Netflix Corporation’s Strategic Audit

Netflix, Inc. is an American company that specializes in entertainment. The corporation was established in 1997. It focuses on video-on-demand online, streaming media, and also sells DVD via mail (Lusted 17). Netflix has ventured into online distribution and television and film production. The company’s headquarters are in Los Gatos, California. Initially, the company rented and sold DVDs. Later, it ventured into streaming media to diversify operations. The introduction of streaming media gave it an opportunity to reach the global market, and by 2016, the company was already in at least 190 nations (Sparks par. 3). In 2013, the company produced the first series dubbed House of Cards, which ushered Netflix into the content production industry. Since then, it has produced numerous series under the burner “Netflix Original”, which are available via its digital library of television and films. Netflix has posted mixed performance since its inception. Nevertheless, the company continues to dominate the streaming media business with over 93 million subscribers globally.

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Current Situation

Current Performance

In 2016, Netflix posted mixed performance regarding return on investment, market share, and profitability. A company enjoys a healthy return on investment if it manages to increase its membership and minimize operations costs. Netflix has managed to cut down on operations costs and grow its membership (Bylund par. 3). In 2016, the company recorded high revenues in the first three quarters. However, the income declined in the last quarter due to competition from Amazon.com Inc. and Hulu. Netflix’s return on investment for the fourth quarter of 2016 was 11.57% (Bylund par. 5). The company continues to enjoy a high return on investment despite stiff competition from rivals. The United States’ video streaming market is valued at about $6.62 billion. Last year, Netflix served at least 50% of the market. Netflix grew its market share steadily between 2013 and 2015. Last year, a study conducted by Digitalsmiths revealed that the corporation was losing its market share to rival companies.

Bouma says, “Back in the second quarter of 2016, Netflix had a 53.7% market share, which dropped to 51.8% in the third quarter of the same year” (par. 3). Economists cite decreasing catalog and price increment as the primary factors that contributed to the company losing significant market share. According to Bylund, Netflix is yet to earn a significant profit for investors (par. 3). The management hopes that it will make a significant profit starting from 2017 after it is done with global expansion strategies. In 2016, the company was grappling to breakeven, and the management hoped that growing the American profit and reducing global losses would enable Netflix to make a substantial profit (Nickelsburg par. 2).

Strategic Posture

Mission

Netflix’s mission is to increase its streaming subscription business both locally and internationally. The company has invested heavily in the streaming media to help enhance customer experience (Lusted 21). Additionally, Netflix endeavors to improve the user interface, grow its streaming content and increase its services to cover a broad range of internet-enabled gadgets. The company aims to be a global leader in the distribution of entertainment content by establishing markets that serve filmmakers and enable them to reach an international audience. Technological growth has led to many people accessing the internet. Moreover, a lot of people have smartphones that allow them to view digital content online. Netflix has ventured into the streaming media to meet the needs of the growing consumer base. According to Lusted, the digital streaming business is expected to continue growing in the coming years (32). Many people continue to subscribe to inline streaming companies. Consequently, Netflix has ventured into this business to benefit from the growing demand for streaming services worldwide.

Objectives

Ojer and Capape define corporate objectives as explicitly defined goals that influence decision-making processes of an organization (576). Netflix has set various corporate objectives that affect the decision. They include enhancement of the company’s productivity, improvement of services through technology, and growth of market share by boosting customer services (Ojer and Capape 579). Business objectives facilitate planning within an organization. They describe what business intends to accomplish within a particular duration. Netflix has various business goals, which include venturing into the Chinese market, growing its membership, and increasing the number of original content. Functional objectives refer to the roles that an organization sets to facilitate the realization of corporate goals. The functions may impact human resource management, marketing, and operations. Netflix has formulated an efficient marketing strategy to enable it to grow its market share internationally.

