How rigid chief officers plant seeds of collapse

“Throughout the late 90s, HMV’s single biggest mistake was a lack of investment in its online offering. Unfortunately it’s a mistake Fox continued to make.

He chose to try and diversify into electronics (a business that was already failing on the high street) and entertainment through venues such as the HMV Apollo, which are now being sold off to pay down debt.

...Hubris, arrogance, a feeling of invincibility. Companies fail for many reasons and there was probably a bit of all three involved with HMV...”

PHILIP BEECHING, www.guardian.co.uk (15 January, 2013)

When I first went to London as a student, I soon discovered that one of the happening places for people of my age was the HMV store on Oxford Street.

This place sold records, tapes, CDs and videos, and it was ALWAYS full. The cash tills rang incessantly and with a growing global footprint, HMV was a powerful retailer.

HMV floated on the stock exchange with a market valuation of £1 billion in 2002. It appeared invincible. Ten years later, HMV has joined the walking dead.

A few days ago, its directors handed the company over to administrators. It is estimated to have a residual value of less than £15 million, and no future.

What happened? Philip Beeching, a marketing expert, wrote a revealing piece, reproduced by The Guardian and excerpted above.

In it, he recounts a meeting with HMV’s managing director, Steve Knott, soon after the stock market listing. Beeching pointed out that the biggest threat to HMV’s business would come from “online retailers, downloadable music and supermarkets discounting loss leader product.”

To his amazement, the CEO reacted with anger: “I have never heard such rubbish,” he said, “I accept that supermarkets are a thorn in our side but not for the serious music, games or film buyer and as for the other two, I don’t ever see them being a real threat, downloadable music is just a fad and people will always want the atmosphere and experience of a music store rather than online shopping.”

I’m repeating this here to make sure the fundamental point is noted. Whenever a dominant business collapses somewhere, someone in authority has been displaying hubris: the arrogance that prevents the obvious from being seen and much-needed change from being made.

That is why management thinker Jim Collins, in his seminal work on corporate collapse — How The Mighty Fall — pointed out that the first stage in the sequence of decline is always hubris.

Too much success is the biggest cause of big businesses running into problems. Why? Because business leaders have a well-documented tendency to become wedded to a single ‘formula’ of success; of believing they know it all; of dismissing any contrarian views; of rubbishing any dissenting voices.

And all it takes to create this arrogance is a few years of revenue and profit growth.

HMV’s collapse was of course precipitated by the very factors identified by Philip Beeching and his team a decade ago. Supermarkets and Amazon wiped out the healthy margins HMV enjoyed; and iTunes provided a whole new way to obtain and enjoy music.

HMV, Tower Records, Blockbuster and others bit the dust.

There is a deep lesson to be learnt here. Dominant companies are not brought down by external disruptions like technological change or consumer tastes. They are brought down by their own inability to detect the currents of change and accept the forces of evolution.

If HMV had woken up, it would have led the migration to online retailing.

Hubris and denial create a fatal combination. Sadly, that combination is often found at the top of the organisation.

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