Blockbuster video is one of the most famous corporate failures of our era. Its failure is an example of many things, chiefly the mistaken idea that the way things are today is likely to be the way things are tomorrow but with differences—what could be called a “continuity bias.”
This is different from a “normalcy bias”, though the two are related. Normalcy bias leads us to think that a great threat is nothing out of the ordinary, nothing we have not seen before so let’s all relax. Continuity bias is blindness to the implications of a change in the structure of our world. Like dinosaurs shrugging off asteroids we are most susceptible to continuity bias just when our present seems to be going pretty well.
In Blockbuster’s case, it had a ubiquitous retail presence across the United States. Its model of renting DVDs and earning huge amounts from late fees was minting money. It was so big that when Netflix offered to sell itself to Blockbuster in 2000 the offer was declined.
Blockbuster was so successful that it did not entertain the idea that renting DVDs by mail, let alone streaming, would rapidly destroy its business. Its future was more stores, more late fees. Blockbuster fell into a continuity trap.
The problem is not a new one. In 1995, an international team of social and natural scientists convened what they called the Global Scenarios Group because they observed how considerations of climate change were being limited to a selective observation of forces and impacts that were already well understood. This tendency, they feared, was leading to what they called “excluded futures”, with potentially fatal consequences for the planet.
Normalcy bias? Narrative fallacy?
If continuity bias is akin to normalcy bias it also resembles narrative fallacy, the tendency we all have to tell ourselves stories about the world that confirm what we already believe. What all three share is a temptation to believe we know the future.
We do not know the future.
Susceptibility to continuity bias is most pernicious when things are going well. In the case of IBM, for example, its hugely successful mainframe business led it to underestimate the opportunity not just in personal computing but in cloud computing. Ever since it has been trying to catch up.
Or consider Research In Motion, the Canadian company behind the BlackBerry. Twenty years ago a BlackBerry was the hippest device around. It made phone calls and sent texts. What else could anyone want from a mobile phone?
What is usually forgotten is that after Apple released the first iPhone in 2007, and even after the first Android was released the following year, BlackBerry continued to grow. Until it didn’t.
In FSG’s work with scenario-planning clients we underline the necessity of being rigorously imaginative. If “rigorously imaginative” sounds like an oxymoron it is not.
Rigorous imagination is central to perceiving discontinuity in an operating environment, the external operating environment particularly—the macroeconomic drivers, demographics, political shifts, regulations, consumer behaviors, supply chains shifts, global forces, competition and so on that may feel secondary to the core business but are, in fact, determinants of success. Substantial change in any one should not go unnoticed.
The list of companies that resisted continuity bias is not long but it is interesting. In the late 19th Century Corning, for example, had a thriving business making glass for Thomas Edison’s light bulbs. Early in its history Corning created an internal culture that prized innovation in applications for glass, which has given us fiber-optic cable and the Pyrex bowl.
A more recent example of fighting continuity bias is Microsoft. When Satya Nadella took over as CEO he inherited a senior team resistant to upending the primacy of Windows and Office software in the company’s revenue mix. Anything else was seen as a distraction from a hugely successful business, which could only be expected to continue that way.
Within two years Nadella reorganized Microsoft to focus the organization on a common set of goals, including productivity tools, cloud and AI. In the past eight years Microsoft’s revenue from all sources has nearly tripled.
We celebrate success, of course, and tend to forget the failed attempts at capitalizing on discontinuities, and the nerve it took to address them. In 2022, for example, Meta, the spawn of Facebook, is struggling to get airborne. Mock it or not, it is an attempt to move from an exhausted business model that has no more room to grow.
Eluding the continuity trap with scenario planning
As FSG scenario consultants have observed, even the most expansive scenario projects may fall victim to continuity bias. That happens when scenarios unquestioningly incorporate an organization’s assumptions about its identity and future marketplace. Unchallenged, these assumptions constrain imaginations.
The US Coast Guard, for instance, has had an unparalleled reputation as a military service, managing 13 disparate maritime missions since 1790. A degree of continuity bias could be expected. But over its history the Coast Guard has seen its operating environment change several times, precipitated usually by a transfer to the care of a different cabinet-level agency. Each time there were consequences for its mission set. Together with FSG the Coast Guard launched Project Evergreen, which endures as an ongoing strategic-foresight function inside the Coast Guard with the aim of building a culture of agility.
In another case, a successful global manufacturer and marketer of food products worked with FSG to explore a future of ingredient shortages owing to multiple factors outside its control, climate change among them. In still another example, a major US port authority dress-rehearsed a future in which the federal government ceased funding infrastructure grants to states—grants that had been an operating assumption since the agency’s inception.
These examples offer several lessons about resisting continuity bias. One, even highly successful organizations are susceptible to change, often abrupt change. Two, sustainable organizational culture is characterized by a deliberate search for discontinuity and a readiness to capitalize on it.
Finally, organizational cultures can be encouraged to listen to what the market is saying, though it may be speaking in a whisper.