment streaming. Acknowledging the rise of competitors such as Google, Amazon,
Apple, YouTube, cable and satellite paper view, it is important to diversify the company and get
a foothold into the video streaming market. As CEO of Blockbuster, I will be speaking to the
board of directors about the purchase of the video-streaming conglomerate, Netflix as I believe
this is a wise business move for the future of Blockbusters success.
Identification of potential barriers that Blockbuster may face during the change
process is that of the board of directors and push back on negotiations of purchasing Netflix. As
Chief Executive Officer, I will have to sell the purchasing of Netflix to the board of directors in
order to get his or her buy-in, and once I have his or her buy-in to purchase, I will negotiate the
purchase with the Netflix company owners. In selling the acquisition of Netflix to the board of
directors, I will mention to them that I will make sure that we follow all the guidelines to gain
approval from the United States Federal Trade Commission. Another potential barrier that could
arise is that of Netflix's price tag. As Chief Executive Office, I would have to plan on several

rounds of negotiation on the purchase price such as shares, cash, or a percentage of stake in the
company still with Netflix and the board of directors of Blockbuster.
In evaluating the power and political issues within the organization, the boards of
directors have the ability to cancel the acquisition of the conglomerate Netflix, as they have the
power to do so; therefore, I must ensure the purchase goes as smooth as possible and in the favor
of both Netflix and Blockbuster's board of directors. The board of directors has the power to
make the changes they see necessary within the organization, and at any time. The political issue
that may arise is that of the management staff and the changes that he or she will have to
encounter with the purchase and changes within the company. The changes were consisting of
the vision, mission and added responsibilities with bringing on Netflix if the purchase should
transpire. Change will be difficult at first for all management staff; therefore, I am purposing a
plan to address all management staff about the changes, immediately as they happen, as well as
trainings to help employees adjust and learn any new systems put into place with the purchase.
In describing the steps that I will follow to implement the organizational change based
on John Kotter's 8-step plan for implementing change is as follows: "Step One is establishing a
sense of urgency" ("The 8-Step Process For Leading Change", 2012), is to convince others such
as board of directors, management, etc., that the research conducted is indicating consumer
trends are growing in the direction of streaming movies and that the company must act fast
because of the anticipation of changes that are occurring throughout the global marketplace. The
fact that the average consumer is longer renting videos but instead video-streaming. In order for
Blockbuster to sustain its business, this is the way the company must turn for the betterment of
the organization.

"Step two is creating the guiding coalition" ("The 8-Step Process For Leading
Change", 2012) as Chief Executive Office, I will create of a management team apart from the
board of directors that will help lead the organization with its new vision, mission, and new
business into the 21
century , to succeed throughout the company and global marketplace.
Step three is developing a change vision (The 8-Step Process For Leading
Change, 2012) which as CEO, I have created a new vision and mission for all of leadership to
live by and guide the entire organization of employees on a daily basis. When change happens,
communication is vital and leading by example is highly important in the change process;
therefore, my leadership team that I have put together will be the team to communicate this
vision, mission, and lead by example for the entire organization.
"Step four is communicating the vision for buy-in" ("The 8-Step Process For Leading
Change," 2012) which is as CEO; I have communicated my new vision and mission not only to
the board of directors whom I have buy-in from, but also to my leadership team. This team will
spread throughout the organization that same vision and mission on a daily basis to the
company's front-line staff.
Step five is empowering broad-based action (The 8-Step Process For Leading
Change, 2012) which is as CEO, I encourage my leadership staff to make the changes necessary
in leading by example our new vision and mission. I also encourage them to take the necessary
risk that is for the betterment of the company when communicating with front-line staff about the
new changes that are occurring.
Step six is generating short-term wins (The 8-Step Process For Leading Change,
2012) is empowering my leadership staff to reward those employees that are exhibiting and
leading by examples the new changes that have been set forth by our top leaders such as myself.

Step seven is never letting up (The 8-Step Process For Leading Change, 2012)
which is driving the vision and the mission of the company by not only our leadership staff but
also our front-line staff, every day. By encouraging my leadership staff to drive change through
leading by example, the results will be astonishing for both our entire organization but for the
average consumer as well. I will encourage them to be creative within his or her departments
and incorporate trainings where they see is necessary.
Step eight is incorporating changes into the culture (The 8-Step Process For Leading
Change, 2012) which is making sure that the new culture has been created with each one of our
employees. Also, that not only is the organization going to be successful but success will come
from our employees who put for the effort every day because of our leadership team
communicating and leading by example. As a company, as long as we invest in our employees
through employee training and career development, our employees will invest in our company
through great customer service which will take our business to a whole different level.
In today's ever-changing technological world, change is evitable. Some organizations
can adapt easily. Companies such as Facebook have been successful in evolving and innovating
along with the global demand for change; however, the same cannot be said about Blockbuster.
Blockbuster was not able to adapt to the changes that technology brought forth to consumers. It
is important for organizations to develop strategies that may help with change. Using the John
Kotter's 8-step plan for implementing change can lead an organization thought the change
process and ultimately success.


A Look Back At Why Blockbuster Really Failed And Why It Didn't Have To. (2014). Forbes, (),
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Blodget, H. (2012). 13 Secrets to Facebooks Success. Business Insider. Retrieved from
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O'Brien, T. (2012). Engadget. Retrieved from
Reynolds, S. (2012). The Secrets to Facebooks Success. Forbes. Retrieved from
Statistic Brain. (2014). Retrieved from
The 8-Step Process for Leading Change. (2012). Retrieved from
Tripod. (n.d.). Retrieved from