Debunking Business Failures: Blockbuster, Kodak, Xerox

In this episode of the Innovation Show  we delve into the myths and realities of business failures with Greg Satell and Paul Nunes.

Join us as we explore classic case studies of companies like Blockbuster, Kodak, and Xerox, and uncover the untold stories behind their perceived failures.

We discuss the complexities of decision-making, the importance of controlling the narrative, and the crucial lessons business leaders can learn from past mistakes. 

 

00:00 Welcome to the Innovation Show

01:55 The Innovator's Dilemma: A Classic Quote

02:05 Introducing the Guests: Greg Satel and Paul Nula

02:43 The Myth of Learning from Failures

03:07 Greg's Experience with Misaligned Case Studies

05:07 Paul's Perspective on Research and Interviews

05:17 The Complexity of Decision-Making in Organizations

15:30 The Blockbuster vs. Netflix Case Study

21:44 The Role of Leadership and Context in Business Decisions

43:45 Milking the Cash Cow: Challenges and Strategies

45:21 Blockbuster's Rapid DVD by Mail Transition

46:30 Adobe's Cloud Shift and Kodak's Digital Dilemma

48:42 Kodak's Struggle with Digital Photography

54:43 Fuji's Diversification Success

58:29 Intel's Missed Opportunities and Target Fixation

01:06:40 Xerox's Innovation and the Birth of the Laser Printer

01:20:44 Lessons from Xerox and Pixar's Origins

01:24:26 Empowering Emerging Leaders and Final Thoughts

 

Perfect for business leaders, strategists, and innovation professionals who want to move beyond the clichés and understand what truly drives long-term success—or failure.

 

Find Greg: https://gregsatell.com

 

Find Paul: https://www.linkedin.com/in/paul-nunes-5351773/

 

🔗 Listen on your favorite podcast platform or visit: https://theinnovationshow.io

 

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🧠 Featuring:

 

• Greg Satell – Author of Mapping Innovation

• Paul Nunes – Global Managing Director of Thought Leadership, Accenture Research

• Host: Aidan McCullen – Author of Undisruptable

 

Episode Transcript

(00:00):
Welcome to the Innovation Show.
This show is brought to by the RYInstitute, who have drill dropped their
first edition of their biannual journal.
It features a collection of articlesfrom some of the world's most forward
thinking executives, policy makers,and academics designed to help business
leaders gain actionable insightsand perspectives around things like

(00:20):
ai, global trade and transformation.
You can check out the journal and find outmore about the NDL [e-mail].
Slack Institute.
The list of leading companiesthat failed when confronted with
disruptive changes in technologyand market structure is a long one.
At first glance, there seems to be nopattern in the changes that overtook them.

(00:44):
In some cases, the newtechnologies swept through quickly.
In others, the transition took decades.
In some, the new technologies werecomplex and expensive to develop,
and others, the deadly technologies.
Were simple extensions of whatthe leading companies already
did better than anyone else.
One theme common to all these failures,however, is that the decisions that led

(01:07):
to the failure were made when the leadersin question were widely regarded as
among the best companies in the world.
There are two ways toresolve this paradox.
One might be to conclude thatfirms such as digital IBM, apple,
Sears, Xerox, and Buchar Eriemust never have been well managed.
Maybe they were successful becauseof good luck and fortuitous timing

(01:31):
rather than good management.
Maybe they finally fell on hardtimes because their fortune ran out.
Maybe an alternative explanation,however, is that these failed firms were
as well run as one could expect, a firmmanaged by mortals to be, but that there
is something about the way decisionsget made in successful organizations

(01:51):
that sows the seed of eventual failure.
That is a quote from theClassic Innovator's Dilemma
by Clayton Christensen.
May rest in Peace and it sets up exactlythe conversation we wanna have today.
I'm joined by two gents thatare, have graced the Innovation
Show many, many times.

(02:12):
Friends of the show, friends of mine.
It's a great pleasure to welcome firstauthor of Cascades and Mapping Innovation.
Greg Satel, welcome to the stage.
Happy to be here, Aiden.
Thanks for having me once again.
Always a pleasure and friend of the show,author of Big Bang Disruption, pivot for
the Future, jumping the S-Curve and hislittle known but classic mass affluence

(02:36):
that we're gonna cover in the future.
Paul Nula, welcome back my friend.
Thanks Hayden.
It's great to be here.
Great to have you back, man.
Both of you guys are mass contributors toHBR as well, and you've written about the
topic that I wanna talk about today, whichis that we can't learn from myths, but we
can learn from the failures of companies.

(02:59):
And so many of the case studieswe read are actually myths.
They're written fromdifferent perspectives that
don't give an overall view.
Greg, I'm gonna come to you firstbecause you have a perspective on
this based on actually one of thesecase studies that was written about
a company that you worked for.
Well, I actually, it was acompany I ran in, in Kyiv.

(03:20):
And, uh, we had about 800 employees.
And it started off with a, a smallbusiness called the Kyiv Post, which
eventually became a mature businessand, and a relatively, uh, small
part of our revenues, about 5%.
But the researchers, they interviewedpeople mainly from that one business.

(03:44):
So anybody reading that case study,which might have, have, have been
effective as a, a teaching tool wouldget the, uh, would, would, would get
a completely lops, lopsided view of,of what was going on in the business
and what we were really dealing with.
And there's also a, a, uh.

(04:08):
Kind of a misaligned incentivefor a researcher to find
something that is really stark.
You know, here's some huge companywho made some huge mistake and I
can tell you how to do it better.
You know, you're never going to build aconsulting practice on, hey, you know, I

(04:30):
went and I researched this business case,and actually the managers did a pretty
good job with the challenges that theywere, uh, that they were confronted with.
Uh, so, uh, where there's a huge incentivefor somebody to say, Hey, you know what?
They got this one thing wrong and Ican teach you how to get it right.

(04:54):
And those silly people, they don't get it.
But if you adopt my framework, mystrategy, my whatever, you can,
you can avoid those pitfalls.
Paul, let's come to you.
Let's build on that.
What Greg set us up nicely for.
So Greg has seen this perspective.
You've also leaned into thisperspective studying companies as well.

(05:17):
But one of the things you told us off airbefore we came online was a perspective
prompted by this idea of what ClaytonChristensen said, that it's very difficult
to measure a moment in time, not onlyfor a company and the configuration of
that company, but for an industry itself.
Yeah.
There's so much to unpack here, Aiden,because you know, there's so many

(05:39):
ways to go about trying to figure outsomething worth recognizing is an idea
and the whole thing of like, you know,is this perfect advice or is this
something management should think about?
Um, two things I wanted to key off withwhat Greg said that I think were great.
I mean, one is, are youtalking to the right person?
And one of the things, becauseyou know, I actually headed
up a think tank for Accenture.

(06:01):
I always talk to our researchers aboutis, you know, don't just talk to the
CEO because they don't necessarily knowanything about what you're talking about.
So if you want good supply chainadvice about, and it's a real case
about a company that's really changingtheir supply chain, I wanna hear what
the head of supply chain has to say.
It's, it doesn't improve the storyto hear what the CEO has to say.

(06:22):
'cause often the CCEO really hasno idea except what the press has
already told him or her about howthat project became successful.
So there's a real self-reinforcingloop, um, to all of that.
And, and then, you know, I think itgoes through this question of what kind
of answers are you trying to get out?
And so what I was mentioningto you before, and was this,

(06:44):
you know, am I trying to get ananswer of, oh, what's possible?
What's something I might try?
Or am I trying to find this universal possthis universal truth that always works?
Um, and, and that's fraught with alot of danger, and we can talk about
the industry components of that.
Industry is a huge factor inunderstanding the value of any advice.

(07:08):
I think that's 100% true, and I, Ithink it's, it's also an, another
factor is how confusing life isand, and the, the imprint that you,
you put on it, in, in retrospect,there's, there's flaws in that as well.
And this is something I really triedto convey in, in Cascades where I

(07:35):
was put in this, I, I just foundmyself in this historic situation
and there was no great epiphany.
There was no, oh wow, this is, youknow, I've got it all figured out now.
There was just a bunch of confusing thingsgoing on that I didn't really understand.

(07:56):
Writing Cascades took me 15 years.
'cause it, it, it took me that longto make, uh, to make sense of it.
And it's, it, it really is thathard to gain an insight of,
of an, of actual importance.
And there's lots and lots ofways to get it wrong and very

(08:16):
few ways to get it right.
And even if you're, if you'rehonest and you work really hard at
it, and I'm sure Paul has, has hadthis, this experience as well, you
still get a bunch of stuff wrong.
Which is why when you write abook, it needs to be fact checked.
And when those fact checks come back,you make a lot of stupid mistakes.

