Netflix: Strategic Analysis

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Table of Contents

Strategy Framework Analysis
Recommendations
Limitations of Theory
Summary
Reference List

This document is a strategic analysis of Netflix, a digital-based entertainment company, using Porter’s five-force analysis, which highlights the threat of new entrants, buyers’ bargaining power, the threat of substitute products, and suppliers’ bargaining power, as the industry-specific main factors affecting the company’s operations (Perera, 2020). Key sections of this report will explain how the aforementioned forces influence the company’s performance and improve its overall positioning by adopting a set of key recommendations highlighting the need to align the company’s internal processes with relevant market needs.

Strategy Framework Analysis

Using Porter’s five-force framework, table 1 below highlights industry-specific factors that affect Netflix’s operations.

Table 1. Porter’s Five Force Analysis (Source: Developed by Author).

Porter’s 5 Forces	Strength	Description
Supplier Power	Strong	The entertainment and media industry has a strong supplier power because of the limited number of players who help companies to produce quality and entertaining content.
Buyer Power	Strong	Traditionally, the media and entertainment industry has been characterised by a high buyer power because consumer demand dictates the kind of content to be produced. This market condition has made Netflix’s production processes increasingly dependent on its subscriber base (Green, 2017). The strong buyer power means that customers enjoy a low switching cost, which could allow them to terminate Netflix’s services at will.
Competitive Rivalry	Strong	The threat from competitors has forced Netflix to maintain its customer base by offering quality and affordable content. The strong competition comes from other companies that offer entertainment-on-demand services and traditional broadcasters that still command a significant share of the entertainment market. For example, Amazon and Hulu are direct competitors of Netflix because they provide similar products.
Threat of Substitutes	Moderate	There is a moderate threat of substitute products in the entertainment and media industry. This threat level comes from the powerful role played by traditional media in shaping society and the growing prominence of virtual streaming services.
The threat of New Entry	Moderate	There is a moderate threat of new entrants in the media and entertainment industry. This threat level is underpinned by a rapidly changing technological landscape and the improved access to entertainment content by different customer groups. Netflix has managed to adapt well to these market conditions by building a successful streaming service.

Recommendations

Based on the multiplicity of factors affecting Netflix’s operations in the entertainment and media industry, its managers must allow employees to make independent decisions that would better adapt to the market environment. This recommendation is in line with the views of Park and Park (2019), which encourage companies to adapt to their environments by allowing employees to acclimatize to their workplace dynamics freely. This strategy should be supported by the adoption of open and transparent communication between employees and their bosses.

Netflix should also streamline its human resource practices to maintain an effective workforce that could better adapt to changing market conditions. This strategy will minimize the possibility that employees avoid responsibility for failing to adapt to the market forces outlined above and instead take responsivity for their actions. Adopting this strategy will ensure that Netflix’s management only maintains a reliable workforce.

Lastly, Netflix should avoid using conventional rules to react to environmental stimuli because the organization needs to be versatile when responding to market forces. This plan will allow the organization to be both strategic and operational. Although Park and Park (2019) point out the difficulty in achieving such a high level of adaptability to external environmental stimuli, Netflix could be both forceful and enabling in the manner it manages the effects of industry changes on its operations if it discards old rules and adopts new ones that are more adaptable to change. These recommendations are designed to address the threat of new substitutes and competitive rivalry in the industry, which is the most impactful forces in the industry based on Porter’s theory.

Limitations of Theory

Porter’s five-force theory has helped many companies to gain valuable information that would help them to better adapt to prevailing market conditions. This view is consistent with studies that have investigated how companies should innovate to stay relevant in a fast-paced market environment (YuSheng and Ibrahim, 2020; de Vries, Tummers and Bekkers, 2018; Bock et al., 2015). These benefits are transferable to the data collection process undertaken in this report because it confers the same advantages to Netflix’s case. However, Porter’s five-force model is limited in terms of scope because it only takes into account conditions that exist in a perfect market structure. Stated differently, the theory assumes that the media and entertainment industry is relatively static, which is not the case. Therefore, there is a need to undertake a broader and more consultative review of industry forces affecting the firm to get a more detailed understanding of factors that affect performance.

