Case Study Description of Netflix Inc.: Streaming Away from DVDs
This case examines two of the leading video rental services in the United States, Blockbuster and Netflix, and how each adapted to changing technology and market forces. At the end of the case, Blockbuster has declared bankruptcy and Netflix has seen its first decline in subscribers since its founding in 1997. Netflix also faces a number of new threats, including illegal file sharing, rental kiosks and new low cost video-on-demand (VOD) services. Netflix responds to these threats by announcing that it will split the company in two. Netflix will focus exclusively on streaming content, while a new subsidiary called Qwikster will be restricted to providing DVDs by mail. Customers overwhelmingly react negatively to the announcement, and Netflix's stock price plunges by more than 50 per cent.
Swot Analysis of "Netflix Inc.: Streaming Away from DVDs" written by Luis Alfonso Dau, David T.A. Wesley includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Netflix Dvds facing as an external strategic factors. Some of the topics covered in Netflix Inc.: Streaming Away from DVDs case study are - Strategic Management Strategies, Innovation, Marketing, Technology and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Netflix Inc.: Streaming Away from DVDs casestudy better are - – technology disruption, banking and financial system is disrupted by Bitcoin and other crypto currencies, central banks are concerned over increasing inflation, supply chains are disrupted by pandemic , increasing inequality as vast percentage of new income is going to the top 1%, challanges to central banks by blockchain based private currencies, competitive advantages are harder to sustain because of technology dispersion,
digital marketing is dominated by two big players Facebook and Google, talent flight as more people leaving formal jobs, etc
Introduction to SWOT Analysis of Netflix Inc.: Streaming Away from DVDs
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Netflix Inc.: Streaming Away from DVDs case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Netflix Dvds, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Netflix Dvds operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Netflix Inc.: Streaming Away from DVDs can be done for the following purposes –
1. Strategic planning using facts provided in Netflix Inc.: Streaming Away from DVDs case study
2. Improving business portfolio management of Netflix Dvds
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Netflix Dvds
Strengths Netflix Inc.: Streaming Away from DVDs | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Netflix Dvds in Netflix Inc.: Streaming Away from DVDs Harvard Business Review case study are -
High switching costs
– The high switching costs that Netflix Dvds has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Innovation driven organization
– Netflix Dvds is one of the most innovative firm in sector. Manager in Netflix Inc.: Streaming Away from DVDs Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Diverse revenue streams
– Netflix Dvds is present in almost all the verticals within the industry. This has provided firm in Netflix Inc.: Streaming Away from DVDs case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Strong track record of project management
– Netflix Dvds is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Low bargaining power of suppliers
– Suppliers of Netflix Dvds in the sector have low bargaining power. Netflix Inc.: Streaming Away from DVDs has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Netflix Dvds to manage not only supply disruptions but also source products at highly competitive prices.
High brand equity
– Netflix Dvds has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Netflix Dvds to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Netflix Dvds
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Netflix Dvds does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to recruit top talent
– Netflix Dvds is one of the leading recruiters in the industry. Managers in the Netflix Inc.: Streaming Away from DVDs are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Effective Research and Development (R&D)
– Netflix Dvds has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Netflix Inc.: Streaming Away from DVDs - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Cross disciplinary teams
– Horizontal connected teams at the Netflix Dvds are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Successful track record of launching new products
– Netflix Dvds has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Netflix Dvds has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Highly skilled collaborators
– Netflix Dvds has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Netflix Inc.: Streaming Away from DVDs HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Weaknesses Netflix Inc.: Streaming Away from DVDs | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Netflix Inc.: Streaming Away from DVDs are -
Aligning sales with marketing
– It come across in the case study Netflix Inc.: Streaming Away from DVDs that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Netflix Inc.: Streaming Away from DVDs can leverage the sales team experience to cultivate customer relationships as Netflix Dvds is planning to shift buying processes online.
Products dominated business model
– Even though Netflix Dvds has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Netflix Inc.: Streaming Away from DVDs should strive to include more intangible value offerings along with its core products and services.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Netflix Dvds supply chain. Even after few cautionary changes mentioned in the HBR case study - Netflix Inc.: Streaming Away from DVDs, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Netflix Dvds vulnerable to further global disruptions in South East Asia.
Capital Spending Reduction
– Even during the low interest decade, Netflix Dvds has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
No frontier risks strategy
– After analyzing the HBR case study Netflix Inc.: Streaming Away from DVDs, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Lack of clear differentiation of Netflix Dvds products
– To increase the profitability and margins on the products, Netflix Dvds needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow decision making process
– As mentioned earlier in the report, Netflix Dvds has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Netflix Dvds even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High cash cycle compare to competitors
Netflix Dvds has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Netflix Inc.: Streaming Away from DVDs, in the dynamic environment Netflix Dvds has struggled to respond to the nimble upstart competition. Netflix Dvds has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Low market penetration in new markets
– Outside its home market of Netflix Dvds, firm in the HBR case study Netflix Inc.: Streaming Away from DVDs needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Netflix Inc.: Streaming Away from DVDs, is just above the industry average. Netflix Dvds needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Opportunities Netflix Inc.: Streaming Away from DVDs | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Netflix Inc.: Streaming Away from DVDs are -
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Netflix Dvds to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Netflix Dvds to hire the very best people irrespective of their geographical location.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Netflix Dvds is facing challenges because of the dominance of functional experts in the organization. Netflix Inc.: Streaming Away from DVDs case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Netflix Dvds can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Netflix Dvds can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Netflix Dvds can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Netflix Inc.: Streaming Away from DVDs, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Better consumer reach
– The expansion of the 5G network will help Netflix Dvds to increase its market reach. Netflix Dvds will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Manufacturing automation
– Netflix Dvds can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Netflix Dvds in the consumer business. Now Netflix Dvds can target international markets with far fewer capital restrictions requirements than the existing system.
Using analytics as competitive advantage
– Netflix Dvds has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Netflix Inc.: Streaming Away from DVDs - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Netflix Dvds to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Netflix Dvds can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Buying journey improvements
– Netflix Dvds can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Netflix Inc.: Streaming Away from DVDs suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Netflix Dvds to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Loyalty marketing
– Netflix Dvds has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Threats Netflix Inc.: Streaming Away from DVDs External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Netflix Inc.: Streaming Away from DVDs are -
Regulatory challenges
– Netflix Dvds needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Consumer confidence and its impact on Netflix Dvds demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Increasing wage structure of Netflix Dvds
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Netflix Dvds.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Netflix Dvds with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology acceleration in Forth Industrial Revolution
– Netflix Dvds has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Netflix Dvds needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Netflix Dvds will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Environmental challenges
– Netflix Dvds needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Netflix Dvds can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Netflix Dvds in the Strategy & Execution sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Netflix Dvds can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Netflix Inc.: Streaming Away from DVDs .
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Netflix Dvds.
High dependence on third party suppliers
– Netflix Dvds high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Weighted SWOT Analysis of Netflix Inc.: Streaming Away from DVDs Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Netflix Inc.: Streaming Away from DVDs needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Netflix Inc.: Streaming Away from DVDs is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Netflix Inc.: Streaming Away from DVDs is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Netflix Inc.: Streaming Away from DVDs is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Netflix Dvds needs to make to build a sustainable competitive advantage.