UK retailer Game has warned shareholders it is in danger of failure. Key suppliers refused to provide it with the new products that it depends upon to survive. The suppliers didn't offer credit terms because Game no longer had enough money to guarantee payment. With £90 million debts, and ever diminishing revenue, its shares have plunged over 98%. Among gamers, they are a laughing stock.
Game failed to adapt to significant trends that had made it impossible for it to survive without adaptation. They didn't figure out a way of competing with supermarkets and online discounters who could afford to drop the prices of blockbuster titles. They failed to counter the threat of direct downloads from services provided by games producers and console manufacturers. And they failed to understand the growing importance of casual and mobile gaming.
Wherever you find a system that is failing, you have found a system that is failing to adapt. You need to discover, first, what adaptations are needed for the system to succeed. Second, you should understand what has stopped the system from adapting successfully. And third, you should find out how to free the people in the system to make the necessary adaptations.
In practice, the three steps are related. Usually, the people in the system know what is wrong with the system. If you reach out to them they are the fastest way of pinpointing the problems. This approach has the additional benefit of engaging with the people who do the job. Part of that process is placing the responsibility and authority for adapting as close as possible to the work itself.
Tim Harford is fond of saying that success always starts with failure, but the truth is also that all failure starts with success. The original success of Game began in 1991 when two entrepreneurs noticed growth opportunities created by the success of console style gaming. It was straightforward, single loop adaptation, financial resources converted into a fairly standard retail format. Stores bought from Virgin and converted into the same format. They grew as fast as working funds allowed.
Back in 1993, they were praised by Goldman-Sachs as a 'promising play for the long-sighted' yet this long view did not mean forever. The seeds of Game's destruction were built into the flourishing tree of its creation. Back then, only 10% of homes owned a console whereas over 80% of homes now have a Wii, X-box or PlayStation. But this success had made consoles big business and big business, and a whole lot of small businesses, had turned their profitable niche into a loss leading battle zone.
The trends that game's investors and directors had surfed so successfully had changed. They did very little; far too late in the area of games downloads. They failed to reduce their size or reallocate resources in response to the change in direction of gaming waves.
It was no surprise to find employees from the retailer complaining that their leadership failed to listen. Leadership that stays in the boardroom cuts themselves off from their extremities. The adaptability of the company suffered from organizational tourniquets that prevented new ideas from moving into action.
There was a damaging disconnect between the creativity in their industry and their own lack of imagination or energy. While Apple sold nearly 200 million iPhones and iPads, and some 25 billion apps, Game did nothing to gain part of the revenue. While online and offline retailers transformed their customer experiences into theatre, they stayed with tired, battered old format.
Parts of the organization can become misshapen according to the constraints placed around them. They need rehabilitation. They need a mixture of massage, exercise, stretching and loosening of the constraints that stopped people adapting successfully. Instead of just increasing urgency, people need greater slack to find new patterns that allow them to think of games that they can win.
Ford was offered the chance to take easy money. In the aftermath of the financial crisis of 2008, the government invited them to consider a government bailout. Despite losses that year of $14.6 billion it insisted that it did not need the funds. This was the worst loss in its 105-year history, coming only two years after its previous record loss of $12.6 billion in 2006.
The bailout refusal goes back to 2005 when the chairman, Bill Ford, asked his people to figure out a way of getting the company back to long-term profitability. The plan was made public before the end of January 2006.'The Way Forward' aimed to adapt the company to the demands of its environment.
The Ford cutbacks were a survival adaptation. Their new approach to car development was an improvement, but only aimed to bring Ford closer to its Japanese rivals rather than, for example, get beyond them.
Toyota market share doubled over the same time, from 7.3 per cent of the world market in 1995 to almost 15 per cent by 2005. The growth came from a culture of constant improvement but it also came from their willingness to see the big future and the opportunity to do something remarkable. In 1992, they decided to build a proper little green car rather than a curiosity or monstrosity. Just three years later, they unveiled their prototype hybrid electric–petrol car at the 31st Tokyo motor show. The team named it in Latin – Prius – because they got there before anyone else.
The Detroit Three preferred to keep churning out vehicles that were bigger, heavier and more damaging to the environment than do something better. They ignored trends they knew about.
They played a self-defeating game of denial chicken. This was a long emergency. The crash was never going to happen. And if it did, it wasn't going to hurt their leaders. By 2008, GM and Chrysler were forced to go begging cap in hand to Washington DC, the political home of capitalism. With Ford, GM and Chrysler all losing money, the Toyota Prius had sold more than 1 million vehicles. Within just two more years, worldwide sales had reached 2 million vehicles.
The Prius required adaptability before the fact. It was a form of pre-emptive creativity. If originality demands that an obvious fact be followed by a non-obvious solution, then it qualifies. Toyota people were able to accept environmental science, laws of economic scarcity and the needs for self-expression among a certain segment of the buying public. And because they noticed this changing pattern they were able to adapt years ahead of their rivals. All success is successful adaptation.