Instructions:
Assess the strategic choices available to the organization to achieve substantial growth and make relevant recommendations(for the purpose of the plan, you will assume that a strong investor has been found who can fund the recommended strategies)
To this end, you need to select the organization on which your entire project will be based. It can be the organization whereyou are working or have worked in the past, an organization with which you are familiar, or if you are not employed, an organization you are able to research.
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Part 1: Select the organization which will form the basis for your project. Provide a brief introduction of the selected
(10)organization (what it does, size etc.)
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Part 2: Analyse the broad macro-environment of the organization in terms of political, economic, social, technological,
ecological and legal factors (PESTEL). Construct alternative scenariosas necessary.
(15)Use Porter’s five forces analysisin order to define the attractiveness of the industries and markets in which the
organization operates. Use the above analysis in order to recognise threatsandopportunitiesin the market place.
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Part 3: Using suitable frameworks (e.g. benchmarking, value chain, value system) diagnose the strategic capabilities of the
(15) selected organization and classify them using the VRIO criteria. Prepare a suitable SWOT / TOWS matrix summarizing the
findings of the analysis of strategic capabilities and the analysis of the external environment (from Part 2).
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Part 4: Express the strategic purpose of your selected organization through suitable statements of mission,vision,valuesand
(10)objectives. Take into consideration any influences from the type of ownership, the adopted social responsibility stance and
the expectations of the various stakeholders (perform a stakeholder analysis).
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Part 5: Perform a cultural web analysis of your selected organization. Can you discern any inimitable capabilities embedded in
(10) the culture and which could enrich your answer to Part 3 of the project?
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Part 6: Identify the strategic business units (SBUs) which exist in your selected organization. Using Porter’s framework and the
(10) strategy clock, identify the various generic strategies (e.g. cost-leadership, differentiation, focus and hybrid strategies)
currently followed by each distinct SBU. Given the desire of the organization for substantial growth, would you suggest a
change in any of the generic strategies followed by any of the SBUs? Please explain.
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Part 7: Given the desire of the organization for substantial growth, generate a list of possible choices which could be pursued
(15) by the organization (e.g. market penetration, diversification, vertical integration, internationalization, innovation and
entrepreneurship) and the various methods for achieving them (e.g. organic development, M&A, strategic alliances).
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Part 8: Evaluate the options (choices) compiled in Part 7 in terms of the SAFe criteria (suitability, acceptability, feasibility).
(15) Regarding the likely return (part of acceptability) there is no need to perform an in-depth financial analysis (you probably
do not have such data available anyway). Regarding financial feasibility, simply assume that the found investor can
provide the necessary funding for each of the identified options. Provide your recommended option(s) for the organization.
(3000 –5000 words)
Answer:
Introduction
Netflix. was founded Reed Hasting. In 1999, it was established as a movies rental service. The business model of Netflix, then and now, is the same – that is subscription model. The business was at first only a DVD-dispatch service, subscribers would pay for particular membership that would include the number of DVDs that could be rented at one time. DVDs were shipped to the customers, and then the customers would send it back (Hosch, 2020)
With thriving business for years, the company incorporated new segments, along with the DVDs rental service, into its model, including streaming services. The mission was to increase the number of subscribers and reduce cost – the cost associated with shipping and postage of DVDs. The streaming segment was initiated in 2007, with almost seven thousand titles available instant-watching; by 2010, the titles had grown up to twenty thousand. Customers had the option to avail the DVD subscription, the streaming option, or both. All three was available to them. In 2010, Netflix started its streaming services in Canada, and in 2011 it had initiated in 43 other countries. In the United States, member can still order DVDs to their homes. By 2016, Netflix was providing streaming services to more than 190 nations. Now, Netflix has three operational segments: International streaming, Domestic Streaming, and domestic DVD. Domestic Streaming and Domestic DVD are only available in the U.S (Reuters, 2020).
Although Netflix was founded a decade earlier, it was known mainly in 2010 as the most customary and famous subscription online streaming platform. Customers were consistently increasing, and Netflix was taking on the majority of the market subscribers. In 2011, the company announced that it would no longer provide a package subscription that includes both the DVDs-rental services and the streaming subscription. However, the company faced criticism from its customers, and the stock price fell drastically.
In 2014, Netflix announced that it had raised $400 million in new capital through equity investing. On April 22, 2020. Netflix proposed $1 billion worth of Senior Notes for its production, development, capital acquisition. On April 21, 2020. The company announced its Quarterly Earnings Per Share of $1.57; the Quarterly revenue was $5.77 billion (Reuters, 2020).
