Category: Case study

Netflix Strategy Analysis

Summary of the Article

Anders Bylund’s article in The Montley Fool titled “What is Netflix, Inc.’s Competitive Advantage?” provides a key understanding of Netflix today. The article reviews the gains and the valuation ratios of Netflix’s business growth and provides insight into the business growth strategy of Netflix. The article mentions three key components of company’s success. These components are investing cash into content development, developing high quality content, and providing an easy to use Netflix platform. The article further expands on investing cash into content development by putting larger portion of its total content budget into the original TV shows and movies. The idea here is to build a content portfolio of lasting value by spending large amount of money that should keep subscribers hooked for future years. Additionally, the author suggests that Netflix is developing high quality content by building up Netflix original TV shows and movies with industry leading directors and actors. Finally, the author states that the easy to use Netflix platform is the subtlest aspect that makes Netflix special by giving it a simple interface whether it is being accessed from a smartphone or laptop or big TV screen. Taking off the online Ads from the website has removed the distraction for the viewers making it simpler to use.

The author concludes that these three components are the winning strategy for Netflix to grow its online streaming membership business while the competition focuses on add-on revenue streams.

Netflix’s Business Overview

Netflix, Inc. is an internet television network with more than 117 million streaming memberships worldwide with access to 140 million hours of TV shows and movies including documentaries, original series and feature films. The company launched its streaming services in 2007 which has experienced growing consumer base with the acceptance of the delivery of TV shows and movies over the internet. Their strategy is to grow the streaming membership business globally by expanding their streaming content and improving their user interface.

Netflix’s primary competition includes other entertainment video providers, such as multichannel video programming distributors (MVPDs), internet-based content providers, video gaming providers and DVD retailers and more broadly against other sources of entertainment. To strive against these competitors, they are improving their service by improving technology and content which is exclusive and curated.

Netflix’s Strategy Overview

Netflix believes that internet entertainment is replacing linear TV entertainment. The company’s opinion is that while consumers love their TV content, the consumer behavior is changing from linear TV entertainment towards an internet based on-demand content delivery model. This shift in consumer behavior is also leading to a shift in the entertainment industry as world’s leading linear TV networks now offer their programming on-demand through apps that run on phones and smart TVs. The company believes the consumers will utilize the apps that are modern and easy-to-use, while other apps will lose viewing and revenue. As internet data transmission speed and reliability increases, more consumers will switch to internet-based content.

Netflix uses the flat-fee unlimited viewing commercial-free subscription model. The subscription is tiered based on the number of simultaneous viewers but there are no other restrictions on the amount or content. This simple model results in easy to subscribe membership which is preferred by customers.

Netflix also believes that consumer taste is diverse even within the same market. The company has therefore developed a platform that quickly identifies the user taste and recommends content based upon user taste. The company licenses content for a specified amount of time, which may include multi-year exclusive subscription video-on-demand (SVOD) for a given title. The content licensing market has a lot of licensors and licensees. This leads to competing bids for exclusive SVOD rights from various cable networks, broadcast networks, and online video competitors. Since 2013, Netflix has increased its focus on developing its own content which is exclusively available on Netflix. This content development provides economies of scale as content can be developed based on user preference. Additionally, Netflix’s own content is available for new viewers even years after the content is published.

The largest proponent for the change in consumer behavior from traditional cable or satellite dish subscription to internet-based model is the access to high speed internet via internet service provider (ISP). As consumers want to utilize the access to internet they reduce cable cost by “cord-cutting”. Netflix works with hundreds of large and small ISP to directly interconnect with the Netflix network for free in regional locations rather than incur increase costs with third-party transit providers. In some regions, large ISPs such as Verizon and Comcast, usually charge Netflix for interconnection to the network. Netflix therefore supports strong network neutrality which reduces costs for Netflix and all ISPs. MVPDs that have internet-capable TV set top device usually offer integrated viewing experience with Netflix to increase the consumer usage of set top device.

Netflix’s competition is with a lot of entertainment service providers including, but not limited to, linear networks, pay-per-view content, DVD watching, other internet networks, video gaming, web browsing, magazine reading, video piracy, etc. Additionally, other content developers also increasingly building their own app-based membership service to capture the service membership. These platforms, such as HBO Go and Showtime Anytime, are increasing in direct competition with Netflix to capture the consumer subscription.

Porter’s Five Forces Analysis of Netflix

While Netflix can be regarded as an industry leader for internet entertainment company and Netflix can also be regarded as a leader within the entertainment industry, the company does face all of Porter’s five forces within the market place. Further analysis on each of the five forces are provided below:

Threat of new entrants:

The threat of new entrants within the internet-content delivery industry is existent and expanding as content developers create their own apps to host their own content. Netflix understands that having consumer driven proprietary content will differentiate it from the competitors. Netflix also faces similar strategy being used by other content owners such as HBO, Amazon, and Showtime. Therefore, it’s a key strategic goal for Netflix to keep developing new and attractive content which keeps the existing customers happy and attracts new customers, and to distinguish Netflix from new competitors. Netflix also helps build its own brand as it develops its own content. Consumers know that many series titles, such as House of Cards, Stranger Things, and others, are available only on Netflix. As consumers understand and prefer Netflix content, more new members join to view only Netflix content, thus helping the company with brand recognition.

Netflix also benefits from economies of scale compared to new competitors in the market. First, Netflix has developed an easy-to-use platform with sophisticated algorithm that identifies taste for members. While this is a differentiator for Netflix, it is also a proprietary tool that competitors will need time and years of compiled consumer data to develop a similar platform. Therefore, it is more cost effective for Netflix to manage its platform compared to a competitor to build a new one. Secondly, Netflix has built a substantial content development segment. In 2018, Netflix spent $12 billion on original content. Netflix won four Oscars awards in 2019 (“Netflix’s 4 Oscar wins solidify the new normal in Hollywood”, February 25, 2019). While Amazon Studios is fierce competitor, Netflix has proven to its competitors that it has a strong content development segment.

Threat of substitutes:

Netflix has developed itself from a substitute to linear TV to a leader in internet-based entertainment. During this time, Netflix has maintained its prices for members as it knows that consumers are price sensitive to any sudden price hikes. This has provided Netflix with loyal consumer base and word of mouth marketing. As the internet speed and access is provided at a cost-effective solution, there are significant competitors to Netflix. While these competitors are fighting with Netflix to garner a member base, they are not direct substitute to Netflix. Given Netflix’s cost-effective membership prices, the only real substitute is illegal piracy and peer-to-peer sharing. While a lot of budget-minded consumers will identify illegal piracy and peer-to-peer sharing as an option, most consumers will opt to pay for the service given its relative low cost. Should this membership cost rise, consumers will be more open to using illegal services.

While Netflix understands that there are many options for consumers to choose when it comes to entertainment, Netflix wants to be a leader in internet-based entertainment. Therefore, Netflix must be competitive with other content developer as well to build quality level programming. Should this quality drop in appreciation, then Netflix would be a cheaper quality to other content developers such as HBO and Amazon Studios.

Bargaining power of customers:

Consumers in the current entertainment industry have tremendous bargaining power over Netflix and other entertainment providers. Under the new cord-cutting phenomenon, consumers want two things from their entertainment companies, no contracts and low monthly fees. Netflix has been the leader in helping consumers optimize their internet-based entertainment and helping them ‘cut their cord’ with the cable companies such as Verizon and Comcast. While Netflix has helped start this phenomenon, other content providers are bringing their own subscription-based content app and membership such as Amazon Prime Video, HBO Go, Showtime Anytime, etc. Memberships to these content apps and websites have similar pricing structure to Netflix and can be enrolled monthly without any contract. This provides a market share that is fluid and dependent on the level of content provided. Consumer that subscribe to a given service and are unsatisfied with the service will have the flexibility to switch to a different service within a short timeframe.

Netflix’s strategy to gain and keep the market share is to develop its own content that is unavailable on rival’s app or service. Creating this content and having a strong following among Netflix’s consumer will provide Netflix with a bit more leverage over the consumers compared to pure online content distributors. The reason behind this is that consumers who are hooked on to shows, like House of Cards and Strangers Things, will keep their subscription on rather than switch it on and off. This also provides Netflix with a clear understanding of consumer behavior of current and historical Netflix customers compared to new customers. Therefore, Netflix can cater to their own market share without easily losing it.

Bargaining power of suppliers:

There are two areas where Netflix is a buyer and cannot commend a significant power over the seller. First, regional and large ISP have a significant power over Netflix. With the dismissal of Net-neutrality laws by the Federal Trade Commission (FTC), regional and large ISP can charge, and price discriminate against Netflix for this interconnection fee. While Netflix likes to work with small and large ISP to reduce the network costs, regional and large ISP that have monopoly within some markets will charge fees that are discriminatory against Netflix. Given that there is no other alternative for the connection to the network, Netflix pays these fees to ISP to provide access to all members and customers. Second, Netflix has built a large segment for content development. While this segment is being developed, actors, directors, writers, and other professionals in the entertainment industry has a union. While Netflix pays these professionals based on market level, the unions could decide to walk-out or create a strike for higher pay. Since these actions cannot be controlled by Netflix, it can be argued that the costs of content development can be increased or decreased based on compensation agreements with the actors, directors, writers and other professionals.

Competitive rivalry:

Netflix has a significant competitive advantage over other internet-based entertainment companies. This advantage is fueled by Netflix’s spending on original content development and its increased push to gain a larger and more decisive market share of the entertainment industry. While this strategy is sustainable for the short-run, it can be difficult to sustain such large expenditure with cash for the long-run. This will push Netflix to update and modify its strategy to a more efficient model. Netflix knows that this market is competitive and that new entrants will further create an ongoing market share battle for existing customers. Content which has been created benefits Netflix as it is an asset, but this content will depreciate over time as viewers are less likely to keep their subscription for old content. One thing is for certain, as cord-cutting phenomenon is increasing, more content providers will encroach on Netflix’s market share creating more competition.

Value Chain Analysis of Netflix

While Netflix is a service-based entertainment company, it still faces significant amount of value chain activities that are vital for the company’s growth and sustainability. Further, Porter’s value chain analysis on Netflix’s primary and secondary activities is provided below:

Primary Activities:

Netflix’s inbound logistics include intellectual property on original content developed and licenses on third-party content. Netflix’s operations include daily management of website and operational activities such as coding, development, and management of website. Outbound logistics include providing consistent streaming services and managing the connection to ISP networks. Netflix manages marketing and sales by managing promotions with partners, running advertisements and providing trial subscription to new customers. Netflix’s service includes providing seamless streaming and viewing services to its members via the internet.

There are two main primary activities that are significant for Netflix. First, is the operation of the streaming services for members. This is by far the key aspect of the Netflix’s primary activity. Netflix wants seamless viewing and streaming for members. This includes streaming on apps, phones, and via the website. Netflix therefore allocates a significant amount of time to reduce outages and issues. They also need to invest in customer services to assist with operational and technical issue with the service. The other significant primary activity is sales and marketing. Given that customers need to be hooked onto Netflix’s original content as soon as they cord-cut, its important that customers are hooked via advertising of Netflix’s content. Therefore, sales and marketing play a key role in increasing the membership subscription for Netflix.

Secondary Activities:

Netflix’s firm infrastructure is built around the streaming service. The platform provides a strong infrastructure to the user and a seamless streaming delivery tool. Netflix’s human resource management must maintain a strong team of developers and content producers. As the platform runs on algorithm, Netflix invests heavily on technology development related to the platform and the algorithm. Netflix procumbent includes procure licenses for content, developing new original content and managing relationships with ISP providers.

There are two secondary activities as well that are significant for Netflix. First, is the development and maintenance of the platform. Netflix has developed and easy-to-use platform with a state-of-the-art algorithm that helps suggest content to users. While the infrastructure for the platform a capitalized cost, the ongoing development of the platform and the algorithm is a long-term activity for Netflix. This is a vital activity to differentiate Netflix and help Netflix grow. Secondly, the significant amount of cash used to develop in-house original content is a large activity for Netflix. While the sustainability of this activity for the long-run is heavily debated, the company has confirmed that it plans to make original content development a core part of the company’s long-term objective. While other secondary activities are important, these two secondary activities are core part of Netflix’s long-term growth plan.

Conclusion on Company Impact

Netflix’s opportunity to stay competitive by developing its Netflix’s original content is key for Netflix’s future. While all of Porter’s five forces are applicable for Netflix, Netflix’s strategy currently wants to focus on two, threats of new entrants and competitive rivalry. Netflix knows that new entrants will enter the market, so they must make their platform the most state-of-the-art to attract customers. To be competitive, Netflix is focused on content development as it wants to stand out as the industry leader in content development.

Recommendation

While Netflix’s strategy is currently effective as both its old and new customers are happy with the content. The key question is how long Netflix can afford to invest in new content. Currently, the operating margin of Netflix has been maintained despite large amount cash being used. But in the long term this may not be feasible. Netflix should therefore have a strategy to retain the customers without using so much cash for content development. One option by which Netflix can reduce its cost for content development is to have exclusive partnership with current content developers. This will help mitigate risk and reduce cash outflow. As defining a new strategy may be a complex issue, the company and the shareholders are content with the current strategy.

Works Cited

1. Bylund, A. (2018, July 21). “What Is Netflix, Inc.’s Competitive Advantage?” Retrieved February 17, 2019, from https://www.fool.com/investing/2018/07/21/what-is-netflix-incs-competitive-advantage.aspx
2. “Long-Term View”. Netflix, Inc. Retrieved from https://www.netflixinvestor.com/ir-overview/long-term-view/default.aspx
3. Netflix, Inc. (2018). “2017 Annual Report”. Retrieved February 23, 2019, from https://www.sec.gov/Archives/edgar/data/1065280/000106528018000069/q4nflx201710k.htm
4. “Netflix’s 4 Oscar wins solidify the new normal in Hollywood”. (2019, February 25). Retrieved February 26, 2019, from https://finance.yahoo.com/news/netflix-wins-4-oscars-roma-cuaron-and-period-end-of-sentence-124918844.html

Summary of Terms

1. multichannel video programming distributors (MVPD): a service provider that delivers video programming services based on a subscription fee.
2. subscription video-on-demand (SVOD): a service that gives users unlimited access to a wide range of programs for a monthly flat rate.
3. internet service provider (ISP): a service provider that provides services for accessing, using, or participating in the Internet.
4. linear TV: real time television services that transmit content based on a schedule. Usually referring to broadcast TV service.
5. cord-cutting: the consumer pattern under which consumers cancel their subscription to linear TV services available over cable for rival media available over the Internet.

Final Case Analysis of India’s Environment for Netflix: Overview and Performance, International Strategy, Business-Level Strategy

Netflix’s Overview and Performance

Netflix has become a worldwide phenomenon in which people are given the ability to stream the most popular movies, television shows, and even have DVDs delivered to their homes for a low monthly fee. “The company has a subscriber base of more than 117 million members across 190 countries globally” (Harrington, 2019, p. 5). They offer a different variety of packages you can get depending on the number of screens you are looking to stream their services on and also have the ability to add the DVD service to your package as well if you would like for an additional fee.

