Why Toys R Us (and Companies Like It) Failed

As Object Edge’s Chief Digital Officer, I have spent a lot of time thinking and researching why companies fail to (successfully) adopt digital strategies and transformation, and eventually, fail to exist.  Amongst my peers and most trade publications, there is a common alignment that technology disruption is the primary force behind these failures.

I feel this thesis does not properly address what is happening, and if the leaders of today’s enterprises don’t align to what’s really happening, the failure trend will accelerate.  Let’s take a step back to understand why.

Empirical evidence shows us that companies ‘stay on top’ for much shorter periods of time today compared to 70 years ago.  According to Credit Suisse, “the average age of a company listed on the S&P 500 has fallen from almost 60 years old in the 1950s to less than 20 years currently.”  This trend is only accelerating, with infosight predicting that “about 50 percent of the S&P 500 will be replaced over the next 10 years.”

Credit Suisse credits, “the disruptive force of technology is killing off older companies earlier and at a much faster rate than decades ago, squeezing employees, investors and other stakeholders.”

Why is a phenomenon such as technology innovation, that is meant to make lives better or corporations more efficient, being blamed for actually killing companies?  I believe that the blame is misplaced.  Technology is the protagonist for the disruption, but not the cause of business failure.  The cause is the inability for cultures to adapt to modern visions and strategies.

Toy R Us (and companies like it) had the money, clout, and access to capital to hire the best talent (internally and externally) to provide thought leadership on vision, enterprise, and digital strategies — and according to senior leadership within the company that I know, spent millions in building these assets.  However, the greatest visions and strategies in the world didn’t help them, because I fundamentally believe that people follow culture, not strategies.  As Peter Drucker said, “culture eats strategy for lunch.”

It has been the inability for companies to increase the rate of internal adaptation, or internal change, to match the rate of external disruption, or external change, that is causing the acceleration of large company failures.  As I recently discussed with the CMO of a large retail brand, “if your organization (people and processes) isn’t as fast or flexible as the technology you’re buying, what’s the purpose of that great technology? If you want to design and deliver modern purchase journeys and rapidly iterate (improve) them, then your culture has to be comfortable with being uncomfortable, and you have to be able to see results in 90-120 windows, not 1-2 years.”  You have to have a vision that looks 3-5 years out, but your roadmap milestones need to be condensed to 1-4 months.

In summary, in order to survive digital disruption, companies need to invest in vision, strategy, and culture, and while consulting firms like ours can guide and assist on all three, only a company’s leadership drive cultural change.  At Object Edge, we have adopted John Kotter’s model on cultural change as part of creating and executing digital strategies for our clients, but there are many to choose from.  The key is that a firm’s leadership is committed to cultural change, and ready to bring it’s people along in their transformational journey.