Learning lessons from HMV

The collapse of the High Street continues as HMV enters administration this week with the potential loss of over 4000 jobs.

Unfortunately, this was a failure that was absolutely predictable.  There were no shortage of signs – from the first profit warning in early 2011 ago, subsequent profit warnings, and finally the drop in sales to below £1bn in mid-2012. The final closure this week is the inevitable result of failure to respond to pressures on the business.

The problems didn’t start though in 2010 with the profit warning. They started in 2003 with the launch of iTunes. Music services were available before then, but when Apple moves, companies should be taking notice. Even when Apple became the most popular music vendor in the US in 2008 HMV had not committed to a digital future. By 2010 when Apple was the worlds largest music vendor, the point of no return had surely been reached.

As a former fan and big spender in HMV I have watched the demise with a combination of amazement and anger.

Amazement that HMV fails to make any change in its operations that is visible to me (as a customer), and anger as it is clear where this will end – in the demise of a once great British company and the loss of many jobs.

Failing to adapt was never going to be a viable strategy. Yet, this is the one strategy that I, as a customer saw HMV adopt, the ‘head in the sand strategy’. Core problems in the business and operating model were simply not addressed, despite these being repeatedly raised by analysts and their own staff to senior management over many years. Philip Beaching gives a very readable account of this, clearly describing the hubris and sheer ignorance of wider market shifts at the senior levels in HMV.

And then the inevitable happens …

A long list of causes is cited: internet shopping, supermarkets, pricing strategy, High Street costs, digital downloads … and so on.

And yes, each of these is a valid contributing factor to the problems that HMV faced, but the core issue lies not outside the company, but within.

The core problem was an unwillingness to change; it was sheer arrogance. Arrogance that HMV was immune to market changes and was assured a future.

Wrong. It wasn’t.

No company is. Every company is at risk. Constantly. Failing to respond to changing markets and evolving customer demand sows the seeds of your own failure. It is simply a matter of time for the seeds to germinate.

Adapt or die. Simplistic, but true.

This is nothing new. Good to Great by Jim Collins does an excellent job of explaining why companies fail, but despite these lessons many executives in failing companies still fail to act. Only when put into administration are hard decisions taken. Often these decisions are the same ones that done 3 or so years ago would have helped the company survive.

So where do business leaders go to learn these lessons?

Going back further to economist Joseph Schumpter’s ‘Creative Destruction’ in the 1950s we find useful lessons for managers. Continuing back through Hegel, Marx and beyond we find the same lessons with the same outcomes for those who ignore change. Look at many empires and civilisation failures and the same lessons apply.

So how do we prevent this?

How do we build companies that can evolve and adapt?

How do we develop leaders who can keep companies alive?

The starting point has to be with the education of those responsible for companies, that is executives – the business leaders – those intelligent few trusted with steering the corporate ship and keeping it away from the rocks of administration and bankruptcy.

But is this happening?

It appears to me that a fascination with complex financial engineering, operations efficiency and supply chain management is giving us leaders able to manage the minutiae of business, but unable to recognise the disruptive forces that threaten the viability of the organisation? We are managing the stocking of the wine cellar, but failing to notice the ship is heading for the rocks.

Instead of seeking professional business leaders obsessed with micro managing market performance, we should be looking for passionate explorers with a good understanding of history – able to spot the rocks and storms that threaten the ships very survival.

HMV is the first High Street casualty of 2013, but it will not be the last.

I hope the one positive outcome of the HMV debacle is the recognition that many High Street companies need to quickly change direction. You can argue against the rocks, you can shout they they shouldn’t be there, but fail to change direction and they will sink you.

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3 thoughts on “Learning lessons from HMV

  1. Hilton Barbour

    Fantastic piece mate. We share a very common view on this. Let’s march out a few “hubris” fatalities because HMV aint the first or the last.

    Nokia, RIM, Enron, Lehmann Brothers, Worldcomm, Nortel, Pan Am…and on and on.

    My favourite quote on the subject – and my email signature – is the superlative;

    “If you don’t like change, you’re going to like irrelevance even less” General Eric Shinseki

    Nicely written.

    Reply
  2. Gary Burt

    @Hilton – love the quote.

    Every High Street executive should have this printed out and stuck on the door of their office so they see it as they walk into sit down. Every monthly executive meeting should start with the following question – ‘what has changed in our market and what are we going to do about it?’

    There is no ‘business as usual’.

    Other companies … let me walk along the High Street tomorrow and I’ll list them.

    Perhaps I can name the ones that are looking ‘safe’.

    Next, John Lewis, Zara, Topshop, Apple, Primark! …

    – Each of these is a destination store to its own market.
    – Each has tight store/online integration
    – Each has strong service culture (as opposed to the couldn’t give a toss model in most High Street stores today)

    A company that I wouldn’t invest in … one that HAD potential and seems to keep missing the mark … Marks and Spencer. Fail? No. Falling market share and falling profits … thats my bet. Oh, and Mothercare too.

    Reply
  3. Hilton Barbour

    Strange how your list squarely lines up against my earlier blog post;
    http://interacter.wordpress.com/2013/01/16/be-a-challenger-or-be-roadkill/

    It astounds me that Mothercare can’t get it right. Hugely emotive period in a parent’s life. A time filled with anxiety, questions, fear – and genuine delight when they get expert advice that helps out. They could pick up the mantle of The Body Shop – or UNICEF – and have a frigging field day.

    My 2p

    Reply

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