Netflix has currently been dominating the streaming service industry within the past three years. Their revenues have drastically increased between the years of 2016-2018 making them a strong force within their industry. In 2016, revenues amounted to $8,830.67 million with a gross profit of $2,800.77 million (Harrington, 2019). In 2017, revenues generated were $11,692.71 million with a gross profit of $4,033.05 million (Harrington, 2019). Finally, in 2018 revenues were $15,794.34 million with a gross profit of $5,826.80 million (Harrington, 2019). As one can see, the revenues of Netflix has increased each year, therefore, there seems to be a definite need and want for what Netflix has to offer to its consumers.

The research and development also has increased in the amount of dollars spent each year. In 2016-2018, $852.10 million, $1,052.78 million, and $1,221.81 million was spent on R&D respectively (Harrington, 2019). Therefore, Netflix has been actively searching to find ways each year to bring the best ideas and offerings to the table to better serve their customers and to make their company the best it can possibly be.

International Strategy

Netflix has not only dominated the United States market, but they have also made strides to expand internationally to other countries. Their international strategy includes expanding their product to these other countries in an effort to meet the streaming needs of these potential customers. In doing this, the sales overseas has dominated the US market sales, making Netflix a global business (Uttley, 2018). The company has always been well known in the United States and it appears that just recently Netflix is beginning to gain some international appeal (Uttley, 2018). The company has gained 5.4 million members from across the globe and only 2 million members from the US in the first quarter of 2018 which was a 50 percent increase from the previous year (Uttley, 2018). “This has led some experts to speculate that by the end of 2020 the company will have added a further 70 million subscribers to its services and that this will mainly be fueled by international growth” (Uttley, 2018, p.5).

Netflix also differentiates itself to international markets in the way it provides a wide array of content to its customers. The content the company offered in its beginnings was more targeted towards the US market in which English was the main language available to watch the programs in. Now, the company has a vision to spend around $8 billion to display all the content they have to offer in different languages in an effort to appeal to other countries around the world (Uttley, 2018). Netflix has truly had an impact on broadening its demand to number of different markets through the way in which they have decided to expand to customers around the world (Uttley, 2018). “By the end of 2018, CFO David Wells wants to have 700 TV series’ available worldwide and also offer 80 original productions that will be non-English and not produced in the US” (Uttley, 2018, p. 6). Netflix’s strategy to expand international is, therefore, providing to the specific needs in different countries that is not already being met currently.

Although Netflix has competition from such streaming companies as Hulu and Amazon Video, they are continuing to be the leader dominating the streaming industry with 71% of demand while Amazon and Hulu only come in with 11% and 9% demand respectively (Weprin, 2019). Without the discovery of Netflix, we would not have much of a streaming industry today. Most people have become comfortable with Netflix because of the wide array of entertainment that is provided and people prefer it over other streaming services. The demand for Netflix is high compared to other streaming services, therefore, Netflix does not see the need to reduce their prices because there seems to be a need or want for the streaming service regardless of how much it is costing the customer.

The business level strategy Netflix is aiming to offer to its consumers in India most aligns to the focused differentiation strategy. The needs and wants of customers in the US are very different from those needs and wants of those in India. Culturally, we all have different desires and Netflix is trying adamantly to meet the needs of their customers in India by looking at the market and what is most popular when it comes to streaming in the country. It is certain that Netflix is not very price sensitive but instead the company is very adamant on changing the amount of data their streaming services need in order to run. In India, Netflix streaming on a mobile device is very popular and the amount of data this usually takes is 200 kb (Pelts, 2017). Due to the fact this phenomenon is so popular in India, Netflix is striving to get the amount of data usage down to 100 kb (Pelts, 2017). This simple action makes Netflix more favorable to its customers especially since streaming on mobile devices is very popular in India. The company may even be taking measures to totally exempt their customers from any charges that come with the usage of data which customers would most definitely get an advantage from (Pelts, 2017).

Netflix also set itself apart from the US market and tried to focus on offering original content in India to its viewers. They did just this when they introduced there first ever original series in India called Sacred Games based off a very famous novel (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). They “also planned to expand its portfolio by including content in regional languages like Bengali, Gujarati, Tamil, Punjabi, and Marathi” (Sharma, S., Srivastava, Chandoke, & Prakash, 2016, p. 4).

Weaknesses

Although Netflix is one of the biggest streaming services in the world, they do have some weaknesses they need to improve on to completely dominate the market. First off, their prices they charge are higher than most of their competitors. Netflix this year increased its prices in the US from $7.99 for a standard plan to $8.99, the two-screen plan went from $10.99 to $12.99, and the premium plan will go from $13.99 to now $15.99 (Blumenthal, 2019). In doing so, Netflix has given competitors a major hand in winning over potential customers that will decide to leave Netflix because of the price increases. Netflix prices in India continue to remain the same at $7.35 for the basic plan, $9.55 for the standard plan, and $11.76 for the premium plan (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). Since the company is currently trying to build up their business and compete with others in India it would not be wise for them to increase their prices (Pathak, 2019).

Another weakness Netflix has is based on solely its content. Although Netflix does offer original content it does not own all its programming (Bradshaw, 2017). In 2018, 8 million dollars of Netflix’s budget went to just licensing alone which is a lot of money they could have been spending in various other areas of their company (Rahman, 2019). Lastly, it has become aware to the public that Netflix is not environmentally aware which has not brought the best publicity to the company (Lewis, 2016). They are lacking in this area opposed to their competitors such as Amazon and Facebook who are heavily environmentally friendly in which they use renewable energy (Lewis, 2016). Netflix needs to get these key weaknesses under control before it affects their business as a whole.

When it comes to the price being charged, Netflix needs to price their services more reasonably and consider the fact that they do have other competitors out there that can offer a similar product they are offering for a much lower price. Hulu for instance has a membership that starts at $5.99 which is substantially cheaper than what Netflix wants to charge for their service. If Netflix was to raise their prices in India as they have done in the US, they would lose a lot of their clientele to other competitors which have lower prices such as Amazon or Hulu which would not be the smartest thing to do financially.

The fact that Netflix is spending a substantial amount of money on their licensing agreements is taking away from the money that could do to producing original content in India. Indian customers are very persistent on their need for original content outside from the US. In order to keep their customer base in India content, it is almost essential that they start producing and spending more money on what their customers ultimately want which is series’ and movies specific to India. If Netflix does not try to achieve this goal, they could see their business moving in a negative direction in the near future.

Lastly, most people in today’s society like to be environmentally aware and will actively participate in making the world cleaner and the fact that Netflix does not adhere to such practices may affect their following in a negative manner throughout the world. Companies that have concerns for the environment are more likely to have a solid following then those who do not. It would smart for Netflix to become involved with making the world a more environmentally friendly place which in the end would give them more attention and more of that good publicity that they so anxiously need.

Assessing the Competitive Environment in India

Digital video consumption is a very instrumental trend in India. By the end of 2014, the number of online viewers of video content surpassed 200 million users (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). It seems that this a way of the future in India as it is estimated that by 2020 the digital video market will have about 35-40 billion users (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). With this projection, Netflix and or other competitors making themselves a player in the streaming market was definitely a good investment. Due to the fact that Indian consumers prefer digital online media, Netflix and other streaming companies have made it a priority to offer an application in which you can stream their content right from your phone which makes the demand for these streaming companies much more desirable to the Indian market. Netflix and other streaming services offer the feature of the application but not all competitors have their app available on all kinds of devices as Netflix does which sets them apart from the competitors (Baxi, 2017).

Video Streaming is also something that has become a popular trend in India. Before the founding of such companies as Netflix or Hulu, YouTube was where 60 million users of the Indian population would go to stream videos and get their daily dose of entertainment (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). It was found that “across age groups, genders, and regions, there was a high inclination towards movies” (Sharma, S., Srivastava, Chandoke, & Prakash, 2016, p. 2). This is why people began to find a demand for streaming services that not only offered content but offered movies and or series’ in which they were able to stream freely and at any time. Hence why Netflix and other streaming services where born. There was a definite need for entertainment to be readily available at the click of a button and Netflix came around at the right time when this need was very strong.

Bollywood is a very influential trend in the Indian society. This is currently a $2.1 billion dollar industry in India and it is expected to grow to $3.7 billion by 2020 (Bureau, 2017). The amount of films being produced in India is the largest around the world with 1,500-2,000 films being produced each year in over 20 different languages (Bureau, 2017). Even with these numbers, India does not come close to matching the $11 billion that the US and Canada make in revenues (Bureau, 2017). With India being extremely popular for offering its country with original content, Netflix must step up its game to offer the same diversified original movies that Bollywood in India is not already tailoring to. Netflix has taken one step in the right direction by its introduction of a new series in India called “Scared Games” and also, they secured streaming rights to a very popular Bollywood actor, Shah Rukh Khan (Bengali, 2018). Netflix making these types of strides to bring the India people what they want is definitely a stepping stone for success in India.

Key Issues

There are two main issues that are holding Netflix back from achieving its true potential in India. The first issue would have to be the high prices that Netflix is charging opposed to other streaming services. When Netflix first launched in India, their main target market was to focus on the rich and elite and then to make the rounds to other consumers in the Indian market (Madhavan, 2017). Netflix underestimated how much other consumers may have been interested in their product and this helped to lead to their downfall in attracting a diverse variety of customers to their product. The prices being charged from the subscription service ranges from $7.50 to $12 which can be quite costly for a streaming service monthly (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). India has a competing streaming company to Netflix called Holstar and Eros Now which is reasonably priced compared to Netflix. Holstar’s services are priced at about $3 for its premium service and Eros Now is only charging around $1.50 per month for its most expensive plan they offer (Singh, 2018). Because of their pricing structure, Eros Now has about 8 million customers who pay monthly for their subscription (Bhattacharya, 2018). In today’s society, when it comes to similar products we like to compare them to other services offered in terms of price and if Netflix wants to come on top in this country they will need to be more price sensitive in order to best cater to their customers.

Another key issue that Netflix needs to address in the next two to four years would be the need for more original productions to be produced for the audiences in India. Since the Indian population wants and thrives on the need for original content, Netflix needs to step up its game in bringing customers what they want. With Bollywood being so popular and producing thousands of original movies a year right now, Netflix is not even close to this offering. They have only one original series so far and have produced only 8 original films since their launch into the Indian market (Mitter, 2018). If Netflix wants to be able to compete with other streaming networks, they need to work on producing more original films in order to live up to and compare to Bollywood.

Recommendations

I believe a major reason for Netflix not being as successful as they could be in the Indian market has a lot to do with the prices they are charging for their services. I think it would be super beneficial for the company to look to achieve a cost leadership strategy when it comes to the Indian market. With their being some many other competitors out there offering lower prices for streaming services it is easier for Netflix to be overlooked even though they offer a product that is differentiated from its competitors. Since their product is already differentiated it would make sense for Netflix to compete with other competitors on lower price because it is something that other competitors are offering and something they are not which gives them the lower hand.

Another idea I think that would benefit Netflix when it comes to price is to solely provide streaming on mobile devices in India to save money and costs. Due to the fact digital consumption and streaming on mobile devices is very popular in India, it is more logical for them to reduce their costs in this way. If in fact Netflix was able to eliminate the charges of data to stream their service, I feel like this option would be preferred over streaming on laptops or televisions. We are living in a society in which we are always moving and on the go, therefore, providing the streaming services mainly on mobile devices would meet the needs and expectations of the Indian society that aligns with such a trend.

Ethics Question

Since Netflix does not own all of its content they stream they have encountered some ethical concerns such as lawsuits due to copyright or licensing agreements of the programs. One such example of this was over the 1948 film called Bicycle Thief (Gardner, 2015). This movie was thought to be available to the public for over three decades because no one filed for a renewal of the copyrights (Gardner, 2015). It was found that even though the film may have not been under copyright that the subtitled version may still have been, and this was the ethical issue at hand (Gardner, 2015). This issue adds to the fact that Netflix needs to offer more original content instead of spending all of its money on upholding licensing agreements and renewing copyrights. If the company did this, they would have less of a headache because they would own most of its content and would not have to deal with lawsuits coming their way left and right.

Another ethnical concern that comes into play is the issue of the increase in the subscription fee for Netflix. Netflix has offered the same monthly price for a steady amount of time and most customers have been assured that the $7.99 fee would be promised to them for life (Cullins, 2016). There was a certain period in which Netflix guaranteed that the $7.99 fee would be the locked in rate if customers continuously maintained their subscription (Cullins, 2016). George Keritsis was one of these individuals who was promised the $7.99 per month fee but then suddenly one day his rate was increased to $8.68 (Cullins, 2016). He also was advised via email that his price would ultimately be $9.99 per month (Cullins, 2016). The man decided to sue the company for breach of contract because this was not what Netflix told him to be true and they went back on their word (Cullins, 2016). Being honest to your customers is the most important thing when owning a company. It is not just or right to tell people one thing and do another. Netflix should be held accountable for the wrongful actions they have acted on and for deceiving their customers in this way. It may be hard for customers to trust or be loyal to Netflix in the future because of this action.

In conclusion, Netflix needs to focus on several factors and issues to make their expansion to India a success. They need to look specifically at what their customer preferences are in this country and then solely base what they need to provide to their customers on this measure. They issue of pricing and original content needs to be immensely improved in order to also win over the majority of the Indian population. Netflix is currently dominating in the US but is not doing enough just yet to globally take over the world. Once they get their pricing aligned with other competitors providing streaming in India and produce more original content for their Indian viewers they will have a solid foundation for their streaming business.

References

1. Baxi, A. (2017, December 20). India’s Video Streaming Market Is Bigger Than Ever, And Here’s Who You Should Watch. Retrieved from https://www.forbes.com/sites/baxiabhishek/2017/09/30/indias-video-streaming-market-is-bigger-than-ever-and-heres-who-you-should-watch/#60a2c4217cda
2. Bengali, S. (2018, March 03). Big-budget TV meets Bollywood as Amazon and Netflix do battle in India. Retrieved from https://www.latimes.com/world/asia/la-fg-india-netflix-amazon-2018-story.html
3. Bhattacharya, A. (2018, July 02). A 40-year-old film company has a plan to beat Netflix and Amazon in India. Retrieved from https://qz.com/india/1319005/inside-eros-nows-plan-to-take-on-netflix-and-amazon-in-india/
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Marketing Challenges and Opportunities in Digital Media: Case Study of Netflix

Abstract

Media consumption across the globe is progressively happening in digital formats. The surge in the number of devices capable of supporting digital media along with increasing internet access speed, has delivered consumers with an option to access the media content of his choice be it data, entertainment or social activity anytime, anyplace. Media consumption in the world has shown marvelous increase and has seen a momentous jump from traditional media to new (digital) media. The rise of digital media players such as Netflix, Hulu, Amazon etc. are challenging the traditionally maintained supremacy of the television as the main entertainment hub for today’s audiences it’s all about immediacy and mobility, the content they are looking for must be just a click away to fit their needs. Now everything is possible. Maybe you want to watch an episode of your favorite show when you are traveling, or maybe each member of your family wants to watch something different in a separate room of the house. In this project, we aim to study and analyze the marketing strategies of digital media company Netflix and how the rise of Netflix is challenging the conventional ways like T.V and cinema. Additionally, we’ll also study the challenges faced by these digital media companies and come up with solutions for the existing marketing challenges.

