which determines the organisations success or failure (Thomas, 1974). The
closed system theory however, focuses more on the internal environment of an
organisation (Thomas, 1974). Johnson (2014) defines these two features of the environment
as layers, describing them as the macro and micro environment. And as such, it
is these two layers which need to be analysed to predict future implications
and allowing the organisation to unravel any potential threats (Johnson, 2014).
Furthermore, an environmental analysis will be applied to Blockbuster, to
evaluate both its internal (micro) and external (macro) environment, to clearly
establish an understanding as to where the company is positioned today, and how
they got there.
An Application of the S.W.O.T Analysis 2.1
SWOT analysis is considered to be a strategic framework that encompasses an
analysis of an organisations strategic capabilities and its environment
(Johnson, 2014). Through identifying and assessing the strengths, weaknesses,
opportunities and threats of a company, future decisions and necessary courses
of action may take place (Johnson, 2014). Generally, this analytical tool is
simply a means to gathering data, internal and external to an organisation
(Pickton and Wright, 1998). Therefore, to gather a greater understanding
surrounding Blockbuster’s failed strategy, an application of the SWOT analysis
will allow us to highlight the areas which may have contributed to such
Blockbuster’s early days, the company obtained many strengths such as, low
overhead costs, the offering of cheap rentals, establishing a renowned brand
name and the experience of visiting a blockbuster store even became a weekend
ritual. However, the initial strengths to which made Blockbuster a huge success
in its early days was the ease and convenience of renting a video from one of
their stores (Albarran, 2013). In addition to the stores convenience, another
strength of Blockbuster was its ability to track consumer preferences and to
therefore provide films to suit these demands (Higgins and Davis, 2013). As
such, Blockbuster grew rapidly earning its success we remember today.
A significant downfall of Blockbuster was the inability to
respond to the emergence of the internet and to revise their business model to
follow suit. The major weakness of the company however was the failed
acquisition of its biggest rival, Netflix. Blockbusters’ missed opportunity
with its biggest rival, prevented the company from being able to understand
customer data and to providing customers with value added convenience (Walker,
2015). It is believed that this ultimately lead to the death of the company as
they shortly later closed down store rental operations (Walker, 2015) which
were then considered as a burden on the organisation (Abraham, 2013).
are faced with many opportunities to rekindle their strategic approach. A
suggestive opportunity for Blockbuster would be to realign their business model
to that of their competitor; Netflix. It would be relevant for the organisation
to follow suit, as Netflix have gained significant shares of the market,
dominating such industry. From Blockbuster’s early beginnings, the company
established itself a strong brand name, becoming synonymous with the home
entertainment industry. Such brand recognition provides Blockbuster with an opportunity
to resurface with their lost consumers and to readapt their strategies to their
the internet beginning to revolutionise home entertainment, Blockbuster’s brick
and mortar based company, faced threat (Clérigo
de Almeida, 2011). The emergence of rivals such as Netflix and Redbox also
presented Blockbuster with a threat, offering alternative services such as DVD
by mail subscription (Davis and Higgins, 2013). Although Blockbuster
traditionally sold DVD’s and VHS tapes through their stores, John Antiocio,
decided to take the leap, and offered the organisation an internet platform, to
which Blockbuster could continue the sales of DVD’s and VHS tapes online
(Clérigo de Almeida, 2011). Competition proved to be a significant threat of
the organisation as Blockbuster invested many new strategies to adhere to the
emergence of the internet. It was apparent to Blockbuster that they did not
have the strategic capabilities nor the resources to deliver their services
online, so to combat this threat they began using AOL’s platform, to not only
develop their deficiencies in technology but to also access AOL’s twenty
million customer base (Clérigo de Almeida, 2011). Eventually this came to a
stand-still as the company were unable to secure a partnership with a delivery
service (Clérigo de Almeida, 2011). As previously suggested, Netflix,
Blockbuster’s greatest rival proved to be the biggest threat of all.
Blockbuster’s biggest failure was to recognise in its early stages, Netflix’s
threat, of subscription by mail service. Blockbuster initially believed this
service to be of no challenge to them and dismissed the idea, believing that
such subscription would not encompass the vast majority of impulse customers
(Clérigo de Almeida, 2011). After having noted Netflix’s one million
subscribers, Blockbuster introduced later a similar approach, offering a
subscription service in store (Clérigo de Almeida, 2011). However by this
point, Netflix had already established themselves a recognised brand name,
three million customers and were the holders of a stable business model
An Application of Porter’s Five Force Analysis 2.2
Source: Competitive Strategy:
Techniques for Analyzing Industries and Competitors The Free Press by
Michael E. Porter, copyright © 1980, 1998 by The Free Press.
five forces analysis is a framework constructed to identify an organisations
key competitive forces; the threat of entry, threat of substitutes, power of
buyers, power of suppliers and the competitive rivalry (Johnson, 2014). Porter believes
that when each of the forces are considered to be high, the industry would
therefore be difficult to compete in (Johnson, 2014). An application of such
framework will therefore be applied to Blockbuster’s case, to evaluate its
industry and why they failed.
