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Finance & Commercial Management

July 14, 2011

Chief Executive magazine ran an interesting article about ‘the Netflix Pricing Fiasco’.

Apparently Netflix raised prices without adequate consideration of market reaction. The Chief Executive article highlights some of the factors that should have been considered and suggests ways that the impact of the price increase might have been mitigated.

This story reminded me of the similar ‘fiasco‘ that ensnared Serco earlier this year, when the CFO attempted to pass on Government price cuts to suppliers – with retroactive effect. My blog on that topic asked the question ‘Where was Procurement?’ (Sadly, when I posed the question to a room of CPOs, they couldn’t see anything wrong with the CFO’s action).

My point with both these incidents is that many companies seem to lack a good commercial barometer. Their internal mechanisms lack clear checks and balances. No one appears to accept accountability for the integrity of decisions that affect trading relationships. The CFO was left to push through a decision that may have seemed smart finacially, but was a disaster commercially.

A good commercial function provides exactly this type of ‘glue’. All businesses operate with contention systems, based on distinctive functional viewpoints and interests. The question they face is one of balance; is the contention system constructive (generating good ideas and decisions) or destructive (creating contention and blame)? Most contention systems require a coordinator – rather like an orchestra needs a conductor. And today’s volatile and rapidly changing markets need such skills and capabilities more than ever.

But far too often – as would appear to be the case with Serco and Netflix – no one is stepping up to the role.

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