Netflix’s corporate, business and functional objectives are consistent with each other. Ojer and Capape claim that the realization of organizational goals depends on the success of operational and business objectives (579). On the other hand, it would be difficult for an organization to realize business objectives without proper functional goals. Netflix has an efficient marketing strategy that helps it to identify and target potential markets. The strategy is in line with the company’s business objectives of increasing subscription membership, establishing new markets, and growing the number of original content. The company conducts market analysis to identify unmet demands and predict future changes in consumer needs. It helps to create new content in anticipation for the future needs. The creation of new content and growth of the company’s membership have enabled it to realize its corporate objectives. Netflix is in the course of boosting productivity through investment in technology. The company is also trying to grow its market share by venturing into new markets and creating new digital content to serve a broad range of customers.

Strategies

Netflix uses a blend of strategies to enable it to realize corporate objectives. They include targeting and positioning as well as marketing mix. It targets a mass market comprising individuals who prefer watching streamed movies and television programs (Ojer and Capape 581). The company does not discriminate against customers based on preferences, backgrounds, age or beliefs. It pays attention to the needs of individual subscribers to safeguard its market share. Customers opt to deal with a particular business due to its affordability, convenience, efficiency, and tailored services. Netflix aims to dominate the video streaming business by providing personalized, convenient, efficient, and cost-effective online streaming services. The strategy is in line with its corporate objective of enhancing service delivery. The company is developing digital contents that are compatible with electronic gadgets like tablets, computers, and smartphones to ensure that it serves many customers. Additionally, it is advocating network neutrality to ensure that the cost of its services remains affordable to many clients.

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Netflix continues to lobby for the amendment of laws like Video Privacy Protection Act (VPPA), which deprives the company of the chance to share digital contents via social media (Ojer and Capape 583). The demand for amendment of the law and network neutrality is in line with the company’s mission and objectives of providing streaming services to many customers worldwide. The internal factors that influence the success of Netflix include human resource management, infrastructure, procurement, and technology. The company has established an efficient infrastructure to facilitate distribution of DVDs. Netflix has at least 44 distribution centers, which operate with synergy. It also has experienced workers who help in the production and dissemination of digital contents. The employees make sure that they procure DVDs that are in high demand.

International Operations

Netflix’s current objectives, mission, policies, and strategies reflect its international operations. According to Allen et al., the company pays a lot of attention to the global market and has altered international operations to boost its influence globally (136). Currently, Netflix has a platform that enables it to tailor its services to the needs of individual countries. Allen et al. claim that the company has started localization process in countries like Turkey and Poland, where it streams digital contents in local languages (138). The strategy is aimed at helping the company to increase the number of subscribers. Netflix has split its global customer base into many taste communities based on their viewing behaviors. It will enable the business to produce contents that suit the needs of different communities, thus reaching a broad audience internationally.

Netflix continues to partner with television operators internationally in line with the objectives of growing the number of subscribers and venturing into new markets. The company has signed agreements with over 60 cable operators globally. Allen et al. posit, “Netflix is not only teaming up with operators to get onto more screens but also offering internet service providers around the world free caching servers to offload its streaming data” (140). Investment in technology and partnership with internet service providers has enabled the company to increase its international traffic tremendously.

Human Resource Management

Netflix has revolutionized human resource management with many objectives. Currently, the company’s human resource objectives include employee engagement, employer of choice, and turnover and retention. The company’s human resource management endeavors to promote employee engagement through numerous strategies. Netflix does not use formal policies to monitor employee performance (McCord par. 1). Instead, workers are encouraged to use common sense and logic in managing operations. Consequently, they interact freely with their bosses and participate in decision-making. A majority of human resource managers cite employee turnover and retention as significant challenges that affect businesses. Netflix has devised informal mechanisms to minimize turnover and guarantee employee retention. The company allows salaried workers and managers to arrange for leave based on the workload in their departments (McCord par. 4). Consequently, the company has a flexible holiday program that suits the needs of individual workers. The human resource managers ensure that the firm hires and attracts qualified employees. Moreover, it guarantees good working condition to retain existing employees. Netflix encourages managers to invest in their workforce, and every administrator has a duty to create a great team. Investing in employee development results in many workers considering working in the corporation. Indeed, Netflix is among the companies that many job applicants covet to join.

