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Boxed In: Which Way Are We Going?

Mar 1, 2008
How well does your vision match the irresistible forces and values of those who work in your organization? That's a critical question you need to answer if you are to have a successful strategy. Let me explain why.

In the early days of the cable television industry, technology limitations meant that cable operators could supply their customers with very few channels. Home Box Office (HBO), the largest and most successful pay cable channel at that time, was confronted with the irresistible forces that technology would eventually enable cable operators to offer hundreds of channels and subscribers wanted lots of variety.

What should Home Box Office do in this circumstance? Faced with competitors such as Showtime and others who were finding it easier and easier to get into cable households as more cable channels were available with advanced technology, HBO launched a second channel called Cinemax. The new channel served as the less expensive alternative to its services. Home Box Office made it attractive to cable operators to buy their two-channel package, thus reducing the attractiveness of adding HBO's competitors instead.

Home Box Office's parent company, Time Inc., still had a fundamental question to address: Should it primarily build from the Home Box Office base, or should it try to launch dozens of new channels to fill an important part of the rapidly expanding channel capacity of the cable operators?

Initially, the company invested with partners who were starting or supporting new channels such as the USA Network. The HBO unit then pulled back by selling stakes in those channels, enabling the parent company to generate lots of near-term earnings growth from the profitable Home Box Office/Cinemax base with limited risk.

Years later, the parent company realized that each cable channel was an enormously valuable business and more should be added. Turner Broadcasting was acquired for a multibillion dollar price tag to expand the parent company's choices, but, meanwhile, the inexpensive opportunity to launch large numbers of these very valuable channels had been lost.

Why did the parent company make such an expensive flip-flop? The parent company management simply did not decide that the company wanted to be a leader in offering a variety of cable television channels until after the best years to pursue the opportunity were largely gone.

A rapid series of changes in top management at the parent company contributed to the confusion as Time merged with Warner Communications to become Time-Warner. Each company leader during this time had a different vision and strategy of what the parent company should be trying to accomplish.

Time Inc. had a proud tradition based in the magazine industry, producing prestigious publications such as Time and Fortune. While cable television offered higher growth, publications offered more prestige.

A values conflict ensued. For example, the company invested large sums unsuccessfully to establish a new magazine for cable television listings at the same time that a smaller investment would have undoubtedly succeeded for new cable channels.

Prior to the merger with Warner Communications the situation was worsened by the risk that Time Inc. might face a hostile takeover bid. New cable channels looked unattractive in this light because the large investments required to expand them would cause lower corporate earnings in the beginning. Lower earnings were commonly perceived as making takeover risk higher in those days.

As a result, corporate executives were reluctant to invest in businesses such as new cable channels that could not be profitable for many years. Eventually, a hostile takeover bid did emerge from Paramount following the announcement of a friendly merger of equals with Warner Communications.

The newly merged Time Warner then had a new center and focus: the entertainment industry. Values, vision, clarity, and irresistible force trends were eventually aligned under a new CEO, Gerald Levin. Cable channels were perceived as desirable in such an environment, and Levin had won his spurs in the HBO side of the business so he was comfortable with the opportunities.

The Turner acquisition soon followed. Had Time Inc. merged with Warner sooner, or become an entertainment-focused company sooner, the benefits to be gained from the irresistible forces would have been captured in a much more timely way.

Enterprises can best determine the proper goals and directions by carefully considering a variety of factors including the personal and business values of those who work in the organization, the alignment that exists about what the company is and should be doing, and understanding the potential implications of irresistible forces for the enterprise's future. The best results come when the business direction matches both the irresistible forces, and the personal and business values of those who work in the enterprise.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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