How Does Theory Impact Recommendations?

Porter’s five-force analysis theory could affect how Netflix adopts the above-mentioned recommendations by streamlining the company’s internal operational strategies with prevailing market needs and requirements. Therefore, the firm would realize improved synergy levels between its operational plans and overall corporate strategy. The link between the theory and recommendations highlighted in this report is an indicator of how successful Netflix would be in selling its products to potential customers in the future. It is feasible to implement the recommendations outlined in this document because they require internal management approval as opposed to external authorization from third parties. Therefore, the company’s management could easily ratify some of these proposals within a short time and implement them effectively.

Most of the recommendations highlighted in this document touch on the need to streamline people’s processes with industry dynamics. This statement is consistent with the views of Botha et al. (2017), Barton, Berger-Walliser, and Haapio (2016), which mention people as the key driver of successful strategic implementation processes in an organization. Already, technology plays a key role in driving change at Netflix based on its ability to expand access to entertainment content across different audiences around the world. The recommendations highlighted in this report complement this ongoing change because they update the company’s internal procedures with market opportunities that exist in the business environment.

One of the major barriers to implementing the aforementioned recommendations in the organization is the lack of employee buy-in. Consequently, employees need to be consulted at every stage of decision-making to account for their input in the implementation process (Iddagoda and Opatha, 2020; Ugargol and Patrick, 2018; Littlewood and Holt, 2018). In the end, Netflix would benefit from a high level of employee buy-in during the change implementation process. In this regard, there would be a low risk of opposition from members of staff regarding the adoption of the above changes.

Summary

In this strategic analysis, porter’s five-force model has been used as a useful tool for corporate analysis. It has helped to streamline Netflix’s internal organizational processes with market needs and requirements by highlighting the main factors that the company should focus on. The recommendations outlined in this document point to the need to embrace change by dismantling old ways of thinking that are inconsistent with current market developments. To this end, Netflix will be better adapted to the industry if it sticks to continuous innovation through the adoption of progressive corporate policies that align technological changes that continue to shape the media and entertainment industry with the company’s internal processes.

Reference List

Barton, T. D., Berger-Walliser, G. and Haapio, H. (2016) ‘Contracting for innovation and innovating contracts: an overview and introduction to the special issue’, Journal of Strategic Contracting and Negotiation, 2(2), pp. 3-9.

Bock, A. J. et al. (2015) ‘Innovation and leadership: when does CMO leadership improve performance from innovation?’, SAGE Open, 7(2), pp. 1-10.

Botha, N. et al. (2017) ‘Using a co-innovation approach to support innovation and learning: cross-cutting observations from different settings and emergent issues’, Outlook on Agriculture, 46(2), pp. 87-91.

de Vries, H., Tummers, L. and Bekkers, V. (2018) ‘A stakeholder perspective on public sector innovation: why position matters’, International Review of Administrative Sciences, 84(2), pp. 269-287.

Green, S. (2017) Netflix. London: Bellwether Media.

Iddagoda, Y. A. and Opatha, H. (2020) ‘Relationships and mediating effects of employee engagement: an empirical study of managerial employees of Sri Lankan listed companies’, SAGE Open, 4(1), pp. 1-10.

Littlewood, D. and Holt, D. (2018) ‘Social entrepreneurship in South Africa: exploring the influence of environment’, Business and Society, 57(3), pp. 525-561.

Park, S. and Park, S. (2019) ‘Employee adaptive performance and its antecedents: review and synthesis’, Human Resource Development Review, 18(3), pp. 294-324.

Perera, R. (2020) Understanding Porter’s five forces analysis. London: Nerdynaut.

Ugargol, J. D. and Patrick, H. A. (2018) ‘The relationship of workplace flexibility to employee engagement among information technology employees in India’, South Asian Journal of Human Resources Management, 5(1), pp. 40-55.

YuSheng, K. and Ibrahim, M. (2020) ‘Innovation capabilities, innovation types, and firm performance: evidence from the banking sector of Ghana’, SAGE Open, 5(2), pp. 1-10.

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