(08:38):
I made one in particular with, uh,blockbuster, CEO, John Antioco, where I
had been writing for years that he, hehad gotten fired when that wasn't true.
And on some level I knew it wasn'ttrue, but for some reason I got that

(09:00):
into my head that he had been fired.
And when I got on the phone withhim to fact check, he said, well,
first of all, uh, I was never fired.
I resigned.
And as soon as he saidit, I knew it was true.
I have no idea how I got it in myhead that, that he'd been fired.
But I'll tell you what, I have seenthat repeated a number of times by

(09:25):
some very, very big names, namesthat everybody would recognize.
And when I, when I track down where, wherethey got that from, you know what I find?
I was the source.
They're referencing myarticle where I got it wrong.

(09:46):
So, uh, you have to really becareful and, and, and don't
believe everything you think.
I love that.
I, I was actually thinking about the,the idea of the CEO telling the story.
So one of the things that is a bugbearof mine is often, and this is no
disrespect to the CEO, that the CEOgets invited to a conference and gets

(10:06):
interviewed by an mc at the conference.
And the CEO actually has no idea whathappened down in the weeds of the
organization to make an idea happen.
And I was covering recently on the showwith Robert Gelman how Intel was actually
directed towards microprocessors, awayfrom memory, from dram only because
people down in the middle of theorganization actually decided that that

(10:29):
was the right thing for the organization.
And as Andy Grove himself, who was theCEO at the time, may rest in peace, he
said years later, it took them years atthe top of the organization to say, now
the company was a microprocessor company.
And how that was hijackedin a way by people who knew
better down the organization.
And it's that.

(10:49):
Perpetuating of the myths.
That's the problem.
Then oftentimes the art, the CEOdoesn't even know how to articulate
what had happened because theyhave so much on their plate.
And I thought we discussed that.
'cause there's a little bit ofempathy that has to go here with
the, the story for the CEO as well.
It's, it's, it's damndifficult to do this work.

(11:10):
Yeah.
And I think that's, uh, exactly right.
I'm reminded of the, you know, theadvice to think about what part of
the elephant you're touching, right.
In order to figure out whatyou're actually seeing.
And I think it's true that, you know,did you get that story from the CEO?
Did you get it from thechief marketing officer?
Did you get it from theChief Strategy Officer?

(11:31):
I, I, you know, I did a lot of workwith chief strategy officers who are
always sort of a bit to the side ofthe full, you know, C-suite thing and
the stories they can tell about, youknow, power struggles in the C-suite
and stuff and how that influences.
You never see that fromtalking to the other people.
The chief financial officer, thechief, you know, the CEO, the CEO

(11:53):
E'S not gonna tell you about how,one real example, they didn't have
enough international experience.
So they constantly pushed the story thatinternational expansion wast important
because they just didn't wanna do it.
Not because strategically if, you know,it was like, and it was a product, it's
a big name company and a big, big thing.

(12:14):
It is like, well the only way theproduct was gonna be successful is
if it became the global standard,not just the US standard, but the
politics of who could actually turnit into and how are they gonna turn
it into a global standard, you know?
So who you talk to, how many you talk totriangulating and it's a great question

(12:36):
of, you know, have the people you'relistening to when they say they talked
to somebody at a company and got thisstory, it's like, well, did they talk
to somebody or did they triangulate?
Across five or 10 people from the C-suite.
And so that's always something we triedto do in our own research in that is like,
well, how many people have we talked to?
Um, I was fortunate to work for a largeconsulting firm where our teams were often

(12:58):
in there doing a lot of work, talking to alarge number of people, so it was a little
easier to kind of triangulate storiesand, you know, even our sources were kind
of giving it to us from multiple angles.
But yeah.
Uh, you know, a one and done interviewis not gonna get you anywhere.
Yeah.
And I can, I can give it aperspective being a, a former CEO

(13:23):
typically, I mean, you don't getto make easy decisions, right?
I mean, even in a relativelysmall business like ours,
we still had 800 people.
So when I made a decision that was, thatwas a decision that 799 other people could
not make for one reason or another, and.
Uh, and typically when you make thosedecisions, the context in which you make

(13:47):
those decisions, you know, you're, you'resurrounded by a number of people who
are very bright, you know, very, verycapable people who are in their positions
because you trust them and you respectthem, and they're all giving you different
opinions and they don't all agree.

(14:08):
And, and you need to be the onewho, who breaks that 50 50 tie.
And you need to do this overand over and over again.
And some of your, and some ofthose decisions can get, can,
can, uh, are gonna be wrong.
And any one of those decisions, roughlyhalf of those people can say, oh, I

(14:30):
thought we should do the, I thoughtwe should take the other option.
So this, this idea that you're gonna,you're gonna come back years later and
somebody's gonna say, oh, they took pathA when they could have taken path B. And
oh, by the way, I know for some reasonthat that was the decisive moment and

(14:55):
not the decision they made three monthsbefore, two years later or whatever.
It's,
and, and the problem,problem of memory as well.
I often think about that, that we havesuch faulty memories and oftentimes
you'll remember it differently.
Just like you were saying, Greg,that you might perpetuate a flaw
because, and then you put it intothe lexicon of infor in innovation.

(15:17):
And then we have, we suffer from theavailability bias where we, we lean
onto the most recent informationor the headline information.
And I really want to talk aboutthis 'cause there's three case
studies we're gonna talk about.
Today, which is the Netflix one,the Blockbuster Netflix one.
Let's call it the blockbuster one.
There's Xerox and there's Kodak as well.

(15:37):
And these, when I first startedlearning about innovation, the
availability heuristic was, these wereall stupid decisions by stupid people.
How could they be in so sillyto miss this type of thing?
And I actually looked backover some literature on this.
I linked to different articles that youguys have written, but there was also
one that Clayton Christensen wrote aboutNetflix because he didn't see Netflix

(16:02):
being a big challenger to Blockbuster.
So here's what he said.
He said, the fact that disruptioncan take time, helps to explain why
incumbents frequently overlook disruptors.
For example, when Netflix launchedin 1997, its initial service was not
appealing to most of Blockbuster'scustomers who rented movies,
typically new releases on impulse.

(16:24):
Netflix had an exclusively onlineinterface and a large inventory of movies,
but delivery through the US mail meantselections took several days to arrive.
The service appeal to only a few customergroups, movie buffs who didn't care
about new releases, early adoptersof DVD players and online shoppers.
If Netflix had not eventually begunto serve a broader segment of the

(16:47):
market, Blockbuster's decision toignore this competitor would not
have been a strategic blunder.
The two companies filled very differentneeds for their different customers.
So that that's kind of out there.
But actually.
Netflix didn't, or Blockbusterdid not ignore Netflix.
And as you pointed to this, Greg JohnSantiago went to great lengths to

(17:12):
actually reverse this, but also sawthat that Blockbuster had more arrows
in its quiver than Netflix had backthen, and redirected lots of revenue
towards a brand new product that waslike Netflix on steroids at the time.
I'd love you to give us a bit of contextto this and then we'll discuss this
case and then move on to the others.

(17:33):
Well, I think there's a bunch of things.
First of all, that CEO, JohnAntioco, and there was another CEO
that came later that actually didignore it, but let me just give you
some additional pieces of context.
First, blockbuster started, uh, investingin, in streaming technology in 2000.

(17:55):
So it, it wasn't like they, they.
They did, they weren't awarethat the industry was changing.
Unfortunately, the partner theychose for that venture was Enron.
So it didn't, didn't last very long.
Uh, there's that famous story that,uh, that's often told that the,

(18:17):
the Netflix people came to, toBlockbuster with, uh, a, a deal where
they would, they would sell Netflixfor $50 million, and they were, and
Antioco laughed them out of the room.
There.
There's a number ofproblems with that story.

(18:38):
First of all, they hadn't, they didn'thave the subscription model then.
Second of all, theyweren't making any money.
Third of all, blockbuster said, well,we could just build that ourselves for
less than 50 million, which was true.
And, and if they, and if they hadbought them, Reed Hastings would

(18:59):
have been gone within a year or two.
The Netflix would've, they might'venever came up with the subscription
model and what they actually had proposedbecause, uh, John and Yoko wasn't in
the room, he might've stopped by, butwhat they actually went there to propose
was, was a deal very, very similar.

(19:20):
And, uh, I'm sure it was modeled on theabsolutely disastrous deal that ToysRUs
signed with, with Amazon, where they,they went to Blockbuster and said, Hey,
you don't have an online business yet.
We'll, uh, we'll be your online brand,which is exactly what ToysRUs did.

(19:42):
And it lost them years in, in,in their e-commerce business.
The last piece of the last bitof context there was that, uh.
Blockbuster was owned by Viacom atthe time, so they couldn't make all of
their own decisions, and it, in fact,they had to delay their, uh, their

(20:05):
launching of their online businessbecause they were in the process of
being spun out by, uh, uh, by Viacom.
So not only did they, were they notignoring the online business, they
were actually chomping at the bit to,to, to start the, the online business.