Strategies

Netflix’s overall business strategy focuses on innovation, global integration, and business value. As a result, the company employs, compensates, and retains qualified employees only (McCord par. 3). The human resource managers understand that the success of Netflix lies on its capacity to hiring employees who will give priority to the company’s interests. The company does not have employment policies to guide the recruitment of staff. Instead, it avoids hiring employees that might cause problems. Additionally, it lets go of workers who seem not to adopt to its corporate culture. McCord posits that Netflix encourages managers and employees to discuss performance (par. 5). The company does not perform employee appraisals as they appear quite ritualistic. The managers have the mandate to encourage employee development. They evaluate their teams, identify the missing skills and help employees to come up with strategies to manage their careers. McCord argues that Netflix discourages competition amid employees (par. 7). Instead, the human resource managers persuade employees to work together to achieve organizational goals.

Policies and programs

Netflix does not have formal human resource policies. Previously, the company had plans that outlined the vacation and sick days as well as holidays. However, it abolished the systems and gave employees and their managers the freedom to arrange for leave days based on the workload in their departments. Additionally, Netflix does not use official travel and expense policies. Instead, it encourages employees to behave responsibly. McCord claims that the company’s spending policy comprises five words: “Act in Netflix’s best interests” (par. 7). The system has enabled the company to reduce expenses as employees spend money prudently and arrange for their travels. The leadership of Netflix believes that mentorship and on-the-job training programs are not active (Roettgers par. 4). The company hires employees with at least 15 years experience. Therefore, Netflix does not run human resource programs. Instead, employees are encouraged to manage their careers without depending on the organization. They are supposed to surround themselves with experienced workers and learn from them.

The corporation’s current human resource management objectives, policies, strategies, and programs are not explicitly stated. Instead, they are implied from the performance. It is hard to understand the company’s human resource management culture unless one observes its operations. Netflix’s human resource management practices are consistent with the enterprise’s mission, objectives, policies, strategies, and internal and external environments. The company recruits employees who value its interests to help it realize its goals. It would be difficult for the company to reach the global market without hiring dedicated employees. Recruitment of experienced employees helps the company to enhance service delivery by offering tailored, expedient, resourceful, and cost-effective online streaming services.

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Success of Human Resource Management

Netflix’s human resource management culture has succeeded in enhancing the fit between individual employee and job. Encouraging employees to take charge of their career development allows them to focus on areas of interest. It serves as a primary source of employee motivation. Allowing employees to take leave at the convenient time has enabled the company to cut down on the rate of absenteeism. Moreover, employees manage their time responsibly, and it is hard to find workers being reprimanded because of lateness or tardiness. The rate of employee turnover at Netflix is small. The company has retained its top six executives since its inception. As employees interact and communicate with their bosses freely, they can resolve disputes amicably. Villarroel et al. claim that employee complaints and strikes are hard to occur in the company (15). The company hardly fires its workers unless they do not meet the required standards. Netflix uses the “keeper test” to assess employees annually. Those who do not pass the test are allowed to leave the company in a dignified manner. Flexible working conditions and employee autonomy guarantee the quality of work life. Employees manage to balance between work and private life.

Prevalent Trends

The analysis has revealed that Netflix is moving away from the application of formal policies to the adoption of informal regulations. Moreover, the company is increasingly encouraging autonomy amid the employees and managers. The adoption of open policies and employee freedom has enabled the company to attract and retain skilled workers. Furthermore, the trends have allowed the corporation to minimize expenses and boost efficiency. The trends will have significant benefits to the corporation in the future. Employee autonomy will save the company from turnover. It will also encourage creativity, which will enable Netflix to achieve its international goals. The adoption of open policies will guarantee safe working conditions, thus boosting employee productivity. The analysis supports the corporation’s past and future strategic decisions. It shows the factors that have contributed to Netflix deciding to venture into the global market. The company enjoys a team of experienced workers who can help it realize its objectives. The analysis shows that Netflix does not believe in the effectiveness of formal policies. It underlines the reason the company continues to champion for network neutrality and amendment of VPPA.

