BSkyB transformation: An interview with Chief Executive Jeremy Darroch
Interview by: Journal of Strategy Management
Mr Jeremy Darroch is the fifth BSkyB CEO succeeding James Murdoch in 2007 and the first internal candidate to take the chief executive role.
Under his leadership BSkyB has continued to be highly successful. He has presided over a period of steady financial and operational growth coupled with successful introduction of new technological innovations and investment in standout content helping BSkyB to attain its 10 million-subscribers' goal and broadening its customer proposition.
Sky launched in 1989, a time when there were only four TV channels in Britain. With its launch, choice in television doubled overnight, with Sky 1, a general entertainment channel, Sky News, Europe's first 24-hour news channel, Sky Movies and Eurosport.
Sky, operating from its base on an industrial estate in Osterley, West London, became one of the world's first Direct to Home (DTH) television providers.
In 1990, Sky merged with competitor British Satellite Broadcasting (BSB) to form British Sky Broadcasting (BSkyB), marketed as Sky.
Sky's business model relies largely on direct consumer subscription, with advertising making up less than 10 per cent of revenues. This model has proven to be more resilient to difficult economic conditions.
Today Sky is the largest pay-TV broadcaster in the UK. In 2004 with 7.4 million subscribers it set itself the stretch target of reaching 10 million subscribers by the end of 2010. It was seen a target too far by many analysts and the share price dropped following the announcement. It reached its target with eight weeks to spare and astonishingly today Sky is in 10 million out of 26 million UK homes.
Currently, BSkyB is challenging Ofcom's decision to force it to wholesale Sky Sports 1 and 2 to rivals such as BT and Virgin at regulated prices. The competition is also likely to become more fierce as a group of leading UK broadcasters and telephony providers – BBC, ITV, Channel 4, Five, BT, Arqiva and TalkTalk– are working on a project, YouView, which aims to enable viewers to receive new and archived programmes over the Internet free. Moreover, large technology firms such as Google, Apple, and Sony are also targeting the living room.
Journal of Strategy Management: How do you define strategy?
Strategy is simply the umbrella for the set of choices that we make to deliver our goals; it is essentially the “what” and “how” of the plan. The “how” is just as crucial as the “what”, and is rooted in two things: the organization's behaviours and norms. It is not just our goals as an organization which differentiates, but how we achieve them.
For strategy to work well it has to work in two dimensions – the long term and the short term. Many firms may have a focus on short-term strategies but often have a lack of clarity on the long-term direction of the company. Strategy has to operate at both dimensions. At Sky we constantly seek to address strategic decisions on those two dimensions.
JSMA: Do you have a process for developing strategy?
We have a yearly strategic process where we tend to step back from the business and look more broadly at key trends using a 5-10 year time horizon in our sector and industry. We question ourselves all the time. The senior management team at Sky meets frequently and brainstorms issues. There is a loose process that is going on all the time looking at specific questions, topics, areas that a group of us will examine in detail. We're also lucky to have an excellent strategic planning team supporting the executive team in areas such as proposition development and operational strategy on an ongoing basis.
JSMA: Does “gut” feeling ever play a part in strategic decision making?
In all businesses there is a formal decision making process but also a “gut” feeling of what you think is right. At Sky, for example, we need to understand the key emerging trends and use that understanding to develop new product offerings for our customers. But because those offerings are often bringing something brand new to the consumer, you need a gut feel for whether it will really take off or not. Take HD, we believed that HD was going to become the new standard when the rest of the industry saw it as a gimmick. We backed it, building Europe's leading HD platform and, today, a third of our customers take our HD service, from a standing start in 2006.
Today, we're doing the same with 3D, launching Europe's first 3D channel, offering our customers something new, fresh and exciting. Once again, the decision to launch 3D demanded a mix of information and gut feel. This is an example of something driven by instinct rather than research. Of course when deciding on a new venture such as this we can decide how much capital and risk to devote to its development. One needs a number of stimuli to keep backing one's own judgement.
JSMA: To what extent do you use a systematic approach to deal with new products/trends coming over the horizon in your strategic decision making?