Introduction

Video Streaming and broadband connections help users around the globe download and watch large video files from the comfort of their homes. Taking benefit of this technology, the American company Netflix launched a video streaming website on 2009 where users could watch the most recent Television episodes and Hollywood Blockbusters. Netflix changed content consumption models in the entertainment industry and led to the vanishing of the mainstream video rental store in North America.

For today’s audiences it’s all about proximity and mobility, the content they are looking for must be just a click away to fit their needs. Now everything is possible. Maybe you want to watch an episode of your favorite show when you are traveling, or maybe each member of your family wants to watch something different in a separate room of the house.

All of these demands are being fulfilled with the help of video streaming as well as the proliferation of devices that gives the user access to it. Now if you want to play movies, music or watch an episode of your favorite TV show you can easily do it wherever you may be.

If we want to completely know the impact of video streaming in society and the entertainment industry we must first look at the technological progressions that paved the road so companies and services like Netflix, HBO or Prime could become successful.

Literature review

Over time, the theory of disruptive innovation established by Clayton Christensen, in 1997, has often been used to explain the implications of all disruptive innovations; however, Markides (2006) and McGahan (2004) argue that even though different disruptive innovations share many similarities, there are differences between them. Therefore, understanding what kind of disruptive innovation, at hand, we are looking at is the key to successfully determine what its implications are for the market. Markides (2006) defines two finer categories of disruptive innovation – namely, business model innovation and radical innovations. In this framework, business-model innovation occurs when the current product or service and the way it is delivered to the consumers are being redefined, and essential innovations represent new-to-the-world services. As Markides (2006) explains, business-model innovations usually broaden the market size by either attracting completely new customers and/or by encouraging existing customers to spend more. If successful, the growth of these new business-models over time increases the attention of established players so much that they cannot afford not to respond to these new “players”. Radical Innovations on the other hand create new-to-the-world products/services that disrupt prevailing value propositions, consumer habits and undermine the competences and the core assets, which the industry is built on (Markides, 2006).

The reasons and allegations of unruly innovations have been further broadened by several other authors as well. For example Yoffie (1997) explains that market entry is more likely to happen through creative mixtures of complementary technologies and with digital convergence these new technologies can have important implications for industry structures (Dowling, Lechner, Thielmann, 1998). While disruptive innovations often create difficulties for established incumbents, as the modest environment changes, Markides (2006) and Charitou & Markides (2003) recognize that these strategic innovations are not necessarily destined to make traditional ways of competing totally obsolete. Though, to avoid losing market position, officials must find ways to cope with these changes.

The big question then becomes what allegations these strategic movements have for the industry structures. While online media services represent a fairly new industry segment, several scholars discuss the economic and competitive benefits of the Internet. For example, digital material goods and the Internet provided delivery system offer major competitive advantages over other media, for marginal costs are being lowered to insignificant levels and bundling can create extraordinary “economies of aggregation” (Shapiro & Varian, 1999; Bakos & Brynjolfsson, 2000). Also, the most important value of these online services lies in their size to provide enhanced services for both consumers and suppliers. While there are several economic advantages of online market efficiency; some argue that improved product features made available through electronic markets can have more significant impact on consumer welfare gains (Brynjolfsson, Smith and Hu, 2002).

Strategic issues

As society and science technology develops, the Internet has begun to change people’s daily lives, such as the ways of study, communication and entertainment. Thus, in the situation online business has become very mutual. Netflix was online business, founded by Hastings in 1997. Its service item was online subscription-based DVD rentals. In the process of development, Netflix existed seven main strategic issues:

Firstly, Netflix ignored the actual situation and chose the similar business model with the other famous internet brands like eBay, Amazon. Because of competition advantages with other retailers, Netflix did not understand this until they found out the subscriber would not choose to return after their first involvement.

In order to develop the market, the firm has to spend much money to attract more new customers, and Netflix neglect the customer service, so that some early customers still lost by the sluggish service that Netflix offered.

Customers always like top new released movies which were the most expensive, thus increased the cost of Netflix. As a result, the viewers should expense more cost to gain new movie because of the strategy called “all you can eat”. And Netflix was always distribution the new movies package which has some old movies, but most viewers may not like them.

The number of new films was less than the desired one and it leaded to customer’s dissatisfaction. Due to there was no direct relationships with the major studios, Netflix only built its film library through relationships with a small number of movie distributors.

Due to Netflix set up a single distribution center in Sunnyvale and California, Post Office may spend a long time to mail on cross-country and then lead to extend delivery period. As a result, it lost a lot of customers.

According to the subscription-based services, customer loss is the key strategic issue of Netflix. Due to the high competitive market and raise of price, customer loss has become an urgent problem. Hence, customer acquisition, which includes developing new clients and retaining old clients, has become the main strategy to improve the business performance of the company.

The threat from video on demand (VOD) influences the performance of Netflix seriously. VOD can instantly provide viewers to watch latest movies. Therefore, they consider that VOD is more fitting than DVD rental and traditional video stores.

Swot analysis

Netflix’s Strengths analysis

Competitive ‘first-mover’ advantages comprise identifying strong brand name and knowledge base.

Online flexible organization and interface allows Netflix to preserve low operating expenditure whilst raising its subscription base. Netflix’s position in the industry will rise if movie downloads become the consumption technique of choice by viewers. Accordingly, Netflix’s subscribers increase, will lead to a decrease in marginal operating costs and increase in profits.

Netflix was able to achieve competitive benefits by offering low price, free shipping, large selection, and no late fee policy. This expands the levels of consumer satisfaction and referrals.

Netflix’s Market Power:

Netflix has been gaining control of a large area of the online DVD rental market and as a pioneer in this industry, Netflix has become a household brand.

Netflix presents a dedicated DVD recommendation facility based on the valuations and viewed films by its previous viewers. These references coupled with Netflix’s extensive DVD inventory enable consumers to learn beyond the video content of the prevailing video feature films. The service is branded and unique to Netflix services.

Presently, Netflix has a large, video content library. Netflix has more than 100,000 titles and 74 million discs, this including; TV shows, unclear movies, and new releases.

Netflix’s workforces have a desire for movies which translate into positive work ethic.

Netflix’s Weaknesses analysis:

Financial Resources.

Small Economic resources compared to competitors like Blockbuster.

Consumers have to wait at least one or two days to get their films.

Despite of that fact that Netflix present its services across the U.S and some other countries, Netflix has not expanded outside those few countries, which makes Netflix to depend on one or few markets. The globalization can benefit the Netflix’s business by increased opportunities for growth and strength.

Dependent on USPS as subject to stamp price increases, distribution channel to forward.

Subject to technological change.

Netflix’s product based on its services to their viewers, this means that the Netflix’s strength and growth will depend on the high Average Income per User, low consumer Acquisition Costs, and upholding low churn rate. These issues might be difficult to control due to the lack of transition costs in the video entertainment industry.

Netflix’s Opportunity analysis:

Netflix’s Potential Growth of Subscription

The business of DVD rental increases every year, and Netflix might tap into this growing and Growth into markets.

Growth of movie download ability.

Sustained international expansion of DVD internet access, acceptance of e-commerce and component sales.

A small meteor crashes into Blockbuster Corporate Headquarters

Netflix’s Threats Analysis:

Extremely Economical Market: The industry of DVD video covers a wide range of viewing prices, technologies, and services. There are some other streaming competitors that might theoretically present home video cheaper than Netflix. If those competitors surface with a better streaming ability and lower prices, Netflix’s business model might be sternly compromised.

Changeable Video Rental Industry: The industry is constantly emerging due to organizing and technological innovations. Prices, goods, and customer preferences are subject to rapid change, creating uneven and changeable markets where new competitor usually a threat and a suggestible business model is necessary to achieve.

Subject to direct attack by countless Netflix’s rivals, such as subscription products presented by HBO.

Finding and suggestions

Streaming giant Netflix had ‘a strong but not stellar’ second quarter, according to the company’s letter to shareholders. About 5.2 million viewers were added across the globe, down slightly from the same period last year, but still a big number in absolute terms. Relative to Netflix’s guidance calling for 6.2 million new subscribers, the company fell well short.

The miss on subscribers is a minor point in my book. What investors should really be concerned about is the company’s exploding marketing costs. Netflix not only gained fewer subscribers than expected in the second quarter, but it did so while spending far more to lock down each of those subscribers. Customer acquisition is getting a lot more expensive for the streaming company, particularly in the U.S.[image: NET1.png]

Even in the international side of the business, customer acquisition costs are rising. Netflix spent $278 million on marketing overseas in the second quarter, gaining 4.47 million new international subscribers. That’s around $72 per subscriber.

Saturation and Competition

Netflix invested $526.8 million into marketing during the second quarter, about 13.5% of its total income. That’s approximately double what the company spent in the second quarter of 2017. In spite of this heavy investing in marekting, Netflix gained slightly fewer subscribers overall, and far fewer in the U.S.

As recently as 2015, Netflix had to spend around $52 in marketing to acquire a new domestic streaming customer. That number has been rising ever since, partly the result of a shrinking pool of non-subscriber households.

The company spent $228 million on marketing in the U.S. in the second quarter and gained just 670,345 new viewers. That works out to a whopping $340 per subscriber. On a 12-month basis, which smooths things out a bit, Netflix’s domestic consumer acquisition value is now above $145.

Profits are taking a hit

This heavy marketing spending, along with Netflix’s debt-fueled content spree, are starting to knock down the company’s margins. Operating margin was 11.8% in the second quarter, down from 12.1% in the first quarter. Netflix’s guidance calls for that value to fall to 10.5% in third quarter.

Cash flow remains deeply negative. The company expects a free cash flow loss between $3 billion and $4 billion this year, a staggering range. Netflix plans to continue to fund its growth with junk bonds, despite its stock trading for more than 150 times earnings. Netflix is currently paying more than $100 million in interest quarterly, wiping out nearly one-quarter of its operational profit.

Solutions

Partner with Multichannel Television Provider – By partnering with a multichannel television provider to offer its streaming content alongside well- known premium channels such as HBO and Showtime, Netflix will likely be able to grow its subscriber base and help offset its churn rate. Additionally, such a move could help strengthen and broaden the Netflix band, as it would provide an additional communication channel to customers and also benefit for effects of association with premium names such as Prime.

Emulate HBO – Given the rising new content acquisition costs, and the likelihood that, given the market conditions, these costs will not depress in the foreseeable future, Netflix should consider imitating premium channel powerhouse HBO – rather than (or, in addition to) acquiring new (and expensive) content from movie studios, HBO creates its own content ex: Games Of Thrones.

Focus on Managing the Brand – Given the lack of satisfaction of customers over the decision to chop the business into separate by-mail and streaming units, along with an associated price increase, Netflix has some recovery work to perform to repair its brand. Attempting to brand the streaming service separately dilutes the strong Netflix brand

Continue International Expansion (But Keep a Diligent Eye Open) – Netflix stands to achieve important competitive advantage within the international arena with its aggressive enlargement plans. This advantage can come from Netflix size, connected economies of scale, and early mover edges in several international markets. The returns from a successful international expansion outweigh the risks; however, given the prices and time required to induce operationally healthy in a very given foreign market, Netflix should diligently manage its efforts and control its prices and be good and deliberate in its international growth plans.

Roll Out New Ideas In the Market – Netflix should come out with more of its new exclusive ideas. Example: Recently Netflix released an interactive movie, which focused on taking input from the viewer and let viewer decide how and in which direction the movie will proceed. This is a brilliant concept and can open the floodgates for Netflix in future as these types of innovations are very important to survive the vigorous competition in streaming industry.

Conclusion

In conclusion, Netflix has been successful in maturing and developing to adapt to the changing needs of customers over time. While their original DVD-by-mail business model was effective against competitors such as Blockbuster, the rise of internet streaming’s popularity meant they had to adjust, and the marketing challenges can be dealt in orderly and controlled fashion by focussing on brand management, team up with other giants like HBO, making your own content but with considerably less budget and international expansion with equal focus on expenditure. The continuous efforts on this area will help Netflix grow and they won’t incur loss, rather their profits will increase with balanced margins and systematic investments.

References

1. Amematekpo, O., Moreno, O., Pruneda, T., Runnion, B., and Troester J. (2011) Netflix. Northern Illinois University.
2. Fritz, B. (2009) Warner Bros. takes aim at Netflix along with Redbox. The Los Angeles Times Business. August 13.
3. Knowledge@Wharton (2009) Netflix: One Eye on the Present and Another on the Future. October, 28. http://knowledge.wharton.upenn.edu/article.cfm?articleid =2367
4. MSNBC (2009). Netflix third quarter earnings climb 48 percent.
5. Netflix, 10K (2009) Netflix’ Business.: http://yahoo.brand.edgaronline.com/EFX_dll/ EDGARpro.dll
6. Rothaermel, F. (2012) Strategic Management: Concepts and Cases. New York: McGraw-Hill.
7. Barna, D. (2014, January 3). Netflix Has 76,897 Ways To Label Your Taste. Retrieved from Refinary29 website: http://www.refinery29.com/2014/01/60036/netflix-has-76897- subgenres
8. Madrigal, A. (2014, January 2). Netflix Built Its Microgenres By Staring Into The American Soul. Retrieved from NPR website: http://www.npr.org/sections/alltechconsidered/ 2014/01/02/259128268/netflix-built-itsmicrogenres-by-staring-into-the-american-soul.

General Overview of Netflix: Business Analysis

Netflix Inc., a leading internet entertainment company, was founded by CEO Reed Hastings and software executive Marc Randolph. Their vision to become “the amazon.com of something” began with the sale and distribution of rental DVDs by mail and transformed into an internet based streaming system of computer television. In 1997, Netflix was established as a way for customers to enjoy movies without historically sitting in a theatre, driving to the local rental store, or creating a dent in your wallet. Originally, Netflix offered their primary services which allowed customers to order rental DVDs online and shortly receive them in the mail based on a “pay per rental” transaction. After increasing consumer interest, Netflix began offering monthly subscriptions; this new promotion gave customers the opportunity to continue ordering their preferred movie rentals but now at a semi-restricted, unlimited rate and a low monthly fee. After a decade of concentration in regards to a growing mailing service, Netflix officially offered the availability of “streaming.” This new means of internet entertainment would allow customers to freely watch television shows and movies wirelessly on their television, laptop computers, and phone, creating a new wave of future, competitive entertainment within the industry.

Over the lifespan of Netflix Inc., the company’s performance has both increased and declined, yet overall, their global expansion, internal growth, and technological advances have placed them as a thriving tech and entertainment company. In 2002, Netflix’s Initial Public Offering was priced at $15 a share; within the next 17 years, the Internet Entertainment Titan experienced periodic fluctuations with regards to their stock market performance, reaching as low as $4.85 and rising as high as $418 a share. Today, however, Netflix Inc. is considered to be one of the “market’s five most popular and best-performing tech stocks,” included in FAANG, represented alongside Facebook, Amazon, Apple, and Google (Kenton, Will), and is currently selling for approximately $360 a share. This performance success can be attributed to the numerous investments and ventures Netflix has taken and incorporated into their business strategy including partnerships, self produced original programming, and international expansion; all while continuing to advance their internal technology. These ventures have achieved great success both globally and domestically shown by advancing foreign market entry, continually increasing subscribers, critically acclaimed and award winning television shows, and a reputation that has created a competitive advantage of consumer loyalty and innovation within the industry.