Netflix has a very aggressive business strategy; in 2012, it was initiated in new countries; Netflix provides free one-month access to the streaming service. The reason for the international expansion was to generate more profits, but not all foreign markets have such strong capabilities for streaming. For example, in Latin America, the company faced many issues due to the unavailability of internet-capable devices for the people. The company’s marketing strategies include customer guarantees, a user-friendly website, and witty advertising.
External Analysis
PESTEL Analysis
Worldwide economic condition is the primary factor of Netflix operations, therefore, understanding these things are crucial. Additionally, Netflix has majority international business which makes the PESTEL analysis even more salient (Favaro, 2018)(Fund, 2017).
Political
- Political factor is increasing in relevance to tech companies worldwide. Netflix is a streaming service, but it is also a tech company so it is liable to the government scrutiny. Governments around the world has put a cap with regard to data collection and other practices. Particularly in EU, the government has taken strict measures against tech companies that overindulgean anticompetitive behavior by targeting users through data collection processes (Pratap, 2020)
- Netflix has tailored its services accordingly, depending on a region’s regulation. Another factors that affect companies like Netflix is the new tax regime in the EU.
- Copyright and Patent ordinance.
- Piracy statute in services sector.
Economic
- Exchange rate fluctuation is a fundamental issue especially in third world countries where a rise in exchange rate makes Netflix a luxury.
- Market efficiency and capital requirement to sustain presence.
- Economic growth affects the purchasing power. As income rises, people tend to spend more on entertainment and luxuries (Tapalaga, 2019)
- The growth in global economy, in past years, has resulted in more spending, by people around the world, on services like Netflix (Tapalaga, 2019)
- With the global pandemic of coronavirus and lockdowns, Netflix has witnessed a temporary rise in membership and viewers around the world (Pratap, 2020)
- Unemployment has risen radically, and if the situation continue people are likely to cut on unnecessary expenditure and save for basic necessities only.
Social
- Continually changing of customer preferences. Netflix is entertaining customers worldwide, it must adhere to the tastes and preferences from different cultures and societies.
- Social class. The success of Netflix has been linked with the influence it has on social media networks and promotions, and the fact that it leans more toward the young generation (Tapalaga, 2019)
- Consumer attitude towards health and environment, that may affect the viewership.
- Continual adaptation of new segments and genres.
Technology
- Communication with consumer is the most important marketing strategy. Netflix uses social media, which is linked with technology (Tapalaga, 2019)
- Netflix uses numerous algorithms and machine learning that make relevant recommendation to consumer, while considering their preference and choice based on their previous search and watch (Pratap, 2020).
- Requirement for internet connection.
- Increase Video on Demand (VOD) demand.
Environmental
- Laws of production affecting environment. In 2019, Netflix reduce its energy consumption by 50% and they are planning to lower it by 80% and shift completely to sustainable energy products like solar panels and wind turbines (Tapalaga, 2019)
- Competitors using sustainable energy products.
Legal
- Tariffs in service industry
- Employment regulations
- A stern censorship regime in large markets – like China.
Porter Five Forces Analysis
This analysis will help understand profit potential for Netflix and the implication that these forces have on Netflix.
i. New Entries Threat
- Low barriers to entry – easy to emulate, broadly available technology
- Easily accessible – no switching cost.
- Lower pricing strategies
- New value promotion and subscription to customers
- Higher product differentiation
ii. Bargaining Power of Suppliers
- Supplier has higher power as they produce content and decide which content provider they want to partner with.
- Bidding negotiations
- Strong relation with the suppliers is the key
- Some most-watched shows will be removed, therefore increasing risk of power of suppliers (TFLIE, 2020)
iii. Bargaining Power of Buyers
- Consumer power will rise as Netflix competition rise – such as the newlylaunched Disney+ and Amazon Prime. Switching costs are low
- Higher customer expectation.
- Minimum consequences for cancelling subscription
- In contrast to traditional media platform, it is less expensive.
iv. Threats of Substitutes
- Traditional medium of viewing trend is declining (TFLIE, 2020)
- Reluctance to adopt new technologies.
v. Competitive Rivalry
- Competitors like Amazon Prime, not only offers free one-month access, but also free and fast delivery, music, and books.
- Long term fixed cost
- New technology and video streaming platform are continuously increasing.
- In 2018, Netflix had 8 of the top most-viewed shows in the world, in its streaming list.
