Tuesday, October 11, 2011

Wait! Not so Qwick...

The CIO position is as much or more about leadership as it is about technology.  Since IT is a service, CIO's must always, always do whatever is possible to best advocate for customers and the needs of a business.

The impact of great leadership can be substantial.  Steve Jobs, who just passed away last week, will probably be described as the post-millennial Jack Welch.  By the accounts of friends and co-workers Jobs was not really all that sociable or "nice".  He didn't give away his billions to charity like Bill Gates and Warren Buffett seemingly are these days.  And he didn't cultivate a carefully orchestrated public persona, wear designer clothes, or sail a huge yacht across the seven seas.  What Jobs did, however, is create the world's most valuable company.  He did it by having an incredibly insightful, clear vision of the future and a singular drive for making things happen.  Jobs was relentless in advocating for his customers and passionate in enforcing his plans.  In short, Steve Jobs understood what his customers wanted (not always needed) and utilized his incredible leadership skills to bring the world along with him.  The benefits to Apple from his leadership were and are legion.

Now let's take a look at NetFlix.  For a long time - that's five years in tech speak - NetFlix was on its way towards becoming a household name.  The company almost singlehandedly destroyed Blockbuster and Hollywood video while providing the entertainment industry with a hugely profitable outlet for its older movies, videos, and shows.  Netflix did so well that by the early part of this last summer, its stock had hit about $300/share.

As with all businesses, challenges always emerge and must be overcome.  The big challenge for Netflix was what to do about the inevitable shift away from physical media, mostly DVDs, towards online downloads called "streaming video".  In a textbook example of how not to manage, the leadership of NetFlix led by CEO Reed Hastings went into a "back room" and with apparently no regard for its customers and a lack of sanity came up with a solution.  What was this solution, you might ask?  It was twofold -
  1. Almost double the price of monthly subscriptions
  2. Split the Netflix business into two parts - "NetFlix" for a streaming video segment and "Qwikster" for the traditional postal service delivery segment
Not only would customers be asked to pay (a lot) more, they would have to go to separate websites to order postal or online delivery.

Needless to say, the customer backlash was immense.  In the first week NetFlix/Qwikster lost hundreds of thousands of subscribers.  When asked for a reaction, CEO Hastings replied that "We" (meaning the management team) knew that some of our customers would be unhappy.  But we are secure in our management brilliance and anyone who doesn't get our vision and greatness can just go pound sand. (In the spirit of full disclosure, the last sentence in italics is strictly my editorial summation of the thinking of Hastings and his leadership team)

By leading from a position of complete disconnection from its customers, Hastings and the leadership of NetFlix took a great company and applied a heavy coat of tarnish.  But don't just take my word for it.  The fallout from this poor leadership was huge.  The stock price fell from $300/share in July to $112/share in October, just *three* months later, an astounding 63% drop, or 21% per month!  If you owned 5000 shares of NetFlix in July, your investment would have lost $940,000 in value as of today.  In a classic move of closing the barn door after the horses got out, today NetFlix announced that it would drop the "Qwikster" business and recombine everything back into the original NetFlix brand.

So the moral of the story is that good leadership is critical.  If you put the right people in place (Apple), your organization and customers will be winners.  If you put the wrong leaders in place, no matter if you are staffing at the lowest or highest levels of your company, you WILL pay a price - just like NetFlix and its exceedingly unfortunate investors are today.

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