Blockbuster's mistake? To follow a principle that is taught in every fundamental course in finance and economics. That is, in evaluating alternative investments, we should ignore sunk and fixed costs, and instead base decisions on the marginal costs and revenues that each alternative entails. But it's a dangerous way of thinking. Almost always, such analysis shows that the marginal costs are lower, and marginal profits are higher, than the full cost.

This doctrine biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they'll need in the future. If we knew the future would be exactly the same as the past,that approach would be fine. But if the future's different—and it almost always is—then it's the wrong thing to do. As Blockbuster learned the hard way, we end up paying for the full cost of our decisions, not the marginal costs, whether we like it or not.

Design Thinking balances analytical thinking and intuitive thinking, enabling an organization to both exploit existing knowledge and create new knowledge. A design-thinking organization is capable of effectively advancing knowledge from mystery to heuristic to algorithm, gaining a cost advantage over its competitors along the way.

Tired of going with the design that will survive the organization's political gauntlet? What if we made decisions based on what actually worked for customers and produced results, not what snaggletoothed solution fit into every stakeholder's personal view of the world?

Future of the entertainment business.