Jim Keyes CEO of Blockbuster, Former CEO of 7-Eleven

1. Jim Keyes CEO of Blockbuster, Former CEO of 7-Eleven Bradley H. Kerkhoff Leadership & Decision Making Dr. Michael McDermott May 1st, 2010

2. Contents • Jim Keyes Biography • Keyes Tenure at 7-Eleven • Keyes Three Principles of Leadership • Keyes Strategy for Blockbuster (‘07, ‘08, ‘09, ’10) • Distractions to Blockbuster/Keyes • Conclusion • Bibliography

3. James W. Keyes Biography • Born into poverty in Worcester, MA in 1955, Jim Keyes shared a three bedroom house with 6 siblings. • Jim’s first job was at McDonalds at age 15, where he made shift manager within a year. Keyes added a 2nd job as a church organist to help his family survive as well as saving for college. • Shortly after Keyes’ father died, his mother was diagnosed with cancer, leading Jim to choose a local college, the College of the Holy Cross. Keyes ultimately graduated with an MBA from Columbia University, turning an internship with Gulf Oil into a full time position. • Keyes joined CITGO Petroleum, which was owned by 7-Eleven, quickly moving up the corporate ladder, being named CFO and elected to the board, COO, and CEO in 2000 • Keyes served as CEO of 7-Eleven until 2005, when he retired upon the sale of the company. • Jim Keyes joined the struggling Blockbuster Inc. as CEO in 2007.

4. Keyes Tenure at 7-Eleven • implemented new retail systems technology that improved product assortment decisions • Introduced new electronic services, helping the chain become well known for its cutting-edge use of technology • Collaborated with manufactures across all merchandise categories to develop new products, enabling the company to introduce as many as 50 new items each week • Changed the company from a focus on beef jerky, cigarettes, and beer with product introductions including Panini sandwiches, wrap sandwiches, salads & fruit, cappuccinos & teas, and cell phones • Keyes emphasized Management Leadership Education for employees through his partnership with Southern Methodist University’s Cox School of Business • Under Keyes tenure as CEO, the firm enjoyed 36 consecutive quarters of same store sales growth, experiencing record sales and profits

5. Jim Keyes Leadership Style • Jim Keyes once stated, “No one’s going to help you with your career; no one’s going to give you that next promotion. You have to find some way to earn it.” To do this, Mr. Keyes relies on three principles of leadership: • Openness to Change • Confidence • Simplicity

6. Openness to Change • Shortly after becoming CEO of 7-Eleven, Mr. Keyes was asked why all 7-Eleven’s around Dallas were dirty and had bad food. Rather than taking offense, Jim accepted the validity of this question. Keyes acknowledged that 7-Eleven had been managed for 75 years as a place for beer, beef jerky, and cigarettes. These products were no longer giving the convenience chain acceptable growth. In Asia, 7-Eleven’s were performing much better, offering fresh food and delivery. Asia 7-Eleven’s created an infrastructure that allowed them to have fresh foods all day, including sushi. The U.S. 7-Eleven’s were having difficulty keeping fresh hotdogs. • Keyes devised a new strategy for stateside 7-Eleven’s including a national network of commissaries to keep each stores shelves stocked with fresh sandwiches, donuts, and fruit. • Jim Keyes ultimately altered the image of 7-Eleven making it into a fresh foods environment.

7. Confidence • Jim Keyes claims, “I am not really good at much, but I believe I can do anything.” Confidence enables Keyes to cast his companies in a positive light. • As the head of 7-Eleven, Jim grew tired of watching late-night comedians deride his company for its low numbers of American employees. Keyes responded with a commercial campaign that celebrated 7-Eleven’s diversity, presenting the chain as a breeding ground for “the American dream.”

8. Simplicity • People are the backbone of his company, and Keyes wants every employee to think like a leader. Keyes believes, “The best strategy in the world doesn’t work unless it’s for people.” • Example of Keyes Simplicity in action: • While at 7-Eleven, based on the premise that customers like blue stuff, Keyes launched a new Slurpee flavor called Blue Shock Mountain Dew. This item drew sales of Slurpees up 20% all summer. Jim Keyes responded to the success by saying, “Our customers like blue stuff. I don’t know why; it doesn’t make sense to me.”

9. Keyes Overall Strategy for Blockbuster • To turn Blockbuster into a one-stop shop for movies and media, where consumers can rent a film, buy a film, pick it up on DVD or Blue-Ray, or even get a download. • Keyes expanded this strategy in 2008 to include a one-stop shop for movies and media as well as content delivery devices (Tivo’s, etc.) • What has Blockbuster Done under Keyes Leadership to achieve this strategy in 2007, 2008, 2009, 2010?

