Internal analysis and competitive strategy on Netflix in PDF

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Assessment 2: Internal analysis and competitive strategy on Netflix in regards to the Entertainment Industry

MGMT3050 Strategic Management Word count: 1855

Contents Title Page:....................................................................................................................................1 Executive Summary......................................................................................................................2 Strategic Analysis.........................................................................................................................2 Strategic capability and culture..................................................................................................... 2 Competitive Strategy..................................................................................................................... 6 Implementation............................................................................................................................. 8 References....................................................................................................................................9

Executive Summary The purpose behind the analytical report is to evaluate the strategic capabilities regarding Netflix and how they can strengthen their strategic framework both feasibly and ethically for future growth. It is clear that Netflix has been able to incorporate the company’s vision and mission statement within their current corporate strategic position, as Netflix has embodied the vision and mission of “becoming the best global entertainment distribution service, as well as giving their customers exceptional service, establishing a valuable partnership towards suppliers, projecting sustainable profitable growth towards investors and allowing employees to be the drivers of this global entertainment impact” (Fata, 2019). For Netflix to remain sustainable and to strengthen its competitive strategy, they must modify their generic strategy to support the indefinite and forecasted growth. This is implemented through Netflix closing the gap and providing more original content, further partnering with non-for profits to maintain and integrate sustainability and ethicalness within the businesses strategic operation and to produce a recurring income through current and prospective customers through loyalty programs.

Strategic Analysis Strategic capability and culture •

Value:

It is distinctly evident that Netflix’s financial resources are of high value as it aids in investing in external opportunities. Through sufficient investing in different financial pools, external threats can be mitigated. Furthermore, employees are seen to be a valuable resource, as,

through their large pool of skills, a more productive output is achieved which can be translated into greater value for customers. Netflix’s patents are a valuable resource as it paves the way for selling its service without an influx of competitors using their services. Consequently, Netflix does not place a high value on research and development, as it is seen as an unnecessary cost that will not reap larger benefits, hence, it can be seen as a competitive disadvantage.

•

Rarity:

The financial aspect of Netflix is seen as a rarity through the VRIO analysis, as having a constant and strong resource pool of financial equity is difficult to possess, and Netflix is in a great situation where they have abundant resources. Additionally, patents are identified as being a rare resource, as it is not readily available and is seen as being something unique that competitors find it troublesome to possess. This can be accompanied with acquiring rights to certain series, as this will give the company a greater edge within the entertainment industry, “by differentiating Netflix from other providers such as Amazon and Hulu it will reinforce the rarity of Netflix’s resources” (Grauso, 2016).

•

Imitable:

It is evident that through acquiring profits over a longer period, Netflix’s financial resources are difficult to imitate, and if competitors would want to achieve the same financial status, it would be extremely difficult to accumulate the financial pool and imitate Netflix’s growth. Additionally, obtaining and implementing patents are extremely difficult to imitate, as legally, you are not allowed to imitate a patented product/service. If competitors wanted to follow down this path, it would be costly to develop patents on a company-wide scale.

Lastly, to imitate employees, it is not costly, as other firms can offer greater incentives and growth opportunities to Netflix’s current employees, resulting in employees only being viewed as a temporary sustainable advantage. To mitigate this, Netflix would need to prioritise employee growth to a greater extent.

•

Organisation:

Lastly, the organisational structure within Netflix is used to capture the value and to be strategically invested to gain the best outputs and opportunities to mitigate external threats. The financial resources are viewed to be the backbone which sustains a long-term competitive advantage. Although patents are identified as being a rarity and holding significant value, the organisation has not sufficiently implemented these patents, as rising competitors can stream most of the content that Netflix does. Therefore, through an organisational lens, this is an underutilised competitive advantage and must be altered to maintain a greater influence within the entertainment industry.

