Business Technology: Coming Soon: Transformation Upheavals

Hollywood represents the world of fables and make-believe, but the shift from analog to digital is causing some very real pain and upheaval. And, <B>Bob Evans</B> says, you can be sure that a similar Radical Overhaul is coming to a supply chain near you. Soon.

Bob Evans, Contributor

May 20, 2005

7 Min Read

Take a quick trip back in time with me: About five years ago at our InformationWeek Fall conference, the CIO of 20th Century Fox was asked, "What's your biggest competitive threat?" His instant answer: "Blockbuster." That jolted the audience of several hundred as well as the questioner, who then asked, "But how can that be? Don't they rent more of your videos than anyone else?" And the cinematic CIO said in effect, "Yes they do, and that's the problem: they're standing between me and my customers. Blockbuster knows who my customers are but I don't, because Blockbuster doesn't share any information with me about who those customers are, what they watch, what they like, what they don't like, what they'd like to see from us, and so on." Blockbuster, he said, ranked No. 1 on his competitive-threat list because it passed on to Fox revenue but no knowledge, no insight, no relationships, no brand equity, no opportunity for co-creation of value. The solution, 20th Century Fox CIO Justin Yarro said at the time, would be technology, which would allow the studio to establish direct relationships with consumers by letting it deliver its products directly to those customers. Without those IT-based breakthroughs, he said, the moviemaker -- as well as all of its competitors -- would remain isolated from the tens of millions of customers whose tastes and choices would determine whether those studios survive, thrive, or disappear.

Now come back to today: There are 37,000 commercial movie screens in the United States, and only 89 of those -- or about 0.25% -- are equipped to show digital cinema, according to our cover story last week, "Digital Force," by my colleague Laurie Sullivan. But by the end of next year, that number will surge to 1,000, and by the end of the decade the total should top 10,000. "Encoding devices that include industry-standard compression and encryption mechanisms are under development," Sullivan writes, and they're expected to hit the market in 12 to 18 months. But while those numbers are interesting, they don't even begin to get to the heart of the issue because they just perpetuate the idea of business as usual: studios make movies, which are distributed to theaters, which show them to the public. The business model of the past 80 years remains intact, and the benefits derive almost exclusively to the movie industry rather than to consumers.

However, just as we've seen in many other industries, digitizing the entire movie business -- not just studios but the entire supply chain -- will lead to revolutionary changes in business models, opportunities, roles, competitive threats, and buyer-seller relationships. Although this broad infusion of technology-based innovation accommodates and even enhances traditional ways of doing business, it also opens up new markets, new means of access, new revenue streams, and additional opportunities for the next round of technology innovation. For example: A new digitized movie can be sent not just to traditional theaters, but also to cable companies, Internet service providers, individual homes, and even cell phones for those who think the idea of "the big screen" includes 3-square-inch viewing areas. And why not cars -- look at how many new models come with one or more DVD players built-in. Airplanes? Trains? Airports? University auditoriums? Heck, for a few years now, Wal-Mart has used closed-circuit technology to televise concerts exclusively on the TVs in the consumer-electronics departments of its stores, so the only limiting factor for how far this new wave of distribution could go is human imagination.

If this example were limited strictly to Hollywood and the movie industry, it would be a somewhat interesting but hardly relevant or jarring example for other types of businesses. But it's not limited -- quite the opposite -- and no matter what industry you're in, this latest Hollywood epic couldn't possibly be more relevant and potentially jarring to your industry, your customers, your company, and your career. Look at financial services and straight-through processing, electronic banking, or electronic claims-processing; look at health care and the drive toward electronic patient records; look at the auto industry and collaborative-design strategies that get newer models to market more quickly, or to Web-based car shopping that's turning some car dealerships from handling houses to fulfillment centers; the clothing industry, where product-life-cycle-management processes are helping crunch development times from 12 months to one; or travel and hospitality, where information transparency is turning pricing policies upside down; and many more.

To think that these upheavals haven't affected, aren't affecting, or won't affect your industry is way beyond naive: It is unforgivable. Here's a quote from an exec at well-known global brand that could and should apply to executives in all fields today: "If there's one issue that keeps me up at night, it's the impact of emerging technology on the supply chain." That's from Bill Patrizio, whose title is senior VP of strategic sourcing and procurement. What company is Bill from: FedEx? Eli Lilly? Dell? Amazon? United States Steel? Boeing? General Electric? Ford? Allstate? Goldman Sachs?

Actually, it's Walt Disney Co. As Laurie Sullivan wrote, "Lease agreements, for example, will have to accommodate the fact that a digital theater can simply flip a switch to change out a dud movie for one that packs in crowds." Patrizio added, "As media content moves from analog to digital, the supply chain is dramatically impacted. It takes a different form."

Indeed it does. And as that transformation takes place, so, too, do parallel changes in how links in the supply chain collaborate and share risks and rewards. For example, each movie theater will have to invest somewhere around $120,000 to upgrade to the new equipment needed to show digital "films" (how's that for oxymoronia?), and many of those theaters are reluctant to do so because they've already invested so heavily in current-generation devices. So some of the major studios, knowing that they can't push digital products to theaters that won't upgrade from analog projection equipment, have pooled $3 billion to subsidize about two-thirds of the cost of the new high-tech gear, Sullivan writes.

Will we see similar steps taken by big companies to help their smaller partners and customers acquire the wherewithal to entire the digital age? McKesson, in addition to being a distributor of pharmaceuticals and medical supplies, also has a division that offers IT products and services to doctors' offices, pharmacies, clinics, and other current or potential customers. After all, what good does it do for McKesson to have a world-class supply-chain system and infrastructure if its customers think that high-tech is a fax machine?

And what about IT vendors? Do they have an opportunity to step into industries like the movie business that are in extreme flux and demonstrate some new ways of doing business, of showcasing their capabilities, of generating revenue while also creating future customers and revenue streams?

Business as usual? Not exactly. Landmark Theatres co-owner Mark Cuban, who also owns the NBA's Dallas Mavericks, "is converting the chain of 59 cinemas with more than 210 screens to Sony Electronics' new 4K digital SXRD projectors," says Sullivan. "Landmark will be able to show live concerts and sporting events, as well as ultra-high-resolution movies."

Yes, Hollywood might in many ways represent the world of fables and dreams and make-believe, but the wrenching changes it's undergoing are as real as taxes, traffic jams, and inelegant software. And there's nothing unique to the movie industry about the massive impact that relentless digitizing of products and processes is having on business models, customer relationships, revenue opportunities, and competitive threats. Because without question, radical overhaul is coming soon to a supply chain near you.

To discuss this column with other readers, please visit Bob Evans's forum on the Listening Post.

To find out more about Bob Evans, please visit his page on the Listening Post.

About the Author(s)

Bob Evans


Bob Evans is senior VP, communications, for Oracle Corp. He is a former InformationWeek editor.

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