Netflix Company’s Strategy in Context

Introduction

The success of a company has been attributed to the strategic efforts that it implements. Strategic planning is considered important because it offers an organization of any size or scope a sense of direction and the outline of specific and measurable goals. Thus, prior to making a strategic decision, a company must consider its strengths and opportunities that will help in changing approaches and evaluating progress. The focus of this paper will be placed on finding an example of a strategic decision made by a company and led to a significant breakthrough.

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Netflix, Inc. is a US-based provider of streaming services around the world. It was founded in 1997 by Reed Hastings and Marc Randolph as a home video and rental company that focused on the distribution of DVDs (Castillo, 2017). During finding its strategic orientation, Netflix also introduced a monthly subscription concept, which did not bring much success. In 2000, the company was offered a deal from Blockbuster that proposed Netflix to handle the online business; the offer was declined (Satell, 2014). However, the decision to transform the company into a streaming service became the landmark that changed Netflix completely and led it to global success.

Netflix is the leading streaming network in the world, available in over one hundred and ninety countries, which represents its key strength. Through expanding the paid membership for its services, the company can attract new customers to the business and ensure significant growth (Ovide, 2019). On the other hand, the suppliers of content to Netflix have become the company’s competitors. Also, as the company invests in original shows and movies that can only be available on its platform, it shrinks the content library, which leads to limited choices.

Netflix has recognized that most of the content is viewed through the Internet, which presented a unique outlook on the future of the company. Besides, the company saw the society’s interest in documentaries, which led to the release of such globally popular titles as Making a Murderer, The Keepers, Amanda Knox, The Staircase, and others. This shows that Netflix conducts regular assessments of the public’s interests and brings out shows that were to capture a wide audience. Apart from this, the company is increasing its international coverage, tapping into territories where English can be used as a second language thus attracting a new audience of clients. The current case will discuss the environment that led Netflix to make a deliberate strategic shift, the implemented changes, lessons learned, and provide the analysis of the company’s advantage that has not been replicated yet.

Internal and External Environment

When considering the internal and external forces that influenced the strategic decision of Netflix, the assessment of the internal and external can provide a comprehensive look at the situation. The analysis using these tools can provide an explanation of why Netflix chose the route of online media instead of offering content through physical vehicles (Jacobsmeyer, 2017). The analysis of Netflix from the perspective of its macro-environment is expected to show how the company approached its opportunities in the industry given the impact of outside factors.

From the political perspective, Netflix had to consider content restrictions in such geographical locations as Syria, North Korea, and Crimea, which represented a challenge of a potential market remaining unserved (Maan & Tharakan, 2016). Also, Netflix could not enter the Chinese market, which is the most populated, because of the issue of permission from the government (Riley, 2016). It was expected that the company would adapt to the continuously changing exchange rates that can adversely affect revenues. Also, costs on domestic streaming, US-targeted marketing, and other expenses represent some challenges that require control.

The social aspect of the external environment plays the most important role in shaping Netflix as a successful business. The company prides itself on listening to its clients and complying with the highest standards of morality and ethics (Jacobsmeyer, 2017). Also, Netflix has been giving away student scholarships and other charitable aid to financially underserved students, which has created a positive corporate responsibility image in the eyes of society. The company’s CEO, Reed Hastings, also served as an inspirational example to other corporations and gave our large sums of money from his funds to Giving Pledge Charity.

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As society has been generally interested in online content, the role of technologies in the success of Netflix should not be overlooked. For example, the company has invested in compression techniques to improve the quality of streaming, integrated a personalization system to offer customers targeted content, and improved its payment and delivery processes for increased convenience. Legally, Netflix has encountered some challenges in dealing with Geoblocks and the infringement of copyrights. Also, due to issues with video piracy, the company experiences some profit losses as their original content becomes available on other services (Trefis Team & Great Speculations, 2015). While there is not much that Netflix does to preserve environmental sustainability, it must be mentioned that the company is working on reducing its carbon footprint by using wind power for its cloud storage energy use.

Therefore, the strategic decision of Netflix to shift the business in the direction of online content streaming has been supported by the external environment that welcomed change and the orientation on progress and innovation. With the decline of TV popularity and other traditional methods of content viewing, the company offered a unique value proposition that implied a significant extent of freedom associated with the choices of content.

