Saturday, October 10, 2015

Strategy Planning Analogy #557: Procedurals Vs. Chapters

One of my favorite strategic planning stories is an interview of Steve Jobs by Richard Rumelt, a professor in strategy at the UCLA business school and a leader in his field. At the time of the interview, Steve Jobs had just returned to troubled Apple with the task of turning the company around and saving it from a path towards bankruptcy.

Rumelt was not sure there was a viable turnaround path for Apple. After all, Apple at the time had less than a 4% share of the personal computer market. The Microsoft/Intel business model (called “Wintel”) had a virtual monopoly on the space. There isn’t much you can do when your position is so insignificant.

So when Rumelt asked Jobs what the long term strategy was, Jobs just smiled and said, “I am going to wait for the next big thing.”

Jobs’ answer to the question would be hard for most boards of directors to take. In essence, Jobs was saying:

  1. I don’t know what the strategic direction should be right now.
  2. All I know is that it will come from exploiting the next big thing, whatever that is.
  3. And I don’t even know when the next big thing will show up. Our main task now is to wait.
  4. All I know is that sticking to the status quo is a path to destruction.
Does that give you warm feelings of confidence in the future of the company? As a board member would you accept that strategy?

Well, in retrospect, we know that the next big thing was the iPod and the next big thing after that was the iPhone. Jobs pounced on them and created one of the most valuable companies the world has ever seen.

So, when your company is stuck, perhaps waiting for the next big thing is not such a bad strategy after all.

The principle here is that some strategic positions are so weak that they cannot be repaired by merely adjusting the status quo. Sometimes you have to accept defeat in the status quo and move on to the next big thing, even if you do not know what the next big thing will be. All you can do is watch and wait. Then, if you pounce on the next big thing faster and more aggressively than the others, you can own the future and leave the former leaders in the dust.

This is what Apple did. And more recently, this is what NBC did.

A few years back, NBC’s position in prime time TV was not that different from Apple’s position when Steve Jobs came back. It was small and weak. CBS dominated the ratings. There was no easy way for NBC to tweak itself out of its downward spiral. So NBC borrowed the approach used by Apple—it waited for the next big thing.

When NBC was at the bottom, the key to ratings success tended to revolve around having the best “procedurals.” A procedural is a television drama with two distinct features:

1.     Each episode has a relatively independent plot that can stand on its own.
2.     What holds the series together is that fact that each episode follows essentially the same procedure—they all tend to be structured in a similar manner.

CBS was the king of the procedurals, with shows like CSI and NCIS. This helped put CBS at the top of the ratings. When a producer had an idea for a new procedural, they tended to take it to CBS first, because they knew it would be a stronger show inside that CBS lineup. This made it hard for NBC to catch up in getting its own good procedurals. And NBC had the problem that since very few people were watching their current shows, they had fewer opportunities to show viewers promotions for new shows. Hence, NBC was in a bit of a death spiral while CBS was in a sort of virtuous cycle.

At the time, viewers liked procedurals because it fit better with how they watched TV. People didn’t always have time to watch every episode in sequence and remember the plot line from week to week. Hence, they preferred shows where each episode stood on its own.

The networks liked procedurals because they did a lot better in summer reruns. Shows with connected story lines like the original version of Dallas did terribly in summer reruns because once you know how the plot worked out over time, an old episode from the middle was less compelling. By contrast, shows that stand on their own can be seen in any sequence without difficulty (and did better in the summer).

The producers liked procedurals because they were ideal for the secondary market of cable TV. Cable TV channels loved buying rights to show procedurals. They showed procedural shows at all hours of the day, sometimes clustered in blocks and sometimes one episode at a time. This made it almost impossible to follow the shows on cable in sequence. Therefore, the fact that procedurals did not need to be seen in sequence was desirable.
Procedurals are not the only way to make TV dramas. Another approach is called “chapters.” In chapters, a TV season is seen as being like a complete book and each episode is like a chapter of that book. This approach is very different from the procedural in two key ways:

  1. The plotline is connected from chapter to chapter. You have to see the episodes in sequential order for them to make sense, just like you need to reach chapters in sequential order in a novel.
  2. The nature of the way the drama unfolds varies a bit from episode to episode, depending on what is necessary to move the greater plot of the season along.
A good example of a chapter show is NBC’s The Blacklist.

NBC could see that the environment was changing in favor of chapters and away from procedurals. For example, more viewers were getting access to DVRs like TIVO so that they could watch prime time according to their schedule rather than the network’s schedule. Now, they would miss fewer episodes and could re-watch them prior to the next episode. This made chapter shows easier to watch.

The summer rerun issue for chapters was becoming less of an issue, because now nearly all shows did poorly as summer reruns and the networks had switched to alternative programming for the summer.  

The prime secondary market was switching from cable TV to digital services like Netflix, Hulu and Amazon Prime Video. Unlike cable, these services allow you to watch what you want to watch in the order you want to watch it. This lead to the phenomenon of binge TV—watching an entire season of a show back to back over a weekend. Binge watching is more powerful when watching chapters than procedurals.

So NBC jumped on loading its prime time with chapters. The hope is that procedurals will soon become obsolete and that NBCs aggressive move into chapters will allow them to capture the future, just like Apple did with the iPod and iPhone.

Waiting is Not Sleeping
When waiting for the next big thing, you don’t just take a nap and wait until opportunity knocks. Waiting is still a strategic activity. Waiting involves doing a lot of watching and speculating. The next big thing usually starts out small. You won’t find it if you are not actively looking for it.

As we saw in the NBC example, NBC had to observe the changing viewing environment to see where the new viewing favored new program styles. For Apple, they just so happened to be talking with their supplier community when they say saw a new type of processor which made would make the iPod possible. In both cases, they saw change and then figured out how to exploit it to create the next big thing.

Another thing to keep in mind is that NBC and Apple did not jump to new things in areas outside their expertise. Apple stayed in consumer technology and NBC stayed in TV entertainment. Leadership needs both the new idea and a way to bring it to life. If you don’t have the skills, you cannot bring the next big thing to life. So part of waiting for the next thing is knowing how to redeploy your competencies to exploit something new.

Sometimes a strategic position is so poor that it is not worth the effort to try to fix it. Instead, the best strategic move is to move on to the next big thing. Even if you do not yet know what that is, make that your strategy and start looking for it.

If your board of directors or leadership balk at the idea of declaring a strategy to move in a new direction which is still unknown, just show them how that strategy worked out for Apple.

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