Netflix first began partnering with “consumer electronics companies to stream on the Xbox 360, Blu-ray disc players, TV set-top boxes, PS3, Internet connected TVs, Apple iPad, iPhone and iPod Touch, the Nintendo Wii and other Internet connected devices” (About Netflix). By pairing with well known electronic companies, consumers who used those specific products, products that were especially popular for gaming, communication, and genuine everyday use, were also able to access Netflix through those product systems and use them interchangeably.

While offering unlimited streaming and DVD entertainment through already established movies and television shows produced and directed by outside companies, Netflix decided to launch their own original programming with the intention of offering long term series, short term series, and movies. This innovative venture led to numerous awards for the specific shows themselves, the actors and actresses, and the entire company; all while achieving extensive recognition throughout the world. While continually expanding and innovating, Netflix has made strides toward increasing the capability of their internal technology; by creating an algorithm to specifically identify the preference patterns of users, the company is able to offer suggestions on current and future watching choices. The ways Netflix has distinguished themselves within this industry through ventures and investments has truly contributed to the ever growing customer loyalty both domestically and internationally.

Beginning in 2010 and extending into 2019, Netflix has successfully expanded their international business by launching its entertainment services in over 190 countries, reaching over 140 million paid, global subscribers. As an American company, Netflix grew domestically during their first decade before attempting global access. After finding internet streaming to be successful, Netflix looked to insert themselves into areas that would welcome their existence rather than create barriers. Though Netflix exceeded gradual commitments in terms of years taken to expand their services globally, they first began their global initiative by offering its services to Canada, which shares cultural, economic, and government ties with the United States, allowing similarities to assist in the company’s ease of entry. Once the company was able to gain experience in a foreign market, their strategy increased region by region as well as country by country. By 2011, Netflix furthered their reach by launching services in Latin America and the Caribbean. In 2012, Netflix began their European campaign by offering services in the United Kingdom, Ireland, and the Nordic countries. In the following years of 2013, 2014, and 2015, Netflix successfully reached another 10 European countries including Netherlands, Austria, Belgium, France, Germany, Luxembourg, Switzerland, Italy, Spain and Portugal; the company also established presence in Australia, New Zealand, and Japan. By 2016, Netflix was fully globalized in 190 countries and continues to seek market entrance into China and India, two of the most populous nations in the world (About Netflix).

As previously stated, Netflix is available in 190 countries. The company is known for its rapid growth; it began in the United States to expanded to a worldwide audience in only 7 years. The company used a very strategic approach to expand internationally in such a short amount of time. Netflix went to Canada first in 2010 because the countries are very close together; since the two countries are so close geographically, they share many similarities. This was the first phase of Netflix’s rapid globalization process. After learning how they could expand in a foreign country, the company was willing to attempt the process in other locations as well. The second step the they took was expanding to 50 countries across Europe, Latin America and the Caribbean. This helped Netflix to continue learning about the internationalization process and ways to improve their strategy. The third phase of Netflix’s globalization process was expanding to 190 countries total. After this long term goal was reached, the company added local languages to its users interface, dubbing and subtitles.

Netflix is available in almost every part of the modern world. There are only a handful of nations that don’t have available access to Netflix including North Korea, Syria, Crimea and lastly, China, the largest growing market. According to the Netflix Help Center, the streaming service isn’t available in North Korea, Crimea or Syria due to U.S. government trade restrictions, however, CEO Reed Hastings said in 2016 that he hoped the company would reach China in the future. Due to government intervention, the many government regulations and the already established online streaming services available to Chinese consumers, China is a complex and slightly problematic market to enter. In the long run, however, this venture would be very beneficial for Netflix, as they would be able to reach one of the largest populations and increasingly growing markets in the world.

Although Netflix is available almost completely worldwide, the online streaming service varies amongst every country. Netflix itself is slightly different in other countries for a variety of independent reasons, but primarily because of the costs of the films. Hollywood entertainment companies and studios put forth a large amount of money into producing movies and television shows, however, online streaming services have made it easier for people to pirate or steal these films directly from their electronic devices. These companies, such as Disney, want to profit as much as possible off of their films to not only balance their expense but to also make a large profit, seeing as it is primarily a for profit business. Because Netflix has enhanced profits for these entertainment companies, the studios and Netflix work together to enforce copyright laws in each country that Netflix is available in. The process is somewhat difficult and time consuming because Netflix must secure content deals country by country. Different countries are willing to pay for different types of content, for example, what is considered to be a popular movie in the United States may not be as appealing to consumers in foreign areas. Therefore, Netflix works in a similar way to a supply and demand type system in regards to the films that they offer in different nations.

The specific amount of shows and movies that Netflix offers on their service changes from country to country. The Netflix library offered in the United States has the largest amount television shows and movies available. In February of 2019, Netflix was recorded to have 1,081 TV shows and 4,579 films in the U.S. According to an article by Quartz, in 2017 it was recorded that Netflix had 49 million American subscribers making Netflix available in 43% of American households. Proceeding behind the United States, U.S. territories American Samoa and Puerto Rico have the next largest amount of entertainment available on Netflix libraries, followed by the Caribbean and South America. Although Canada was the first foreign country for Netflix to expand to, they have a smaller library than most Caribbean and South American countries.

Netflix began creating and producing self made programming including series, movies, and documentaries, partially for global releasing rights, competitive advantage, and promotion. The original Netflix TV shows and movies are very popular and most are known worldwide; for example, the shows Stranger Things and House of Cards, both renowned, award winning shows. However, Netflix doesn’t just aim to entertain their American audience; “It also develops original series for subscribers in non-US markets that are also available to US subscribers—for example, Marseille, a French political drama; or Hibana, a Japanese drama about the country’s competitive comedy scene. As the number of subscribers from other countries has grown, so, too, has Netflix’s library of original content,” (Lotz, Amanda). Netflix seeks to promote their brand by creating shows that are specifically relevant to others around the world based upon their culture and language, enhancing their global business strategy.

According to the Netflix, there are many different job opportunities working within the country both domestically and abroad. Netflix headquarters is located in Los Gatos, California but the company has locations worldwide. The Netflix Help Center currently lists locations such as Brazil, the Netherlands, Taiwan, The United Kingdom, Spain, India, Mexico, France, South Korea, Singapore, Japan and several locations throughout the United States. The numerous locations are run by a highly motivated employees, boasting great customer service and brand promotion; just another reason why Netflix remains competitive in the industry. Customers can access Netflix customer service representatives in different ways including phone conversations and through an online chat room; Netflix seeks to make sure that these calls and conversations are effective and helpful to their customers. Netflix then assesses customer satisfaction specifically relevant to customer service practices by allowing the customer to take a short survey about their interaction after it is completed. The company disregards the original practice of an automated voice system or robot, viewing it as an impersonal experience with the valued customer. We also see many examples of great human interaction through their customer service such as in the case of Mike Mears, a service representative that bantered with a customer in a customer service chat room. Mears pretended to be a character from the show Star Trek; after a screenshot of the chatroom was put online, it was talked about around the world. “The exchange resonated with anyone who’s ever sat through the hell of an automated customer service call, and it’s one example of how Netflix is aiming to do something different with its customer service. Netflix help chats don’t feature a robotic, dizzying array of menu options, or a company agent using a script,” (Stenove, Timothy). The interaction, being both personal and helpful, shows that Netflix takes great consideration with regards to the experience, satisfaction, and overall enjoyment of their customers.

Netflix created their mark within the entertainment industry by engaging in a multitude of strategic business decisions. This section will discuss those very strategies that Netflix used to position themselves as they are today, compete with other popular streaming services, and how they were able to make themselves more accessible through ventures and investments.

When Netflix first started in 1997 it was a simple DVD rental service that provided consumers unlimited access to mail order DVDs through a subscription based process. This mail order DVD service created competition within the industry, specifically for the DVD rental company Blockbuster. Blockbuster was a very similar rental store for DVDs and video games, so the fact that consumers no longer had to traditionally drive to an actual store to rent a movie or game was a massive threat to Blockbuster. Reed Hastings, CEO of Netflix, was unconcerned by Blockbuster as a significant threat to his business. In 2000, Hastings had offered to sell Netflix to Blockbuster for a 50 million dollars payment. According to the Business Insider, the former CEO of Blockbuster, John Antioco, ended the negotiations because he thought that Netflix was a “very small niche business,” however, Netflix is now worth more than 32 billion dollars and Blockbuster is a simple thing of the past (Dunn).

Netflix’s DVD rental service is still operating today even though they began offering streaming movies in 2007; according to Billings Gazette, over 2.7 million people still rent DVDs from Netflix (Monahan). A few reasons exist as to why people still use this service instead of streaming television shows and movies right from their electronic devices. Firstly, there are many areas of the United States where internet access is extremely difficult to come by, not because it is not available, but primarily due to the particular geography of the consumer. For example Owyhee, Nevada is not equipped with easily accessible internet connection because of the specific geographical area, however, because they do have postal addresses, they can more easily receive DVDs. Another reason consumers still continue to use the DVD service is because of preference; though Netflix offers an extremely large streaming base to choose from, their DVD collection exceeds that, enticing existing users to opt for a mailed in DVD of their favorite movie instead. Even though Netflix still continues to offer their DVD service, its membership and usage has fallen significantly. According to CNBC, as of 2018 Netflix lost 4.8 million DVD subscriptions and there are now only 17 distribution centers left. Netflix does not plan to discontinue their original mailing service in one action but rather allow the entire service to phase out until it is no longer in demand enough to have reasonably keep it in operation; because of this, Netflix is contributing a small amount of their finances into DVD’s to it as possible (D’Onfro).

In 2007 Netflix satisfied peoples’ late-night movie needs with the release of Watch Now (Patches). With Watch Now customers were able to stream from a selection of one thousand movies whenever they desired, so customers no longer had to worry if the store was closed or if they did not own the movie. When Watch Now was first released, DVD subscribers with $5.59 plans were allowed to stream six hours per month (Patches); though because of this relatively new service, the overall quality, service, and performance were not reaching the highest of standards. However, two years after the release of Watch Now, the quality and the service surpassed Movielink, a similar entertainment service offering movies and television shows from outside sources. Movielink was bought by Blockbuster in an attempt to stop their downfall that they caused when they rejected Netflix (Patches), however, the service did not assist enough to productively compete in the industry alongside Netflix. In order to continue competing at a growing rate against other streaming services, Netflix focused on accessibility, international expansion, price differentiation, commercial free streaming, an increasing library of television shows and movies, and the creation of the self produced programming of series and movies.

In terms of accessibility, Netflix wanted to reach as many consumers as possible. To reach a variety of the consumer market, the company’s business strategy incorporated three areas of importance; the DVD service would remain operational, the use and collaboration of game system developers, and the process of expanding internationally. As previously mentioned, by keeping the DVD mailing service, Netflix would be able to reach a large consumer base, including those who lived in geographical areas known to have little to no internet connection at all. Also, though the DVD service does not contribute heavily to the company’s overall revenue, Netflix does not pour large amounts of finances into that operation, leaving a lesser risk of deficit. In regards to the collaboration with game system developers, according to Microsoft news, in 2008 Netflix and Microsoft announced that they will be working together to allow Xbox users to stream on the gaming system. They also announced that consumers would be able to create a virtual movie theatre allowing you to watch movies and television shows with your friends and family (Microsoft and Netflix Unveil Partnership to Instantly Stream Movies and TV Episodes to the TV via Xbox Live). This partnership not only helped to reach those consumers interested in video game entertainment but it also made it easier for customers to stream movies and shows onto their television. Netflix later made arrangements with other game system developers like Sony and Nintendo, allowing subscribers to watch on the Wii and the PlayStation.

Unlike such competitors as Hulu, Netflix welcomed and exemplified international expansion with their first foreign entry into the Canadian market in 2010, later entering Latin America and the Caribbean in 2011, and then followed by entry into most of Europe and parts of Asia (About Netflix). By 2016, according to Netflix Media Center, Netflix could be found in a total of 190 countries. Netflix continues to compete with streaming companies such as Hulu and Amazon Prime through membership pricing, commercial integration, and original programming.

Netflix continues to boast reasonable subscription prices for members, however, as with all products and services, the prices have risen over the last decade and continue to rise over time. Netflix has three different membership plans: basic, standard, and premium. The differences between the plans include price, image definition, and device use. Pricing ranges from $8.99 to $15.99, image definition ranges from standard definition, high definition, and ultra high definition, and devices used, meaning the amount of devices able to be used at the same time by various people range from one screen to four screens. (Choose the Plan That’s Right for You). Unlike Hulu, however, all Netflix membership plans are commercial free, allowing consumers to watch movies and shows without being interrupted by commercials; just one advantage that most consumers hold to a high standard and demand.

Another way that Netflix competes with Hulu and Amazon Prime Video is with their large selection of tv shows and movies, this also includes award winning shows and movies that Netflix produced. In 2016 Netflix had over five thousand different titles in their library, however this number is continuing to drop (McAlone). In 2013 Netflix released their first four original series; House of Cards, Hemlock Grove, Arrested Development and Orange is the New Black (About Netflix). According to Netflix Media Center, in 2014 they received 31 primetime Emmy nominations for their original shows House of Cards, Orange is the New Black, and The Square. House of Cards went on to win three awards making Netflix the first internet TV network to win a primetime Emmy (About Netflix).

Even though Amazon Prime Video and Hulu have features that Netflix does not have, Netflix is still the most popular streaming service with more subscribers than both Hulu and Amazon combined, in 2018 Netflix had over 118 million subscribers worldwide (Molla). The biggest disadvantage that Netflix has is the wait time for tv shows and no live tv. Hulu provides subscribers with episodes the day after they air and they also provide live tv for sports and news.

As of 2017 Netflix has no plans to get into live tv and their focus is on being the “on demand streaming leader in movies and TV series” (Snider). As far as for their plans internationally they are still looking to expand into other countries and they are also testing out a new membership plan in India to make it cheaper and easier to access the thousands of movies and tv shows. This new plan would be a mobile only plan for a little over $3 a month, this cheap monthly plan will allow users to subscribe in shorter increments (Netflix Testing Mobile-Only Subscription Plan for $3 per Month: Report). Since its creation Netflix has been growing, a chart from Business Insider shows the percentage of domestic and international users along with the total amount of subscribers. This chart show very rapid growth and it does not look like their growth is slowing down anytime soon. Once developing countries begin to get reliable internet and a more reliable infrastructure Netflix will be able to expand into those countries (McAlone).

Overview of the Major Issues of the Netflix Company and Its Ways to Overcome Them

Netflix is a company that produces and provides media-services and with its head office located in California (USA). I will present an insightful examination of some major issues or challenges encountered by Netflix. It will also cover how Netflix did succeed to outsmart and outplayed rivalry or competition.

Case Analysis

To begin there a many businesses that experienced total remake or transformation from small pushovers business into corporate giants with thanks to the apparition of the internet.

One of such company that achieved a success story to the summit was founded in the United States of America (in 1997) and is christened Netflix. Netflix is currently a reputable provider of media content. Initially, the service was aimed towards DVD service provision and this later on extended to streaming content online. Netflix is making a huge statement as per its reputation in the world of electronic commerce or what can alternatively be called e-commerce.

