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 - – competitive advantages are harder to sustain because of technology dispersion, increasing household debt because of falling income levels, increasing commodity prices, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing government debt because of Covid-19 spendings, cloud computing is disrupting traditional business models, challanges to central banks by blockchain based private currencies,
geopolitical disruptions, supply chains are disrupted by pandemic , 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 -
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.
Strong track record of project management
– Netflix Streaming is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Training and development
– Netflix Streaming has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Netflix Inc.: Proving the Skeptics Wrong 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.
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.
Effective Research and Development (R&D)
– Netflix Streaming 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.: Proving the Skeptics Wrong - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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.
Learning organization
- Netflix Streaming 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 Streaming is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Netflix Inc.: Proving the Skeptics Wrong Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
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.
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.
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.
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 -
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.
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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Netflix Inc.: Proving the Skeptics Wrong 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 Streaming has relatively successful track record of launching new products.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Netflix Inc.: Proving the Skeptics Wrong, it seems that the employees of Netflix Streaming 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.
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 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.
Slow to strategic competitive environment developments
– As Netflix Inc.: Proving the Skeptics Wrong HBR case study mentions - Netflix Streaming takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
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.
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.
Interest costs
– Compare to the competition, Netflix Streaming has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
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 -
Better consumer reach
– The expansion of the 5G network will help Netflix Streaming to increase its market reach. Netflix Streaming 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.
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.
Buying journey improvements
– Netflix Streaming can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Netflix Inc.: Proving the Skeptics Wrong 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.
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.
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.
Leveraging digital technologies
– Netflix Streaming 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.
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.
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.
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.
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 Streaming 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.
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.
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.
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.
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 -
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.
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.
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.
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.
Stagnating economy with rate increase
– Netflix Streaming can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
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.
Technology acceleration in Forth Industrial Revolution
– Netflix Streaming has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Netflix Streaming needs to keep up with the evolution of technology in the Leadership & Managing People 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.
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.
Regulatory challenges
– Netflix Streaming 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 Leadership & Managing People industry regulations.
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.
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.
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.
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.
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.