The Strategic Decision

Today, Netflix is not the same start-up company that was disrupting Blockbuster operations at the beginning of 2000. It transformed into the market-leading service of content streaming and managed to stay “nimble and effective throughout, making it an excellent example of strategic agility” (Brightline Initiative, 2018, para. 3). This strategic advantage came into conception after the company’s CEO, Reed Hastings, recognized that its DVD subscription service did not work and that Internet-based operations could have provided better leverage. However, the experiment that involved Qwikster in 2011, which implied the split of mail service and online distribution operations, also failed, leading the company to make a defining decision that will shift its strategic orientation (Gilbert, 2017). In the same year, Netflix reversed its course, made an apology to its customers, and went straight into the world of online content production and streaming, with the mission to become the next HBO.

When implementing the shift from DVD subscriptions to the new format, the company was attentive to the demands and trends of the market as well as customers’ needs. Strategic agility is the primary reason for the success of Netflix as it enabled the company’s leaders to accept the responsibility for the delivery of the established strategic course. Thus, through taking accountability, Netflix’s leaders cultivated a corporate environment in which employees had the freedom to make rapid decisions that enhanced the company’s strategic agility. This shows that a corporate culture played a significant role in ensuring that Netflix is headed in the expected direction. An environment in which employees feel that their judgment is not trusted can present a barrier that makes it impossible for businesses to implement new strategies successfully.

In many ways, the strategic agility inherent to Netflix is ‘anti apple in the sense that while the latter is focused on the compartmentalization of projects and products, the former offers people the freedom and trust to make strategic decisions. In addition to this, Netflix shares all information across the entire organization to ensure that every worker is involved. In regards to such policy, the company’s CEO Reed Hastings said, “I find out about big decisions made all the time that I had nothing to do with” (Brightline Initiative, 2018, para. 4). Therefore, the success of the company’s shift to streaming services is rooted in the development of a unique policy that bases the majority of key decisions on its workers. The philosophy of context instead of control explains why Netflix embraced a combination of strategic agility, the clear definition of roles, transparency, and the knowledge of the stakes. Netflix has shown to be opposed to strict control and top-down decision-making, which is limiting to many other organizations.

In the discussion regarding the strategic decision of Netflix, it must be mentioned that the company represents an example of a strategy being worthless without correct implementation. Organizations that have agile capabilities in realizing their initiatives. Through the reallocation of funding in the implementation of strategic decisions, changing personnel, and adjusting to the emerging risks and opportunities, Netflix is capable of reaching an unprecedented level of success on a global scale. Overall, the decision of Netflix to shift to the market of online content streaming belonged to its CEOs initially; however, through the implementation of strategic agility and unique corporate culture, the company was able to capitalize on its strengths and develop a strategy that cannot be replicated.

Lessons Learned

The example of strategic agility and the unique corporate culture inherent to Netflix gives other companies multiple lessons on how to stay successful in a deeply competitive environment. The first lesson that resulted from the decision implied filling the gap in the market that others could not address previously (“6 strategies Netflix can teach us for dominating our market,” 2014). In the first years of the company’s existence, its owners noticed that many people would keep their rented videotapes for a long time, which resulted in a large fine. They came up with a solution – a business model in which customers would be allowed to keep their movies or TV shows for as long as they wanted as long as they paid a flat fee every month (Nair, 2017). Although simple, such a strategy developed a successful business for Netflix as it allowed it to satisfy customer needs that were unmet in the past.

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Apart from closing market gaps, Netflix also implemented a system of strategic partnerships that imply a win-win approach for companies that collaborate. For Netflix, the strategic cooperation with Apple represented a significant push to the popularity of the platform (Ritchie, 2009). The ability to sign up for Netflix directly through Apple TV, iPad, and iPhone applications offered a convenient solution for the company and its clients who stream content on their portable and non-portable Apple devices. Also, the collaboration with the technological giant gave access to a large customer base of users while for Apple, the opportunity provided their clients with diverse content that is accessible and convenient.

The third lesson that the strategic decision of Netflix brings to the modern business environment is linked to preparedness. The company’s decision to offer to stream emerged in 1997 when the CEOs expected that 50% of the revenue would be brought through streaming by 2002 (Jacobsmeyer, 2017). In 2002, the expected revenue was zero, and in the same year, Netflix’s heads forecasted the same 50% of sales from streaming by 2007, and the expectations were not fulfilled once again (Jacobsmeyer, 2017). Thus, at the time when streaming exploded as a service, Netflix was prepared to offer top-quality content and convenient terms and conditions.