(20:25):
So I'll, I'll stop there and, andwe can discuss the story more.
Paul, I'd love you to come in.
I, I just wanted to share a little piece.
So the co-founder of Netflix backthen was a guy called Mark Randolph,
and he wrote a book called, that'llNever Work, and he shared the story.
He said they were flat out, uh, rejectedby John and Antioco at the time, and he
said also that Auntie Yoko said Netflixwas a niche business, and the.com

(20:51):
hysteria was completely over overblown.
So all these things perpetuate the storiesand make out Auntie Yogo to be an idiot.
But as you said, Greg, he went togreat lengths and actually even got
funding from, from the marketplace.
And this is how they allowed inCarl Ican to almost hijack it

(21:12):
and oust him or eventually, ormake it uncomfortable for him to.
To run the company in the end.
And all these decisions to the pointthat you made as a CEO are coming at you,
and then you have to make a decision.
That's a real paradigm shift for theorganization, and it's easy to look
back and go, as the Clayton Christensenpiece said, these were dumb managers.

(21:35):
They didn't, they didn't,they got it all wrong.
But they were also leaders who ranvery successful organizations very
well for a very long period of time.
Paul, I'd love you to come in thereand share your perspective of what
Greg said there and how you see it,how you've seen it through the lens of
the work you've done over the decades.
Yeah, I think Greg has some great insightsthere because it really is always far more

(21:57):
complicated than, you know, the soundbitesfrom the media are gonna give it to you.
Um, you know, a couple things that occurto me is one of the things we talk a lot
about is the inevitable future, right?
And, um, those who've readsort of some of my stuff in the
past with Big Bang Disruption.
Technology was changing, you know,exponentially fast at the time.

(22:20):
And the paradigms that the peoplethat were of the leadership and their
historical experience at the time wasvery different than even what we know now.
So to, to judge those leaders, you know,20, 30 years on, in a world of more of
Moore's law and exponential technologygrowth is kind of unfair to all of those

(22:43):
people, you know, on the first level.
So, and Reed Hastings wassomeone who really got that.
We wrote an article about him asa sort of, you know, three horizon
leader when you think about whathappened with ev Vds by mail.
But then he jumped on online delivery andthen he jumped on using data as a source
of intelligence for content creation.

(23:05):
You know, that vision of seeing howtechnology was gonna reinvent that
business along three horizons to theinevitable future of now, which is.
Almost entirely custom programmingfor particular, you know,
profitable niche segments bythe millions, um, is visionary.
So, um, I think there's reallytwo parts to that as well.

(23:28):
One is, do you get the vision right?
And that's always impossible,you know, hard or impossible.
It's rare.
But then the other thing that, youknow, Greg points out that's really
important is the degrees of freedom.
You know, like they were in the middleof a sale, they were in the middle,
they were owned by other companies.
We never give enough credit, you know, tothe poor leadership of, of any case that

(23:53):
we ever do about, well, you know, how manydegrees of freedom did they really have?
One of my great co-authors, TimBreen, who's can't be given enough
credit for Accenture's successduring his time as a leader and CSO.
And just a profound leader alwaysrecognize the conundrums, the,
the, the, the two-sided one whereneither answer, where the executive

(24:16):
has to make the decision abouta thing that has no good answer.
I'll give you one quick example.
You know, should we fire theentrepreneurs in the company?
Well, if we're trying to scale abusiness, if I'm Starbucks, I don't need
somebody who's coming to me every daysaying, maybe the logo should be blue.
Maybe the logo should, you know,maybe we should have bigger store.
So like, no, I want you to take thisstore model and I want you to make

(24:39):
50,000 of them as fast as you can.
Now, the most cost effective way to dothat is to get everybody off the boat.
Who doesn't want to make50,000 more of these?
And to hire people who knowexactly how to make 50,000 of
these fast and cost effectively.
The problem is once you got50,000 stores that are, you know,

(25:01):
uh, bordering on obsolescence.
Now you want the entrepreneurs,now you want big ideas, but
you don't have 'em because youdon't have those people anymore.
So knowing who to fire when for whatcosts things, there's no easy right
answer, but somebody's gonna comeback and say, well, it's your fault.
You, you fired all of theentrepreneurial talent in the firm.

(25:24):
Well, yeah, when we were making alot of money with Six Sigma because
we had none of that extra cost, thenyou loved me, then I was Jack Welch.
But when you get to the Imal era and it'slike, well, what's the next play guys?
What's the next game?
How are you gonna make money?
Then all of a sudden, youknow, I'm the bad guy.

(25:45):
So, so much of the context and uh,you know, has to be brought in and,
um, it's pretty tough beyond even justfiguring out what the right answer is.
Assigning blame to people.
Really without knowing, withoutreally being deeply in it.
That's a, that's really kind of a fool'sgame, and we see that again and again.

(26:05):
So I'm very cautious.
I, I may, you know, see a mistake maybe,but to actually blame somebody for it,
you better be pretty em immersed in what'sgoing on to, to take that next step.
Yeah.
And, and very much to Paul'spoint, I think it's, you have to

(26:25):
approach it with humility, right?
Uh, and that, I know Mark Randolph'sand, and, and Rita Hastings, uh,
version of that meeting, but,and Yoko has a different version.
He, he said he just stoppedby and, and wasn't, wasn't
actually part of the discussions.
And I have no reason to, uh, todiscount his part of the story.

(26:52):
And lots of reasons to discounttheir part of the story.
'cause that was the lowestof the lows for them.
That was a highly, highlyemotional meeting for them.
Where, you know, a a a few minutesin his day for, for Annie Yoko.
But I also think you need to actuallywalk through exactly what they did do.

(27:17):
So within six months of, of theannouncement of the spinoff,
they launched Blockbuster Online.
Uh, that's pretty fast becauseyou're not, you're not just talking
about a website, you're talkingabout logistics and everything else.
You need to, to set up,set up the business.
And then they took another threemonths to, to, uh, cancel late fees.

(27:42):
And the reason why that took alittle bit longer is they wanted to
set up a, a couple of pilot tests.
To see what they were gettinginto, which most people would
say is a pretty good idea, right?
Uh, you wanna know how your,your decisions are gonna
affect, affect the business.

(28:04):
Uh, so they did that.
Then that was successful.
Now you're down to like 2005.
Um, in 2000 and, and thenthey started growing.
In 2006, they launched a newbusiness model called Total Access.
And this essentially allowed customersto use the, uh, to use the stores

(28:29):
and the online interchangeably.
This is something Netflix couldn'tdeliver and took all that brick
and mortar and, and cha transformedit from a liability to an asset
because now you could, uh, you could.
Stop by the store and, and rent on,on your way home, and then just drop

(28:52):
it in the mail, uh, to return it.
Or you could, you know,you could do the opposite.
Uh, and, and that was so, and that, Ibelieve, launched in November, 2006.
Now, uh, immediately within thatmonth, up to that point, I think
it had been, uh, new subscribers,70 30 in, in Netflix's favor.

(29:18):
Within that month of November, it flippedto 70 30 in Blockbusters behavior.
So now Blockbuster was winning.
The problem was that Blockbusterhad long been a cash cow and
was just throwing off money.
And these were expensive changes.
And earnings took a hit.

(29:40):
Well, uh, shareholdersreally didn't like that.
So the stock price took a hit,which didn't make the lead
investor, Carl Ichan very happy.
He had gotten control of the board.
So January comes, he tells Antioco,well, I'm not gonna pay your bonus that

(30:02):
I'm, I'm contractually obligated to pay.
And what what John said to me was,you know, I was just in a place, uh,
personally, professionally, financially,that I didn't need this shit anymore.
So he, he says, listen, uh, Carl,I'm, uh, I'll stay for six months.

(30:25):
You find another CEO.
And then they brought in a guy named JimKeys, who actually did, uh, did reverse
all the changes Annie Yoko had made.
But the, the epilogue to the storyis then, uh, Annie Yoko went and
built his own retail empire of, uh,red Mango and, and other stores.

(30:49):
So he's done far from being an idiot.
He's done quite, quite well for himself.
That's the problem, isn't it?
I, I, I just, there's so manyviewpoints involved, and actually
I'm gonna share on the screen a, alaw called Miles Law named after the
author and a American bureaucrat,actually a guy called My Rufuss Miles.

(31:11):
That your view, where you standdepends on where you sit essentially.
And for those who are just listening tous on the screen here, it's just an image.
I shared it before a fewweeks ago with Joe Bauer.
It's the head of sales saying,we need more funds for marketing.
It's the head of RD said, weshould invest more in innovation.
And it's the head of financesaying, we, we need to cut costs.

