Clinches & Competency: A Martial Arts Lesson on Innovation

There are countless clichés about change & innovation: the need for it, it’s inevitability, doing it before it’s done to you...not to mention a book about someone moving your cheese all too familiar in introductory business classes. But for me this lesson was distilled to its most raw, fundamental example in an unlikely place: an early no holds barred mixed martial arts contests.

In 1993, the (at the time) fringe sport of mixed martial arts came to America by way of the Ultimate Fighting Championship, and into my living room via a rented VHS from Blockbuster. There I saw a seminal “style vs style” of Art Jimmerson and Royce Gracie. Jimmerson, a professional boxer with nearly 30 wins, was undoubtedly the best boxer in the tournament.

Art Jimmerson (Left) and Royce Gracie (Right) face off Nov 12 1993

About one minute into the match Gracie did something Jimmerson was unprepared for: he used a grappling technique to take Jimmerson off his feet and onto his back. Within two minutes the boxer surrendered. Jimmerson had not even landed a single punch. His superior boxing skills had no impact on the outcome of the match. In the end the (singular) glove he had worn in anticipation of clobbering his opponent had actually restricted his ability to counter Gracie. In other words his greatest competency turned into a liability. 

In hindsight it’s clear that Jimmerson's inability to grapple would doom his lone foray into MMA, but would anyone have been able to convince the pugilist before this match that he should have spent less time on boxing drills and more time on what looked like…”hugging?” The MMA arena is not unique in this aspect, many businesses often fall into the trap of focusing too much on a competency that becomes irrelevant. There are plenty of companies, or divisions of companies that follow in Jimmerson’s example. So supremely confident in a formula, a modus operandi that was successful in the past that they did not seem to notice as their advantages became a noose around their neck. Ironically it turns out even the VHS I watched the fight on came from a company that fell prey to the failure to change.

“There’s a Blockbuster near you” was a line repeated in advertisements to remind consumers of their highly developed physical retail presence. It’s easy to imagine the growing number of stores year over year being interpreted as a reassuring sign of the successful momentum the company was building:

The 1993 10K filing prominently displays a chart of this growth, along with an explanation of how a large number of stores were acquired by purchasing smaller competitors. These filings present a company that knew what it was good at, and was working steadily on compounding its success. 

What happened next was a classic example of innovative disruption. A fledgling company introduced a way to deliver films without the need for a physical store. By re-purposing an existing asset (the postal service), they were able to match Blockbuster’s geographic reach almost overnight without the overhead and labor costs associated with a large distribution network of physical stores. Along with removing the need for customers to physically visit a store to rent (and return) films, Netflix replaced the à la carte pricing with a subscription and did away with late fees. The end result was a very different customer experience than was offered by incumbents. Like Royce Gracie taking down Jimmerson, Netflix was able to side step Blockbuster’s greatest strength and turn into their biggest liability.

(Source: https://thehustle.co/the-video-store-that-survived-netflix/)

Just like with the UFC fight, this is all clear in hindsight, but imagine someone confidently telling leadership in 1993: “It’s time for us to consider closing stores” and adding “you should phase out late fees as well.” Companies are more likely to talk about transformative change than actually embrace it. Those conversations often end up as plans to make plans without any concrete steps to change.

Mistaking the means for the ends: 

Before the rise of MMA, a common practice in Dojo’s was rows of students performing “kata.” A kata is choreographed, almost dance-like, series of movements which is a historical and traditional a way to memorize, preserve, and pass knowledge of fighting techniques through generations of practitioners. Students who performed kata well were acknowledged and promoted, eventually competitions were created specifically for kata memorization and performance. Placing a priority on kata effectively shifted the focus of competitors from the goal of winning a fight to the goal of excelling in a specific method of training. When better training methods were developed there was resistance to abandoning the outdated method of kata, especially from decorated kata competition champions. This result in many traditional martial artists being unable to compete against a new generation of practitioners in martial arts bouts. 

Essentially, every company employee is assigned the ultimate goal of “make our company successful,” but in practice this goal is first turned into strategy for success at the highest executive level, and quickly translated into iteratively smaller tactical steps as it’s filtered into actionable items against which an employee's “success” is measured. This process is rather rigid, taking months to prepare and normally implemented throughout entire year (usually with a nominal mid year revisit). If a similar plan is implemented year after year, groups begin to specialize in the tactics assigned to their department. Recruiting and training people specifically for these tasks until they are specialized experts. The size and importance of departments begins to reflect their importance in the plan. Given that big important departments usually have a louder voice in planning sessions, the resulting feedback cycle creates momentum to maintain the status quo.

