Netflix and Organizational Capabilities

Executive Summary: While I previously shared a thought exercise (link) on the kind of capabilities Netflix can demonstrate against its competition, this post is about the hard work that goes into creating an organization where teams work in concert, and in diverse ways, to develop these competitive capabilities. From the Desk-of-George-Lucas-Theory-When-In-Doubt-Make-Star-Wars-Prequels.

Why am I talking about Netflix?

Three reasons.

1. Innovation:
Netflix has been called an innovator that leverages its investments into innovation effectively towards business capabilities.

2. Market Capabilities:
Recently, there was news about Netflix looking at original programming, that kicked off this thought exercise on innovation and tactics below:
http://randomjunkyramblings.blogspot.com/2011/03/innovation-and-tactics-series-netflix.html

3. Distinct Context:
Unlike the iPhone, Netflix has entered existing markets and upended them without much "confetti about cool". It's almost like a B2B company in a B2C market.

What does Netflix mean for Other Organizations?

Netflix continued to invest in streaming capability for many years, before launching the product. This demonstrates a long term thinking about its business and its markets.

How does an organization connect
a. investing in long term capabilities, and,
b. thinking about markets,
In hindsight, all of this is as easy as pie. Lets look at the challenges.

Challenges with Making the Organizational Connections:

Let's take two cases within two functions in an organization.

1. Finance:
Say you are a business finance manager, and a business manager comes over to you about a prototype he would like to acquire and integrate into the company's product and marketing portfolio. How do you not only help him acquire the prototype, but also give him the leeway to invest time and resources toward patiently integrating an early stage startup product into a reliable portfolio asset at the company?

2. Marketing:
As a marketing manager, say, you realize you need an organization wide communication and analytics sharing capability to meet the product and competitive environment in the medium term. What kind of marketing programs, and in what prioritized order, do you push, to deliver phased, sustained capabilities to your organization over the medium term?

Suddenly, this doesn't look all that easy, does it?

For managers battling to get things done within their silos on a daily basis, these are not easy questions to answer. Thinking about this gives you the scale of the effort that an organization needs to put into developing capabilities that impact its markets.

What do you think?

Innovation and Tactics Series: Netflix Bids for Original Programming.

Executive Summary: Netflix has been lauded for its ability to manage innovation, especially for its ability to translate innovation into real impact on its business. This post helps us think through some of the market possibilities it can target. From the Desk of "Is it a bird? Is it a plane? Its a... Jedi mind trick!"

The News, The Question

Netflix seems to be making interesting moves in content production:
1. http://www.theatlantic.com/business/archive/2011/03/netflix-plays-the-long-game/72611/
2. http://blogs.forbes.com/chunkamui/2011/03/17/how-netflix-innovates-and-wins/

The news reminded me of a curveball I recently threw to some very bright folks:
Will Netflix get into running movie theaters (or atleast renting them out temporarily)?

What Does The Question Mean?

The folks found the question interesting enough to pause to think it through. This is not because they did not have a (what may seem like an obvious) ready answer, but because it should, and apparently did, make you think about Netflix's context and how it is disrupting the context around it.
To rephrase:
1. Can Neflix groupon its at-home viewers into a high quality, custom generated "in theater" experience?
2. Can Netflix be vertically integrated in a niche market, while still serving what is currently its core market?

All in all, how do these ideas impact its profitability and its margins? At worst, can a capability to pursue the option posed in the question be a useful negotiation tool?

To dig a little bit deeper:
- What about Netflix's current position and capabilities (e.g. continued investment in innovation) provides it a competitive advantage?
- As Netflix get to know more of its customers better, how can it leverage it's information better?

Structure Around the Question

Here are a couple of paths to making sense of this question on Netflix:
- Content Development and Production -> Content Channels and Distribution -> Content Consumption
Or the reverse:
- Content Consumers and Markets -> Content Channels and Distribution -> Content Development and Production

Deep Dive Into The Market and The Consumer

Lets walk through the first way of looking through this process:
A. Who is Neflix's core consumer? What market is Netflix targeting?

1. Viewers of TV and movie dvd like content "experience" at home with access to a mailbox and to an internet ready device?
2. Viewers of video content "experience" at home with access to an internet ready device?
3. Viewers of an entertainment "experience" anywhere with access to an internet ready device?
4. Viewers of an entertainment "experience" with access to an internet ready device or with access to a specific location?

Now, you can define a spectrum of "experience" as well, from a streaming video "experience" on a small device while on the move, to a fixed location video "experience" of the IMAX or the "IFC Theater"/ "Indie Movies" sort. As for margins, isn't the IMAX share price hear its LTM high?

Now that you have some lightbulbs flashing in your mind, need I say more?


What do you think?