Saul Kaplan: Don’t Get Netflixed
Friday, April 17, 2015
Incumbent companies were caught flatfooted and unable to compete, because the typical company responds to competitors’ disruptive business models by leaning against them—creating regulatory moats to slow competitors while at the same time working urgently to strengthen their current business model and hold on to customers. However, tweaking and protecting the current business model will not work for long. These are stopgap measures at best. They will not prevent your company from being netflixed.
How can leaders avoid being netflixed? The only way to avoid this is to do ongoing R&D for new business models, the same way companies do R&D for new products and technologies today. Companies must explore and test new business models in the real world, even models that might disrupt their current business model. If you don’t, you can be assured someone else is. Since business models don’t last as long as they used to, the time to do R&D for new business models is when the current one is still strong. It’s too late if you wait until your current business model is netflixed. Just ask anyone in the newspaper business.
The CEO must directly lead R&D for new business models. Assigning the task to line executives responsible for the performance of the core business model will result only in incremental improvements to the existing business model. Assigning the task to a Chief Innovation Officer accountable to line management will have the same result. Innovation projects that improve the performance of today’s business model will be prioritized, selected, and funded, and projects aimed at developing potential new business model projects will be killed. So, it’s the CEO’s job to make sure that the current business model produces expected results, and also to prepare the organization for the next business model.
Here’s how R&D for new business models works: Create a sandbox—connected to but autonomous from the core—in order to combine and recombine capabilities in new ways that are not constrained by the current business model. From this sandbox, conduct real-world business model experiments. At all times companies should have a portfolio of business model explorations underway, including early stage concepts, in-market prototypes, and later-stage scalable models.
Today’s CEOs will manage several business model transitions over their careers. To avoid being netflixed requires that the capability to do ongoing R&D for new business models is established, and that business model innovation becomes an integral part of the corporate strategic planning process.
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