Takeaway from Netflix’s P5 analysis
Switching to Netflix is carries a low cost. Netflix takes into consideration customers’ preference. Netflix must refine its brand. Build capacity and R&D. Association with potential and devoted suppliers whose business depend on Netflix. Expanding customers’ base. Innovate & produce new content rapidly. Build a sustainable point of differentiation. Collaborate with competition.
Internal Analysis
VRIO/VRION
| Organizational Resources and Capabilities | V | R | I | O | N |
| Competitive disadvantage | |||||
| Highly dependent on third-part-production content | |||||
| Competitive Parity or Equality | |||||
| Innovation Potential | P | ||||
| Tech-savvy Assets | P | ||||
| Temporary Competitive Advantage | |||||
| Licence from entertainment content creators | P | P | |||
| Undevoloped Competitive Advantage | |||||
| Music segment | P | P | P | ||
| Video Games | P | P | P | ||
| Textual Content | |||||
| VRIO Core Competencies | |||||
| High Equity | P | P | P | P | P |
| Large base of customers and producers | P | P | P | P | P |
| Original Content Production Capacity | P | P | P | P | P |
Competitive Disadvantage. Netflix’s negative aspect is its dependence on third party production content. Although it has its own production series as well, the company mostly put content from other production sources to attract more customers by providing a variety of content. This factor endangers Netflix to competitive forces of producers. Platforms, like Disney and Disney+, offer only its original content. In the resource context, Netflix is a value chain source supports competitive advantage. Based on the VRION analysis, this platform is difficult to imitate. Competitors may produce more content, but Netflix’s customers base, funding of streaming business and its global reach are its solid points. Netflix value chain is big enough to produce original content. The value chain does include not only the supply of content and products but also the supply of information for the ease of subscribers/customers: the algorithms and content management. The VRIO analysis makes the original content production a fundamental beneficiary to the company’s sustained competitive advantage. The high equity build up the company’s supply chain and its value chain by expanding its customers’ base (Knott, 2015) (Talaja, 2012)(Riveria, 2019)
SWOT Analysis
Strengths
- First mover advantage
- Small operating cost
- Netflix has made agreements with manufacturers for integrated Netflix app in their devices.
- Tons of consumer data/expertise
- High quality ratings for in-house production content
Weaknesses
- Heavy dependence on suppliers.
- Large fixed cost
- Small resources, as compared to competitors like Amazon
- Netflix originals require high cost
- Subject to technological changes.
Opportunities
- Potential growth for subscription
- Expansion of movie download option
- Technological advancement – such as 4K, Virtual Reality (VR)
- Video streaming in china
- Leverage niche markets
Threats
- Few barriers
- Content Piracy
- Fiercely competitive market
- Amazon aiming to acquire live sports broadcasting platform.
- Increasing cost could lead to higher subscription rate which lead to consumer switching to competitors.
Cultural Web Analysis
Introduction
- 130 million users worldwide
- Turnover of more than 10 billion dollars
- 114 million people
Culture
- Freedom and responsibility
- World leader in online entertainment
Stories
- Founded in 1997 by Reed Hasting
- The company’s fundamental business is movie streaming- subscription-based
Rituals and Routines
- Encourage independent decision making by members and employees
- Freedom and responsibility
- Corporate team-work
- Work is not too demanding
Symbols
- Smartphones and Laptops
- Free vending machine
- Pop-corn machine
- Transport and vehicles provided by the company
- Own corporate language
- Free breakfast and dinner
Power Structures
- Regional functions
- Worldwide company
Paradigm
- Multinational presence
- World leader in online entertainment
- Growth potential company
- Freedom company (Capucine, 2020)
Possible Strategies for Growth
- Partnership with Multinational Television Provider
Netflix could further expand its global reach by partnering with television providers and TV channels. Netflix will likely reach areas where internet access is not very simple by partnering with local and famous TV channels. Such as the HBO, Sahara, Showtime. It will broaden and strengthen Netflix; it will provide an additional communication mean to consumers. It would also benefit from it in term of association with big names like the HBO.
- Acquire HBO
HBO content and seasons are by far the most popular and watched content around the world. Netflix should acquire HBO powerhouse. Production costs are rising, and they are likely to expand at a higher rate in future. So, instead of making its Netflix original, HBO will make its production. They are widely accessible and most-watched than the Netflix originals. Such as the Game of Thrones, West world, Succession.