A side effect of this traditional approach is that it cements tactics, and makes them the “goal” of the person they were assigned to rather than a means to achieve an actual goal. Transformative change may be seen as distracting from their “goals”, competing for resources, or at worst working directly against the interest of the employees. Take for example the leaders and employees who tasked with opening new stores and have a compensation structure tied to the number of stores opened. After opening thousands of stores, they are undoubtedly good at what they do, and are handsomely compensated because they do it well. It becomes a little clearer why it is sometimes difficult to find allies among your peers to support a transformative vision when that vision includes “closing stores” and threatening a coworkers compensation. 

Early in my career I introduced some very powerful Business Intelligence tools to my company. There was one fellow employee who knew the data quite well, but spent an inordinate amount of time exporting said data into excel sheets. I expected him to be excited when I demonstrated the BI tools ability to automatically pull the data. I expected for his imagination to be sparked at what he could achieve when we freed him from the repetitive task of creating excel sheets. Instead his reaction was “There goes my job!” He wasn’t able to look past the action of pulling data to see how valuable he could be if he didn't have to spend to do it 

This does not happen strictly at the employee or departmental level, sometimes an entire company gets too complacent with a specific competency or tactic, this stops them from seeing the true value they provide to their customers. The Eastman Kodak company was the first to develop a digital camera, but chose to suppress this invention so as to not disrupt their film sales cash cow. Kodak failed to recognize the need for film as their Achilles heel. For their part, Blockbuster hired 7-Eleven Inc. executives to help drive up the customer per-visit-spend, perhaps indicating a stubborn insistence on seeing their retail presence as an asset rather than the liability it was fast becoming.

Even though operating income had not reliably been positive since 1997, the number of stores didn’t plateau till 2005.

If it ain’t broke don’t fix it!

Before fighting Royce Gracie, Jimmerson was a very successful fighter. Given his impressive record most people would have concluded that what he was doing was enough as is, and to start learning grappling would seem like an unnecessary addition to his winning formula. But in reality, this didn’t mean he would never learn grappling, only that his first and last lesson would be at the hands of a merciless opponent. 

As an MBA student I attended a presentation where a student proposed a plan to adapt a company to defend market share against competitor innovation by developing value-add features to enhance a fast plateauing technology. The student predicted shrinking margins as competitors “caught up” to their premium offering. Even after reading multiple case studies on companies that failed to innovate, and a thorough analysis of how this company fit the pattern, there were still many classmates opposed to the idea. After a discussion it became clear that the resistance was not based on disbelief that the need was real, or even any fault in the presenter's plan. Rather it was a desire to hold on to the company’s current success that led to resistance, even knowing it was temporary. “There are worse things than coming in for a soft landing” one objector commented. It seems that to some a number of years of foreseeable success is enough incentive to champion the status quo. Consider that in 1993 there was still over a decade of revenue growth ahead for Blockbuster. This is longer than the tenure of the average CEO. Indeed, companies do not need to last forever to be considered successful, and maybe a soft landing isn’t always so bad. But what the presenter failed to properly convey is disruption can come at any time. There is no guarantee it won’t come next year, next month or even tomorrow, and the “soft landing” is more often a violent crash.

Netflix introduced streaming services in late 2007. Blockbuster survived over two decades before this, and ceased to exist two years after.  

A company that waits for disruption to be forced on it before introducing innovation is more likely to experience a death spiral than a comeback. For one thing, innovation is itself a competency that requires nurturing and development. Companies don’t become agile overnight and urgency does little to change this. If there is no plan or assets prepared for this scenario, then a more likely response to rapidly shrinking revenue is cutting spending in an attempt to stay in the black. These cuts often result in skeleton crews, and resources stripped from R&D. Without investments aimed at improving products, the gap with competition worsens. Companies resort to discounting and slashing prices to keep their products competitive. This leads to further revenue shrinking and further cuts and cannibalization. A wiser philosophy would be to prepare for the bad times while you are enjoying the good times. 

