Tag Archives: business strategy

Cost diagnostic at the University of North Carolina

22 Jun

As a management strategy consultant, I am often asked what consultants actually do.  I typically answer with a host of analogies, most often the simple “doctors for businesses” comparison, because we often play the role of diagnosing and providing recommendations to solve specific issues ailing a business.

It is rare that I can share an example of Bain’s work, due to confidentiality restrictions and operating guidelines.  It is unique, therefore, that the University of North Carolina has published a narrated video of an interim report provided by Bain.  A few quick highlights of the video:

  • Highlights of the cost issues Bain is helping UNC address – the “burning platform” that makes it clear that action must be taken
  • Explanation of how Bain’s corporate toolkit and approach, while used most often for businesses, are still relevant for addressing administrative costs in a public / non-profit organization
  • Interim results of their study, such as the finding that there are 9 levels of management within the university, with 50% of supervisors managing only 1 – 3 direct reports, signs that organizational structure / complexity and “spans and layers” of management could be part of the problem

The video is about 15 minutes long, but should be interesting to anyone with a tie to UNC or an interest in the management consulting approach.  View it here: http://universityrelations.unc.edu/budget/

I applaud UNC for publishing the video.  I must imagine that the student body, faculty, and administration of the university are much more at ease getting this explanation of the project than they could have been based on news media and rumors alone.

Killing Netflix “Profiles” – A Stupid Business Decision

19 Jun

Netflix LogoNetflix is ending its longstanding policy of allowing customers to hold multiple profiles under a single account.  The announcement was sent to users today:

We wanted to let you know we will be eliminating Profiles, the feature that allowed you to set up separate DVD Queues under one account, effective September 1, 2008.

Each additional Profile Queue will be unavailable after September 1, 2008. Before then, we recommend you consolidate any of your Profile Queues to your main account Queue or print them out.

The profiles feature was an excellent way for multiple people living in a single household (husband/wife, roommates, etc) to maintain separate queues and profiles of the movies they have liked, disliked, etc., while keeping a joint account of discs sent to the same address for billing purposes and convenience.

The rationale for the move is not substantially explained in the Netflix communication.

While it may be disappointing to see Profiles go away, this change will help us continue to improve the Netflix website for all our customers.

The most likely explanation is that Netflix has determined that joint accounts are causing them to lose revenue due to their pricing structure.  In effect, multiple users in a single household gain scale efficiencies because it is cheaper to have a single account sending 4 discs at a time ($23.99) than it would be sending 2 different accounts 2 discs at a time ($13.99 x 2, or $27.98, a $4.00 difference).  If multiplied across millions of accounts on a monthly basis, that could mean a lot of additional revenue for Netflix.

… IF it doesn’t turn a large number of their customers away.

The real shocker can be found on the FAQ linked from the email sent out today:

You will not be able to transfer your Profiles data to a separate new account

Consider moving all DVD titles in your Profiles Queues to your main account Queue

How does that make any sense?  Does Netflix seriously expect the wives and roommates and brothers and sisters who have been sharing accounts to merge their accounts into a single account and lose all of the individuality and “social profile” data that they used to enjoy from the site?  This mass of data, and the power of the Netflix recommendation engine was one of the major differentiators that kept its users on the site.

To quickly come to my point, this is a plain stupid business decision.  Here’s why:

  • Users will now have to pay two bills where they used to pay one
  • Users will lose all of the data they have built up over time while using Netflix, eliminating the barrier that once kept them from switching to a competitor, such as Blockbuster
  • Users who decide to stay with Netflix will be forced to spend hours re-entering their movie ratings and rental queues
  • Users who have been too lazy to close or downgrade their accounts won’t renew their accounts, killing the “momentem” that once kept them paying every month
  • Users who do decide to turn their single account into two different accounts will feel like Netflix is nickle-and-diming them, forcing them to pay more for a less convenient, equivalent service that they used to pay less for
  • New customers that might have been attracted to the idea of a single Netflix account per household (it’s easy to convince a new roomie to pay $3.00 a month to move from a 2 to 3 disc account, when they might not have been willing to pay $9.00 a month to get an account of their own)

Who wins from this decision?

  • Traditional competitors who can take advantage of the mass of new potential customers shopping for a DVD rental service (e.g. Blockbuster)
  • New competitors (e.g. iTunes movie downloads) who will open their arms to an influx of users who no longer have any reason to stay with Netflix and its old DVD-by-mail technology

Am I missing something here, or did Netflix just make a huge blunder?