(31:33):
And it's, it's not just that, itdepends on where you are in the company.
It depends on, like Greg just said, whereyou are in your life cycle as a manager.
If you're a leader like John Tiago,I just don't need this crap anymore.
I'm out of it.
So there's so many decisions that affectan actual decision and to just label
that as this frozen moment in timeas idiocy is actually so, so wrong.

(31:57):
And it's, it's damning for innovationand there's no learning from that.
And Paul, it maybe you want to come in onsome of the stuff that Greg said there?
Yeah.
At first, just to that great picture.
I hadn't seen that Miles Law thing,but it actually goes to some of
the stuff that we thought aboutand looked at for a long time.
But I would take it further.
It's not just that you getthose different opinions from

(32:18):
those seats, but it's their job.
It is the job of the differentmembers of the C-suite.
To advocate for their point of view.
It's the CFO's job to advocatefor fiscal responsibility and it's
marketing's job to advocate forthe customer and so on and so on.

(32:40):
And the key is, it's the CEO'sjob to then control and blend and
intelligently, um, manage those things.
But the thing is, I don't want myCFO worrying about the customer.
Really, that's the marketing, right?
And the right thing is to getthe right advocates for the right
positions and to get the right blend.

(33:00):
Um, but that's exactly why you're gonnaget a very different story if you go to
the marketing person, because they'regonna see it a very different way.
And they're gonna say like, youknow, they let the penny counting
destroy the customer experience.
Well, that's not the CFO's pointof view, nor should it be because
the CFO's gotta manage the pennies,because when those things get outta
whack, that's when you blast the moneyand everything kind of goes wrong.

(33:24):
Um, what I heard from Greg that Ithought was really interesting was this
flip that actually happened because I,I knew some other components that I've
been told about this story because whenyou think about it, one of the things
that for those of us who old enoughto actually view Blockbuster, one of
the things was towards the end, itnever had any of the content in place.

(33:48):
And part of it was because theynever wanted to print enough of the
blockbusters because they kind ofwanted you to rent movies you didn't
want for a couple of weeks until youactually got in there when somebody
had returned the blockbusters, right?
So giving everybody the blockbusterthe week it came out was actually not
the best content delivery strategy.

(34:08):
And in fact, if you look at it a bitmore generically, and this isn't blaming
Blockbuster, I don't even know the extentto, it's true, but if you think about it,
it's designed any kind of retail storesdesigned around a scarcity mentality.
There's not endless shelf space.
There's not.
And so one of the big things that theinternet did coming in was it shifted.

(34:29):
It had to shift business strategyand the mentality from a scarcity
mentality and strategies toabundance mentality and strategies.
Because now when you've got itcoming out of one single warehouse
with thousands and thousands ofDVDs stacked up, that's abundance.
When I can cut a new CD the momentI need it, when I've got video

(34:52):
streaming, that's abundance.
And I think Aiden, you and I have talkeda little bit about this, but you know,
the future of digital music, for example,just like any digital content, the
future of digital content is like music.
Any song anytime, anywhere.
It's not about iTunes, it's not aboutowning my 10 favorite albums digitally.

(35:13):
It's not about it.
You know, even the samefor digital photos.
In some ways it's.
All the photos anytime,anywhere, all I want.
It's an abundance mentality.
So I can see some interesting, youknow, historical aspects of thinking
about how did all those people who grewup in retail and in a, in a scarcity
mentality who were looking to exploitscarcity and control the customer, how

(35:38):
were they, you know, to what extent werethey prepared to really see, again, it's
a function of do you see the future andare you prepared to act on the future?
And what are your constraintsof acting on the future?
And again, it's no criticism of, youknow, particularly without real knowledge.
It's no criticism of what they knew ofthe future and what they were able to do.
You, you just have to kind of seeit as, you know, a, some failure

(36:02):
of both of those constraints.
One of the things just to bring in, uh,I'd love you to share your perspective
on this one was I spoke to MattChristensen a few years ago, who's the
son of Clayton Christensen, and he wastalking about the innovators dilemma.
He knew.
A lot of people who were franchiseesin Blockbuster and he said for

(36:23):
the franchisees, they didn't wantto go digital because it meant
pushing people away from the store.
So there was a further complication therethat you just didn't think of at the time.
And then, so I love usedto talk about that maybe.
And then the other one wasJim Keys, the guy who came in.
So he was the CEO of of seven11 at the time, a retailer.
Through and through.

(36:44):
He was given a brief, like so we can lookat him and go, keys made the mistake.
Keys could have been told by ican.
For all we know, I want you to comein and reverse all these decisions.
Also, the late fees, like Greg said,they, he reversed the late fees.
Now he reversed it, but he was underprobably pressure to do so, or under

(37:04):
orders to do so as the new CEO coming in.
Maybe he was put in therebecause he knew I can.
I can trusted him to put into placeall these directives that he had done.
So we've no idea about those things thathappened behind closed, closed doors.
I actually have some idea aboutthat because I, I spoke at
length with Jim Keys as well.

(37:26):
And the interesting thingis there, I don't think that
Carl Ike was, was pushing him.
Uh, and, and very much to Paul's point,one of Annie Yoko's key innovations.
And, and the way that Blockbuster becamedominant in the industry is he switched
from that scarcity mentality, uh, with,by fighting for those blockbuster movies

(37:53):
to actually partnering with the studios.
So the studios got apercentage of every rental.
So now the studios wanted togive them the blockbusters and
make sure they had them in store.
And, and, and this is such a good, andI don't know this for a fact because I

(38:14):
never, I never asked either of them aboutthis, and I certainly didn't ask Jim Keys.
But what I do know for a factis they both worked together at
seven 11, and that's where, uh,Annie Yoko was a son of a milkman.

(38:34):
And he worked up hisway very, very quickly.
And then he, he got headhunted out ofseven 11 in, and, and, and then made
a big turnaround at Circle K, whichthen led to another big turnaround
at, at Taco Bell, which eventually,so he had been, he had built this

(38:57):
reputation as this retail magician.
Uh, and what is absolutely clear is that.
Yoko and Keys did notlike each other at all.
And Annie Yoko, uh, told Ican not to hire Jim Keys.

(39:21):
So when Jim Keys came in and said,you know, Annie Yoko's on his
way out and stockholders, uh oh.
And by the way, I did ask Annie Yoko aboutthe franchisees, he said it was an issue,
but they only had about 20% of the stores.
Uh, it was a problem 'cause theycreated noise and that that affected

(39:45):
the, the stock price, but that itwasn't, it wasn't actually decisive.
But the interesting thing is JimKeys came in and said, oh, by the
way, this guy I used to work withand maybe had some rivalry with, or
whatever happened between them, uh.
Everything he did was wrong,and I'm gonna reverse it all.

(40:10):
And the, the, the fate of theentire company could have it.
It's not, you know, it's withinthe bounds of possibility.
It, it, the fate of the company mighthave been sealed by the fact those
two guys didn't like each other.
But what I think, and we should moveon to some of the other stories, but
what I think is so important about theBlockbuster story is if you, if you listen

(40:34):
to the conventional story, if you readMark Randolph's book, uh, you come away
thinking, wow, you know, these big fatcats, they just don't pay any attention.
So if I pay attention, I'll be okayWhen actually the, the lesson learned
is that should be learned is if youmake tough decisions, there's going,

(40:59):
even if they're the right decisions,there's going to be consequences.
And, and, and you need to make surethat you're not only making the right
decisions, but telling that story becauseit was the failure to tell the story of
what he was doing and why he was doing it.

(41:20):
That, um, that probably sealed his fate.
I I don't know with whether it would'veturned out differently if he told the
story better, but it was the falling stockprice that caused that, that conflict that
led him to believe that led him to leave.
Not a problem with, with the strategy.

