Blockbuster does appear to be doing a few things right, says Kathryn Rudie Harrigan, Henry R. Kravis Professor of Business Leadership at Columbia University Graduate School of Business. "You need to love your laggards," she says. Customers who are laggards don't switch over to new technology right away, she explains. Instead, "make it very convenient for them. Make it so they are reluctant to switch to a new product. Eliminating late fees is a great way to get people to go to video stores."
But the key to survival in a contracting industry, says Harrigan, is "to become diversified and to evolve as your customers evolve. Define yourself broadly enough to develop other products, some of which may make your older products obsolete." This means CFOs must put aside some of the cost-cutting and EPS-boosting tools they use to pull companies through tough times in more-robust industries. They must make the argument to shareholders and to Wall Street that long-term investment in emerging opportunities is more important than short-term stock price.
What CFOs can't do, she warns, is ignore obvious signs of industry contraction. Believing in your company is important, but CFOs must be active participants in learning all they can about the industry-killer next door. "It's like a lot of things," she adds. "If you let yourself get stagnant, if you're not constantly reinventing yourself, you're dead meat."
Kris Frieswick is a senior writer at CFO.
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