Case Study Description of Netflix Inc.: Proving the Skeptics Wrong
Netflix, a subscription-based movie and television show rental service, offered content to subscribers either via DVDs delivered by mail, or through Internet-based streaming. After splitting the two services, the company lost subscribers, and its stock price plummeted. Most observers were skeptical that Netflix could maintain its profit margins, given the increased cost of acquiring streamable content. However, Netflix not only reduced its cost per user but also increased its subscriber growth both in the United States and internationally. Were these moves sufficient to deliver the growth needed to support its rising stock price? Netflix also faced increased streaming costs because it used disproportionately more bandwidth than other streaming companies. Would these costs mean that the Netflix business model was no longer viable? This is a follow-up case to "Netflix," which describes the company's innovative business model of delivering DVDs by mail, and "Netflix Inc.: The Second Act-Moving into Streaming," which describes the after-effects of the dual-subscription model. Sayan Chatterjee is affiliated with Case Western Reserve University.
Authors :: Sayan Chatterjee, Wayne Barry, Alexander Hopkins
Swot Analysis of "Netflix Inc.: Proving the Skeptics Wrong" written by Sayan Chatterjee, Wayne Barry, Alexander Hopkins includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Netflix Streaming facing as an external strategic factors. Some of the topics covered in Netflix Inc.: Proving the Skeptics Wrong case study are - Strategic Management Strategies, Growth strategy and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the Netflix Inc.: Proving the Skeptics Wrong casestudy better are - – there is backlash against globalization, central banks are concerned over increasing inflation, technology disruption, geopolitical disruptions, increasing energy prices, increasing commodity prices, increasing inequality as vast percentage of new income is going to the top 1%,
customer relationship management is fast transforming because of increasing concerns over data privacy, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Netflix Inc.: Proving the Skeptics Wrong
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Netflix Inc.: Proving the Skeptics Wrong case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Netflix Streaming, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Netflix Streaming 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.: Proving the Skeptics Wrong can be done for the following purposes –
1. Strategic planning using facts provided in Netflix Inc.: Proving the Skeptics Wrong case study
2. Improving business portfolio management of Netflix Streaming
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Netflix Streaming
Strengths Netflix Inc.: Proving the Skeptics Wrong | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Netflix Streaming in Netflix Inc.: Proving the Skeptics Wrong Harvard Business Review case study are -
Sustainable margins compare to other players in Leadership & Managing People industry
– Netflix Inc.: Proving the Skeptics Wrong firm has clearly differentiated products in the market place. This has enabled Netflix Streaming to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Netflix Streaming to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Netflix Streaming in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High switching costs
– The high switching costs that Netflix Streaming 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.
Diverse revenue streams
– Netflix Streaming is present in almost all the verticals within the industry. This has provided firm in Netflix Inc.: Proving the Skeptics Wrong 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.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Netflix Streaming digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Netflix Streaming 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.
Organizational Resilience of Netflix Streaming
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Netflix Streaming does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Successful track record of launching new products
– Netflix Streaming has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Netflix Streaming 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.
Cross disciplinary teams
– Horizontal connected teams at the Netflix Streaming 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.
Highly skilled collaborators
– Netflix Streaming 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.: Proving the Skeptics Wrong HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Operational resilience
– The operational resilience strategy in the Netflix Inc.: Proving the Skeptics Wrong 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.
Analytics focus
– Netflix Streaming is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Sayan Chatterjee, Wayne Barry, Alexander Hopkins can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Ability to lead change in Leadership & Managing People field
– Netflix Streaming 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 Streaming in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses Netflix Inc.: Proving the Skeptics Wrong | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Netflix Inc.: Proving the Skeptics Wrong are -
High cash cycle compare to competitors
Netflix Streaming 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.
Lack of clear differentiation of Netflix Streaming products
– To increase the profitability and margins on the products, Netflix Streaming needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Netflix Streaming is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Netflix Inc.: Proving the Skeptics Wrong can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Increasing silos among functional specialists
– The organizational structure of Netflix Streaming is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Netflix Streaming needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Netflix Streaming to focus more on services rather than just following the product oriented approach.
Need for greater diversity
– Netflix Streaming has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Netflix Inc.: Proving the Skeptics Wrong, in the dynamic environment Netflix Streaming has struggled to respond to the nimble upstart competition. Netflix Streaming 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 Streaming, firm in the HBR case study Netflix Inc.: Proving the Skeptics Wrong needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High operating costs
– Compare to the competitors, firm in the HBR case study Netflix Inc.: Proving the Skeptics Wrong has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Netflix Streaming 's lucrative customers.
Slow decision making process
– As mentioned earlier in the report, Netflix Streaming 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 Streaming 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, Sayan Chatterjee, Wayne Barry, Alexander Hopkins suggests that, Netflix Streaming 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.
No frontier risks strategy
– After analyzing the HBR case study Netflix Inc.: Proving the Skeptics Wrong, it seems that company is thinking about the frontier risks that can impact Leadership & Managing People 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.
Opportunities Netflix Inc.: Proving the Skeptics Wrong | 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.: Proving the Skeptics Wrong are -
Using analytics as competitive advantage
– Netflix Streaming 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.: Proving the Skeptics Wrong - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Netflix Streaming to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Low interest rates
– Even though inflation is raising its head in most developed economies, Netflix Streaming 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.
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 Streaming can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Netflix Streaming 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.: Proving the Skeptics Wrong, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Netflix Streaming can use these opportunities to build new business models that can help the communities that Netflix Streaming operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Creating value in data economy
– The success of analytics program of Netflix Streaming has opened avenues for new revenue streams for the organization in the industry. This can help Netflix Streaming to build a more holistic ecosystem as suggested in the Netflix Inc.: Proving the Skeptics Wrong case study. Netflix Streaming can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Building a culture of innovation
– managers at Netflix Streaming can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Leadership & Managing People segment.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Netflix Streaming can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Developing new processes and practices
– Netflix Streaming can develop new processes and procedures in Leadership & Managing People industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Netflix Streaming in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Netflix Streaming 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 Streaming to hire the very best people irrespective of their geographical location.
Manufacturing automation
– Netflix Streaming can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People 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.
Loyalty marketing
– Netflix Streaming 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.: Proving the Skeptics Wrong 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.: Proving the Skeptics Wrong are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Netflix Streaming 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.: Proving the Skeptics Wrong .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Netflix Streaming in the Leadership & Managing People industry. The Leadership & Managing People 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.
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 Streaming.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Netflix Streaming with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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 Streaming 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.
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.
Environmental challenges
– Netflix Streaming 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 Streaming can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
Increasing wage structure of Netflix Streaming
– 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 Streaming.
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 Streaming in the Leadership & Managing People sector and impact the bottomline of the organization.
High dependence on third party suppliers
– Netflix Streaming 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.
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 Streaming business can come under increasing regulations regarding data privacy, data security, etc.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Netflix Streaming needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Consumer confidence and its impact on Netflix Streaming 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.
Weighted SWOT Analysis of Netflix Inc.: Proving the Skeptics Wrong 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.: Proving the Skeptics Wrong 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.: Proving the Skeptics Wrong 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.: Proving the Skeptics Wrong 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.: Proving the Skeptics Wrong 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 Streaming needs to make to build a sustainable competitive advantage.
