Analyzing Blockbuster's Focus: Operational Performance Over Innovation

This report analyzes Blockbuster's strategic decision to prioritize operational performance over innovation, which ultimately contributed to its failure amidst the rise of Netflix and the digital video on demand industry. It uses the four V's of operations management (Volume, Variety, Variation, and Visibility) to explain why Blockbuster focused on improving existing operational efficiencies rather than investing in innovative digital services. The report suggests that Blockbuster's high operational volume, low product variety, significant demand variations, and low visibility hindered its ability to compete with Netflix. The report concludes by suggesting that Blockbuster could have implemented a digital strategy that allowed customers to rent and return videos from local stores, integrating digital services with the existing business model and improving competitiveness without major operational disruption. Desklib provides a platform for students to access similar case studies and solved assignments.

Management
and
administration
of operations

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Discussion on selection of operational performance over innovation at Blockbuster...........1
Innovations for Blockbuster with low operational impact and support to competitiveness...4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Innovation is essential for gaining long-term success and lowering impact of industry
disruption because it helps the company adopt to changing external environment and consumer
demands. This report is based on the American home video and move rental service provide. The
report discusses the decision to rank operational efficiency over innovation in case of the failure
of Blockbuster. In addition to this recommendation related to innovation which can help
Blockbuster maintain competitiveness without impacting on operational efficiency is give in this
report.
Overview of the case study: Blockbuster was founded in 1985 and was undisputed leader
in the video rental industry. The company grew quickly and in less than a decade there were
3,600 Blockbuster stores (Netflix didn’t kill Blockbuster — how Netflix almost lost the movie
rental wars, 2020). Netflix entered the video rental industry in 1997 and grew steadily with net
profit of 7 million. Netflix offered DVD by mail rental service and also introduced streaming
options later on. Blockbuster was not able to successfully venture into the video on demand
industry and while Netflix net earnings equalled to $116 million in 2009, Blockbuster lost $116
million. Currently only one Blockbuster brick and mortar store remains in America while Netflix
is worth more than $28 billion (The rise and fall of Blockbuster, 2020).
MAIN BODY
Discussion on selection of operational performance over innovation at Blockbuster
During the steady rise of Netflix, Blockbuster did not invest in digital streaming and
video on demand which contributed to the failure of Blockbuster in front of changing face of the
video on demand industry. This decision is related to operations management at Blockbuster.
Operations management is defined as managing resources related to manufacturing and
delivering specific products or services to the target audience (Sabbaghtorkan, Batta and He,
2020). Blockbuster focused more on improving operational performance over investing in
developing innovative digital video services.
The decision of Blockbuster to maintain focus on operational performance can be
understood with the help of four V's of operations management. The four V's of operations
management are applied below in context of Blockbuster in order to understand operational
decisions taken by the company:
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 Volume: This refers to the physical demand of each unit of a product in the market and
the amount of production for a specific product needs to be completed in order to satisfy
consumer demand (Ganesh and et. al., 2020). In case of Blockbuster, the company had
high operational volume. This is because the company had to prepare rental VHS,
Betamax and DVD packages of different monies at higher volume in order to rent same
film or show to multiple consumers. This means that the cost of producing a single unit
of product was low, with high systematization and specialization of business operations.
Blockbuster continued to focus on maintaining operational efficiency instead of focus on
developing online consumer base and solidifying foundation in video on demand capabilities
because it involved putting high investment in building digital technology to offer consumers
video on demand. In addition to this Blockbuster also needed to build high volume DVD
operations in order to deliver consumers DVD rentals. This would require high investment in
DVD production and acquiring DVD licenses for popular content. Focusing on increasing
efficiency of current high volume operations management has low financial risk for Blockbuster
which explains the decision to not invest streaming innovation in order to compete with Netflix.
 Variety: This describes the variety of sources which are offered by the company.
Businesses increase variety of product offering in order to appeal to larger audience and
not depend on the success of few products. Blockbuster during its peak was a low variety
business. This is because Blockbuster offers video rentals on limited number of mediums
which included Betamax and VHS. Low variety of operations management meant that
the company had low unit costs with standardized and well defined operations
(Karuppan, Dunlap and Waldrum, 2021). In addition to this another feature of low variety
operations management is that it is simplistic with clear routine in comparison to thigh
variety operations management.
Blockbuster was not able to exploit opportunity related to expanding variety of products
portfolio during its peak period. The company was not able to cope up with the emergence of
DVD rentals and regular retailers such as Wal-Mart became competitors to Blockbuster after
major movie studios adopted DVD format and started offering DVD’s at affordable prices.
Blockbuster was five years late to offering consumers DVD rental services (Who really killed
Blockbuster?, 2019). The late adoption of DVD along with other technological improvement in
video distribution gave Blockbuster severe competitive disadvantage. The cost of investing in
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increasing variety of products offered by Blockbuster was high and the company had to offer low
pried products in order to compete with Wal-Mart and other retailers with better distribution
channels. This increased the risk of investing too much in diversification of products and
introducing high variety operations management because of high competition in the market and
high costs. It was safer and more beneficial for Blockbuster to follow increasing operational
efficiency instead of increasing variety by updating video formats and supporting innovative
services such as streaming.
 Variation: This part of the model looks at the change in consumer demand with time
because frequent fluctuation in demand impact operations management (Olhager and
Feldmann, 2021). Businesses who face continuous fluctuations in demand need to
become more responsive while businesses with predictable changes in demand with time
are able too prepare their operations management in advance to face future demands. In
