The CEO of Rakuten Inc (largest ecommerce site in Japan) Hiroshi Mikitani, recently penned an article titled 'Passive Regression Could Kill Your Business' outlining his view on the value of the learning gained from making what he calls active mistakes. Active mistakes as opposed to passive mistakes!
His definition of a passive mistake is broadly one resulting from omission, caused by not taking action when one should. It reminded me of the Head in The Sand ....ignore it long enough and it will go away! How many businesses can we point to who just didn't get it when it came to the changes happening around and about them.
In the past few weeks, Blockbusters Inc closed it's remaining outlets in the USA. At one point, Blockbuster ruled the movie rental business with 25,500 employees, 8,000 stores and a distribution system of 6,000 DVD public vending machines. With annual cash flows of $500 million + it was valued at $ 8 billion. What happened?
Well, Netflix came on the scene and understood that the game was changing. Founded by Reed Hastings, Netflix developed a strategy of Internet streaming and convenient customer service to deliver a cheap, flawless customer experience utlilisng emerging technologies. They had vitually no sales employees, used a few warehouses and did not build a massive physivcal network of outlets across the country, rather they set up a virtual organisation. Netflix developed the best software platform in the industry; the cornerstone of a great customer experience......... with no late payment fees, no limited supply of the very latest movies, no having to leave the house and drive to a retail location. They deliver what the customer wants, when the customer wants, to a device the customer wants, all for a flat monthly fee.
Hastings knew that broadband would enable streaming movies over the net. Blockbuster must also have known this but it looks like they chose to ignore it. Instead, they pursued a strategy of expanding their instore offer to include toys, books and other merchandise. It seems they didn't even try to test a new business model. Thus, a passive mistake, and one that has cost them billions.
Making no mistakes of any kind is clearly best, but there is a gulf between passive and active. Active mistakes are opportunities to learn; they are lessons that we can apply to future actions and as such, are of value to us.
Businesses who are not scanning the environment; evolving customer needs, broader consumer trends, developing technologies and other drivers, are at risk of making passive mistakes. This sometimes stems from company culture, where it is not ok to fail. With this culture, people won't even try, they will 'keep the head down' for fear of making a mistake. Large organisations are often creators of such an environment, allowing bureaucracy to rule.
Being aware of the dynamics of the broader environment is such an important element in the decision making process. Most of these dynamics are intangibles that need to be recognised, understood and actively managed. Responding, trying different things and adapting to changing circumstances is a cornerstone of longevity for any company.