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Business Innovation Guru Explains How Not to Get ‘Netflixed’

From Blockbuster to bee colonies, Saul Kaplan defines innovation – and why many companies fail to innovate

Editor's note: This story is part of the 10 on Tuesday series, which provides a fresh take on interesting university initiatives, research projects, campus happenings and more.

BRISTOL, R.I. – At its core, the meaning of “innovation” isn’t particularly complicated. While 100 people may define it 100 different ways, innovation is essentially about actually solving a problem in the real world.

“You have to separate it from invention,” said Saul Kaplan, founder of the Business Innovation Factory and former executive director of the Rhode Island Economic Development Corporation, at the Mario J. Gabelli School of Business Leadership Institute Distinguished Leaders Series lecture on Nov. 13. “You can invent whatever technology you want, but if we can’t figure out how it translates to the real world to solve an actual problem and build a business model around it, it’s nothing but an interesting invention.”

In making the argument for innovation in the 21st century, Kaplan pointed out the need for leaders who are catalysts – those who can guide individuals to be passionate and engaged in their work, and spark a reaction among people inside and outside of the organization. If business leaders refuse to adapt, he says, their organizations could go the way of bee colonies. In recent years, he explains, nearly 50 percent of bee colonies have been completely obliterated with little explanation or understanding. Comparing the sophisticated bee colony structure to traditional corporate organization, Kaplan theorizes that when the stability of the structure is disrupted it cannot adapt or respond to the threat, resulting in collapse. In the 21st century, the corporate structure that worked so well during the industrial era (a period of stability and predictability) is vulnerable to being disrupted in the same way – unless organizations innovate.

Take Blockbuster, for example. A relatively simple business model, Kaplan points out, the movie rental company was successful for decades with 8,000 retail stores at its peak success. Blockbuster was untouchable until Reed Hastings launched Netflix – a movie rental provider that would mail the DVD to your home and not apply late fees upon return. Hastings didn’t invent anything, Kaplan explains, he just created a different business model. When Blockbuster refused to partner with Netflix (a potentially unstoppable partnership, Kaplan says) billions of dollars of shareholder wealth was lost and Blockbuster was brought to their knees.

“They were so busy pedaling the bicycle of their current business model that they were incapable of experimenting with an entirely different model,” he says. In other words, Blockbuster got “Netflixed.”

The key to not getting “Netflixed,” Kaplan says, is for the business leaders to figure out how to strengthen their current business model while simultaneously imagining what the next business model will be, create prototypes and test them. “It doesn’t matter what kind of an organization you are – you can’t fix it by improving the current business model incrementally. You can only fix it by experimenting with entirely new models.”

Here are the 10 reasons why most organization fail to innovate, according to Saul Kaplan:

  • CEOs don’t want it to happen. They are only interested in making the current business model work better. (This is why, Kaplan says, new leadership is imperative in failing organizations.)
  • A “leave it to the next CEO” mentality. This type of business leader is too afraid to rock the boat, and defers meaningful changes to the CEO next in line.
  • The product (or service) is king. Nothing else matters – just change the product or add new features, not a new business model.
  • A prevailing attitude that Information Technology is only about keeping the train moving and lowering costs. Au contraire, Kaplan says. IT is necessary to enable new business models.
  • Cannibalization is off the table. Even when a new idea is good, he says, if it threatens the existing model it won’t be considered. Innovation is messy and disruptive!
  • Always connecting with the usual suspects. Business is too often conducted with others doing exactly the same work – where’s the innovation in that? If you want to be exposed to new ideas, he says, you have to connect with the unusual suspects to hear different perspectives.
  • Line executives hold all the pay cards. Workers will fear pushing the envelope of new ideas and projects if the people who decide the promotions and raises don’t condone any disruption to the status quo.
  • Overemphasizing ROI. The financial office kills innovation by saying, ‘Great idea, what’s the ROI (return on investment)?’ An ROI analysis is good for considering incremental changes but not reinvention.
  • Business model innovators are wedged between a rock and a hard place. An innovator may become frustrated by the company’s internal impediments to change, or the firm may tire of the constant disruptive element and let that worker go.
  • You want to experiment in the real world? Are you crazy? Companies will want a detailed business plan before undertaking a new venture, but with innovation it’s better to have a concept jotted down on a paper napkin and then see if it has traction with customers, Kaplan says.

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