CIOs Can Help Their Companies Survive Industry Disruption

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CIOs are learning some hard lessons about how industry leaders can be knocked off by out-of-the-blue competitors. Look at that quintessential business disrupter, Netflix. In 1997, the upstart launched a fast, convenient DVD-by-mail rental service that relied on highly efficient supply-chain systems, well-situated distribution centers and, of all things, the U.S. Postal Service. Mixing existing technology and service tools in a new way let Netflix create a fresh business model in video rental that eventually displaced Blockbuster, Hollywood Video and other stalwarts that relied on physical stores.

Today, however, Netflix struggles to maintain its supremacy. Lots of companies with streaming video have invaded its territory, including YouTube, Hulu and Cablevision. Perhaps the biggest threat, in part because there appear to be no bounds to its ambition, is Amazon. The $48 billion e-commerce company offers streaming and downloadable video for many devices--exactly the future Netflix imagines for itself.

Netflix is aware of these challenges and is trying to boost its streaming business and revamp for an all-digital market. But new pricing plans and an attempt to separate its by-mail and streaming subscriptions in 2011 got customers mad. The company admits in recent financial filings that it has seen "higher than expected customer cancellations" and that those customers aren't coming back quickly. Churn for 2011 was 4.9 percent, up from 3.8 in 2010. Vehement customer reaction led Netflix to reverse changes to its subscription business, though it stood firm on its controversial pricing policy.

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