We continually use a systematic approach and we have a group of people constantly looking at emerging trends throughout the world. Their task is to identify, explore and report back so that we can address those trends. We operate in an incredibly vibrant sector that is continually changing. Think of the iPad. It was unheard of a year ago and is rapidly starting to affect people's daily routines, including how they consume content. Strategically the important thing to consider is how you position the business to take on board shifting trends.
Of course there will be things that we do that may not succeed and they are part of our overall risk strategy. Just as we are willing to use our strategy and resources to pursue things that are important, we also have to cut loose things which are either not going to work or are not going to be important. That is why for me strategy is rooted in choices as you can't do everything. If you try to do everything then you will just get bogged down and achieve very little.
“…private enterprise has to recognise that there is a deficit of trust as a consequence of the financial crisis. Any successful business will need to consider how it can change what it does to rebuild trust in its own brand.”
JSMA: What are Sky's key strategic challenges over the next strategic planning cycle?
First, a continued increase in competition and rapid change. This is both a challenge and an opportunity as we can work and partner with many emerging competitors, in terms of getting broader distribution of our programming for example. Second, regulation is a significant factor in the sectors in which we operate. The economy will be a big challenge for all consumer facing businesses over the next few years as cuts in public spending begin to take effect. Finally, private enterprise has to recognize that there is a deficit of trust as a consequence of the financial crisis. Any successful business will need to consider how it can change what it does to rebuild trust in its own brand. My job is to ensure that, at Sky, we are addressing all these challenges, through a relentless focus on the customer and a commitment to continuously improve what we can offer them.
JSMA: The marketplace is becoming more crowded. You were compelled by the regulator to allow Virgin and BT to show football, freeview is likely to affect your second and third room Sky provision, channels might defect, and there is Internet streaming. How do you plan to stay ahead of the pack?
While these factors are important, it is vital to remember that we operate in a very vibrant sector that has huge potential. People are prepared to pay for Sky as it is different and offers more than existing free to air services. In addition, whilst the market around us is changing, we are changing too. As our competitors get better we are also getting better and our speed of change tends to be faster.
We are careful about what our competitors are doing and we don't stand still. We take an approach to business that is based on continual renewal and a belief in perpetual improvement. For us, that means making great programmes and innovating through technology. This, combined with a clear focus on the customer and investing in our people, infrastructure and reputation, enables us to create sustainable commercial value, while making a really positive contribution to UK life.
JSMA: Sky is a very successful organization that “regularly reinvents itself”. Can you identify the capabilities that enable Sky to reinvent itself?
Practically this means that we always come in to work with the belief that we can improve and do better. It's OK to say things are not good enough and it's ok to move on. What it is not OK to do is to stand still and ignore trends. This approach combined with an appetite for change and highly motivated staff means that there is no glass ceiling. We encourage and support people in both good times and bad and I believe that this leads to a real momentum in the business.
We say at Sky that we eat change for breakfast, and that's a key part of our success. We're willing to try new things. If it pays off, then excellent. If not, then we must learn from our mistakes, ensure that our appetite does not get diminished and that there is a willingness to try again. You might imagine that my role as CEO is about pushing things forward, but at Sky, just as often it's about holding things back a little.
JSMA: How does Sky operate on a day-to-day basis?
A lot of our work revolves around face to face meetings. Both meetings and teams are multidisciplinary where people form tight groups from across the organization to accomplish a task. Sky is good at self organizing – there are not many structures in place and where there are they are subsidiary to the concept of organizing around the achievement of common goals.
JSMA: Many organizations tend to become complacent over time. What do you do as a Chief Executive to ensure that complacency does not set in, that the organization does not become arrogant and does not become introverted?
One of my greatest fears is that Sky becomes a complacent organization. To avoid complacency and arrogance, there are number of things one can do. Most importantly, stay focused on the customer. Our business is built on a subscription model and each of our 10 million customers is only a phone call away from cancelling their contract with us. So at Sky there is no room for complacency. There are no guarantees and if we don't stay relevant and keep improving, we will not sustain success. But it's also key to remember your roots – the values that really built your early success. We do that in a number of ways, including staying physically rooted to our original site in Osterley, West London.
