Blockbuster: Leadership & Strategic Failures

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Blockbuster: Leadership & Strategic Failures
Scott E. Morris
MGT 460
Professor Robin McCart-Brown
May 30th, 2011

Abstract
This research paper will explore and analyze the leadership and strategic failures that occurred within Blockbuster Incorporated. The paper will look at leadership and strategic theories that could have assisted Blockbuster. In addition the paper will discuss the importance of leadership within an organization, and its necessity for the company to survive.

Blockbuster: Leadership & Strategic Failures
Overview
Blockbuster started as an idea by David Cook who owned a company called Cook Data Services that provided computer software to the oil and gas industry in Texas. In the early 80’s the oil and gas industry took a turn for the worse in Texas, and Cook decided to attempt a venture into the movie video rental business. The current video rental marketplace was primarily small privately owned business that had a small inventory of movies that was kept locked up and behind the counter. Cook’s idea was to offer a wide selection, allow the videos to be on the shelf, provide excellent customer service, and integrate his computer software programming background to create a software system to track inventory. On October, 19, 1985 Cook opened his first store in Dallas, Texas. After opening up three additional stores, Cook sold a large portion of the business to a group of investors with Wayne Huizenga, the founder of the world’s largest garbage disposal company, Waste Management, Inc. to finance expansion. Growth

During the years of 1987, and under the management of Wayne Huizenga, Blockbuster began to seek expansion. Huizenga and his team began to seek out small independent video rental stores across the country as a means to expand their business. “To expand a company’s geographic coverage—One of the best and quickest ways to expand a company’s geographic coverage is to acquire rivals with operations in the desired locations.” (Gamble, Thompson, 2011, p.120) The video rental marketplace was still relatively new and growing venture, Huizenga’s fear was that this concept could be easily copied and in was necessary for them to saturate the market. It was not uncommon that a family would go to a rental store on Friday nights to enjoy a movie at home during the weekend. A video movie during the 80’s retailed for almost $50-60 per tape, so most Americans would look to rent and not purchase the movie. During this time frame, Huizenga and his group of investors felt that acquisitions was the fastest, and most cost effective way to achieve rapid growth and expansion in the marketplace. In mid-1987 Cook had left the company, there was mounting tension between him and the group of investors led by Huizenga on the future of the company. Cook had believed that expansion would best be made by franchising the stores across the nation and not assume on debt. Huizenga had felt that it was not necessary to franchise but build and manage their own stores. By the end of 1988, the company was running 700 stores, their sales had tripled, and profits almost quadrupled. The only technological competitive issues that faced the company were the video standard wars of VHS, and Sony’s BetaMax. This presented an inventory challenge of what format to stock. The solution was each store would stock the format mix that best represented their local clientele. This strategy of listening and reacting to what the consumer wanted that proved successful to them strategically, would later fall on deaf ears. Continued Growth & Technology

In the 1990’s Blockbuster continued explosive growth, Huizenga was still acquiring other small chains of video rental stores. Blockbuster made the decision to open up a store in London. In early 1991, Blockbuster had seen their growth slow down as families across the nation were entranced by the Persian Gulf War on TV and family movie night took a second set to...
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