In summation, the VRIO analysis encompasses notions of financial resourcefulness and clear use of patents to provide a sustainable competitive advantage. It is clear, that employees are not used to the greatest capability in providing a competitive advantage, and through this, a lack of research and development is seen to be an unsustainable competitive disadvantage.

•

Cultural Web

Stories:

-

-

Symbols:

Founded in 1997, as a movie

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Smartphones & iPads

rental company

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Modern and open working

Primary business, providing

environment

subscription-based streaming

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Corporate language

media

Paradigm:

Rituals & Routines -

-

Organisational Structure:

Avoid rules, freedom is

-

International presence

emphasised

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Innovator in online

-

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Continuous growth

Control systems:

Functional groups for operations

entertainment

Teamwork and independent decision making are encouraged

-

Geographical division for regional markets

Power Structure:

-

Microservices combine to make Netflix

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U-Form hierarchy

-

Content legally acquired through

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Integrated corporate

servers, played at optimum quality and speed.

structure -

Defined product division

It is clear that Netflix’s culture and strategy are intertwined, and through prioritising a positive company culture, it can be seen as the company’s only sustainable advantage. Essentially, the building blocks of Netflix’s culture is through an innovative service, that thrives of “honesty, tight-knit community spirit and performance-driven teams who embody Netflix’s vision and core values” (Brooks, 2018).

Competitive Strategy Cost Leadership: This strategy allows Netflix’s competitive business model to be based on low costs, whilst being able to sell at an affordable price. This is generic so to speak, as Netflix can acquire customers on a mass scale in the online entertainment world, through their use of competitive advantages. This is catalysed through, “intensive growth strategies and cost leadership strategy which lead to the goal of maintaining leadership in the online entertainment industry” (Moore, 2019). Cost focus: Netflix’s current pricing strategy allows for a competitive advantage to be achieved through its low industry pricing model that is offered towards a large consumer base. A differentiation that could be implemented in their current pricing model, would be to implement a loyalty program which is designed to increase retention rates and rewards-long term customers. This could be done through a tier-based reward system which will reward customers for their tenure, not expenditure. Ultimately, long term customers could see a reduction in pricing fees, which will in turn increase Netflix’s revenue, create customer loyalty, and strengthen their cost focus.

Differentiation: Although cost leadership is seen as the main competitive strategy for Netflix, by way of differentiation, Netflix has been able to incorporate aspects within their operations and delivery. This is through the recent incorporation of Netflix’s original series, in addition to its main objective of streaming from other sources. By incorporating innovative content, Netflix can retain and attract prospective customers through online expansion. Differentiation focus: Netflix can specifically differentiate the way they provide content to consumers, by providing a greater range of movies and tv series, both leased and original content on a larger geographic spread. The notion that content should be instantly available is seen as an essential aspect for the online entertainment industry, and if Netflix can employ this aspect, they will dominate the online entertainment industry. Coupled with the personalised experience, customers are already able to have their content personalised, however, with rapid technological innovation, Netflix can employ faster algorithms to create a better viewing experience to cement their differentiation focus.

The most viable competitive strategy moving forward for Netflix is that they should continue to be competitive in their low-price offerings and differentiate from other emerging companies such as Disney+ and Amazon by incorporating a greater range of original content. Through this, Netflix must analyse emerging trends within their external environment, and in the current situation of social isolation, Netflix can better reach their customers by offering more content whilst still meeting stakeholder requirements of

reaching as many prospective consumers as possible. By understanding the developments within the global market and adding value within the value chain, it is clear that if Netflix has started to implement a more customer-centric focus, by “bypassing intermediaries by directly distributing its original content to customers via its streaming service,” (Moore, 2019) and must further emphasis technological research and development innovation to achieve a greater competitive advantage. Additionally, Netflix has embodied feasibility within its current strategy and can continue to implement feasibility within its new strategy by addressing a cost-benefit capability gap, which can forecast future demand whilst mitigating risks. This is done through implementing a loyalty program which tracks the user's tenure with the organisation. By recognising long-standing customers, Netflix is in the position to be able to give a discount for customers, which in turn raises the attractiveness of the company. This is done through Netflix acting ethical as they still embody the stakeholder's opinion throughout company values and culture, and through the loyalty program, it will bring together a sense of comradery and community engagement as it portrays that the company is not solely focused on maximising profits. By intertwining both notions of ethics and feasibility within the strategic operation it is clear that Netflix can partner with both environmental non-for profits to highlight the rise of global warming, as well as continuously prioritising working conditions for their employees as they have currently identified and should maintain within the future.

