What CIOs Can Learn From Hollywood

The movie industry's history of dissing new technology offers lessons for anyone trying to introduce innovation

The movie industry is full of prima donnas, overpaid incompetents and people who talk endlessly just for the pure pleasure of it. Nothing like your industry, is it?

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Hollywood, with its glittery red carpet premieres, may not seem to have much in common with banking, health care or auto manufacturing. But I believe it shares a key trait with every large, well-established industry:

how it responds to new business models and technologies.

For more than a century, every time an important innovation knocked on Hollywood's door, the industry treated it like a homely auditioner—giving it the cold shoulder and trying to show it the door. The movie industry ignored or tried to stave off sound, color, television, home video, computer animation, and digital editing and cinematography before realizing that each revolution would help grow the business, ensure its cultural relevance and expand the creative possibilities.

New ideas always threaten the status quo. Businesspeople worry how they'll affect today's predictable revenue streams. Everyone else worries about how they'll affect their standing in the organization: "Will I be less of an expert when this new tool or technology takes over?"

When innovations arrive in an industry, they split it into three groups: innovators, preservationists and sideline-sitters. The innovators develop, support and find applications for these new ideas. Preservationists seek to preserve the status quo, often battling the innovators. The sideline-sitters simply wait to see how things will pan out.

CIOs, in my experience, can find themselves in all these roles. Sometimes a CIO is an advocate for a new technology or business model; sometimes she's on the sidelines or campaigning to preserve the status quo. The CIO might lead the charge on storage virtualization, watch a standards battle play out or explain to sales why storing company data on a new Web-based application is a bad idea.

Here are the behind-the-scenes stories of three movies that marked turning points in Hollywood's technological history. Each offers lessons for anyone trying to identify or introduce powerful new innovations.

Take one: Embrace risk.

Most cinephiles remember The Jazz Singer, starring Al Jolson, as the 1927 movie that brought synchronized sound to the silver screen. Few recall that others, including Thomas Edison, tried earlier to link the pictures on screen with a sound track. But the technology wasn't good enough—the audio wasn't clear, or it veered out of sync—so most people concluded that movies were meant to be silent forever.

But the Warner brothers were persuaded to explore a new technology developed at AT&T's Bell Labs. The technology, dubbed Vitaphone, was far from perfect. It relied on easily scratched records (new ones had to be shipped to theaters weekly). The projectionist had to be an expert at changing film reels and cueing the record at precisely the right moment. But the technology was just good enough to deliver a thrilling new experience to audiences—especially when Jolson shouted, "You ain't heard nothing yet, folks!"

The Vitaphone technology was eventually replaced by something more reliable. But adopting it catapulted Warner Bros. into the top tier of movie studios. Net profit jumped from $2 million in 1928 to $17 million in 1929, the year the studio received an award at the first Oscar ceremony for helping to introduce talkies.

The lesson: Innovation and smart risk-taking go hand in hand. After everyone concluded that audiences didn't want to watch movies with sound tracks, and that the technology wasn't good enough, the Warner brothers proved the conventional wisdom wrong. Their willingness to take a risk to innovate enriched their business and helped turn the movies into a truly mass medium.

Take two: Pay attention to the customer.

Hollywood studios scrambled in the 1950s to respond to the new medium of television, which delivered free entertainment to American living rooms. Many of the strategies involved offering an experience that couldn't be duplicated at home: movies in 3-D, Smell-o-Vision and Cinerama, which relied on three projectors (and an army of projectionists) to create a panoramic, immersive image on the screen.

One technology that stuck was CinemaScope, developed by 20th Century Fox. It succeeded because Fox's president had been a theater owner and understood how acutely cost-conscious they were. The technology was cheaper and simpler than its competitors (relying primarily on a special projector lens that expanded the image across a wider screen). Fox offered it in two flavors: one with standard monaural sound, and a pricier version with four-channel surround sound. Its first movie to employ the technology was The Robe, a biblical epic starring Richard Burton. Within a year of its release, about half of U.S theaters were equipped to show movies in CinemaScope, and every studio—aside from Paramount—had licensed the technology from Fox.

The lesson: Innovations like Cinerama may have been more dazzling than CinemaScope, but simplicity and low-cost often create an insurmountable market advantage. Understanding the user's mind-set is also crucial.

Take three: Build buy-in.

As he revived his Star Wars franchise, George Lucas decided to explore digitally projecting Star Wars Episode I: The Phantom Menace, so the movie's 1,000th showing would look as good as the first. He turned to projectors from Texas Instruments (TI) and Hughes-JVC. Today, almost 100 percent of the digital projectors in U.S. movie theaters rely on technology from TI. The Hughes-JVC projector proved temperamental, but TI also had a better strategy for winning industry buy-in. It held a series of demos at which directors and cinematographers watched movie clips shown with prototype projectors and gave feedback. After each demo, TI improved its digital light processor technology and brought it back for another round.

The lesson: Win stakeholder buy-in before implementing something new. Dropping a technology on users without letting them influence how it works is a recipe for disaster. Today, Hollywood is trying to assess how the Internet and devices like cell phones and the iPod will affect the business. Many are in full preservationist mode, complaining that cinematic spectacles don't look very good on a Saltine-sized screen. Getting behind the right innovations, I'd argue, is what will ensure the industry's continued profitability and survival. And that's not too different from the role a CIO plays in his company.

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