10. Blockbuster’s Strategy - 2007

11. Blockbuster’s Strategy - 2008

12. 2008 Continued; Blockbusters Attempt to Purchase Circuit city • Blockbuster offered Circuit City $6 per share, $1.3B, a 54% premium to Circuit Cities April 11, 2008 closing price • The acquisition would create an $18B combined retail enterprise • Concept of convergence; marrying digital devices with content • Combination would create a global retailer: • uniquely positioned to drive the growing convergence of media content and electronic devices • With unmatched breadth of product offering • Superior competitive positioning • Enhanced shopping experience for both formats

13. Blockbuster’s Strategy - 2009

14. Blockbuster’s Strategy - 2010

15. Blockbuster’s Performance Under Keyes Blockbuster’s Stock Price has dropped under Keyes’ leadership from a high of nearly $6.50 to today’s low of .37 per share

16. Distractions • Proxy Wars • After former Blockbuster CEO John Antiocoh’s failed attempt to acquire Hollywood Video and after receiving a $51M compensation package, investor Carl Icahn, a member of the Blockbuster board, made the decision to have Antiocoh removed and Keyes instated. • Icahn was the major force behind the failed Circuit City acquisition, promising to financially back Blockbuster with the move and informing Circuit City that if Blockbuster didn’t purchase the company, he would come after the firm himself. • Icahn resigned from the Blockbuster board in January 2010 and sold a large portion of his shares in April, 2010. • 2010: • DVD Kiosk pioneer (founder of DVDXpress), Greg Myers, has staged a proxy battle to join blockbuster’s board, citing intrinsic value in the Blockbuster brand name, if positioned correctly. • Debt Distractions • When Blockbuster was in full catch-up mode with its competitors, CEO Jim Keyes made the comment, “These times demand a conservative approach. We will proceed cautiously as to how aggressive the company should be.” Keyes also believes that the need for a digital offering is at best, five years away due to bandwidth and quality issues. Blockbuster is investing shareholder’s money into businesses that are good viable today, not for the future. Keyes also commented, “We don’t think we are late on the digital side. There is very little actual digital traffic today.” • Keyes also stated, “As for the competition, we’re not worried. The Blockbuster brand is well known.”

17. Conclusion • Leadership under Keyes has lead to new, complicated strategies every year, only to be abandoned by the next annual report. • Keyes outlines his leadership as, “openness to change, confidence, and simplicity.” • Keyes “openness to change” lead to complete strategy changes every year, with little follow through for the previous years initiatives. • Keyes and Blockbuster’s unwarranted “confidence” allowed the company to misjudge the threat of Redbox and Netflix, instead claiming that Blockbuster would become a full service media outlet, which it has yet to do. • Keyes strategies have shown very little of the “simplicity” he used in the past for success. Numerous strategies, complicated, non-convenient digital methods (in-store downloads), and lack of focus (failed Circuit City bid, Proxy Wars, & Live Nation distractions) have kept this company from competing effectively.

18. Bibliography • Grieder, Erica. Confidence, Simplicity, and Openness to Change: Keyes for Leadership. McCombs School of Business, 25 Feb. 2003. Web. 25 Mar. 2003. http://www.mccombs.utexas.edu/news/pressreleases/keyes_wrap.asp. • Investor.blockbuster.com (2007, 2008, 2009, 2010 annual report presentations) • Rayburn, D. (2009). Blockbuster Still Doesn't Have a Digital Strategy. Retrieved May 3, 2010, from Business Insider SAI, New York NY. Web site: http://www.businessinsider.com/blockbuster-still-doesnt-have-a-digital-strategy-2009-7. • Biesada, A. (2010). 7-Eleven Inc. Retrieved May 3, 2010, from Hoovers, Austin, TX. Web site: http://premium.hoovers.com/subscribe/co/factsheet.xhtml?ID=crskfffkyckjft. • Colbert, C. (2010). Blockbuster Inc. Information and Resources. Retrieved May 3, 2010, from Hoovers, Austin, TX. Web site: http://premium.hoovers.com/subscribe/co/factsheet.xhtml?ID=rftrxxfcksxkct. • Rayburn, D. (2010). Blockbuster Won't Survive: CEO Says "conservative Approach" Required for Digital. Retrieved May 3, 2010, from Streamingmedia.com, New York, New York. Web site: http://blog.streamingmedia.com/the_business_of_online_vi/2010/03/blockbuster-wont-survive-ceo-says-conservative-approach-required-for-digital.html