case of Blockbuster, the businesses faces high variations because factors such as
technological development and changes in consumer preferences of renting a specific
video or watching it on other mediums such as TV or cinema. High variation in
operations management means that the per unit cost of production increases with time as
the businesses has to change operational capacity according to regular fluctuations in
demand. In addition to this anticipation in demand changes requires enhanced flexibility
so that operations management is completed smoothly. Finally another characteristic of
demand variation is that it increases unpredictability regarding future trends and
consumer expectations.
The high variation in operations management at Blockbuster means that cost of producing single
unit of renting material is increased. This increases risk in developing innovative services and
investing in up gradation of video formats available at the store. Blockbusters already had to
keep up with changing demands and investing in building digital capabilities requires more
financial resources. The selection of improving current efficiency over investing in digital
capabilities was more affordable for Blockbuster because competing in an industry which high
variations operations management.
 Visibility: Thee final element of operations management which focuses on the experience
of consumers about the combined processes of the company (Hill, 2020). In case of
service industries consumers have better visibility of overall processes related to
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production and delivery of their services. In case of Blockbuster the company had low
visibility because of lack of digital capabilities of the company. The company was not
able to develop digital capabilities ad offer consumers features to track their rental time
period or deliver of their order. This reduced the visibility of Blockbuster operations
management. It is one of the reasons consumer base of the company shifted to Netflix
DVD mail order service as it was easier to track delivery of the products and gain high
visibility. The main characteristic of a high visibility operations management company is
the huge time lag between production and consumption along with standardization and
high staff usage (Sarmiento, Whelan and Thürer, 2018). Blockbuster faces huge time lag
between production and consumption because of low visibility and high variation.
The low visibility of the company made it challenging to maintain consumer relations and gain
consumer loyalty for Blockbuster. Consumers did not gain transparent information about
businesses processes from the company. Blockbuster refrained from investing in improving
digital skills because the current time lag between production and consumption increased
financial burden on the company. Taking decisions to invest in building digital capabilities and
investing in innovation is financially tiring for Blockbuster because of the time lag between
production and consumption as it will drive the time needed to gain profit. The respective
company focused on enhancing operational efficiency which can reduce time large between
consumption and production rather than supporting innovation as it solves the low visibility in
operations management problems.
Innovations for Blockbuster with low operational impact and support to competitiveness
The construction of a digital space where Blockbuster offered consumers ability to easily
rent and return videos in any format from their local store is an innovative option which could
have helped the company in recovering from the financial loss and competing with rising power
of Netflix. This is suitable idea as it does not require high investment in terms of building a
streaming platform. In addition to this the company will be able to solve the time lag problem
related to visibility. Developing a strong alternative online channel is essential for survival of
Blockbuster as consumers are moving towards digital channels quickly. Digitization of
operations is crucial to long-term survival.
The development of strong online channel can help Blockbuster regain audience across
America and gain strong position in the digital movie distribution marketplace. Many consumers
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prefer watching Blu ray versions of shows and movies in comparison to the limited video quality
available on streaming platforms. Offering consumers online channels for rental Blu ray version
of movies can help Blockbuster create a loyal consumer base. This is because the rental option
will be more affordable than purchasing a Blu ray product from movie studio directly and will
also be of better quality in comparison to the videos available on streaming platforms.
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CONCLUSION
From the above report it is concluded that operations management plays an important role in
supporting innovation at the company and helps the firm in creating an environment which
supports innovation. The four V’s of operation management help identify the features of
operations management and its impact on the company. The different operations management
characteristics such as high variation or low visibility affect the ability of an organization to
engage innovative activities. It is important for businesses to support innovation and develop
operations management with changes in external environment as it can help the company adjust
to disruption and survive in the industry for a longer time period. Businesses need to find and
develop innovative ideas in order to ensure that disruptive companies are not able to quickly take
away consumers of the firms and lead the company to bankruptcy.
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REFERENCES
Books and Journals
Sabbaghtorkan, M., Batta, R. and He, Q., 2020. Prepositioning of assets and supplies in disaster
operations management: Review and research gap identification. European Journal of
Operational Research, 284(1). pp.1-19.
Ganesh and et. al., 2020. Design of condition-based maintenance framework for process
operations management in pharmaceutical continuous manufacturing. International Journal of
Pharmaceutics, 587. p.119621.
Karuppan, C. M., Dunlap, N. E. and Waldrum, M. R., 2021. Operations management in
healthcare: strategy and practice. Springer Publishing Company.
Olhager, J. and Feldmann, A., 2021. Linking plant roles and operations strategy decision-making
autonomy in international manufacturing networks. International Journal of Production
Research, pp.1-14.
Hill, A., 2020. Manufacturing Operations Strategy: Texts and Cases. Bloomsbury Publishing.
Sarmiento, R., Whelan, G. and Thürer, M., 2018. A note on ‘beyond the trade-off and cumulative
capabilities models: alternative models of operations strategy’. International Journal of
Production Research, 56(12). pp.4368-4375.
Online
Who really killed Blockbuster?, 2019. [Online] Available through
<https://www.retaildive.com/news/who-really-killed-blockbuster/564314/>
Netflix didn’t kill Blockbuster — how Netflix almost lost the movie rental wars, 2020.
[Online] Available through https://www.cnbc.com/2020/09/22/how-netflix-almost-lost-the-
movie-rental-wars-to-blockbuster.html
The rise and fall of Blockbuster, 2020. [Online] Available through
<https://www.businessinsider.in/international/news/the-rise-and-fall-of-blockbuster/
articleshow/73299275.cms>
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