Netflix’s competitive advantage is the robust cause for Blockbuster degeneracy dissipation. The main issue was that Netflix initially dealt with a brick and mortar kind of business that served films/movies to its customers only on Digital Video Disc or what is commonly called DVD.

There was the dire need for Netflix to reach out to broader audience coverage by making use of new advancing technology and the internet. Since Netflix was handling its product physically there were limitations as the company could only serve a narrow or restricted group of customers. Also their costing was increasing including items such as transportation, warehouse storage and subscription fee (bills) deliveries. This was a traditional brick and mortar business dealing with DVD rentals with traditional policies such as fines for late returns, and additional fees for extended rentals (Gallaugher, 2015). Netflix using a flat rate monthly subscription fee with unlimited DVD rentals and online streaming (Smart Advantage, 2012). With this strategy late fees and expensive extended rentals were given a stop. To keep the competition going, Blockbuster eliminated the late fees which resulted in a revenue decrease of over $300 million (Gallaugher, 2015). In present day, Netflix is available through satellite and this guarantees that their services are accessible on television as well. Netflix were quit smart by stopping the displacement or mobility of people just to go do rentals.

Furthermore, Netflix increased convenience with their App, whereby online streaming is very common. These all constitute competitive advantage vis-à-vis Blockbuster. The state of art technology was employed by Netflix to stay abreast and to be visionary and revolutionary.

Major Issues

Netflix has the following challenges that needed to be provided solution.

No More Subscribers Left in the U.S.

Netflix already has nearly 47 million subscribers in the U.S. This constituted more than half of Americans. Netflix has exhausted its USA Market and there is the critical need to seek elsewhere to cover up for the loopholes and slowdown in the number of subscriptions realized. To fight the slowdown, Netflix has increased its pricing. This is one can say is quite challenging.

Difficult International Growth

At the beginning of the year, Netflix communicated its expansion to nearly every major market outside of China. Before that announcement, Netflix operated in about some 50 countries, and it had just over 18 million international subscribers or customers. By taking the initiative to venture its business internationally, it exposes Netflix to a category of new prospective subscribers; nevertheless getting this new group or category of subscribers on board was not going to be an easy operation. Though Netflix was growing and excelling in The United Kingdom, Latin America and the Scandinavia, smaller regional competitors began popping up or out springing worldwide. Moreover, Netflix’s staggered International rollout has left its library rather deficient in some countries in comparatively to Netflix in the United States of America. Netflix product is less compelling and appealing in many of its newly launched markets. In addition, Netflix is spending enormously to acquire global rights for blockbuster content. So Netflix encounters ferocious competition.

Reliance on Media Companies

Netflix value is sturdily connected to other company’s content. Meanwhile concomitantly these companies are competing to grab Netflix viewers. This makes them hesitant in trading their content to Netflix streaming Service.

Tentative Solitions and Competitive Advantage

An array of innovative technologies have aided in giving Netflix a competitive advantage. Via their online streaming, it gave customers convenience as it removed long time wasting as would be with a traditional company. Netflix stored its content (videos) on clouds provided by Amazon. Netflix’s online streaming is done from Microsoft Silverlight Players (Adhikari, Guo, Hao, Varvello, Hilt, Steiner, & Zhang, 2012). Netflix also collect data based on customers preference on movies, analyze them for information, and create a customized genre for each individual subscriber (Madrigal, 2014).

The term ‘disruptive innovation’ was first framed by professor Clay Christensen from Harvard Business School and the term turned out to be a compelling way to think about innovation-driven growth (Itonics, 2018). Christensen theory states that every successful and established company will one day be overtaken and threatened by a revolutionary newcomer (Itonics, 2018). An innovation that is disruptive enables a whole new class of consumers at the bottom of a market access to a product or service that were historically very costly for consumers to get. Characteristically Netflix represents a good example of disruptive innovation because originally Netflix mail-in-subscription service was not attractive to Blockbuster’s mainstream customers that rented new releases ‘on-demand’. Netflix targeted segments of the population that have been ignored by its rivals, delivering an inferior (but more tailored) alternative, at a lower price and eventually, Netflix moved upmarket by adding the things mainstream customers wanted by innovating and displaced the giants in the business.

Challenges Intel Faces in China

Intel has a valid issue in the case of China. But this case has many other problems associated with the one seen deep beneath the surface. It is evident on the surface that Li is an emotional worker who puts in his job his wholehearted effort. This is a problem for any boss because of the employee’s emotional attachment. But the question is whether in the company it’s just Li who feels this way.

The case reflects the cultural differences, like Tang, between the native Chinese and Chinese expatriates. In particular, it seems that workers in Intel’s Chinese branch are struggling with two separate management styles that may contradict each other, creating communication problems. His American history influenced Tang.

He perceives himself closer to the Western style of management (open discussions between managers and their employees), without taking into account the organizational structure of Chinese companies that are strictly horizontally oriented with centralized administrative structures (Eastern style). In this context, Tang is concerned that during his absence in the US, the institutional structures of the Chinese have shifted.

Hence the question statement, in this case, is: How can we create a situation that maximizes incentives, allows the Intel community to be preserved, and satisfies all parties- Tang and Li?

Internal and External Analysis

Tang thought it could enable Intel China to be more efficient by evaluating the work of workers and reassigning them to work. He wants to be the boss that his team would trust and respect. He was thinking a lot about his job’s management abilities.

Tang decided to cancel the project because it was beyond Li’s obligation and capacity, while Li has been working for the project that he hasn’t known for two months. Tang was distressed by Li’s rejection. He found that perhaps his workers had less understanding of Intel Culture and Philosophy, which supports laws of ‘disagreement and commit’. It is also a tension between Chinese workers, who pay more attention to emotion and friendships, and Western management, which places great importance on productivity and interaction. For sure, because of the management disparity between west and east, this kind of dispute will be met over and over again.

Therefore, Qin Chen is supposed to build a bridge between Tang and Li as a supervisor. But she just told Tang’s decision explicitly, sadly, but gave Li no excuse. Li felt ‘lose face,’ therefore, and determined to continue the project. While Li is a bit of ego, he is still a good AM and has established a good relationship with his customers and vendors of technology. As a director, Qin Chen has little management experience. This illustrates the unknown how effective and efficient managerial staff are in Intel China and how the supervisor’s relationships with the AM are the key player in China’s culture as they are in relationships.

Options and Analysis

Tang must rethink his ‘expatriate’ status as he is not fully aware of how the corporate dynamics of the Chinese changed when he was in the United States. As a result, any of his actions could be critically measured by other workers.

Tang doesn’t want to replace Li. Therefore, one of Tang’s first moves is to set up a personal meeting with Li to specifically explain his position on the issue (why he is putting a halt to the plan of Li). Tang must examine and clarify all the pitfalls of this plan, without failing to remind Li of the company’s strengths and role.

He must admit that in the previous month’s Li has put a lot of effort into this venture. For that reason, Tang might be a possible solution to think more about how he might use Li’s work material for other purposes. He could thus minimize Li’s impression that his effort is ‘wasted.’ If the above is not feasible, then Tang must clarify Intel’s ‘disagreement and commit’ principle to Li, believing that once a decision has been made, workers can not disagree with it and must adhere to the new arrangement. Since there is no specific date or deadline for the task, Tang must assign another important one to Li, with which Li will have the opportunity to prove his skills in his profession. Li will then be inspired, while at the same time improving interpersonal relationships. Eventually, Tang should also share his colleagues’ suggestions with him, seeking to educate him on better relations with them.

Recommendation

According to the cultural types model of Richard D Lewis, China is similar to the reactive categories. People in China are focused on building close relationships, preferring face-to-face talks, and good at listening. Both managerial and cultural differences can create considerable problems in an organization. Tang is conscious that being viewed as an ‘outsider’ may weaken his ability to convince his department that they ‘are all working together as a team’. He must make improvements in the Eastern style for future purposes and retain a combination of Western and Eastern management styles, taking advantage of his position within the peculiar hierarchical organizational structure. Tang runs an Asian company as it would be a Western group, and this affects his team’s relationship. Cultural differences must be recognized in diverse work environments to avoid cross-cultural conflicts. Otherwise, these conflicts can not only disrupt the entire group cohesion but also weaken its leadership at the detriment of the performance of the company.

Analysis of the Concept of the Professional Manager: Case Study of Tesco

The Professional Manager

Section 1

Tesco is multinational operating grocery and general merchandise retailer in the UK, which was established in 1919 by Jack Cohen. It’s headquartered in Cheshunt United Kingdom, it’s the third-largest retailer in the world.

Tesco has stores in 14 countries across Asia, Europe, and North America, they operate about 7000 stores around the world. In UK, they have six different stores which differ in size and product types. Its products range from food and beverages, home appliances, clothing and they also employed 460,000 people worldwide.

Strategic Manager. Stephine Wiggins is the Store Manager she is an Experienced Store Manager with a demonstrated history of working in the retail industry. Skilled in Operations Management, Retail, Store Management, Warehouse Management Systems, and Retail Sales. Strong sales professional graduated from The University of Stirling

Alistair Thomson is the tactical Manager in one of the Tesco stores in United Kingdom he is the supervisor in the Tesco store, most of the time he goes to order Tesco stores to inspect and supervise how things are going in the stores, he is 37 years old,

Carl Jones Is the operational Manager in a Tesco store, he is the sales manager/team leader. He mostly deals with hiring, providing training to new staff joining the company, and attracting talents.

Statista. (2012). UK, Ireland: Tesco stores 2012-2019 | Statista. [online] Available at: https://www.statista.com/statistics/490947/tesco-group-stores-united-kingdom-uk/.

Section 2

• Manager level
• Skills
• Key responsibilities

Strategic manager (General Manager)

• Leadership skills- The General manager utilises this skill by taking on huge responsibilities while setting task, goals, and meetings to ensure her team brings positive results to the business.
• Decision Making- this skill is utilising by making best decision resulting in positive outcomes.
• Adaptability- this skill is used to adapt coaching style to suit each team member. Also, use to respond to different challenges effectively.
• Communication- to ensure team is on track and understands goals.
• Time management- setting deadlines to ensure progression towards goal.

To Analyse Data of Tesco such as sales, customer, competition, and market performance to create best possible recommendations.

Creating smart Recommendations through projects that will help create educated ideas resulting in growth and progression.

Testing and Developing goals by working with operational teams to help test hypotheses quickly and then work with different department heads to execute plans.

Tactical manager

The skills which a tactical manager at Tesco has are planning skills. This allows them to plan for any unforeseen circumstances which might occur. Also, have creativity skills. This allows them to use creative tactics in order to overcome certain circumstances which might occur within the organization. Furthermore, the skills which a tactical manager has are open communication, information sharing, trustworthiness, reliability, and compassion they also leadership skills.

Tactical managers at Tesco are responsible for the administrative process of selecting amongst the appropriate ways of achieving a strategic plan or objective. The tactical manager within a business environment allows the manager to use the best and appropriate methods for each situation which arises rather than following a standard procedure. As well as this they are responsible for the operational, financial and management tasks of an organisation. They also have responsibilities for accounting, human resources, manufacturing, research &development and marketing.

Operational manager

Sales manager

• Analysis skills
• Communication skills
• Delegation skills
• Good people skills
• Strategic planning skills
• Good people skills
• Managing individual and team quotas
• Give Advice- the sales manager has to advise the board of directors about the location and the layout of the sales office and all other matters relating to Tesco.
• Hiring- the sales manager has to arrange for careful selection and appointment of salesmen.
• Analyzation- being a sales manager of Tesco, they must make a careful study of the competitors, products and sales policies and act accordingly.
• Budgeting- sales manager has to prepare sales budget so they do not overflow with their expenses.
• Assigning work-they have to prepare schedules and have to assign duties to employees.
• To be a leader- a sales manager has to be a good leader which means they have to be confident enough and to also motivate the workers well.

References:

1. Govleaders.org. (2019). [online] Available at: https://govleaders.org/pdfs/tactical-management4.pdf [Accessed 15 Dec. 2019].
2. BusinessDictionary.com. (2019). What is tactical management? definition and meaning. [online] Available at: http://www.businessdictionary.com/definition/tactical-management.html [Accessed 15 Dec. 2019].
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Section 3

As mentioned in section 2, a strategic Manager in Tesco has the skills to plan and organize people and one of there roles is to support and develop long-term organizational strategy, an effective manger pays attention to his or her employees, suggesting and implementing easier ways to get the work done much quicker and safe, doing everything possible to make sure that the company stands out form it competitors, also, a strategic manager will always ensure that the organization keeps up to high social responsibility wherever it does business and also participate in setting out strategical goals and making sure they are achievable, using this skills and roles in an organization will help put the organization in a higher place.

For example, in 2015 Ryanair based in Dublin reported they had carried more passengers than previous years this is because of the mangers effort to the company by improving passengers experience, renewing booking website and letting passengers take extra small items with them. The chief Executive Manger by the name (Michael O’Leary) added that it won’t be a problem if they also start giving passengers free food, newspaper, and drinks. With the few things the senior managers did, these helped boost Ryanair air passengers, revenue, profit after tax and earnings per share, since then the company has continued to grow till date. This was a great contribution to the company growth.

A Tactical Manager contributes to the organizational growth by applying their skills and responsibilities in their day to day work at the shop floor, they ensure that the first line managers work in line with the company policies, this makes them to convert strategy task into operational task. Mediating between senior management vision and operational reality and sometimes guiding, reshaping and interpreting upper policies to suit local conditions. Burgess and Currie (2013) showed how this worked in a hospital, where those with a clinical training who had taken on middle management work, played a vital communication role between senior managers and professional staff. Those working for charities have the challenge of managing volunteers, making sure they come to work on time, and they don’t annoy customers. Strategic mangers depended on tactical managers in solving problems locally and passing information upward.

They often assist with training new employees, supervising the shop growth, supervising the staff on how they do their jobs and treat customers, they also make sure that the shop and the rest room is safe, tidy and cleaned to the company standard. Tactical mangers also contribute to company’s growth by conducting performance evaluations according to established systems and policies, providing fair, constructive and timely feedback to towards performance expectations and goals, making sure that staff have professional development plans in place.

Operational manager

The skills which an operations manager at Tesco has are that they have leadership skills. As well as this they understand policy, planning and strategy skills. Besides this they can develop, implement and review policies and procedures. In addition to these they can oversee budgeting, reporting, planning, and auditing and have the skills to understand legal and regulatory documents.

These skills contribute towards organizational success because organizations and their environments constantly change. One of the main responsibilities of an organizational manager is initiating and managing the internal changes necessary to adapt to the changing circumstances. Also, operational managers contribute towards organizational success, because great organizations require great managers, and the best organization understand that certain managerial skills should be intentional and not left for chance. Furthermore, operational managers contribute toward organizational success because they represent the interests and the efforts for the organization. They act as a representative for both shareholders and employees. They are also tasked to look after both interests of the business and the people who work for them.

In addition to these an effective manager pays attention to many facets of management, leadership and learning within an organization. Managers know what employees need to work effectively, stay productive and contribute to a thrilled customer experience and a harmonious workplace. Furthermore, managers also contribute towards an organization because they motivate through performance management and engage employees through positive management.

As well as this the skills of an operational manager contribute towards organizational success because managers provide proper direction to the organization, the communications system and the structure. They also ensure that long term objectives are translated into concrete plans of actions and understood and supports by people working at various levels. An operational manager also contributes toward organizational success as they oversee various departments of employees within a specific organization or company. They utilise in every sector and the business relies on their ability to operationalise the management structure.