In summation and accordance to Rumelt’s model, the classification of the business would be considered dominant as it has formed partnerships with other companies to provide a service for their customers. Through this, and concerning the current global pandemic, Netflix is one of the only companies to be able to profit, and by adding “15.8 million

subscribers, this is projected as double than expected, a growth of 22% in comparison to the previous year” (Alexander, 2020). It can be hypothesised that Netflix will continue to generate revenue growth and will maintain sustainability through continuously prioritising internal and external consistency. Coupled with an ethical business model which holds aspects of feasibility, Netflix will continuously achieve and hold a great competitive advantage.

Implementation It is distinctly evident that Netflix has been able to hold market dominance by offering highquality exclusive content at an economically feasible price for their customers. Netflix can implement the recommended strategy of a loyalty program for long-time customers by analysing the trends in which customers have signed up, offering incentives and discounts to increase customer inclusiveness within the business. Additionally, through favour inclusiveness, Netflix will employ customers from outside the usual organisational structure to review their proposed strategical move, gaining firsthand insight on how a change in their service could affect the customers through anonymous reviews. Furthermore, Netflix’s current communication teams can embody the discourse lens within the new strategy, leading the transformation for a more original content driven focus to be the front of the company, which can be confidently advertised towards customers. By further emphasising a personalised viewing experience for customers, Netflix can implement more succinct data algorithms alongside the loyalty program within their business to analyse how to effectively promote and sell the new strategy so that customers are enticed. This can be done in an agile implementation, so that if there is any resistance towards change from the customer’s point of view, Netflix can retreat and re-evaluate their strategical stance.

References Alexander, J., 2020. Netflix Adds 15 Million Subscribers As People Stream More Than Ever, But Warns About Tough Road Ahead. [online] The Verge. Available at: [Accessed 23 May 2020].

Anderson, D., 2019. Netflix Inc.’s Organizational Structure & Its Strategic Implications Rancord Society. [online] Rancord Society. Available at: [Accessed 23 May 2020].

Brooks, R., 2018. What Makes Netflix's Company Culture So Effective? - Peakon. [online] Peakon. Available at: [Accessed 23 May 2020]. Edwards, Z., 2018. VRIO Analysis Of Netflix Inc. [online] Case48. Available at: [Accessed 23 May 2020].

Fata, E., 2019. Netflix’s Business Strategy: What Your Company Can Learn. [online] Startingbusiness.com. Available at: [Accessed 23 May 2020].

Grauso, A., 2016. Netflix To Begin Exclusive Streaming Of Disney, Marvel, Star Wars And Pixar In September. [online] Forbes. Available at: [Accessed 23 May 2020].

Mgmt7160billings.blogspot.com. 2020. VRIO Framework. [online] Available at: [Accessed 23 May 2020].

Moore, A., 2019. Netflix’s Generic Strategy, Business Model & Intensive Growth Strategies Rancord Society. [online] Rancord Society. Available at: [Accessed 23 May 2020].

Nair, M., 2017. How Netflix Works: The (Hugely Simplified) Complex Stuff That Happens Every Time You Hit Play. [online] Medium. Available at: [Accessed 23 May 2020].

Rivera, A., 2019. Netflix VRIO/VRIN Analysis & Value Chain Analysis (Resource-Based View) Rancord Society. [online] Rancord Society. Available at: [Accessed 23 May 2020]....