- Continue International Expansion
Netflix is the leader in multinational reach and online entertainment, because of its aggressive expansion plans. But, there are still countries where Netflix do not operate fully, such as China and the middle east. Netflix is likely to double its size with these markets, reach economies of scale, and early movers benefit into these integrated markets. Netflix must deliberately control its cost and capital management in its growth plans.
- Initiate a sport broadcasting segment
Netflix is likely to further expand its customer, and not just millennials and generation Z, but people of every age and demographic by incorporating sports broadcasting into its services. Sports fans are more likely to purchase subscription, even at a higher price, than people who only binge-watch movies and seasons.
- Leverage Latest Technology
4k and Virtual Reality are becoming is popular worldwide. Initiating these segments into services are likely to increase brand image and quality content. Netflix should incorporate these (Diagle, 2019)
- Strategic Recommendations
- It is recommended that Netflix initiate a strategy like YouTube – where third party content providers can sell their content directly so subscribers, but prices must be controlled by Netflix.
- Providing a platform for third party content provider will make Netflix a more integrated and comprehensive platform for online entertainment
- Continue Focus on Original Contents Production, allocating capital towards content licensing, with time.
It is thought of that Netflix should emphasize its original content production. The company takes great measures in analyzing and contemplating customer’s preferences from all around the world and produces content that are acceptable, highly-rate, and appealing to customers.
Strategic Analysis of Netflix Vision and Mission Statement
Netflix vision and mission statements, both revolves around entertainment industry. The company’s vision statement directs the corporate decision making and the mission statement aim towards higher achievement. Netflix operational management involve handling multinational business growth. The company has the biggest market shares in international market.
Netflix Mission Statement
Netflix mission statement is to accustom the world with entertainments. It depends on the idea Netflix providing on-demand entertainment content. Like the vision statement, the mission statement put emphasis on the industry, as the company flourishes in fulfilling purchasers’ desires about the media they get to. The two main points of Netflix corporate mission are
- World Wide reachability and measures
- Entertainment
The primary purpose of Netflix mission statement is to show the company’s nature and role in the entertainment industry. Be that as it may, this business class extensively incorporates motion pictures, arrangement, performance art, stage plays, and others. Subsequently, this purpose of the statement might be excessively expansive in determining Netflix’s activities, even though it demonstrates conceivable vital plans of differentiating the business. A factor to consider is that the organization’s center procedure is to develop the streaming membership business.
This strategy framework suggests Netflix’s regular philosophy for high ground and genuine advancement methods and intentionally derives the corporate mission statement. For example, to reasonably entertain the world, the streaming business must build up its cooperation and membership to a grander overall scale. It is the spot where the second reason for Netflix’s corporate mission comes in, as the organization expects to contact gathers all around and reach the global audience. This overall size of assignments also includes that Netflix’s legitimate structure is fit to offering on the online services of help to diverse groups and markets. The on-demand media spouting association’s corporate vision clarification similarly addresses such an essential goal of the overall working
scale (Riveria, 2029)
Netflix Vision Statement
The vision is to be the leader in online entertainment streaming service. The vision is aligned with the corporate statement of purpose, and this vision has helped Netflix with its fundamental goal of being the leader in the competition, against huge players like Amazon and Disney.Netflix states that it points “To continue leading by offering an astounding entertainment experience.” The vision statement is composed of three main things:
- Leadership
- Entertainment
- Internet
Netflix’s strategic underpins the objective of leading with authority, demonstrating that the organization has accomplished its past corporate vision explanation of worldwide industry leadership. The business expects to keep up its authority and operational viability, while developing its enrollment to fulfill the corporate vision’s targets. The business qualities listed in the SWOT analysis of the above add to this industry initiative. The ‘internet’ some portion of the corporate vision explanation speaks to online media as an essential factor in business operations. Additionally, Netflix’s tendency as an entertainment business is incorporated as a point in the corporate vision, like how the corporate statement of purpose portrays the company as an entertainment organization. Prominent is Netflix’s Cultural Web, which spurs and motivates employees to help the business ceaselessly advance to fulfil the vision explanation by guaranteeing consumer loyalty and industry
initiative (Riveria, 2029)
Generic Strategies of Netflix
The company’s generic strategies line up with the company’s growth strategies – the Porter Five Forced model – and the in-depth growth strategies. Generic strategies play a significant role in Netflix’s on-demand content segment. Netflix focuses only on series, movies, and its own production content. Besides, Netflix’s development procedures and growth strategies for competitive advantage require the management activities that degree beyond online streaming entertainment.
