Santa Claus: A case study in business model pivots

Christmas is just around the corner, bringing with it Santa Claus’ annual gift-giving traversal of the globe. To most, it seems Santa’s operation has remained materially unchanged for over a century. However, a closer examination suggests otherwise.

Initially, Santa’s deliveries were entirely original works. They were timeless and simple, like toy trains and teddy bears. In 1993, though, I started noticing a shift. That was the year I received a Huffy bicycle, and each year thereafter, more and more of Santa’s deliveries were highly branded items. It’s technically possible Santa manufactured some of these and licensed branding rights from popular toy companies. In terms of the actual product, there is negligible difference between, say, a Ty Warner-produced Beanie Baby and an elf-crafted equivalent; slap the official logo on there, and there’s not a 6-year-old on Earth that will be any the wiser.

Now, however, he’s delivering more specialized goods, such as the PlayStation 4 with its proprietary hardware and accompanying games. I reached out to a Sony representative, who confirmed that 3rd-party hardware manufacturing is not authorized, and there have been no software development kits deployed to the Arctic Circle. Additionally, the admission profiles of all major computer science and electrical engineering programs make no mention of any elf matriculates.

What does this mean? At some point, Santa ceased producing toys in favor of distributing goods he was incapable of producing internally. An analysis of North Pole business practices reveals 3 key pillars of success when it comes to a major business model pivot: trusting customer data, maintaining a seamless user experience, and cultivating talent.

I feel it necessary to preemptively address the concern that some readers may feel with my referring to children who receive gifts from Santa as “customers” or “users” because they do not pay Santa for the goods they receive. This is a symptom of an all-too-common ignorance to Santa’s nature and operations. While the children don’t pay with cash, they do pay with their belief in Santa, as manifested by the performance of good deeds.

So what does good behavior actually provide for Santa? Why should Santa care if boys and girls are naughty or nice? Short answer: he doesn’t, at least from a business operations perspective. Belief in Santa is what powers his sleigh (see Elf [2003]), and it’s fair to assume that this same belief powers the entire North Pole. Should belief run short, the repercussions would be catastrophic: a total infrastructure collapse at the North Pole, resulting in countless layoffs, numerous hypothermia deaths, and the indefinite cancellation of Christmas.

However, belief by itself is too abstract of a concept for children to grasp, let alone sincerely express. By coupling belief with some sort of external behavior (i.e., “being good”), Santa reifies, and thereby facilitates, the conveyance of belief in him, and by extension ensures perpetuation of the North Pole.

Trusting customer data

Santa has advantage of data that most companies only dream of. He receives an annual summary of nearly every customer’s key pain points and unmet needs, either via mail-in comments or in-person customer interviews, not to mention his otherworldly real-time customer monitoring capabilities that are a Bugatti Veyron to the NSA’s mule-drawn carriage.

More important than having data, though, is knowing what to do with it. Apple, for instance, has a wealth of user data, but recent product design decisions, courageous as they may be, suggest an inability to extract and utilize meaningful customer insights.

Santa does what many businesses are incapable of doing: set aside pride and take shifting customer preferences to heart. It must have pained Santa to shut down his toy workshop. It was the lynch-pin of his operation for decades, the products of which possessed an attention to detail borne only from the passion of a master craftsman. However, he was not so blinded by his passion that he could not foresee the long-term consequences of stubbornly clinging to a dying business unit.

Maintaining a seamless user experience

The second key to a successful pivot is maintaining a seamless user experience. For Santa, this was especially important. Should children catch wind any turmoil at the North Pole, the seeds of doubt would fester into weeds of disbelief, and Christmas as we know it would have ended years ago.

Frankly, I don’t know exactly how he did it, and that’s the greatest compliment I could give him. The North Pole underwent a total organizational overhaul, and nobody besides the author of this case study was able to notice, let alone characterize the nature of the transition. So many companies that undergo massive restructurings have obvious missteps along the way, but not Santa. Instead of taking a Christmas or two off to regroup and strategize, he continued delivering joy to children around the world, and they were none the wiser that his manufacturing wing had gone dark.

Cultivating talent

The final piece is cultivating talent. The North Pole is not known for employing an immigrant workforce. Even if there was a desire to H1B their operation, good luck convincing a senior manager at Amazon to jump ship for the abysmal living conditions and notoriously awful work-life balance offered at the North Pole.

Santa did what is accepted by many as a superior hiring practice, but implemented by few: he placed greater importance in competence and capability than in experience. Though lacking in import/export experience, his staff had proved they could accomplish great things Christmas after Christmas, so he correctly trusted them to acquire new skills as necessary.

A final thought

I’m convinced that these practices fell into place because of the high-stakes nature of the scenario. If a company wants to mirror the aforementioned successes, they need to recreate this same high-stakes mentality that was obviously pervasive at the North Pole. Management needs to communicate that the consequences of sloppy pivot execution will be equally disastrous for shareholders as Santa’s failure to pivot would have been for Christmas.