Managers also contribute towards an organization because they know what the employees need to work effectively stay productive and contribute to a workplace. They also know the behaviours that a manager needs to stay away from to encourage successful employees.

According to Henri Fayol the skills which a tactical manager consists of are planning skills, organisational skills, commanding skills, coordination skills and control thinking skills. This contributes towards organisational success because his theory was based on how the management should interact with the employees. His theory also provided a broad and analytical framework of the process of administrations which overcomes the drawbacks of Taylor’s management theory.

Operational managers contribute to businesses in significant ways, which are reflected in company profits, organisation and overall workplace morale.

Strategic manager

A strategic Manager is known as a Top-level professional who oversees the strategic plans for the business and determines the best ways to achieve these plan or goals. The strategic Managers mainly work with top executives and senior managers within a business or be a top executive. As every business main goal is to develop a successful business, the main duty of the strategy manager is to bring this goal into existence. Strategic managers bring success to the business by Analysing Data of the organisation internally and externally to find opportunities or threats which they store in an annual metric report that they then use to plan out the most educated and effective route towards success. They then go through different problem-solving methods to produce steps and smart recommendations which will help accomplish growth. This involves different recommendations and suggestions such as changes in business operations and product pricing. They then undertake testing and developing goals by working with operational teams to help test hypothesis quickly and then work with different department heads to execute plans. This involves the creation of financial budgets, recruitment and product development.

Tactical manager

The tactical manager is the mid-level professional that works under/with the strategic manager to implement the decisions or recommendations they created. Tactical managers control the projects and task required to be done in order to progress toward the long-term goals that the strategic managers has created. They decide the best tactics and procedure for situations within the business rather than following a standard procedure. The main responsibility of the tactical managers is to oversee different functional lines in the organisations such as accounting, HR, manufacturing, marketing and research & development as they need to collect important information from these departments to determine tactics and information from lower levels to determine progress and current conditions.

Differences

The difference between the strategy manager and tactical manager is that the strategic manager is primarily focus on the overall future goal of business whereas the tactical manager is focus on the present task at hand that will help achieve overall goal. This means that the strategy managers set objective and make decisions while the tactical manager implement these decisions based on their current state in order the achieve goals. The difference between the strategy manager and operational managers is that the operational managers deal with the day to day operations within the business. Operational managers would only focus on the internal aspects of the business to produce good and service such as manufacturing and inventory management whereas the strategic manager oversees both internal and external aspects such as competition data, sales and market performance which can help achieve organisational growth.

The difference between the tactical management and operational management managers is that the operational managers on focus on the day to day operations within the business such as which produces the goods and services whereas the tactical focus more advanced task required to be done in order to progress toward the long-term goals. Operational and tactical management can be very similar as they both break down the strategic main goals into smaller task to help achieve those goals. They do have their differences as the tactical management plans would take about a to 2 years to complete while operational plans can be done in a day to a month. The operational managers are required to collect important information from their teams and employees such as inventory, different situations and sales to report back to tactical managers.

There are three different types of managers that work at Tesco, operational, tactical and strategic. An example of an operational manager could be a supervisor who are low-level managers and are responsible for operational planning which take about 1-2 days to plan as they are required to make sure that the business runs smoothly on a day to day basis. Operational planning also involves in keeping all the information about how the business processes and they also have to make sure that the stock in Tesco is always full and that the customers always get what they are looking for. An example of a tactical manager could be a store manager who looks after one of the branches of Tesco and these are mid-level managers who usually implement the decisions taken by the top management which may take a year for their planning as they have to make plans so the decisions made are followed and they also have minor goals to achieve on a yearly basis like meeting sales targets. The highest managerial level is the strategic manager who are the external front and the face of Tesco and they could be a CEO or CFO and they usually take all the major decisions for the effective functioning of the company, they are also accountable to the shareholders for the performance of Tesco. Strategic planning have milestones and also provides a complete direction to the business and it can take very long to plan something for the company and execute them well, moreover they have to keep the communication between the enterprise and the outside world. This type of planning is required to see where the business stands. The 3 different types of managers have different jobs to do and have their own personal goals but in the end it is for the benefit of the business and they all trying to make Tesco succeed and grow it even more globally.

References

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Analytical Essay on Cost Accounting System: Case Study of Nestlé Lanka Limited

Executive Summary

The managers and directors of an organization use various types of techniques to ensure the wellbeing of their organization. Management accounting is one of those techniques used. Various types of management accounting reports and systems are prepared by management accountants to provide information to the top-level managers in order to aid them in their decision-making process.

The focus of this report is to identify the costs and benefits of introducing a new product called Nescafé Rapido, a ready-to-drink bottled iced coffee beverage to the market and how the different types of management accounting systems and reports can be used in order to decide the feasibility of this product.

Introduction to Nestlé Lanka Limited

Nestlé is a Swiss based multinational corporation which is known to be the world’s largest food and beverage company with over 2000 local and international brands and operating in 189 countries around the world. It’s foundation dates to 1866 to the Anglo-Swiss Condensed Milk Company and in 1905 it merged with Henri Nestlé’s company to form what is now called Nestlé (Nestlé, 2019).

Nestlé made its presence in Sri Lanka in 1906 as a trading company and became a public quoted company in 1983 as Nestlé Lanka Limited. Since then it has been manufacturing a range of well-known products such as Nestomalt, Nespray, Milkmaid, Milo, Maggi etc. Because of its wide range of products, it has become one of the leading Food and Beverage companies in Sri Lanka and it also provides employment to nearly 1200 people (Nestlé Lanka, 2019).

The Nestlé factory in Kurunegala manufactures over 90% of the Nestlé products sold in Sri Lanka and in order to ensure its smooth operation, Nestlé Lanka actively uses various Management Accounting techniques to help in the overall manufacturing process.

Management Accounting

In the simplest of terms Management Accounting provides information for managers for their decision making. Managers need detailed information regarding the products, departments and activities of the organization and these details are used for the internal management process (Walther and Skousen, 2009). Management Accounting is needed to plan, execute and control the day-to-day operations of an organization.

Within Nestlé Lanka also we see management accounting plays an important role to ensure its success.

• First and foremost, it is used to determine the price and various other factors of a product by preparing various cost analysis, market research, projected income statements etc. Nestlé Lanka was able to make various products (such as Milo and Nestomalt) healthier by conducting a market research on the dietary intake of customers (Nestlé Lanka, 2018).
• Budgets are prepared using management accounting techniques to estimate the income and expenses for the following years.
• Management accounting is constantly used in decision making by analyzing the performance reports to review the performance of individual departments as well as individuals.
• Since 2007 Nestlé Lanka has been able to save 41% of energy (per ton of production) by effectively allocating their resources using the analyzed data reports (Nestlé Lanka, 2018).

Management Accounting Systems

There are mainly four types of management accounting systems;

1. Cost accounting system
2. Job costing system
3. Price optimizing system
4. Inventory management system

Cost accounting system

Cost accounting system is a system used by management accountants to estimate the cost of a product. This can be used for profitability analysis, inventory valuation and cost control. With large batches of Milo, Nestomalt, Maggi, Milkmaid, Nespray etc. being produced daily, the use of this method is recommended as it is the most suitable.

There are mainly two types of cost accounting systems:

1. Job order costing – This method is used for calculating costs separately for each job. This method is mostly used in firms which produce unique products or special orders.
2. Process costing – This method is used where large batches of homogeneous products are manufactured. This is the opposite extreme of job costing and average costs are assigned to each unit in order to calculate the cost per unit.

Integration within Nestlé Lanka:

• Process costing can be used to calculate the costs of the products produced in the Kurunegala factory.
• Can be used to measure the efficiency in processes.
• Cost control methods will be useful in setting the price of products.

Job costing system

This system accumulates manufacturing costs to specific jobs. When customers order products with specific requirements this system is used in order to submit the cost information to the customers. Within Nestlé Lanka, in an event where a customer orders a large number of homogeneous products with special requirements i.e. an event name or sponsorship on the packaging, this system can be used to prepare the job cost sheet for the product.

Integration within Nestlé Lanka:

• Nestlé Lanka will be able to estimate all types of costs within the manufacturing process.
• Product quality can be maximized as jobs are specific.

Price optimizing system

This system is used to calculate demand at different price levels. It is then matched with the cost of inventory and other production costs to identify the price that is most suitable to maximize profits. Nestlé Lanka could use this system to calculate the cost and recommend a suitable promotional price for a product that is set to launch. It can also be used to determine a discount price during promotional campaigns.

Integration within Nestlé Lanka:

• Can be used to evaluate the different customers at different price levels.
• Profit can be maximized as it helps to select an optimal price.
• Helps in customer segmentation.

Inventory management system

This system uses various methods to supervise and manage the inventory level of the company. Barcode scanners, desktop software, physical counts etc. are used in order to maintain inventory at the optimum level to avoid over or under stock situations and to ensure the efficient flow of inventory.

Integration within Nestlé Lanka:

• Can improve the accuracy of inventory orders.
• Optimal inventory levels can be achieved at the Nestlé Lanka factory in Kurunegala.
• Helps in supplying products efficiently without delay.

Management Accounting Reports

Budget reports

Budget reports help the organization measure their performance department wise and as a whole. Budget reports are prepared by using income and expenses from previous years whilst making necessary adjustments for the budgeted period. Furthermore, the budget helps to motivate employees to achieve the desired goals while staying within the budgeted amounts.

Integration within Nestlé Lanka:

• Nestlé Lanka can use these reports to concentrate on achieving their targeted results.
• Can be used to evaluate unnecessary expenses.

Accounts receivable aging reports

This report helps in managing the receivables of the organization. It is a detailed report which segregates invoices of customers to derive the credit period of each customer and it also helps the company to analyze its credit policy.

Integration within Nestlé Lanka:

• Nestlé Lanka uses these reports for the timely collection of receivables.
• Helps to calculate the necessary discounts that need to be allocated for credit collection.
• Nestlé Lanka can evaluate their credit policy and its effectiveness.

Job cost reports

These reports provide information regarding the various costs that are incurred in manufacturing a specific product. This also provides an analysis of the projected revenue of the product which helps to evaluate the profitability.

Integration within Nestlé Lanka:

• Nestlé Lanka can use these reports to decide their pricing strategies.
• Analyze the profitability of specific products.

Inventory and manufacturing reports

These reports contain the labor costs and per unit overhead costs which can be used to manage the manufacturing process. It also evaluates the wastages related to inventory which helps managers to manage the inventory level more efficiently.

Integration within Nestlé Lanka:

• These reports can be used to effectively manage the inventory levels of Nestlé Lanka.
• Helps in calculating the required purchase orders that need to be placed by Nestlé Lanka.
• Comparison between different assembly lines to measure efficiency.

Performance reports

Performance reports are prepared in order to measure the performance of the organization as a whole and/or department wise. These reports are used by managers in order to make key decisions about the company. It also helps in evaluating the employees of the company and committed employees are awarded for their performance.

Integration within Nestlé Lanka:

• Helps the managers of Nestlé Lanka to plan the future production of the organization.
• Helps to identify the best performing product or department.

Cost Accounting

Cost accounting is the method of accounting for costs. It can be defined as the collection, assignment and interpretation of cost (Walther and Skousen, 2009). Cost accounting is a detailed explanation of the various costs incurred within the organization and it is essential for the management of the organization.

For Nestlé Lanka, Cost accounting is essential for several reasons;

• To analyze the costs incurred for production and operation.
• Helps to develop the cost standards of each department and evaluate the cost of each production line to reduce costs.
• To identify wastage within the factory.
• Can be used to compare actual costs against budgeted costs for management to make better decisions in the future.
• Can be used for the preparation of the Annual Report.

Classification of Costs

“Cost” is the monetary value of resources which have been sacrificed and it represents the materials, efforts, resources, risks, time and utilities consumed for production of goods or rendering of services (Drury, 2013). Cost can be classified in many ways; here we will look at the classifications and types of costs that are associated with products at Nestlé Lanka.

Classification by nature

i. Direct costs – Costs that can be conveniently and exclusively identified with a cost unit.

e.g. Direct material, Direct labor, Direct expenses

ii. Indirect costs – Costs that cannot be identified with an individual cost unit. These are allocated to the cost units using a cost allocation method.

e.g. Indirect material, Indirect labor, Indirect expenses

Classification by behavior

i. Variable costs – Costs that vary with the level of production. Per unit variable cost remains the same. Variable costs can be either direct or indirect.

e.g. Direct material, Direct labor, freight, sales commission

ii. Fixed costs – Costs that do not vary with level of production. They are called so as they remain fixed for a specific period.

e.g. Rent, Salaries, Insurance

iii. Semi-variable costs – Costs that contain features of both fixed and variable costs and are partly affected by the level of production.

e.g. Electricity

Classification by function

i. Production costs – All direct and indirect costs related to production.

e.g. Direct wages, Raw material, Direct labor

ii. Administration costs – Costs incurred for the management of the organization.

e.g. Administrative salary, Depreciation of office building, Insurance

iii. Selling and distribution costs – Costs incurred in selling products and handling products until it is distributed to the customer.

e.g. Advertising costs, Warehousing, Sales commission, Delivery costs

iv. Research and development costs – Costs incurred for the development of a new product or an improvement of an existing product by means of experiments and new ideas.

Allocation of overheads

Depending on the method overheads are allocated for the product, there are mainly three methods;

1. Marginal costing
2. Absorption costing
3. Activity based costing (ABC costing)

Marginal costing

In marginal costing, cost of sales includes only variable costs. Fixed costs are written off in full and is charged to the profit and loss account.

Integration within Nestlé Lanka:

• Nestlé Lanka can use this method to calculate contribution per unit.
• The managers can use this method for decision making purposes as it helps to calculate a cost-volume-profit analysis.
• Nestlé Lanka can identify the break-even point for products.

Absorption costing

In absorption costing, all manufacturing costs are treated as production costs. Fixed overheads are absorbed to production using pre-determined basis of apportionment.

Integration within Nestlé Lanka:

• Nestlé Lanka can use this method as it is recommended by International accounting standards.
• Can be used to calculate the value of inventory in the Statement of Financial Position.
• Since all manufacturing costs are allocated as production costs, Nestlé Lanka can determine a selling price that covers all costs.

Activity-based costing (ABC costing)

In ABC costing, overheads are calculated for each product based on their usage of an activity. In ABC costing, production is divided into core activities and the costs of those activities is allocated to a product based on how much of a particular activity is needed by a product (Walther and Skousen, 2009).

Integration within Nestlé Lanka:

• Nestlé Lanka can use this method as it gives a more accurate representation of the costs incurred.
• As this method identifies costs for each individual activity, Nestlé Lanka can use this information to improve the efficiency of its manufacturing process.

Nescafé Rapido

Made from freshly brewed coffee beans mixed with high quality local fresh milk, together with the richness of Nescafé’s signature taste of coffee, comes a new blend of Nescafé that is sure to keep you wanting more. Introducing Nescafé Rapido; iced coffee, bottled and ready to drink at your heart’s desire.

