Xbox’s Hollywood Bust – when culture eats strategy for breakfast

Shut down

It’s not only successful innovations that can get shut down (see “Shut down! Why Successful Innovations Die“) but also those that don’t get a chance to take of in the first place:  In the small print of Microsoft’s recent announcement to eliminate 18,000 jobs (mainly in the light of the Nokia acquisition) you could also find 200 jobs cut to end the Xbox Hollywood aspirations.

After a history of failures entering the hardware sector, Microsoft struck gold with its powerful Xbox gaming console series powered by popular games such as the epic HALO. Long forgotten seem the times of the “PocketPC” handheld to rival the PalmPilot or the “Zune” MP3 player to dwarf Apple’s iPod.  (Let’s keep the Surface tablets with its awful Windows 8 mosaic tile interface out of the equation for now – even a recent promotion is just a sad parody.)  

Without doubt, the Xbox is a success, Microsoft’s media flagship.  It faces serious competition, so creative and disruptive solutions are needed to dominate the console market.

Beyond gaming

To expand on this solid Xbox console foundation and fend off competitors, the idea was to produce engaging and original video content.  This added value would expand the Xbox platform to broaden Xbox attractiveness and deepen customer loyalty by appealing to its gamer audience in new ways.  The gap between gaming and film converged over the past years when new game productions became sophisticated, quality productions with celebrity actors and voice overs, music by top Hollywood composers, high-end visual effects and not only budgets to rival studio movie productions but revenue exceeding blockbuster movies.

Inspired by, for example, Netflix’s success in producing original content such as “Orange” and “House of Cards,”  this strategy looked very promising.  Well equipped with CBS’ highly accomplished Nancy Tellem and ties to Steven Spielberg, the Microsoft Hollywood team of 200 was up to a great start – or so it seemed.

Two years in, however, the there was very little to show for, so Microsoft finally divested.

– What went wrong?

Culture Clash

A key inhibitor for the Hollywood team, so it turned out, was clashing organizational cultures between Microsoft and the quick-paced and decision-friendly media world Tellem was used to from CBS.  Nanny Tellem learned the hard way that effectiveness of decision-making at the lower hierarchical levels and fast execution was not the strong suit of the established culture, red-tape processes and deep hierarchy of the Redmond software giant.  Down four levels in hierarchy under the CEO, Microsoft’s convoluted processes diluted Tellem’s authority and effectiveness.  It slowed down decisions to a point where the ambitious and energetic start-up became practically shackled and impotent to operate effectively in the media world.

Even the best strategy cannot be executed when unaligned with organizational culture or, as Peter Drucker has put it so famously, “Culture eats strategy for breakfast.”

Culture is what most employees say and do routinely.  It translates into a company’s processes, structures, systems, etc.  This is why failing to understand or outright ignoring culture can be so disastrous for leaders.  From my experience, the magic sauce is in aligning corporate culture and strategy with the passion of competent employees.

Learnings

Microsoft’s Hollywood adventure is just one more example how disruptive innovation struggles when measured and governed by processes of a mature and bureaucratic organization with matrix structure.  With reigns held too close and not leaving room to experiment, innovation suffers, as this missed opportunity for Microsoft demonstrates.

“Hindsight is 20/20” people say and in all honesty, other factors may have contributed too, but looking at it from the outside, perhaps this train wreck could have been prevented had Tellem paid closer attention to the culture of her new employer and ‘how we do business around here.’

Cultural fit with conductive structures and processes downstream are serious business factors that often get overlooked and then backfire for the blind-sided executive.  – Only perhaps there could have been a proper Hollywood ending.

After all, disruptive innovations is a delicate flower that needs some room to flourish – especially in mature organizations.

Want more?

Related posts on organizational culture include:

Author: Stephan Klaschka

Stephan Klaschka is an awarded innovation executive, C-level consultant, Intrapreneur, and serial entrepreneur with over 25 years of international work experience. He held various senior business operations, strategy, regulatory compliance and innovation roles with Boehringer Ingelheim, leaving as Director of Global Innovation Management and Strategy. In this first-of-its-kind position, Stephan's work was central to the new growth rejuvenation strategy as a catalyst to initiate and drive pivotal innovations, leadership development, and disruptive and digital transformation across the Boehringer Ingelheim group worldwide. He has recently served as CEO interim of the "German Institute for Telemedicine and Health Promotion" (DITG). Stephan holds Masters Degrees in Computer Science, Management, and Business Administration as well as advanced degrees in Strategy, Innovation, and Leadership from leading schools in Europe and the United States. PMP certified. He has published extensively and created award-winning workshops on topics including intrapreneurship, healthcare, pharma, and new technologies. Stephan currently consults independently out of New York.

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