When looking for a case study of digital disruption there is probably no better example than Netflix, the US company that has revolutionised how we consume films and TV shows at home and on the move. Netflix started life in 1997 as a direct rival to Blockbuster in the DVD rental market. Instead of building a chain of thousands of stores to compete with its larger and more established rival, the Netflix model relied on using the postal system as a low cost distribution network.
The emergence of a low cost rival was challenging enough for Blockbuster but when Netflix introduced its video steaming service in 2007, the real disruption of its core market began. And this disruption would eventually play a major part in the demise of the Blockbuster business, which finally stopped trading towards the end of 2013. Today, Netflix has over 44 million members in more than 40 countries who view more than one billion hours of TV shows and movies per month. The company, which refers to itself as the “world’s leading internet television network”, has redefined the market for viewing films and TV.
And, if you are looking for an example of reinventing enterprise IT, then the way in which Netflix VP of IT Operations, Mike D Kail, runs the organisation’s technology function is a good starting point. In a recent interview with CXOTalk, Kail summarised his philosophy for IT at Netflix with the comment “don’t build data centres if it’s not your core business.” In other words, as Kail explained further, he wants his IT team to focus on being an entertainment company, not on “hardware, network infrastructure and storage systems” which are readily available from service providers. To demonstrate his commitment to this approach he has migrated the company’s finance systems to the cloud, implemented Google apps and even the in-house developed customer applications, which are part of the core business, are deployed in the cloud thereby eliminating the need to acquire, maintain and support the infrastructure that would be needed to host these solutions internally. His objective is to have 100% of corporate IT in the cloud by the end of the current year.
The need to reinvent IT is the subject of my new book, Disrupt IT, in which I define a new and radical model for IT in the digital age. Through a framework of seven principles I also provide advice for CIOs and boards on how to design and manage the transformation of the CIO role and the IT function to this new model.
Kail’s approach of focusing IT resources on areas where they can add real value to the business fits very well with the seven principles of Disrupt IT. In the digital age technology is being used to enable new capabilities, enhance the customer experience, create value and generate revenue; technology is now a source of differentiation and competitive advantage in all industries. To stay relevant and to play a key role in the digital age, CIOs and their departments also need to shift their focus to creating value and driving revenue. They cannot do this if the majority of the IT resources and hence management attention are allocated to maintaining and supporting the organisation’s existing infrastructure and systems. By focusing his team on the core business of Netflix Kail is ensuring that they are adding real value to the organisation.
Kail also remarked that “there has never been a better time for IT to fix its reputation in the industry.” I couldn’t agree more with this statement although I would perhaps go a bit further and say that CIOs have to start fixing the reputation of their functions now. To succeed in the digital age, organisations need the right type of IT function, one that is focused on the areas where technology will have the greatest impact, is proactive and works with the rest of the business to find ways to use technology to create value. Businesses that do not have this type of IT function will find it increasingly hard to compete in the digital age. And CIOs that do not take this path are likely to find themselves bypassed by the rest of the organisation and ultimately out of a job.
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