With the huge success of Nestlé’s Milo in the local market over the years, together with the successful launch of Nescafé Hazel-Ice on the 1st of October of 2018 (Nestlé Lanka, 2018), Nestlé Lanka has planned to introduce Nescafé Rapido as a remedy for those who seek more variations of the unique coffee taste of Nescafé. Nescafé Rapido will be available in 400ml recyclable bottles produced at the Kurunegala factory.

Nescafé Rapido comes in three flavors; KitKat, Cookies and Cream, and Caramel Mocha.

Cost breakdown for Nescafé Rapido

Rs. (per unit)

Direct Material:

Semi-skimmed milk 5

Nescafé Arabica coffee extract 6

Sugar 4

Water 3

Fat reduced cocoa powder 10

Coffee flavoring 7

Rs. 35

Direct Labor: 15

Rs. 15

Variable Production Overheads:

Packaging 40

Equipment utilities 30

Rs. 70

Fixed Production Overhead:

Machinery Depreciation

Rs. 150,000

Heat and Lights

Rs. 320,000

Repair Costs

Rs. 170,000

Machinery Insurance

Rs. 310,000

Canteen

Rs. 220,000

Non-Production Overheads:

Administrative Salaries

Rs. 100,000

Rent & Rates

Rs. 150,000

Selling Expenses

Rs. 80,000

• 100,000 units of Nescafé Rapido are budgeted to be produced for April.
• Selling price for one unit of Nescafé Rapido is Rs. 150. (25% markup on cost using marginal cost-plus pricing)
• Nescafé Rapido will be released to the market on the 1st of April 2019.

Calculation of selling price per unit (Marginal cost-plus pricing)

Rs.

Direct Material

35

Direct Labor

15

Variable Production Overheads

70

Total production cost

120

Markup (25%)

30

Selling Price

150

Justification of the selling price

The 25% markup was selected by analyzing the marginal cost of the product using marginal cost-plus pricing. Rs. 150 for the 400ml Nescafé Rapido was also in line with our other similar products; Milo and Nescafé Hazel-Ice which are priced at Rs. 50 and Rs. 60 respectively. (both of which are 180ml)

Cost of Nescafé Rapido (Absorption Costing)

Note

Rs. (per unit)

Direct Material

35

Direct Labor

15

Variable Production Overheads

70

Fixed Production Overheads

1

9.75

Total Production Cost

129.75

Note 1: Overhead Apportionment Table

Overhead

Basis of Apportionment

Total

Production

Stores

Machinery Depreciation

Machinery book value

150,000

112,500

37,500

Heat and Lights

Floor area

320,000

192,000

128,000

Repair Costs

Floor area

170,000

102,000

68,000

Machinery Insurance

Machinery book value

310,000

232,500

77,500

Canteen

No. of employees

220,000

132,000

88,000

771,000

399,000

Reapportionment: Stores

No. of budgeted units

399,000

(399,000)

1,170,000

Overhead Absorption Rate =

Production

Stores

Floor area

3,000

2,000

Machinery book value

180,000

60,000

No. of employees

150

100

Budgeted Labor hours

120,000

Break-even analysis

Rs. (per unit)

Selling price

150

Direct Material

(35)

Direct Labor

(15)

Variable Production Overheads

(70)

Unit Contribution

30

Break-even point = =

Projected Income Statements

Projected Income Statement for the month ending 30th April 2019

(Marginal Costing)

Rs.

Sales

150 * 100,000

15,000,000

Less Cost of Sales:

Direct Material

35 * 100,000

(3,500,000)

Direct Labor

15 * 100,000

(1,500,000)

Variable Production Overheads

70 * 100,000

(7,000,000)

Contribution

3,000,000

Less Fixed Production Overheads:

Machinery Depreciation

150,000

Heat and Lights

320,000

Repair Costs

170,000

Machinery Insurance

310,000

Canteen

220,000

(1,170,000)

1,830,000

Less Non-Production Overheads:

Administrative Salaries

100,000

Rent & Rates

150,000

Selling Expenses

80,000

(330,000)

Profit

1,500,000

Projected Income Statement for the month ending 30th April 2019

(Absorption Costing)

Rs.

Sales

150 * 100,000

15,000,000

Less Cost of Sales:

Direct Material

35 * 100,000

(3,500,000)

Direct Labor

15 * 100,000

(1,500,000)

Variable Overheads

70 * 100,000

(7,000,000)

Fixed Production Overheads

9.75 * 100,000

(975,000)

Contribution

2,025,000

Less Non-Production Overheads:

Administrative Salaries

100,000

Rent & Rates

150,000

Selling Expenses

80,000

(330,000)

Profit

1,695,000

Projected Statement of Financial Position as at 30th April 2019

Rs. ‘000s

Rs. ‘000s

Assets

Non-Current Assets

Property, Plant and Equipment

11,500,000

Current Assets

Inventories

200,000

Trade and Other Receivables

500,000

Cash and Cash Equivalents

2,000,000

2,700,000

Total Assets

14,200,000

Equity and Liabilities

Stated Capital

500,000

Retained earnings

8,200,000

8,700,000

Non-Current Liabilities

Bank Loan

4,000,000

4,000,000

Current Liabilities

Trade and Other Payables

500,000

Bank Overdraft

1,000,000

1,500,000

Total Equity and Liabilities

14,200,000

Conclusion

In conclusion we see that various management accounting systems and reports are used by Nestlé Lanka to ensure the efficiency and effectiveness of its day-to-day operations; managers use these techniques in order to make decisions and further improve the status of Nestlé Lanka.

With the use of the management accounting systems and cost accounting methods used in this report, our team has concluded that the new product Nescafé Rapido is profitable for Nestlé Lanka and we recommend that Nestlé Lanka go ahead with the plans to launch Nescafé Rapido.

References

1. Drury, C. (2013). Management and Cost Accounting. New York, NY: Springer.
2. Nestlé (2019). The Nestlé company history. [online] Available at: https://www.nestle.com/aboutus/history/nestle-company-history [Accessed 2 Mar. 2019].
3. Nestlé Lanka (2018). Nestlé introduces all new Nescafé Hazel-Ice on International Coffee Day. [online] Available at: https://www.nestle.lk/en/media/pressreleases/nestl-introduces-all-new-nescaf-hazel-ice-on-international-coffee-day [Accessed 8 Mar. 2019].
4. Nestlé Lanka (2018). Nestlé Lanka Annual Report 2017. [online] Nestlé Lanka, pp.32, 78. Available at: https://cdn.cse.lk/cmt/upload_report_file/487_1522637656268.PDF [Accessed 4 Mar. 2019].
5. Nestlé Lanka (2019). Key Dates & Events. [online] Available at: https://www.nestle.lk/en/aboutus/nestle-in-sri-lanka/key-dates-and-events [Accessed 2 Mar. 2019].
6. Nestlé Lanka (n.d.). Nestlé in Sri Lanka. [online] Available at: https://www.nestle.lk/en/aboutus/nestle-in-sri-lanka [Accessed 2 Mar. 2019].
7. Walther, L. and Skousen, C. (2009). Managerial and Cost Accounting. Ventus Publishing, pp.10, 17.

Concept of the Managerial Escalator: Case Study of Managers from Developed Countries

The Role of The Manage

Abstract

This report will describe and justify the concept of the managerial escalator, the managerial hybrid concerning two managers from developed countries and determine the extent to which it is adopted in their career path. The theories are expounded in the report as established by “Rees and Porter”. In addition, this report interprets the findings of an interview conducted on two managers to learn on their career path and track their milestones in their managerial roles to determine how their career trajectory journey fits into the concept of the management escalator, the hybrid manager. These managers work in different organisations with a different hierarchy of management. This process will enable us to identify if there are gaps found in managerial. The holes in managerial reduce the efficiency of the manager lagging behind the attainment of the organisation’s goal. These managers working styles are in line with the idea of a management escalator in a required manner.

Introduction

Management refers to the process that involves planning, organising and coordination of events in an organisation for decision-making that leads to the achievement of the organisation’s overall goals and objectives. Based on skills and knowledge, a manager works towards the attainment of the set goals in the annual and strategic plans of any organisation. The role of a manager becomes more intricate daily as competition on the market increases gradually. The managers have to come up with planned actions that will enhance their competitive advantage in the market. This report will define the keywords and theories used in the discussion, analyse the outcomes of the interview conducted on the two managers about managerial responsibilities, and determine whether their progress in their careers today is in line with the concept of the managerial escalator. Lastly, a conclusion based on the findings will be drawn, and relevant recommendations to the managers will be included.

Managerial Escalator

Aforementioned is a concept, which helps individual employees to cope with their managerial responsibilities and bridge the administrative gaps within their scope of work. The idea attempts to narrate how specialists become managers (Rees and Porter, 2015). Many organisations hire employees based on their areas of specialisation. With time, the specialists in their line of duty learn and obtain supervisory skills gradually. These skills enable them to be promoted quickly to higher positions in the same or different organisations. As they climb up the escalator, these specialists end up on the managerial side of the line. Not all specialists become managers; only the competent specialist will escalate to managerial level. Specialists, therefore, must put the organisation’s interest before their interest to grow along the axis.

Managerial Gap

A managerial gap is defined as the deficit of knowledge and skills that a manager develops. The gap exists when a manager lacks the necessary ability to perform a given task of a managerial level. The gap increases the amount of time the manager takes to carry out managerial activities (Rees and Porter, 2015, p.6). Managerial gaps increase operational costs in an organisation that translate to a reduction in income. The following are the steps used to identify performance gaps in an organisation.

1. a. Identify the specific objectives and expected outcomes in the organisation.
2. b. Determine the skills and knowledge required to carry out the tasks outlined.
3. c. Identify the performance trend and functions.
4. d. Arrange the issues identified prioritising those affecting organisation goals.

Managerial Hybrid

Employees who work as both specialists and managers are known as managerial hybrids. They possess both professional skills and managerial skills. These employees have advanced upwards in their career through promotions in an organisation hence learning managerial skills in their line of operation (Rees and Porter, 2015). In an organisation, different activities may require both specialist and manager’s involvement, but the hybrid managers can perform the outlined tasks without difficulties. Hybrid managers should be energetic and passionate, can communicate and relate well with people, a punctilious person and a driving attitude towards innovation.

Remedial Strategies

These are the actions put in place to bridge the managerial gaps in an organisation. These remedies aim at increasing the productivity and efficiency in an organisation. There are several corrective strategies which include; role definition, managerial selection, training and development and monitoring (Rees and Porter, 2015). Before specialists are promoted to managers, the new role is defined and assigned to only the qualified staff that possesses the required skills and knowledge. Further, the manager’s skills and knowledge are developed through training, and their performance in the role is continually monitored to weigh their productivity. A hybrid manager reduces the holes found in management hence an increase in productivity in the organisation.

Findings and Analysis

Face-to-face interviews conducted on two managers from different organisations promotes the accuracy of the report as a practical example of the managerial escalator is used. Several questions on their current roles as managers were asked. Each manager explained on how they progressed since employment to their present roles to track the trend on managerial escalator axis.

Manager 1

Findings

Manager 1 is a personal banking manager at Bank of America in the US. He is in one of the branches in New York town.

Figure 1. A representation of the bank’s hierarchy of management

Manager 1 has worked in this company for 16 years. His first job was a direct sales representative, and his roles were new client acquisition, relationship management, creating awareness of the bank’s products, growth of loan and deposit book and responding to customer queries in the field. After six years, he advanced to a banker whereby he was processing customers’ deposits and withdrawals in the teller line. He later was promoted to personal banking department as manager and had a team of ten people. As a direct sales representative, the manager occasionally was left in charge of the private banking department, and he learnt a lot about this role. He was also offered training on timely loan processing in the credit quest systems, loan appraisal, credit approval and teamwork enhancement to realise the set targets.

The manager said over the years, he learnt a lot from exposure in the field, and this boosted his negotiation and communication skills. Additionally, he has gained experience in the credit cycle from the point of sale, documentation, and packaging in the system, appraisal, approval and disbursement of the loan in the accounts. ‘On-job training has been helpful in this growth. I have learnt a lot from other managers as well. I am now well equipped with the knowledge and skills to enable me to hit the targets set in the personal department. My ability to mobilise teamwork has made work easier and enjoyable, and this has motivated the team members to deliver set individual targets within given timelines’ said manager 1. The manager said he enjoys doing his managerial duties and he looks forward to progressing further in his career.

Analysis

After a particular duration of time, specialists are promoted depending on skills gained and the role of management needed in the company. In this case, the manager began working as a specialist in fieldwork and later elevated to the teller line based on the skills gained during fieldwork. Then, he was ranked as a manager after receiving training from the previous personal banking manager and acted on the roles delegated to him correctly. Manager one has said that he has worked for this bank for 16 years and progressed over time to the current position. He has stated that his ability to enhance teamwork has contributed to his career progression success and realisation of the set targets. He has allocated 60% of his working hours in a day to offering support to his team members to motivate them to meet their objectives, and 40% assigned to processing and packaging handed over works in the system. Manager 1 reflected as a specialist who became a manager, therefore, managerial hybrid. His path of career progression conforms to the managerial escalator concept.

Manager 2

Findings

The second manager interviewed is a production manager at DC films, a film production company in the US.

Figure 2. Diagrammatic Representation of DC Films Hierarchy of Management

Manager 2 has worked at DC films for 10years. She joined the company as camera operator immediately after attaining an undergraduate degree in film production. ‘My role was mainly to take images and record videos during the shooting of films events. Later, I would edit the videos and retain the best quality. The quality of the graphics taken was one of the major concerns in my scope of work’ declared manager 2. The manager stated that she used to learn editing and the process of production from the production manager. She would even, at times, help the production manager in administration works, project handling, and assist him in meeting daily production tasks. After five years, she had gained the experience and skills needed for one to become a production manager. The skills included budget preparation, permits preparation, and necessary documentation required for filming was in place. She elevated to a production manager who is her current position, and she hopes to progress further in her career.

Analysis

The manager started working as a specialist in camera operations. She worked for five years in this position, and during this time, she learnt much from the production manager through observation and delegation of production works by the manager. She stated that her motivation to learn was due to her quest to one day become a manager and earn a higher amount of salary. With time, she exhibited the ability to assume the role of a production manager. Therefore, she is a specialist who became a manager by informally acquiring managerial skills in her line of duty. She attributes his successful career to her ability to learn through others and stepping up when needed. Her career path agrees to the managerial escalator concept. As a production manager, he is at a better position to deliver quality films due to his speciality in the images screening and editing.

Discussion

From the interview, both managers started employment in their areas of specialisation, and as time progressed, they learn on managerial skills informally by interaction with others and attending the training. In both, time was an essential factor in learning. The promotion was based on skills and knowledge acquired in their speciality roles. Both managers have shown a career growth path from specialist to managers; hence, these are hybrid managers. This trajectory is in line with the managerial escalator concept. The managers come from different organisations with different working environments. The basis concerning promotion in both depends on the ability to learn and perform well in their scope of work. For the managerial concept to be valid, one has to work over a while, learn and utilise the skills learnt and this reduces the managerial gap in management.