Threat of Entrants 2.2.1
is considered to provide a homogenous service, therefore the threat of entrants
would be relatively high. Through offering services and products which are not
considered unique, it is easy for competitors to imitate and are therefore able
to enter the industry themselves (McGuigan, 2013). As previously explored with
the SWOT analysis, rivals such as Netflix and Redbox entered the industry,
providing evidence that such service was highly imitable.
The Bargaining Power of Supplier
bargaining power of the supplier is moderately low for Blockbuster. Due to the
homogenous products and services, Blockbuster was able to purchase from
whichever supplier they needed, without any impact on consumers (McGuigan,
2013). Therefore, Blockbuster could purchase from whichever supplier they
chose, without customer demand being an influence on this.
The Bargaining Power of Buyer 2.2.3
bargaining power of the buyer is notably quite high for Blockbuster. With
competition peaking in the late 1990’s, consumers in the home entertainment
market were given a vast array of choice, therefore it was crucial at this
point for Blockbuster to adapt to these changes, to respond to consumer needs and to sustain
competitive advantage. As previously mentioned, Blockbuster operated in a
highly competitive market meaning that it was key for them to sustain
advantage. However, as explored, the company failed to align their business
model in time to compete with rivals and so consequently lost out on custom to
The Threat of Substitutes 2.2.4
threat of substitutes for Blockbuster is relatively high. As the organisation
offers a service in the home entertainment industry, there is a vast variety of
substitutes to the organisation. With alternative competition such as Amazon,
selling cheap DVD’s and VHS tapes online, such substitutes may be considered a
Competitive Rivalry 2.2.5
Blockbuster have several competitors, and directly face competition from
Netflix, competitive rivalry is considered as very high. Netflix have dominated
market share in the home entertainment industry, damaging Blockbuster’s brand
reputation, therefore it is key for Blockbuster to use innovation and
adaptability in order to sustain competitive advantage (McGuigan, 2013).
Strategic Drift Model 3.0
Johnson, G., Scholes, K. and
Whittington, R. (2014). Exploring strategy. 10th ed. Harlow: Prentice Hall – Financial Times.
strategic drift model as presented in figure 3.1, explores four stages to
strategic change. The model encompasses four phases; incremental strategic
change, the tendency toward strategic drift, a period of flux and transformational
change or death (Johnson, 2014). The basis of such model, is to provide
organisations with a framework to depict how certain strategies may impact on
the company. This model allows for the organisation to measure performance in
relation to environmental change (Johnson, 2014).
1994 Viacom acquired Blockbuster, completely diverting the original video rental
strategy, and shifting much focus to the trade of MTV and Paramount merchandise
(Davis and Higgins, 2013). This diversion was not received well by John
Antioco, who was made CEO of the company later in 1997 (Spector, 2010). During
the incremental strategic change process of the model, it is noted that
organisations typically develop strategies that are similar to those that have
been successful in the past (Johnson, 2014), but without acknowledging the ever
changing environment and keeping pace, then the organisation may not redeem the
same response as before. Under Antioco, Blockbuster’s strategic change,
typically reflected this notion of repeating similar strategies of that of the
past. Antioco realigned Blockbuster’s strategy to refocus on its origins of
video rentals (Davis and Higgins, 2013) but did not evaluate the companies
changing environment to combine with this. As a result, the environment which
was changing with the revolution of the internet and with the new competition
of Netflix, Blockbuster slowly seen a decline in profitability (Davis and
Higgins, 2013). Unfortunately for Blockbuster, the organisation lead to a
transformational death as a result of this strategic change.
having applied an environmental analysis to Blockbuster, it is evident that the
organisation’s biggest downfall was its inability to view its rival Netflix’s
potential innovative strategy. Their failure to quickly adapt to the
technological trends in the rapidly changing environment proved incremental to
the business. Evidence has been provided to suggest that Blockbuster’s failed
attempt at rekindling their strategy to align with its changing environment was
not sustainable. As previously discussed, Antioco, implemented new strategies
in hope to regain the achievement of its earlier days but proved unsuccessful.
The strategic drift model provided a framework to help underpin this
transformational death and allowed us to view at what point during Blockbuster’s
timeline this change occurred. With the application of Porter’s five forces
model, it was apparent that the organisations inability to respond to
competition was its greatest failure. By analysing Blockbuster’s environment it
was evident that the organisation required significant changes to their
strategy much earlier than when Anotioco implemented them. The SWOT analysis
similarly provided us with an interpretation of Blockbuster’s internal
environment. After reviewing the strengths, weaknesses, opportunities and
threats of the organisation, it was found that Blockbuster had missed a
significant opportunity. Having missed out on the acquisition of Netflix, the
organisation were left to suffer the consequences.
once dominated the home entertainment industry from its humble beginnings in
Dallas, Texas. Unfortunately the organisation failed to sustain its early
strengths and struggled to implement new innovative strategies to combat its
biggest threat; Netflix (Albarran, 2013).
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