(41:40):
And that's a much, much tougher problem.
And I can just, I'll just close withwhat, what John Antioco said to me.
And remember, here's a guy who, whohad gone from company to company
pulling turnaround after turnaround.
And he said, I'd learnedthroughout my career.
Whenever I tried to do somethingsignificant to make an impact, I

(42:06):
got fierce resistance and my entirecareer, I just pushed through
it and this time it didn't work.
I'm gonna let that sit a momentbecause I think that's a great
insight and I really don't want tostep on Greg's, uh, point there.
Um, because I think that is, that'sa great insight in the sense of

(42:29):
sometimes it just doesn't work.
And I think sometimes what usedto work in the past doesn't work.
Um, one thing I can see here that Ithink is pretty interesting and something
that doesn't get enough discussionabout it, ties into all of the thoughts
about strategy and strategy advice,which is what are we trying to do here?
And if what we're trying to do hereis make money, which is sort of the

(42:51):
historical, we're all old enough toremember that, you know, shareholder
value is the key of all of it.
It's like, all right, if it's all aboutshareholder value, and I'm not saying it
is, I'm not saying it is now, there's allthe thing, but at the time there was a
pretty dominant shareholder value mindset.
Then it's about profitability andprofits come from milking the cash cow.
So I'm glad that Greg brought up thiswhole cash cow idea because um, for

(43:15):
those who are paying attention, andAiden, you might remember that, you
know, part of the book Pivot to theFuture is about the old logic, new logic.
There is no cash.
Conno technology moves things so fastthat there really isn't this mentality
of when can we take the pause andwhen can we milk the cash conno?
But in the old days, you thinkabout it, it's like, all right,

(43:37):
we've got this investment.
And every business has infrastructure,has some set of sunken costs,
assets, and asset intensity.
You know, whether it was 20%or more of, uh, franchisees.
The point is you'vegot bricks and mortars.
You've got the embedded infrastructure.
You in, you made investments in that.
And I'm sorry, how areyou gonna milk that?

(43:58):
You've got this model that's workingand how long are you gonna milk that?
And for, you know, how much doyou, uh, are you gonna squeeze the
last drops of milk out of that cow?
And the other thing that I thinktechnology at the time changed in
ways that executives maybe to make ageneralization weren't prepared for
was the speed at which competitors andnew entrants would be able to move in.

(44:22):
So this window of opportunity, soyou as an executive are struggling to
manage the milking of the cash cow,the level of investment in the future
that you're prepared to make, howthat's going to be reacted to by these
shareholders that are already down yourthroat because of declining margin.
If you wait too long,it's the whole thing.
We talk about jumping the S curve.

(44:44):
If you wait too long.
You know, you're already at theplace where margins are declining.
Now you got no money to investin anything else because you,
so how are you gonna do that?
You're gonna start to selloff what we see, right?
Just you're gonna start to selloff businesses to get the cash.
Well, that only works so well.
You know, look at G, look at GAppliances, uh, sort of thing.

(45:05):
So how are you gonna do that?
So, something to focus on and thinkabout is this window of opportunity
and the nature of how not only docompanies have to get the decisions
right, they have to get it rightwithin the window of opportunity.
And even if you have the rightdecision, is, I think Blockbuster
did for a lot of these.
What they may not have duly incorporatedwas, you know, that Window's gonna

(45:30):
of switching over even thoughyou were fast and Greg was right.
It's like six months is enormouslyfast for a company like Blockbuster
to put on a DVD by mail business.
Might not have been fast enough.
As you say, Paul, in, in jumpingthe S-curve, there's an S-curve
of your capabilities as wellthat's waning in the background.
And then you may have a newstrategy, but you know, have nobody

(45:52):
in the company who's capable ofachieving that strategy as well.
Exactly.
Which is, how did Blockbuster evenhave the people who could stand up
a six month, you know, stand up abusiness in DVD by mail in six months?
That's pretty impressive from scratch.
It's like, just do it.
I mean, to have had some executivethere, even if they were hiring
consultants or external entrepreneurs,just to be able to stand up a business

(46:16):
that fast is impressive leadership.
So let's, let's segue to a, a differentcase study one, uh, one final thing.
I just wanna say that Greg,I just wanted to emphasize.
The controlling of the narrativethat you mentioned there is so key.
One of the greatest ones I've heardabout this greatest case studies I heard
about, which controlled the narrativewas, I think it's Nu Narayan, who

(46:39):
was the CEO of Adobe, who, who saidwe're going to shift to the cloud.
They were one of the first that wentfrom selling essentially physical copies
of software, uh, on disks and DVD ROMsto move to the cloud and said, you're
gonna see a dip in our software, butthere's gonna be a kicker down the line.
And, but that was lucky for Adobe becauseit meant repetitive subscription based

(47:02):
models versus one-off sales of a product.
One of the total different ones issomething that you've talked about
quite a lot, uh, Greg, which is thecase study of Kodak and Kodak, and you
worked in this, you worked in the shiftfrom analog dollars to digital dimes,
and Kodak had a little bit of this.

(47:24):
And a couple of weeks ago I talked toGary Hamill on the show and he said one
of the big problems is when you shiftto a new product like this, or a new
paradigm shift to something digital,where the pro price is way less.
Is that for a bird in the bush,sorry for a bird in the hand, you
need multiple birds in the bush.

(47:46):
And it's very difficult to pullpeople away from their current
revenue streams like we just sawin the case study of Blockbuster.
But Steve Sasson was aguy I had on the show.
Steve Sasson was the guy who createdthe digital camera for Kodak, within
Kodak, and he was told, that's cute.
Don't tell anybody about it.

(48:06):
Which is a good line, as Gregsays, but not completely accurate.
Because people inside Kodak did take,atten, did pay attention to this
product, and Steve Sasson does saythis himself, that some people in the
company were positively paranoid aboutthis and were trying to take action
on it, but it just did not stack up.

(48:27):
So, Greg, maybe you'll setup this case study for us.
Yeah.
To be honest, this is one that Idon't know, I, I haven't interviewed
the, the, the, the principles,but I can give you the outline.
I think it, it sets up that same dilemma.
The, the problem wasn't that,that Kodak didn't, didn't want

(48:48):
to, to create digital cameras.
In fact, they had the, the topselling line of digital cameras.
The problem was film developing wasso enormously profitable and they.
They never were able to, to replace.

(49:08):
Nobody's been ever been able toreplace those, uh, those revenues ever.
Uh, and, and that was, you know,you went to your, to your local,
um, Kodak Place and, and theywould develop your film for you.
It was almost, the businessmodel was almost like, like
the razor and the blades.

(49:28):
They didn't make moneyselling you cameras.
They didn't care what cameras you bought.
If, if, if you, if your camera was acannon or a Nikon or whatever, you would
go to Kodak to get the film developed.
And nobody's been ever ableto answer that question.
How were they supposed toreplace that, that revenue?

(49:50):
Um, and that I think is amuch, much harder question.
They probably would've been much, muchbetter served if they never tried, because
to this day, nobody's really made agreat business out of digital cameras.
I think that's a great point because Ithink, you know, from my own perspective,

(50:10):
when we talk about pivoting to thefuture and we talk about sort of the
three horizons, the old business, thenow business, and the new business, you
think about that from a Kodak perspective.
It's this trying to findthe synergies and blending.
It's like, all right, you've got a filmbusiness, which is pretty distinct.
You've got a camera maybe in a digitalbusiness, and then you've got the,
what, you know, I said the inevitablefuture of digital, of photography,

(50:33):
which is essentially digitalphotography, which is really, you know,
consumers with millions of pictures.
One of the things I can contribute thatwas, that has always stayed with me is
I did have the chance to talk to formerhead of marketing of Kodak, and uh, he was
the absolute head of marketing for Kodak,and one of the things that he said that

(50:56):
stuck with me was that he said, you know,towards the end I knew it was over when.
The top executives all over thecompany didn't, weren't photographers.
He said when we started outthe CEO was going home to his
dark room to develop pictures.

(51:18):
It's like we loved photography, allof us loved photography and what
it meant, and pictures and photo.
It's like we, you know,photography and photos.
I think he said towards the end ofit, it was, you know, and I, and I
am paraphrasing and I don't wannaimpute all sorts of things that, you
know, call it apocryphal if you want.
But anyway, but this person pointedout, but it always stuck with me 'cause

(51:41):
he said, you know, there was no, therewas no way we were gonna know that kids
were gonna take thousands of pictureson their phones and stuff and go for
those little photos and everything else.
He said, we just got, and of course thechief marketing officer would say this.
He goes, but we justreally got disconnected.
Not even just from the customer,but from what the nature.
Of personal photography meant, it meantyou could take, you know, as I have you

(52:06):
mentioned, I travel thousands of pictures.
You know, when you go, and again, it goesfrom a scarcity to an abundance mentality
in ways it's like, if you recognizeit, what people, people don't want 12
photos or to 24 photos of their vacation.
They want 1200 pictures of the vaca,their vacation, and then they want to,

(52:28):
you know, take the red eye out of it,you know, instantly and make it look good
so they can send it to their friends.
So capturing that mentality, it wasn'tjust about, you know, yeah, it's
gonna be digital and a digital camera.
It was the, the fundamental revolutionof what personal and even professional
photography was going to mean.

