Product Cannibalism Death Knell or Salvation

Nigerian TreeYesterday HMV announced that their CEO had been made redundant and administrators were to close 60 stores in the UK. This got me thinking where did this all begin? The answer lies in failure of HMV to expand it’s market presence into the digital space, which was to a large extent due to it’s inability to rationalize the need for a transformation from a predominately High Street sales organization to a fundamentally internet based retail and digital media organization.

Simply put the organization was afraid of the product cannibalism that would result from aggressively moving into the digital space and destroying value in its High Street based businesses. This brings us to the question “product cannibalism is it a death knell or salvation?”

This is a question that companies seem to face once they have reached scale and from the looks of it appears to be one not often well answered. Product Cannibalism is greatly feared by corporates to the extent that although the writing is clearly on the wall the organization will ignore or actively stifle internal innovation and disruption to avoid cannibalizing its existing product line up and roadmap.

Failure of Leadership and Culture
But we need to look a little deeper into product cannibalism because the inability to use it to advantage, points to a failure of leadership and a failure of culture.

The failure of leadership results from two things, first the inability of the leader to identify the impending market shift and secondly the inability of the leader to dictate the necessary changes required to surf the impending shift and keep the company at the leading edge. The term dictate is used specifically because surfing a market shift will seldom work effectively using a consensus or collaborative approach. Simply vested interests internal to the organization will naturally work to sabotage initiatives, as they will at best mean a change to their mode of operation with the accompanying decrease in influence and power, while at worst it may mean the pink slip or p45. Therefore given the stakes a dictatorial and Machiavellian mode of leadership is specifically required.

The failure of culture results from the company’s culture not being able to actively encourage and embrace innovation, disruption and change. In short the corporate culture has to go beyond a games rooms, swanky cafeteria and a day a week spent on new projects, to one where successful new projects have an additional mandate to address the impending organizational change, with a view to repurposing as much as necessary. The view here is that it allows for top leadership to identify the tough but necessary ideas, while showcasing to vested interests that there is some room in the new world for them too.

Product Cannibalism the Key to Salvation
Thus a different take is required when looking at Product Cannibalism, in that organizations need to see Product Cannibalism as a key driver for business transformation and gradual market divestment.
How it could have been
Returning to the HMV example, with the advent of internet piracy (a strong indicator of media demand on the internet platform) , the rise of video streaming and the success of Netflix, it should have been clear to HMV management that to survive they would have to invest in media streaming services and access delivery (i.e. getting internet enabled TVs and such into the hands of customers) while gradually migrating their customer base from the High Street to the internet and divesting of their massive High Street presence gradually.

The migration of their customer base would have meant effectively that their digital services would have been cannibalizing their High Street products, however the advantage that they would have had is that it would have allowed them to grow the already captive UK market especially since Blockbuster was (and is) slow on the uptake and Netflix was still building it’s mind share with the UK market.

In short when product cannibalism rears its head it is time for management to sit up and pay attention. It is usually an indicator of a more substantial market shift that is underway, so simply sweeping things under the covers guarantees that you won’t be claiming that pension.