Netflix Business Model
Netflix operations has these models:(Moore, 2019):
- Platform Model: Digital media marketplace. Through this the company’s content reach the customers. It is in the stage plan of action that the generic strategy is generally huge, considering the competitive advantage dependent on cost efficiencies conceivable through data advances for worldwide computerized content circulation
- Pipeline: Entertainment content production. Netflix utilizes the conventional pipeline approach to deal with and create moviesand series. This approach action empowers the organization to control content creation and bring sustainable growth, while the business development potential by means of business platform model cushions Netflix’s development and nonexclusive system for competitive advantage.
- No Middle-Man Model. The company removes the middleman and distribute its original content via its own streaming service. For example, the new movie The Irishman was shown in a very limited number of cinemas, after Netflix’s approval.
- Unlimited Subscription model. The business model is designed in such a way to accommodate unlimited subscription.
Netflix Generic Competitive Strategy
Cost Leadership
Netflix has low charges. Netflix’s customers’ base is the largest as compared to its competitors. The approach relies on the company’s business model and value chain, which satisfy customers partly through personalized customizations, such as in mobile app settings. Through intensive growth strategies, the cost leadership generic strategy for competitive advantage gains the most significant market share, relating to Netflix Inc.’s corporate mission and vision statements which point to the strategic plan and goal of attaining and maintaining leadership in the international online entertainment. industry(Moore, 2019)
Differentiation
Despite the fact that Netflix essentially applies cost administration as its generic strategy for competitive advantage, the business additionally utilizes separation in its tasks. As a nonexclusive technique, separation includes building up the online business and its items in manners that make them unique in relation to the opposition (Moore, 2019)
Netflix Growth Strategy
Market Penetration
It is the fundamental intensive strategy. This development system’s target of developing incomes and market share relies upon how Netflix’s generic strategy keeps up upper hands to pick up and hold more customers in current markets (Moore, 2019)
Market and Product Development
This strategy backs the company’s organizational development.Market improvement works by selling the organization’s present online streaming services and unique content to new markets. The Product development strategy goal is to create and sell new content in the organization’s current markets(Moore, 2019)
Suitability, Acceptability, and Feasibility (SAF)
Suitability Criteria
| Criteria | Hybrid | Differentiation |
| Partnership | Not in the long term. It requires capital and current prices are unlikely to generate profits in the long run | Yes. Higher profit could lead to more investments. |
| Expansion | Not in the long term. Due to international expansion and limitations in some countries | Yes. Collaboration with other entertainment providers |
| Sports Broadcast | Long run feasibility is unlikelyAs the sports industry is dominated by players like ESPN | Yes. Collaboration with the big players in market. |
Acceptability Criteria
| Criteria | Hybrid | Differentiation |
| Risk of Loss | High. Expansion to other regions and countries will double the short term cost. | High capital is required because content productions are costly and too much of it will bring uncertainty and risk. |
| Investment Returns | Low. Prices are not high enough to generate enough profit | High. Collaboration would result in safer profits and high barriers to copying content. |
| Customers’ Reaction | When customers are not loyal, they are more likely to switch to other online streaming platforms if Netflix prices are high and competitors prices are low or they provide better content. | Customers will be loyal and will not switch to any other platform, because the content is differentiated and better. |
| Suppliers’ Reaction | Subscription video on demand considered second tier as they do not generate enough profits. | When suppliers have no power over content, price are likely to fall as a result. Thus reducing the cost. |
| Investors’ sentiment | Short on shares. Netflix’s stock price has shown variation because of the sudden rise during the global coronavirus pandemic (Epstein, 2020) | High profits will bring in more customers, as profits generated by the company rises. |
For investors, decline is profit is unbearable. Therefore, they will not adhere to the hybrid strategy as it will result in profit decline. Prices might get down too, with hybrid adaptation.
Feasibility
| Criteria | Hybrid | Differentiation |
| Do the current technology assets support the company’s strategy ? | Yes. Company’s data levels have reached high levels. | |
| Are the current financial resources enough to implement strategies effectively? | Yes. However, not in the long term. Companies cash is expected to fall when the global lockdown is over and everything is back to normal(Poletti, 2020) | Cash is abundant with Netflix, but need to quit the international expansion to stop the loss. |
| Is available data/information enough to implement strategies? | Yes. Netflix is continuously investing to implement algorithms and machine learning into its management systems. | Yes. Netflix was aware why its original content is going to be a hot because of the years of data collected. This was (still is) a great advantage in the ‘Netflix Original’ creation. |
Netflix capabilities can sustain both hybrid and differentiation strategy.
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