(52:49):
Do you really have a workforcetop to bottom that's really ready
for that kind of transition?
Um.
You know, a a and again, sort of again,the timing question of at what point do
we cannibalize our base business and moveinto the new, and I, the third thing, and
I would just leave it with this, is thequestion of did you really fail if you

(53:10):
made a ton of money in your core business?
Because one of the things we lookeda lot at is, and I had this argument
about high performance businesses,like, well, I never know if the
business was successful or not.
If it's still going,if it's still ongoing.
'cause I have no idea how muchmoney they're gonna throw away
on the next business from theprofits of the old business

(53:30):
trying to get to the new business.
Right.
You look at, I don't want to name names,but you can think of some companies who've
spent the entirety of the profits theymade in a previous business trying to
be successful on the next line, right?
And it's like, well, is that, wasthat business successful and then not
successful or was it never successful?
'cause in the end it'snet profit was zero.

(53:53):
So we always have to think a bitabout what was the goal, what was
the profitability goals about that?
Um, and don't forget, you know,Kodak was making billions of dollars.
And then we talk about that in partof our story of it on licensing
fees and lots of other stuff.
So their technologies and that,you know, to the end, years after
Kodak was technically bankrupt,it was still making literally

(54:16):
billions of dollars on licensing.
So it had a shell company thatwas basically just handling
the, the IP licensing.
Um, so can be kind of complex in that.
But like I say, I think some of thebiggest question is sometimes do you
have enough of the mentality acrossthe business to see the old, the now

(54:38):
and the new in the future of whatdigital really meant for photography?
And I also think this case isparticularly interesting because we
can look what their key competitor.
Fuji did, which was to get outof the photography business.
They, they, they made a bunchof diversified bets into medical

(54:59):
imaging, biopharmaceuticals.
I think they had some cosmetics there.
Um, but it, it, it, it is interestingto, to look at that alternative
reality and, and see what they made it.
Kodak actually tried to stay inphotography and I think that was

(55:19):
probably their, their their big mistake.
But again, going back, um, it,it, it, you know that, that was a
very, very tough, tough situation.
When you have an incredibly successfulbusiness throwing off a lot of cash,
it's really easy to say, oh, they shouldhave just walked away from all that.

(55:44):
When, when, actually I, I'venever heard a really good answer.
Because obviously walking away fromthat cash, they, they would've run
into the same problem that Annie Yokoran into with, with the stock price.
And, you know, in any, any, any CEOwho had the, the, the smarts and the

(56:09):
guts to make that decision would've hadthe naysayers killing the stock price.
It's a perfect example of thetrade-off between, you know,
scale and specialization andflexibility and resilience, right?
If, and that was actually the truth ofFuji in that Fuji, because it didn't

(56:32):
have the scale of, Kodak actually hadto find other uses for its chemical
capabilities, its processes and theuse of outsourcers and um, you know,
various other forms of flexibility.
So Kodak was this perfect monolith, youknow, made perfectly efficient to its

(56:55):
model while Fuji had created degreesof freedom for itself and flexibility.
So just some fascinating stuff.
When we looked at it, you know, Gregbrought up the point about the, you
know, why was it in beauty products?
I have to share the storythat it's the collagen.
Collagen is the stuff thatfilm is made out of, and it's

(57:16):
susceptible to ultraviolet rays.
Well, the other thing that's madeof collagen is your skin, and it's
susceptible to ultraviolet rays.
So if you want a beauty cream thatkeeps the collagen, despite UV rays,
you've got a beauty product and youwant the chemicals that Fuji's make.
But Fuji's mindset was alwaysabout, what else can I do?

(57:39):
How can I repurpose my capabilities?
Because Kodak was the 800pound gorilla in the industry.
Um, but I think that also ties innicely to this idea of before you,
you know, blame somebody too quicklyin the sense of, well, when they
perfected the 800 pound gorillamodel that comes with a natural

(58:03):
inflexibility, um, it's a conundrum.
Um, and like I said, you know, Italked about Tim Breen because he
talked to me about it all the time.
He was like, Paul, how are we gonnabreak some of these permanent trade-offs?
Either I go, you know, eitherI get the costs out to get the
profitability, or I stay flexible.

(58:25):
And either way, if I get itwrong, somebody's gonna blame me.
Paul, one of the things we talked aboutbefore was target fixation, and I'd
love you to tell, tell our audienceabout this, but I came up recently
in a chat with Robert Bergman againtalking about Intel and that during
Intel's second phase when they went tomicroprocessors, that they had this ultra.

(58:50):
Focus on Microprocesses and as you say,just like Henry Ford, that they create
this behemoth that is doing one thingextremely well, this perfect output,
and that, that makes it very difficultto be agile, to create smaller outputs.
And you see this, for example, in a lotof, a lot of manufacturing companies, that

(59:10):
they have their lines perfected for theirproducts that they're most successful at.
But when they try and introduce thenmaybe a new line, maybe it's chocolate,
and they wanna put out a new flavor basedon a new quirk in the industry that they
can't do it despite people inside thecompany craving it, customers craving it.
And it's the problem of target fixation.

(59:32):
Yeah, I can speak to that.
Uh, and I love talking aboutit because it's actually part
of an early experience of mine.
Um, before some of the thought leadershipthat I did, I actually was part of and
helped head up a group at Accenturethat did technology, future forecasting.
So what was the, the futureof various technologies.
And in fact, Intel came to us one day,uh, with their P seven chip and they

(59:58):
said, you know, guys, what we can dowith this is you can get eight video
streams simultaneously off of this chip.
This chip can drive eight simultaneousvideo streams to your monitor.
Um, at the same time, it's thatpowerful in one chip and it'll
fit on a desktop computer.

(01:00:19):
What are the business applications?
You guys are the business people.
What?
And so we looked and we thought, andwe spent a couple weeks with 'em and
we're like, I, there isn't anythingreally, you know, we love you guys, but
uh, you know, horse races like sports.
I wanna watch, you know, eight streamsof, uh, basketball games, maybe.

(01:00:42):
And at the time, gaming, you know,it's like, all right, gaming is really
computing intensive and da da da.
But we said, you know, from business,I don't need my Excel spreadsheet.
My Word document doesn'tneed eight streams of video.
What it needs is low powerconsumption and mobility.
And they were like, huh.

(01:01:03):
And so I don't want to, you know,overplay what our involvement in Mike,
in Intel's pivot was going back evenone generation further just to, uh,
you know, uh, portable processors.
But it's that whole thing of mentality.
And to your point, the target fixation,it's like, so long as we're the better,
faster chip, we're gonna stay in the lead.

(01:01:26):
And they had the leap on Moore'slaw, um, and it wasn't, but it
wasn't a technology question.
That fixation on, it's a technologyquestion and a speed question,
not a what's going on in themarketplace about the use of
technology and processing power.
Um, that almost, you know, caused themto completely miss the, the boat on that.

(01:01:51):
And then they very quickly shift.
And that's where we got theprocessors that could be used on
cell phones and all the other stuff.
And, uh, very fast microprocessorsas opposed to general purpose chips.
And one of the things that Burmantalked about, 'cause he worked closely
with Andy Grove, was that the factthat they, they turned on, they
did, they passed on the, the iPhone.

(01:02:12):
They passed on the iPhone creating chipsfor 'em because they didn't understand
the volume that they would have thesesmaller chips for, for phones, but
they didn't understand the volumeand the finance team got it wrong.
So to build on some of the contextof that, which is, you've gotta
remember at the time, nobody canremember what the chip component.

(01:02:32):
The, the general processorgoing into the PC was $2,500.
Of the $3,200 delivered cost.
Intel was making $2,500 off ofevery $3,200 PC that was being sold.
So what incentive do they have togo to a $1,500 laptop to go to a

(01:02:54):
cheap chip, you know, to go to acell phone to go to a $700 phone?
Who's, who's got $3,500 for a cell phone?
Um, so also the mental shift, andthis is where the paradigm shift also
occurred, which was really interesting,that we've never seen come back.
And if you look back, there was a timewhere you didn't know how much the PC was
gonna cost, but you, uh, you didn't knowwhat kind of chip you were gonna get,

(01:03:16):
but you knew the PC was gonna be $3,500.
And that was kind ofthe magic price point.
And we see this in lots ofindustries now and today.
But this idea of then you latchon a price point, but then to
bring it down to the $1,500.
It's usually an a competitor.
It's a new entrant that can reinventthe price point because the mentality,

(01:03:40):
again, to sort of target fixation.
One of your target fixations is historicalprice point and which implies margins,
implies revenues, implies everything.
And if you can't break that, it's gonnabe pretty hard for you to re to invent
the new business that replaces your old.
One last thing I, I'll just say on theKodak thing that I learned along the

(01:04:02):
way was that Kodak was such a legendarypart of, of, of its environment as in
that people went there, they workedthere, they were a family, they
treated themselves like a family.
Everybody knew everybody else.
They moved into the neighborhood.
They were such a legendary part.