Human resource management provides Netflix with a competitive advantage. The company recruits and retains experienced employees who help it to deliver quality streaming services to customers. Moreover, the company does not incur expenses associated with employee turnover. Low employee turnover contributes to boosting organizational efficiency as Netflix does not require time to recruit and train workers. The reduction of operations expenses enables the company to redirect additional money to productive projects. Employee empowerment has boosted innovation in the company and enabled it to increase its international traffic.

Diversity Management

Technological companies and Silicon Valley are criticized for discouraging diversity. Nevertheless, Netflix has improved its human resource management practices to include diversity. The company sources talents from different backgrounds and countries. The diverse workforce is invaluable to the company’s goal of exploiting the global market (Villarroel et al. 21). The company hires both male and female based on their experience. It does not discriminate against applicants based race. Netflix’s leadership comprises African Americans, Hispanics, Whites, and Asians. The employees with diverse perspectives and backgrounds are encouraged to interact and share ideas on how to improve the company. The contribution of individual employees is highly valued and considered in decision-making. Netflix has a good record on human rights. The company does not discriminate employees based on gender. It also provides medical cover to its employees. Villarroel et al. hold that the leadership of Netflix ensures that there is equality in spousal soft benefits like relocation assistance, survivor annuity, and bereavement leave among others (32). Netflix monitors the human rights records of its distributors. The company does not work with distributors or suppliers who exploit their employees as that may taint its image.

Review of Mission and Objectives

The current Netflix’s mission and goals are appropriate in light of the key strategic factors and problems. For the company to be competitive in the streaming business, it has to invest in technology and boost service delivery. Additionally, Netflix should target the global market to increase its subscription membership. Boosting the number of original content will enable the company to diversify its target market. The company does not require changing the mission and objectives as they support its strategic goals.

Works Cited

Allen, Grace, et al. “The Rise and Fall of Netflix: What Happened and where will it Go from Here?” Journal of the International Academy for Case Studies, vol. 20, no. 1, 2014, pp. 135-143.

Bouma, Luke. “Netflix Losing Market Share as Amazon Prime Video Continues to Grow.” Cord Cutters News, 2016, Web.

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Bylund, Anders. When will Netflix, Inc. Finally Start Marking Money? 2016, Web.

Lusted, Marcia Amidon. Netflix: The Company and its Founders E-Book. ABDO Publishing Company, 2012.

McCord, Patty. “How Netflix Reinvented HR.” Harvard Business Review, 2014, Web.

Nickelsburg, Monica. “Study: Amazon Video is now the Third-Largest Streaming Service, behind Netflix and YouTube.” Greek Wire, 2016, Web.

Ojer, Teresa, and Elena Capape. “Netflix: A New Business Model in the Distribution of Audiovisual Content.” Journalism and Mass Communication, vol. 3, no. 9, 2013, pp. 575-584.

Roettgers, Janko. “How Netflix Wants to Rule the World: A Behind-the-Scenes Look at a Global TV Network.” Variety, 2017, Web.

Sparks, Daniel. Netflix, Inc.: 2 Ambitious Goals and 1 Big “Maybe” for 2016 Understanding Netflix Vision for a Year Marked with heightened Competition. 2016, Web.

Villarroel, Andrei, et al. “Innovation and Learning Performance Implications of Free Revealing and Knowledge Brokering in Competing Communities: Insights from Netflix Prize Challenge.” Computational and Mathematical Organization Theory, vol. 19, no. 1, 2013, pp. 2-77.

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