Added value is the fourth essential lesson that strategic agility brought Netflix. One of the main reasons why the company has become so popular is attributed to its ability to give customers what they want. As mentioned by Netflix’s CEO himself, the real success of the service is rooted in the adaptation to users’ needs and demands (O’Brien, 2016). For example, the recommendation engine embedded into the website and applications has been trained to predict the types of shows and movies that streamers are most likely to watch (Vanderbilt, 2013). As a result of such a tool, around sixty percent of content available on Netflix comes from the engine’s recommendations. Therefore, the company offers much more than a rental service but also a place where customers can find content that will be the most appealing to them.

The Bottom Line

The predictions of Netflix’s CEOs regarding the boom of content streaming came true. Leaving the outdated Blockbuster Movie business model in the past, the company has adapted to the changes in the industry and offered a unique selling proposition that was not available anywhere else (Newman, 2010). The focus on the right approach to business in combination with the corporate culture transformed into a set of practices that helped to deal with a set of diverse and complex processes that may have put Netflix at risk (Brightline Initiative, 2018). This means that the digital transformation that the company implemented was the result of not only a strategic decision but also the existing procedures that put the responsibility of decision-making on all employees.

The decision to shift to digital streaming services implied the transformation of the business with an extreme level of intensity that could help in adapting to the demands of the market (“How Netflix benefited from a digital transformation,” n.d.). Companies that have failed to evolve, such as Kodak deciding not to pursue the segment of digital photography, are unable to adapt to the modern market demands (Mui, 2012). Technology-based evolution that Netflix has undergone changed the company significantly; although, the shifts were not as noticeable and dramatic to customers (Ball, 2018). Because of this, Netflix is the best example of technological evolution as over the years the company made new changes and adapted to the needs of the market (Cohan, 2013). For instance, when customers have slowly begun exhibiting the demand for online content, Netflix listened to them and developed a plan to cater to that demand.

Another important characteristic of Netflix’s shift to online content refers to the company being characterized as a disruptive leader. Since technological evolution was not enough to ensure the success of the corporation, the appropriate response to digital disruption was also necessary (Deda, 2017). The rapid pace of technology changes challenged the existing services and products, which made it necessary for Netflix to adjust to the shifts in online advertisement prices, the standards of marketing campaigns, and available networks to be a disruptive leader in the media sector (ITONICS, 2018). The company was gradually increasing the library of available content and expanding the customer base with new clients. The agreements with MGM, Lions Gate Entertainment, and Paramount Pictures represented significant disruptions to the market of online content streaming and set Netflix apart from the competition.

Concluding Remarks

The answer to the question of why Netflix made the best strategic decision in its career is simple – the company listened to customers. The success of the online streaming service has been attributed to the fact that Netflix implemented gradual changes to its business and showed strategic agility. From the establishment of a corporate culture that encourages quick decision-making to the production of its own TV shows and movies, Netflix managed to stay relevant and thrive. The external environment including social, political, and economic variables helped Netflix identify the most prospective opportunities and capitalized on them. Thus, the company is one of the brightest examples of how a correct strategic decision can lead an organization to global success.

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References

Ball, M. (2018). Netflix is a product & technology company (Netflix misunderstandings, pt. 2). Web.

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Castillo, M. (2017). Reed Hastings’ story about the founding of Netflix has changed several times. CNBC. Web.

Cohan, P. (2013). Netflix’s Reed Hastings is the master of adaptation. Forbes. Web.

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ITONICS. (2018). Why Uber isn’t disruptive but Netflix is – Disruptive innovation explained. Medium. Web.

Jacobsmeyer, A. (2017). Giving the customer what they want: How Netflix changed the face of entertainment. Web.

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Newman, R. (2010). How Netflix (and Blockbuster) killed Blockbuster. US News Money. Web.

O’Brien, C. (2016). My conversation with Netflix CEO Reed Hastings. Business Insider. Web.

Ovide, S. (2019). Netflix’s strategy is growth, so it can’t have growing pains. Bloomberg. Web.

Riley, C. (2016). Netflix admits its plan for China has failed. Money CNN. Web.

Ritchie, R. (2009). Netflix sees Apple partnership, iPhone streaming to “come over time.” Web.

6 strategies Netflix can teach us for dominating our market. (2014). Web.

Satell, G. (2014). A look back at why Blockbuster really failed and why it didn’t have to. Forbes. Web.

Trefis Team & Great Speculations. (2015). Is piracy a serious threat to Netflix? Forbes. Web.

Vanderbilt, T. (2013). The science behind the Netflix algorithms that decide what you’ll watch next. Wired. Web.

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