There is a popular phrase among fiction writers, attributed to the English author Sir Arthur Quiller-Couch: “Kill your darlings.” That’s exactly what Netflix CEO Reed Hastings did in 2011 when he spun off the still extremely profitable DVD-by-mail part of the Netflix business and turned it into a thing called Qwikster, which died a quick death.
Hastings showed an appreciation for the unravelling story of digital transformation and the need to ruthlessly shed dead skin when required. Netflix could have clung to its DVD business while trying to gear up for the disruption to come as streaming services gained traction among consumers, but instead Hastings embraced the Red Queen Hypothesis of evolving in order to survive.
The brand launched its streaming service in Canada in 2010 and Hastings could see from its success that this was the way of the future. He saw DVD-by-mail was an anachronism in the making, so the only thing left for him to do was move faster than any of his competitors to make streaming happen.
In 2010 or 2011, out of 30 VPs, we had five people who were still focused on DVDs. We had to kick them out of the executive team meetings because we needed to eat, sleep and breathe streaming,” Hastings told LinkedIn founder Reid Hoffman in an interview.
Having been the industry disrupter that put Blockbuster to the sword, Netflix was now disrupting its own business model in order to stay ahead. It was reinventing itself in direct response to advances in digital streaming technologies and consumer broadband uptake. It wanted to be where its customers were going before they got there.
Netflix could not afford to drag with it the operational costs or cultural baggage of the DVD part of its business. It had been working on streaming since the early 2000s, but the technology was finally in place along with the audience numbers to make the model work. Consumers move fast; Netflix had to move faster.
Hastings knew that for effective digital transformation, Netflix would have to consider the way its operations, culture and business model would be changed. All three of those elements had to be opened up and re-imagined in a way that put the customer front and centre.
With Netflix as the streaming home of TV blockbusters like Mad Men, Breaking Bad and House of Cards, its CEO could appreciate the power of a strong narrative. The digital transformation narrative is continually evolving, with twists and turns few of us can predict.
Major plot points like the Internet of Things, augmented and virtual reality, AI and automation, and Big Data analytics are all in play. Furthermore, blockchain and cryptocurrencies look set to reshape industries such as banking, finance and insurance.
There is no hiding from digital transformation. Companies that still silo digital or lump it in as part of some innovation division are missing the boat by a long way.
These companies are misunderstanding the fact that digital by its very nature has the power to entirely alter the core structure of an organisation, whether that is through customer engagement (via things like social media), operations (think optimisation through data analysis), or business model (moving from selling products to creating platforms and networks for services).
Are you evolution ready?
Companies that want to leap ahead of the pack when it comes to digital transformation have to consider these seven areas:
Business model
Are you selling a product or a service? Are you creating value for customers through a platform that allows third-party services to grow and share profit? Can you turn one-off products or services into subscription-based models?
Operations
Are you using all the data available to your business to improve and optimise systems and processes? Can you implement AI and automation to take care of lower-end operational matters in order to free up your staff to provide higher-end value to your customers? Will a shift to IoT-enabled machines improve safety and reliability in operations?
Talent and skills
Are you doing all you can to attract digital-literate employees who are passionate about embracing transformation? Is the culture of your company truly open to innovation and agile modes of development?
Data
Have you developed a data plan that progresses from simple collection and storage of data through to analysis and output? Are you testing outcomes against your data? Are you modelling innovations such as potential new business models against available data?
Measurement
Are you measuring the effects and outcomes of digital initiatives, or clinging to outmoded KPI measures that fail to tell the full story? Are your metrics failing to capture the collateral damage or benefit of digital transformation? Are you measuring customer outcomes or are you fixated on employee surveillance?
Security
Digital does not come without risk or cost. Are you mitigating the risks that come with digital transformation by continual investment in cybersecurity measures?
Stakeholders
Are you communicating the importance of digital transformation to stakeholders such as the board and investors? If your stakeholders are not informed and persuaded by your digital transformation case, it will soon flounder. Don’t rely on technology to sell itself.
Know your digital transformation story and sell that narrative. Make your stakeholders understand the value it will create for customers. Hastings took a chance at Netflix by relegating its DVD operation to the dustbin of history. He killed his darlings, so to speak.
Businesses that want to leap ahead of the digital curve need to think across business models, operations and culture. You need to be ready to invest, but also to divest.
You need to look at the full gamut of technology available to you, empower your people, and aim to bring value to customers in ways you may not have done in the past. Businesses need to be where their customers will be. Digital can help them get there fast.
