Netflix, the online movie rental subscription service, did not contend with significant direct competition in online DVD rentals for six years until Blockbuster, the movie rental chain giant, entered the market in 2004 and began a price war. After that point, CEO Reed Hastings's company scrambled to maintain share and remain profitable. Investors balked at the impact direct competition had on margins and the unlikely sustainability of price cutting against a behemoth competitor. When Amazon began signaling an intention to enter the market in 2005, Hastings had at least two major decisions to make: whether to drop prices to match Blockbuster, and whether to stay the course with regard to his historic strategy of "business-as-usual" when a competitor emerged on the scene.
Swot Analysis of "Netflix" written by Andrew Rachleff, Bethany Coates includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Netflix Blockbuster facing as an external strategic factors. Some of the topics covered in Netflix case study are - Strategic Management Strategies, Technology and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Netflix casestudy better are - – geopolitical disruptions, talent flight as more people leaving formal jobs, technology disruption, challanges to central banks by blockchain based private currencies, digital marketing is dominated by two big players Facebook and Google, increasing energy prices, increasing inequality as vast percentage of new income is going to the top 1%,
there is increasing trade war between United States & China, there is backlash against globalization, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Netflix case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Netflix Blockbuster, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Netflix Blockbuster 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 can be done for the following purposes –
1. Strategic planning using facts provided in Netflix case study
2. Improving business portfolio management of Netflix Blockbuster
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 Blockbuster
Strengths Netflix | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Netflix Blockbuster in Netflix Harvard Business Review case study are -
Cross disciplinary teams
– Horizontal connected teams at the Netflix Blockbuster 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.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Netflix Blockbuster digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Netflix Blockbuster has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to lead change in Strategy & Execution field
– Netflix Blockbuster is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Netflix Blockbuster in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Operational resilience
– The operational resilience strategy in the Netflix Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Training and development
– Netflix Blockbuster has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Netflix Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Diverse revenue streams
– Netflix Blockbuster is present in almost all the verticals within the industry. This has provided firm in Netflix 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.
Innovation driven organization
– Netflix Blockbuster is one of the most innovative firm in sector. Manager in Netflix Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Successful track record of launching new products
– Netflix Blockbuster has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Netflix Blockbuster 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.
Sustainable margins compare to other players in Strategy & Execution industry
– Netflix firm has clearly differentiated products in the market place. This has enabled Netflix Blockbuster to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Netflix Blockbuster to invest into research and development (R&D) and innovation.
High switching costs
– The high switching costs that Netflix Blockbuster 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.
Low bargaining power of suppliers
– Suppliers of Netflix Blockbuster in the sector have low bargaining power. Netflix has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Netflix Blockbuster to manage not only supply disruptions but also source products at highly competitive prices.
Learning organization
- Netflix Blockbuster is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Netflix Blockbuster is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Netflix Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses Netflix | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Netflix are -
No frontier risks strategy
– After analyzing the HBR case study Netflix, 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.
Low market penetration in new markets
– Outside its home market of Netflix Blockbuster, firm in the HBR case study Netflix needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Netflix, it seems that the employees of Netflix Blockbuster don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Skills based hiring
– The stress on hiring functional specialists at Netflix Blockbuster has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
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 Blockbuster supply chain. Even after few cautionary changes mentioned in the HBR case study - Netflix, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Netflix Blockbuster vulnerable to further global disruptions in South East Asia.
Workers concerns about automation
– As automation is fast increasing in the segment, Netflix Blockbuster needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Netflix HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Netflix Blockbuster has relatively successful track record of launching new products.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Netflix Blockbuster is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Netflix can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Netflix, is just above the industry average. Netflix Blockbuster 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.
Slow decision making process
– As mentioned earlier in the report, Netflix Blockbuster 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 Blockbuster 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 bargaining power of channel partners
– Because of the regulatory requirements, Andrew Rachleff, Bethany Coates suggests that, Netflix Blockbuster is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Opportunities Netflix | 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 are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Netflix Blockbuster can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Better consumer reach
– The expansion of the 5G network will help Netflix Blockbuster to increase its market reach. Netflix Blockbuster 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.
Loyalty marketing
– Netflix Blockbuster 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.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Netflix Blockbuster can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Netflix Blockbuster can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Netflix Blockbuster 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, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Netflix Blockbuster can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Manufacturing automation
– Netflix Blockbuster 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.
Creating value in data economy
– The success of analytics program of Netflix Blockbuster has opened avenues for new revenue streams for the organization in the industry. This can help Netflix Blockbuster to build a more holistic ecosystem as suggested in the Netflix case study. Netflix Blockbuster can build new products and services such as - data insight services, data privacy related products, data based consulting services, 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 Blockbuster can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Leveraging digital technologies
– Netflix Blockbuster can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Netflix Blockbuster in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
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 Blockbuster in the consumer business. Now Netflix Blockbuster can target international markets with far fewer capital restrictions requirements than the existing system.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Netflix Blockbuster 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 Blockbuster to hire the very best people irrespective of their geographical location.
Threats Netflix External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Netflix are -
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 Blockbuster in the Strategy & Execution sector and impact the bottomline of the organization.
Consumer confidence and its impact on Netflix Blockbuster 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 Blockbuster
– 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 Blockbuster.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Netflix Blockbuster with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Netflix Blockbuster in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
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.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Netflix Blockbuster can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Environmental challenges
– Netflix Blockbuster 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 Blockbuster can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Netflix, Netflix Blockbuster may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
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 Blockbuster 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.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Netflix Blockbuster business can come under increasing regulations regarding data privacy, data security, etc.
High dependence on third party suppliers
– Netflix Blockbuster 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 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 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 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 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 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 Blockbuster needs to make to build a sustainable competitive advantage.