(01:04:23):
And when then leadership had to make adecision to let people go because they
didn't have the capabilities or they hadto redirect people like Fuji did that
they couldn't bring themselves to do it.
So there was a huge psychological deathand component at play here as well that is
often not recognized that this is, peopleare human, like there's human leaders

(01:04:46):
and if they're there from their originalleadership team, like you said Paul, a
lot of them were photography people thatit's very, very difficult to redirect the
organization 'cause they've been imprintedin the way that it's always been.
Yeah, I can give some real lifeexample of that because I was
hired by IBM in 1982 as a, a co-opstudent from, um, my university.

(01:05:09):
And what was fascinating wasat the time IBM still had this
idea of employment for life.
So long as you didn't mess up,they promised you they were
essentially promising you morethan essentially a job for life.
Now we think of that as a bit of a,you know, uh, a punchline, right?

(01:05:29):
That some company would offer,uh, employment for life.
But the key was there had been somany years and so many good years
of jumping the scur and of, youknow, moving on to the next thing.
We were busy making PCs and PC juniors.
Sure.
IBM had missed the PC movement,but it was catching up.
It eventually became a, you know,the dominant maker of those.

(01:05:51):
And so this idea that the company wouldalways, so long as the people stuck with
us, the company would always move on tothe next level, was deeply ingrained.
Now, what I cynically pointed out later,because I sort of made it a punchline
of my own, which is that, you know,employment for life lasts as long
as a company can give it the moment.

(01:06:11):
See the moment, it means bankruptcy,employment for life goes away.
And sometimes even sooner than that.
So, you know, never bet on a bet of,on a guarantee of employment for life.
Um, because it is, you know,it's impossible to really honor.
Um, but there was that mentality.

(01:06:33):
And again, sort of the, you know, thething that's, so long as your people
grow with you, we're gonna solve it.
So there, there's a nice segue forone of the most legendary stories
in the history of technology,and that's the one of Xerox.
And particularly if you take forexample, like Greg, you talked about
in one of your ink articles, andI, I'm telling our audience here,

(01:06:53):
I'm gonna share all the articles.
The guys rec, um, tip their have todur during this conversation as well.
I'll share those in the show notes.
But this is Steve Jobs on Xerox.
So after the copier giant Xeroxmade an investment in Apple.
It then gave the fledgling company Appleaccess and Steve Jobs in particular

(01:07:13):
to the PA or C, which was the PaulPalo Alto Research Center park.
And then he used that technology hesaw there to create the Macintosh.
That's the way the myth goes.
But as Greg, you point out what'smissing from the story is that
park delivered on its mission.
And in fact it saved Xeroxfrom the fate of Kodak.

(01:07:35):
Because the copier business was disruptedby smaller Japanese competitors,
Canon Rico, many that we know today.
One component of that was the star system.
The laser printer replaced, therevenues lost from the cash cow, and
Xerox continued to grow, and it earnedmillions like Kodak did from licensing
technology and IP that it invented.

(01:07:56):
And we need to tell this story as wellbecause again, there's a book called
Fumbling the Future that's about Xerox.
Many people see, Xerox is another one ofthese idiots, one of these fairytales.
And again, we need todistinguish the difference
between mistakes and fairytales.
Well, here this I think is a little bitdifferent 'cause this wasn't a mistake.

(01:08:17):
This was an enormous success.
And, uh, I think this story of Xeroxis, is interesting because it, it, it
itself started off as a failure whereChester Carlson, who, who invented
the Xerox machine, couldn't sell it.
Then, uh, I forget the name ofthe maam, he brought into the CEO.

(01:08:39):
He says, okay, so we won't sell it.
We'll lease it and, and, andwe'll charge companies per copy.
And so they, they had, uh, andthey never, they never dreamed that
they would copy so much, and it,it became enormously profitable.
So the entire company was predicatedon these huge copiers that could,

(01:09:03):
could copy incredibly quickly.
And back then, uh, companies wouldhave a copy room that you would
go to and the company, and that'swhat their comp, that's what
their customers were demanding.
And then of course, uh, companieslike, like Conan and Fuji came in
with very, very cheap copiers thatyou could have in, in one office.

(01:09:25):
So it wasn't better technology,it was just much, much cheaper.
And, and it was a classicinnovator's dilemma.
So the CEO Charles McCullough said,you know, we are an office company.
What we need to do is reinvent theoffice and we're gonna build, and
the, the future of the office isabout the architecture of information.

(01:09:48):
So we are going to go build acompletely different unit called
the Palo Alto Research, uh, centerto create this, this new world.
And they did.
Um, and, uh, there's tworeally great stories.
One I'll tell now, one I'lltell a little bit later on.

(01:10:10):
There was a guy named Charles, uh, Ithink it was, uh, it wasn't Charles,
it was Gary, Gary Starkweather.
I interviewed him just a fewyears before he died in, in 2019.
He was an expert on optical uh, lenses,and he apparently had invented something

(01:10:33):
that, that made him unhirable, buthe wanted to work on something else.
And his boss said hewanted to work on lasers.
And his boss said,that's not our business.
And anybody who works with Gary on hisstupid project, he's gonna get fired.
Uh, nobody can work with him on it.
And Gary, who's a mild, mild,mattered sweet, sweet guy, he gets so

(01:10:58):
furious, he goes over his boss's head.
And this wasn't done back then.
This was 1968, uh, and said,listen, I'm gonna invent this here.
I'm gonna vent it somewhere else.
So, uh, he goes to the vice president, andthat was a fireable offense normally, but.
McCullough had just createdthis Palo Alto Research Center.

(01:11:20):
So instead of firing him, the VPsaid, well, let's send him out there.
And then he created the laser printer,which paid for park many, many times over.
And it to, to Paul's point,it, they allowed the company
to jump to the next S-curve.

(01:11:42):
Along with that, they licensed,they spun out a bunch of companies.
Adobe, which you mentioned was a,uh, three comm, a bunch of others.
The licensing fees, again, paidfor park many, many times over.
And by the way, uh, theyalso had another strategy of

(01:12:05):
investing in future technologies.
And that is why Steve Jobs came to park.
He wasn't some interloper, uh, because.
Xerox had that technology and becausethey were so forward-looking, they were
able to invest in Apple before the IPO.

(01:12:28):
Uh, so Steve Jobs didn'tsteal the Macintosh from them.
Actually, Xerox made moneyon the Macintosh as well.
So what seen as some sort of failurewas a forward li was a forward
thinking leader, uh, who, who madea smart bet that really paid off.

(01:12:48):
There's a line, Paul, from jumpingthe S-curve that where you say, so a
little excerpt here, perhaps unfairly,companies like Kodak, Polaroid, DEC,
digital Equipment Corporation and Xeroxvia Park have become poster children
of sorts for businesses that failed toexploit technology opportunities that
were seemingly within their grasp.

(01:13:09):
No doubt these organizationsmade big blunders along the way,
but they are far from unique.
In Kodak's case, for example, the, thecompany identified digital possibilities
relatively early, but continued to pushthe film and cameras that sustained
its growth along the financial S curve.
Meanwhile, competitors went fullwar into digital photography.

(01:13:31):
Note that Kodak eventually becamea major, major player in digital
camera sales ranking number onein the United States in 2005.
Just to bring it all to ahead,that you to recognize that as well.
But most importantly, to echo what.
Frank just said Xerox were far ahead.
They were investing ahead of the curve.

(01:13:52):
But again, the availability heuristicsays they were failures, they were idiots,
they were terrible decision makers.
Well, so what can I say?
Wow, did I actually say that way back?
What?
Um, you know, I have a perspectiveon this that came, I think maybe
from some additional researchthat we did after this time.
But we did a lot of research and atopic that may be an important topic

(01:14:16):
for future discussions and, and thingswhich is this idea of innovation
management and innovation strategy.
Because I think where there was thedisconnect is that we learned later when
we looked at innovation that innovation isa process at almost every business, right?
That has to be managed and youmanage the innovation process.

(01:14:37):
And the innovation process has somewell-known, you know, those who
study this and are experts at it.
Some very well known pieces thatgo from ideation to selection, to,
you know, investment to testing,commercialization, you know, all the
way out to commercialization, right?
And so one of the articles in this,in the a process we actually got a

(01:14:57):
patent for, was this idea of how doyou assess and manage and improve the
innovation process in the company?
'cause most large scale,successful businesses have
successful innovation processes.
What they usually get wrong is there'sa bottleneck somewhere in there.
So it's like, am I notgenerating enough ideas?

(01:15:18):
Am I picking the wrongideas to go forward with?
Am I take picking too many or too few?
Am I investing enough in the testingor am I, you know, scattershot?
How am I doing that?
Am I taking too long or too slowto get it to the next checkpoint?
Right?
The next, uh, critical step.
Now, if you think ofthat and apply that to.