You should also watch out for creeping hierarchy. Sky is not a hierarchical organization. As the Chief Executive, I tend to see myself in the middle of the organization and not at the top of it. Finally, spend time making sure the whole team share the same set of values and culture. In terms of organizational development, we have a broader leadership group that meets 4-5 times a year and we consider the culture that we want to encourage within the organization. When we hire staff, we spend time talking through the culture, mindset, values and we keep those discussions going throughout their career with us. Employees that buy into the Sky culture re-energize the organization and re-emphasize the values of Sky.
JSMA: What are the key strategic decisions to which you attribute the success of Sky?
Sky's founding principle was that customers deserved better – better choice and better quality TV viewing – and that they would be prepared to pay for it. Right from the start the people at the helm were willing to place big bets to make this a reality. Throughout our history our approach has been characterized by taking calculated risks, investing sensibly, innovating and taking decisions early to gain competitive advantage.
We refuse to coast because we know that we operate in a fast-moving and highly competitive industry. So we continue to move ahead, with technological developments like Sky +, HD, 3D. We were at the forefront of the switch from analogue to digital; we led the development of high definition TV which is fast becoming the standard, and most recently we launched the world's first 3D TV channel.
"As always, people are the key to success, so we remain focused on providing the best development and support networks to attract talented individuals."
We identify major trends in the marketplace and have been willing to invest in them and push boundaries in innovation and technology.
At the same time we continue to stay focused on building a sustainable business for the longer term. That means continuing to invest sensibly in the key building blocks of our people, infrastructure, and brand.
As always, people are the key to success, so we remain focused on providing the best development and support networks to attract talented individuals. We have invested in our infrastructure to grow our capability as an organization. A great example is our new £230m broadcast facility in Osterley which will change the way we work and ensure we continue to deliver the very best in TV. Finally we understand that customers are making increasingly careful choices about the companies they do business with, so we'll continue to build on our brand and reputation by making a positive contribution to UK life.
JSMA: A recent article in The Economist highlighted two perspectives – the classic shareholder maximization and stakeholder approach. Where do you stand on this debate?
Some may see the shareholder vs stakeholder debate as a false choice – to me they are connected. Customers reward us with their business and from that if we do a good job we can make a financial return and grow. Many businesses start with the financial outcome without recognizing the values and outcome of being successful. We always start with the customer. However in building a successful and durable business, we need successful partnerships, such as with sports bodies and production companies. And finally no one can be successful without motivating and engaging their staff. Without these factors, you cannot achieve a return, let alone be successful and deliver a financial return to shareholders. It is by delivering that financial return that allows us to reinvest. Shareholder value is a consequence of the customer base, inputs and partnerships.
JSMA: How important is it to have a concentrated shareholding in enabling you to invest in the longer term? Does it matter?
News Corporation which owns 39 per cent of Sky, has been a very supportive shareholder over a long period of time. A concentrated ownership with a commitment to the business is inevitably helpful. For example at the beginning of the business, such commitment was vital to the development of Sky. In addition they have a long-term view of the business, which complements our focus on long term value creation. However, we have a mix of investors and work in the interests of them all.
JSMA: Does having a regulator inhibit you strategically?
Of course, regulation has a role to play as can be seen from the current crisis in the financial sector – but the UK tends to have regulation overload with unintended consequences which can undermine commercial incentives.
JSMA: How do you define leadership?
Leadership is about delivering joint performance and optimizing joint performance. It is getting people to understand that by working together we can achieve much more than we can individually. This is achieved in various ways: by being out in front, or by being part of the team, holding the business to account or by being part of the solution. Ultimately the role of the leader is to optimize the performance of the organization.
This is a shortened version of “BSkyB transformation from a new loss-making venture to a successful organization: Case study and interview with Jeremy Darroch, Chief Executive of British Sky Broadcasting Group Plc”, which originally appeared in Journal of Strategy and Management, Volume 4 Number 2, 2011.
The authors are Nicholas O'Regan and Abby Ghobadian.
The views expressed herein are those of the interviewee and, unless specifically stated, are not those of Emerald Management First or Emerald Group Publishing Limited. Emerald Group Publishing Limited is not responsible for any content posted by members of the public on this website or for the content of any third party websites. Any links to third party websites do not amount to any endorsement of that site by Emerald Group Publishing Limited.