Netflix’s turnaround: becoming resilient through innovation

0
156

The so-called Subscription Economy has been soaring in the past few years, riding the wave of digitization. All types of content, whether it’s music, TV shows or articles, must be available at all times to fit into people’s busy schedules. It is hard to imagine life being any different now; waiting for a show to air at dinner time or buying a physical copy of a newspaper almost seem to belong to a previous era. Today we see this lifestyle as the main option; however, at the beginning of the decade it would have taken courage to bet on this vision of the future and commit to it.

This is exactly what Netflix did, as they learnt from their own mistakes and built a customer-centred business that has brought the company to have over 60 million subscribers and profits amounting to more than $10 billion. This is especially impressive when considering that back in 2011, when Netflix’s core business was still DVDs, the company went through a rough patch due to an increase in their price subscription that led many customers to leave. At that point, the very core of their business – subscriptions – was in doubt and the only way out was for them to start listening to their customers again.

The turnaround took place once they decided to move to digital content and base their offer on the needs of their audience, which meant profiting as much as they could from the declining rental industry while starting to invest in the online platform that we all know today. This transition even involved some degree of cannibalization, as the old product line was basically cashed out in order to subsidize the new business stream.

As the graph clearly shows, the strategy worked. The key factor of this comeback consisted in listening to the customer base while receiving insights that would shape the platform. The Netflix interface today fully embeds this idea, as the algorithm recognizes the preferences of the viewer and provides suggestions accordingly. Some Netflix originals go as far as to start a dialogue with the audience, such as House of Cards – where the main character breaks the fourth wall – or Bandersnatch – an interactive movie where those watching decide how the story develops.

The Netflix case reveals how failure doesn’t have to be the final step for a business today, but there must be the willingness to take bold decisions and get past personal beliefs. The company in this instance had a look at the reality in front of them and they saw an economy where smartphones, tablets and social media were starting to spread at an incredibly fast rate. Looking at the graph below, it is possible to appreciate how smartphones’ uptake in the US goes hand in hand with Netflix’s growth. While this is not surprising, it does reveal the fact that management must have done their homework in terms of market research, which is a key success factor for businesses today. Looking at the environment around you helps break down personal biases and understand how to move forward.

Differently, Netflix’s main competitor Blockbuster failed to fully grasp this fundamental shift in people’s lifestyle, maintaining a conservative policy on digital platforms. While for a moment the company seemed to be on the right track to follow Netflix and revolutionize their business model, the CEO lost the board’s confidence and was replaced for someone with less disruptive ideas. Five years later Blockbuster filed for bankruptcy and Netflix, the winner, took all.

Resilience takeaways

The Netflix case embraces several resilience concepts, showing how good practices can help organizations evolve with the environment surrounding them. The following are a few highlights to take away from this article:

  • Avoid single points of failure: physical delivery was one of them, by moving to a digital platform Netflix was able to build a more resilient distribution network;
  • Know your company: through an accurate analysis of your processes and resources you can understand the inefficiencies and weak spots of your organization and bolster them;
  • Perform horizon scanning exercises: do not only focus on immediate, high-impact threats (e.g. cyber-attacks, hurricanes), look also for trends and changes in the market. Spotting the rise of digitization was key to making this a successful case;
  • Keep egos outside of the room: Personal agendas can contribute to biased decisions that might benefit the individual in the short term while derailing the company from the right path;
  • Treat resilience as a competitive advantage: Being able to operate when and where your competitors can is great added value.