(01:15:40):
Oh, Xerox.
The question would be, well, whatwas Xerox's innovation process?
What was their innovation strategy?
And when we looked at this, we came upwith like, there's 13 generic strategies.
You can find as many as you want.
But when you think about it like wecan be customer driven, our strategy
might be our innovations are going tobe driven by what our customers want.

(01:16:01):
There's a supplier, some companies havesupplier driven innovation strategies,
which is when my suppliers give me betterstuff that I can build into my product,
like laminates for glass and automobiles,or gorilla glass for cell phones.
When I have better suppliersupplies, I'm gonna put that in.

(01:16:22):
And then my, you know, the way myproduct is going to improve is by
supplier capabilities and by listeningto suppliers and talking to my suppliers,
Hey, can you make my glass better?
Can you make.
Can you, you know, the Johnsoncontrols for a car, can you integrate
three or four of the parts so Idon't have to assemble them later?

(01:16:43):
Right?
But there are all these differentapproaches to where you're
gonna get your strategy from.
Now if you look at Xerox again,you say, well, where were they
getting their innovation from?
And I think the thing is, you know, asa, to find some generalizable insight,
if you're gonna create this researchpark, you better be prepared to figure
out how you're going to integratethat back into your core innovation

(01:17:06):
strategy and core innovation process.
Otherwise, it's just gonna be on the side.
Now, if you want to create insightson the side and sell those to other
people as a new business model, maybe,but if you don't have your head around
how the whole thing is supposed towork, it's like, how does this work?
Then you're likely tosee these things happen.
You're gonna see thingsslip away because not.

(01:17:27):
When we talk about it, I think there'stwo words that people can think about.
You know, it's directed researchversus undirected research, which
is, am I looking for laser printers?
Am I saying research stuff, but onlyresearch stuff that makes copying better.
And this is a slider, see of companiesin their innovation capabilities.

(01:17:48):
And it's actually something we dotalk about and pivot to the future, is
that you can change your fundamentalbusiness model when you change how
you think about some of these leversdirected versus undirected research.
And then there's also centralized anddecentralized, which Greg highlights
nicely in what he was saying is that,you know, uh, am I going to have bring

(01:18:09):
it all together like Walmart did in ourexample that said, you know, we've got
too much stuff going on, too many places.
We're gonna start to bring all thisresearch together so people can see it.
And so that we're not just likeinventing little patches of things.
New York Times did that as wellwhen it tried to move online.
It had too many little.
Million dollar initiativesthat were bleeding it.
And I said, well, let's make one$10 million and let's let some

(01:18:32):
group of people person figure outhow to better spend that might.
So centralized versus decentralizedinnovation directed versus undirected
getting that right, having thatbelief shared by management.
Because, you know, Greg istalking fantastically about
management didn't agree at Xerox.

(01:18:52):
It appears, you know, some of themwere thinking no direct, you know,
undirected, random kind of experimentsthat can survive in this company.
And that can be a good thingwhile others are thinking now
that's where you go out to pass.
The only research that matters is theresearch that drives our business.
So, um, a different way to think aboutit for Xerox, but also to exploit

(01:19:15):
it for our own thinking and for, youknow, individual other companies.
How are you thinking about yourres, your innovation process?
Yeah, I think that's really.
Through.
And I do think it's interesting, thereason why, why Steve Jobs was there
is, is because Xerox understood thatthere was a con, a consumer business

(01:19:39):
building, and they understood that theyhad no tools to create consumer products.
They were a business to business company.
And that's why they invested in Apple.
That was their investmentin the consumer business.
And also very much to Paul's point,when they showed their computer of
the future, the alto, when they wentdown and showed it at their big Xerox

(01:20:03):
festival or Xerox conferences, the, um,the executives, they didn't see their
big deal, the big deal, but their wiveswere transfixed on, on this alto because,
and, and it's really interesting because.
Their wives, many of themhad been secretaries before

(01:20:24):
they had gotten married.
This is back in the seventies, right?
And, uh, and they said,wow, this is incredible.
But the big executives back then,they never wrote their own letters.
That was, they didn't seethat as a manager's task.
But I wanna go back to the story ofGary Starkweather because I think it,

(01:20:49):
it's so, it's such a wonderful storyand it interlocks with another story
that shows how difficult this stuff is.
So, Gary's work had no relevanceto what they were doing at the
main research lab in, in Rochester.

(01:21:10):
The reason why, uh, he, he endedup being so successful at Park.
They had invented bit mapping technologyand there was all the famous people
there, like Robert Taylor and AlanKay and all these people who were
legends now, but they were sittingwith this software, this bit mapping

(01:21:32):
technology that they couldn't use.
And here comes, here comes, uh, Gary witha prototype, laser printer that all of
a sudden could use this mi bit mappingtechnology and put it into the real world

(01:21:54):
and make real physical artifacts with it.
And it immediately made sense to themthat here was something that they could
take the computer graphics and actuallymake it, bring it into the physical world.
Now, while they were doing that.
There was a couple other guys atPark, a guy named Dick Schoop and Alvi

(01:22:18):
Ray Smith, and they were working onanother digital graphics technology
called Super Pain, which was not at allpopular with in uh, Xerox Par because
the mission of Xerox Park was to createthe Office of the Future and Super
Paint had no relevance to that mission.

(01:22:42):
So all of a sudden, uh, Gary became,in that context, the establishment
guy, and these two were ostracizedbecause they were seen as irrelevant.
So very much like Gary.
They left and Alvy, Ray Smith wentand teamed up with a friend of

(01:23:02):
his named Ed Kamo and created thecompany we know today as Pixar.
So what's successful and relevant andgood in one context, um, is often, uh,
not going to be successful and good andrelevant in a very different context.

(01:23:26):
And when you, when you're a leader, yourjob is to create a culture, uh, a specific
culture that's going to be able to do somethings well and other things not so well.
And those are the choices.
It's your responsibilityto make as a leader.
The Id loads more questions for the guys.

(01:23:48):
We could have gone all day.
As you can see, we probablywill do another one.
I think we'll do another one.
We'll probably pick some more case studiesas well that often are these myths.
And we can learn more from mistakesthan we can from fairytales.
As Greg says, Greg, for people whowanna find you or find out what
you're working on, what's your latestproject and where can they find.

(01:24:09):
Well, you can always find me on LinkedIn.
My blog is digital tonto.com.
If you wanna work with me,uh, go to greg satel.com.
But what I'm working on now isa really exciting project I'm
working on with, with Amy Radden.
And, you know, we hear so much abouthow leaders need to get out to the

(01:24:30):
edges, but uh, another strategy isto empower the edges to get noticed.
So what what we're working on is, uh,what we're building and we're starting
to work with a few clients on is a, atraining for emerging leaders to help
them advocate for their ideas moreeffectively and build their own influence.

(01:24:53):
So instead of putting everything onthe leaders to find what's going on at
the edges, let's go to the edges andempower them to get their ideas heard.
So that's something I'mreally excited about.
Paul, you've been traveling to all theedges of the planet at the moment, but
apart from that, you're also doing someguest lecturing, some keynotes as well.

(01:25:16):
Yeah.
What I'm finding is that, um, you know,as much as you think you've given a
lot of talks or tried to get the wordout there, that uh, there are parts of
the world that haven't actually heardthe pivot to the future story and, uh,
are starting to really appreciate it.
So surprisingly in some ways, youknow, years on from its original
pub date, uh, I'm still finding thatthere are a lot of people really

(01:25:37):
interested and really excited aboutthis pivot to the future concept.
There's obviously our discussions thatpeople can go to, um, and in lots of ways
to pursue it if people are interested.
I'm reachable always on LinkedIn.
Um, always glad to talk to folks.
Uh, I still do some presenting,some, um, classroom teaching and,

(01:25:59):
uh, various other things because.
Um, you know, old thoughtleaders never die.
I guess just, uh, they just become alittle more, a little more scarce maybe.
Like fine wine, Paul, like fine wine.
And the thing is, I have to say is thebiggest difficulty for me is when you
look back on all these cases you talkedabout, is the empathy I have for leaders.

(01:26:21):
I mean, very few of themjust made poor decisions.
There's so much on the, in the headof a leader and I love making this
content accessible and I'm verygrateful to both of you for doing
that and, and demystifying some ofthe myths that are out there making
the availability, his heuristics,exposing them for what they are as well.
So it's a great pleasure to have you onthis episode of Innovation X Innovation

(01:26:46):
Show X, Greg Satel, Paul Nunes.
Thank you for joining us.
Thank you, Eden.
Thanks for having us.
This show is brought to you by the NDLInstitute who have just dropped their
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It features a collection of articlesfrom some of the world's most forward
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(01:27:09):
leaders gain actionable insightsand perspectives around things like
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You can check out the journaland find out more about the RY
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