A Simple Lack of Imagination

Grappling was not a secret in 1993. Most American high schools and colleges had wrestling programs, and judo had been an Olympic sport for decades. But wrestling and judo were thought of as “sports” rather than fighting arts. The common vernacular even supported this notion: boxers had “fights” while wrestlers and judoka had “matches”. Perhaps to a culture introduced to martial arts more through KungFu films rather than study and practice, this assumption was just accepted as fact. Even after seeing effective grappling winning matches, many traditionalists doubled down on this assumption, insisting that sometime soon a “REAL MARTIAL ARTIST” would enter the UFC and presumably karate chop their way to the title. Even though it was quite common to see boxers entangled with one another in an upper body clinch and require the referee to separate them, somehow most American martial artists didn’t put together that the grappling “sports” presented an underutilized opportunity. 

Similarly, in the 90’s, a plethora of businesses like Ebay and Amazon had implemented online sales and used the postal system to fulfill their orders. For some reason though, it seemed a huge leap of imagination to envision the postal system being used to mail a lended item to and from a consumer. Like a martial artist walking past a wrestling mat on his/her way to practice kata, it seemed Blockbuster lacked the imagination to see what they could use right under their nose. 

Maybe that’s being too harsh. A puzzle commonly referred to as Duncker’s Candle Problem shows how when a person is told what the function of something is, it becomes more difficult for them to imagine new ways it can fulfill a task (and curiously this effect is amplified when participants expect payment for completing the task quickly).

Duncker’s Candle Problem: Solving the puzzle requires the use of a small box, but if the participants were first shown the box holding tacks, it became more difficult to imagine as anything other than “a holder for tacks”.

It’s not difficult to imagine new employees being taught “this is how the business is run” by legacy employees and becoming stuck in the same mindset. The keen insight and bold creativity that led to Netflix is few and far between, and shouldn’t be expected at every company. What makes this story bizarre though, is that the solution was offered to Blockbuster on a silver platter, twice. 

Over eight years before Netflix started its streaming service, Blockbuster collaborated on a video over broadband project with Enron Broadband Service. Reportedly Enron came through on the technical side of the project and delivered the infrastructure requirements. Blockbuster was tasked with securing the content distribution rights. Through a strange exercise of circular logic, Blockbuster did not pursue content for this new platform with any urgency (presumably preoccupied with the brick and mortar business), then used the lack of content as an excuse to abandon the project (read more about it here). Blockbuster’s lack of enthusiasm for this project even with technical hurdles removed showed a lack of foresight that foreshadowed an even more puzzling move that will likely be discussed in business schools for years to come:

In the year 2000, Netflix CEO approached Blockbuster and offered to sell the business he founded for $50 million dollars. Once again, Blockbuster leadership acted with a lack of foresight and applied a simple ROI calculation: At the time, mail in DVD rentals were a small business and Netflix had yet to generate any profit. From this shortsighted ROI lens, this was a foolish investment.

As of the writing of this article, Netflix market cap is almost $200 Billion. As a former Blockbuster employee told Variety in 2013:

“management and vision are two different things.”

Self-Disruption is the key:

As a closing note, successful martial artists of today continue to evolve. To the participants of the first UFC, modern MMA matches would be almost unrecognizable; today MMA practitioners have expanded their training to include many different styles: Grappling arts are seamlessly merged with boxing and kickboxing techniques along with techniques specifically created for MMA. In some cases, even techniques from traditional martial arts are rediscovered and adapted with a more modern application. The key to this growth is for practitioners to continue to seek growth past their comfort zone. This way, fighters don’t idly wait for new opponents to challenge them, but become a new challenge to each opponent. This too is applicable in Business: Netflix took a proactive role in disrupting and recreating its own business on their own terms rather than allow a competitor to do it. Netflix mail in service was disrupted by Netflix streaming service, and when the streaming service market started getting crowded Netflix began to introduce original content. Netflix seems to have learned a lesson from its encounter with Blockbuster, and so far, hasn’t repeated the same mistakes. 

As of the writing of this article, there is one Blockbuster store still in operation in the US, running independently of the former Blockbuster corporation. They operate the tongue-in-cheek twitter account @loneBlockbuster. 

Art Jimmerson returned to boxing after the UFC, fighting his last bout in 2002. Royce Gracie won the first, second and fourth UFC tournaments. He was undefeated till the year 2000, and continued to fight till 2016. The Gracie family, and Royce in particular are credited with introducing North America to the art of Brazilian Jiu-Jitsu.

Rami Khouri