Conclusion

Every organisation works towards the achievement of its goals outlined in its annual and strategic plans. For an organisation to achieve these goals, the management must be robust and goal-oriented. The managers, therefore, should possess strong managerial skills and experience to lead the organisation. A manager who started a career path as specialists and later promoted stands a high chance of enhancing productivity in any organisation. Such a leader who is both a specialist and a manager is known as a hybrid manager. These managers promptly identify gaps in the managerial roles and follow the necessary steps to rectify the holes before they disrupt productivity. In this paper, both managers are hybrid managers, and they agree with the concept of the managerial escalator. In my observation, the organisation should cautiously organise forums and training for its employees to enhance their managerial tactics and approaches. Such forums enable managers to interact with employees from other organisations. Besides, these managers should sharpen their knowledge by furthering their education.

Reference

1. Rees, W.D. and Porter, C., 2015. Skills of management and leadership: managing people in organisations. Macmillan International Higher Education.

Appendices

Appendix 1: Interview Schedule

• Tell me something about your educational history?
• Explain your career path work experience to date?
• When and how did you join your current organisation?
• Have you had any formal/informal training? If yes, how did it help you with your current role?
• What is your specialism area?
• Explain how you got to your current position as a manager in the organisation.
• How long do you think you spend on a typical day managing your staff?
• Why did you choose management?
• What activities and responsibilities take up most of your daily routine?
• Would do you enjoy most about being a manager?
• Do you miss anything from before you became a manager? If yes, what do you miss?
• What is your plan career-wise?
• What is the most important skill you believe that a manager should have?
• Were your managerial responsibilities explained to you before you started this position?

Appendix 2: Interviewees’ Contact Details

Manager 1:

• Name: Joel Einstein
• Business: Standard Chartered Bank
• Position: Manager
• Email: Joel20@hotmail.com

Manager 2:

• Name: Robert John
• Business: DC Films
• Position: Owner
• Email: jeintein@hotmail. Com
• producer
• director photography
• camera operator
• unit camera operator
• director arts
• boom operator
• production manager
• sound maker
• Branch manager
• customer service officers
• personal banking manager
• direct sales representative
• business banking manager
• customer service manager

Case Study of Ryanair: Analysis of Macro Environment and Internal Organizational Environment

Ryanair, the Irish budget airline was established by the Ryan family with a small staff of twenty-five. After facing tremendous losses, the Ryan family invested 20 million pounds to relaunch Ryanair as a low fare airline on Southwest airlines low-cost business model (Ryanair DAC 2019). The deregulations in the air transport sector in the year 1990 played a vital role in allowing greater freedom of air traffic rights (Diaconu 2012). In the year 1992, Ryanair was the first airline to adopt the low-cost business model in Europe (Malighetti et al. 2009). The decision of considering the low fare model helped Ryanair to become the largest Irish airline on every route to/from Dublin. Low fare and high-frequency formula expedited their acceptance in every market operated between Ireland and the UK and by 1996, Ryanair overtook Aer Lingus and British Airway to become the largest passenger airline on the route of Dublin-London (Ryanair DAC 2019). Since the entry of low-cost carriers has completely revolutionized the air passenger transport industry. The core of the low-cost business model aimed at offering low fares by declining comfort services (Malighetti et al. 2009). This paper analyzes the performance of Ryanair and its strategic decisions. The analysis is broadly classified under the following points namely Macro-Environment, Internal Organizational Environment or Strategic Capabilities, Globalization & Leadership. This paper discusses Ryanair’s leadership, strategic and cultural capabilities to withstand the external forces and environmental changes that impact the overall organization performances. PESTEL framework helps to understand the macro-environment complexities. Internal organizational decisions play a vital role in strategizing the road map to achieve a long-lasting goal. Every organization seeks global exposure and globalization helps the organization to reach out to the world. Leadership plays a key role in an organization to select the right path by taking strategic decisions.

Macro Environment

An organization’s survival depends upon the opportunities given by its environment. The environment may also become an organization’s potential threat. It becomes vital for the stakeholders of an organization to analyze the complexity of its environment and carefully consider the influence of environmental change. PESTEL and Porter’s five forces framework can be used to anticipate the influence of environmental changes. PESTEL framework can help to predict the effect of Political, Economic, Social, Technological. Environmental and Legal environments to an organization (Johnson et al. 2011). PESTEL framework can be used to analyze Ryanair’s low-cost business model to understand Ryanair’s strategic decision to withstand the influence of the challenging changes.

The impact of decisions taken by the government is political (Johnson et al. 2011). An airline industry faces political influence in the form of government stability, taxation policy, foreign trade regulations and social welfare policies (Helterlin and Ramalho 2007). In the year 1993, the European Union adopted a series of deregulations that promoted international trade. This deregulation provided a new area to explore innovation strategies and incorporate into the low-cost model. Ryanair witnessed unprecedented growth due to the deregulation decision taken by the European Union (12). Ryanair incorporated innovation strategies, for instance, Ryanair cajoled the department of transport of the Irish government to do some changes in the aviation policy. By doing so, Ryanair could survive the price war between itself and Aer Lingus and gained exclusive rights in Ireland to Stansted and Luton airport (Helterlin and Ramalho 2007).

Economic influence refers to economic rates, business cycles and variation in economic growth across the world. Organization structure grows out of a set of economic characteristics that decides the strength of external uncertain environment (Johnson et al. 2011). Ryanair’s strategic planning was in consideration of economic growth. Strategies like ancillary service through the website which helped Ryanair to earn revenue manifold. The decision of not using air bridges and no provision of the frequent flyer was taken considering the economic influence. The direct sale approach eliminated commissions of travel agents (Helterlin and Ramalho 2007). Ryanair decided operating fights on small and medium routes while selecting the route the competitors were analyzed. In a few routes where competitors were present especially on London – Dublin route, the price correlations were considered. Ryanair could provide low fare considering the low- cost model and by letting go of free services. The strategic decision helped Ryanair to handle up to 4.9 million passengers per month in the year 2007. The total traffic increased from 21.1% from 2006 to 23% in the year 2007 and average revenue per passenger grew by 1.6% (Malighetti et al. 2010).

Ryanair’s strategy of providing low fare socially impacted in developing tourism towards short destinations in Europe. Ryanair never gave importance to worker unions and association and they never conducted any negotiations with the unions. Thus, the company’s staff turnover is more, and it has been said that they have the worst working conditions when compared with other airline employees. The staff contract comes under Irish legislation and not under domestic labor law, thus allowing Ryanair to give its employees a higher workload and lesser holidays (Helterlin and Ramalho 2007). The organizational structure of Ryanair affects the social conditions of its employees (Nortilli and Wong 2014).

Technological influences are the innovations and use of new technologies by the organization to hold its position in the external market (Johnson et al. 2011). From the beginning, Ryanair had an aggressive direct sale approach via the internet (Diaconu 2012). Ryanair introduced Europe’s first largest travel website in Jan 2000. The direct sale approach helped Ryanair to record 50,000 bookings per week within three years (Box and Byus 2007). Ticket booking through the internet not only helped the company but helped the clients significantly. Directly selling to market provided Ryanair to give detailed market information with respects to the customers. The ease of booking tickets attracted customers and they were able to compare the prices and choose the lowest one (Diaconu 2012).

Environmental factor illustrates green issues such as carbon footprint, pollution, and waste generation (Johnson et al. 2011). Ryanair decided to replace its fleet of airlines in 1999. The replacement program cost seventeen billion euros and all the Boeing 737 aircraft were replaced with new Boeing 800. The replacement not only helped economically by having younger, next-generation aircraft but also helped environmentally by becoming the most fuel-efficient airlines in Europe. This shows that Ryanair does consider the service quality and gives importance to the impact its operation has on the environment. Currently, Ryanair is an environmental efficiency leader and it is constantly working towards improving its performance (Diaconu 2012). According to 2019 annual report of Ryanair, the environmental priorities are to comply to all the rules and regulations. It has prioritized to minimize fuel and energy consumption and to minimize noise pollution by 40 percent, new Boeing 737- MAX is expected to commission by fiscal year 2020. Ryanair was the airline to report the CO2 emission and continues to do on monthly basis.

The legal influence is impacted by legislative changes such as changes in health and safety legislation, changes due to mergers or acquisitions (Johnson et al. 2011). To generate greater benefits, many airlines and airport operators have signed a long-term contract for competitive advantages and passenger satisfaction. Ryanair has negotiated with some airports for a share of parking revenues. When such offers are floated between airport operators and airlines, there are legal constraints that could arise. In the year 2004, the European Court found the portion of the contract between Ryanair and the airport of Charleroi was illegal due to legislation changes and ordered it to return the amount of all the facility benefits in connection with the contract. Ryanair had to repay of 4 million euros (D’alfonso and Nastasi 2014).

The Internal Organizational Environment or Strategic Capabilities

Every organization is different and has its strategic capabilities to achieve competitive advances and improve its performance. Two main components of strategic capabilities are competences and resources. The changing environment plays an important role in deciding an organization’s ability to create strategic capabilities and balance the internal environment. Strategic competences of an organization depend on the way the resources are utilized (Johnson et al, 2011). Though Ryanair had developed the low-cost model as per the South-west original model, it had included various new characteristics such as using unused airports. It was Ryanair’s internal strategy to adhere to the ‘Southwest model’. In a study conducted in 2004, Ryanair’s adherence to the original model was 85 percent compatible (Diaconu 2012). The illustration of Ryanair’s internal strategic capabilities can be examined by its Core activities and by its Value-added strategies (Kangis and O’Reilly 2003). The set of skills, activities, and resources of an organization that can be developed or extended; provide customer value and distinguish from its business competitors are the core competencies of an organization (Johnson et al, 2011). The Core strategies of Ryanair were to have one type of aircraft, selection of secondary airports, one class of tickets without any discrimination, no overbooking and no free-on-board services (Alderighi et al. 2016). Resources are the foundation of organizational competencies. Resources are further classified into Tangible and Intangible. Tangible resources are the assets which can be measured and quantified while Intangible resources are relatively difficult to analyze and are rooted deeply in the history of an organization and have accumulated over time (Volberda et al. 2011).

Ryanair’s mission statement which was reported in 1997 was to become Europe’s most profitable lowest cost airline by rolling out ‘low-fare-no-frills’ service in all the market areas where Ryanair operates to ensure that benefit is provided to all the customers (Kangis and O’Reilly 2003). The Tangible resource of Ryanair was to finalize to operate only one type of aircraft which was Boeing 737-200s. Initially, they had fifteen aircrafts in its fleet and much of its success in achieving low costs has been attributed to its core strategy of selecting one type of aircraft in its fleet. One of the main areas of Ryanair’s concentration on cost was contracting out of services. Employee compensation cost accounts for approx. 30 percent of total operating cost, Ryanair kept the employee compensation cost low by contracting-out services. This helped Ryanair to obtain a high level of productivity from its employees (Kangis and O’Reilly 2003). Ryanair’s strategy of dropping customer inflight service items such as no free food or beverages, no seat allocation, no business class service and more seats per aircraft provided Ryanair advantages in the competitive market consisting of other European national airlines (Barrett 2004).

Ryanair’s strategy of greater operational and maintenance flexibility added value to its inventory volume. Ryanair’s fleet had the same specification of single 130 seat configuration aircraft which helped to standardize, and the cockpit crew was trained on one type of aircraft thus saving time and resources. This strategy of having a similar type of fleet helped Ryanair in maintenance procedures. The training of engineers was also conducted on one type of aircraft as the maintenance procedures were standardized. A similar type of aircraft assisted Ryanair in bulk purchase of spare parts and other important equipment at economical rates (Kangis and O’Reilly 2003). Outsourcing of non-core activities to long term contracts at economical rates protected it to limit from unpredictable cost fluctuations. It had outsourced ticketing services except at home airport in Dublin, by doing so Ryanair could avoid management activities at other airports (Kangis and O’Reilly 2003).

Consideration of regional airports and operating on point to point routes were the value-added strategies of Ryanair as the regional airports are less expensive compared to the main crowded airports. The seat optimization of Ryanair by just providing little space for a bar and duty-free, provided it to achieve a thirty percent increase in seating when compared with Aer Lingus. A Morgan Stanley report illustrates that Ryanair had an unprecedented effect on traffic growth between Dublin and London. Due to this, Ryanair’s network too expanded from five in 1992 to twenty-seven by 1998. Ryanair witnessed an increase in overall passenger numbers significantly in all the routes served by it. By 1998, Ryanair’s passengers exponentially increased to over four million (Lawton 2000). Ryanair could achieve a twenty-five-minute gate turnaround and increase in productivity by fifteen percent due to crew efficiency and aircraft utilization. The internal core and value-added strategic capabilities provided Ryanair to grow exponentially and maintain its hold in the European market.

As discussed above, Intangible resource is rooted deeply among the employee. Ryanair’s decision to have a flexible labour system had its pros and cons. Ryanair’s flexible labour system whereby employees could do more than one job. Ryanair had also established a performance-related pay scheme, under this scheme the employees were paid partly on a salary basis and partly on an activity basis. This helped employees to earn more and assisted Ryanair in controlling operational flexibility (Kangis and O’Reilly 2003). The scheme had its advantage of high payment, Ryanair’s reputation, especially in terms of job satisfaction, dropped considerably. The main reason consisted of overall behaviour issues of the company. The employees lacked motivation, and which led to employee turnover. Ryanair’s culture can be considered as weak as it has a culture of imposing strict rules on its employees which results in instability. As the intangible resource of an organization cannot be directly measured Ryanair needs to evaluate different models to improve organizational culture (Nortilli and Wong 2014).

Globalization

Globalization can simply be referred to as the process of becoming more global by considering the world as one tightly linked system (De and Meyer 2010). Globalization is extensive coordination among many nations around the world, while Internationalization is a range of options available to an organization to operate outside its country of origin (Johnson et al. 2011). Initially, Ryanair targeted customers between Ireland and Great Britain but eventually expanded its operation to other parts of Europe, the strategy was to become the leader of low-rate (Diaconu 2012). Ryanair chose to internalize to leverage the combination of ownership, geographic location, and internalization advantages. The advantages in terms of airlines are of serving foreign markets, to do so the airlines should adopt export strategies (Albers et at. 2010). The important advantages of Internalization for low fare airlines are quality control especially concerning customer uncertainties about service offerings. The process control, harmonization, and flexibility in decision making are other important factors to low fare airlines which can be catered by Internationalization (Albers et at. 2010).

In 1993, the third and fourth packages of deregulations in the airport sector were rolled out, which provided access to EU airlines in other European markets. Due to the deregulations, the market share of low-cost carriers grew exponentially (Diaconu 2012). Ryanair aimed to position a strong base on the European continent before any competitor could do so. This new competition or market entry proved to be a supporting effect for Ryanair to internationalize and influence the international market. Over the period, low fare airlines were categorized under three groups namely No Internalization Only Export, Contractual Cooperation and Set up own multiple bases. Ryanair targeted to be in the third group as they chose to have their multiple international bases (Albers et at. 2010). Ryanair chose to create new branches located at a different location, this catered to increase the number of destinations. In 2007, IATA (International Air Transporters Association) declared Ryanair as the largest airline in the world as it had twenty subsidiaries spread out all over the European Union (Diaconu 2012). Ryanair aimed at internal and external strategies, the external strategy was to aim at building a strong reputation and internal strategy was to develop experience and expertise in airline management (Albers et at. 2010). The method of internationalization adopted by an airline strongly depends on the ownership structure and strategic leadership. Entrepreneur leadership and strategic drive of Michael O’Leary also seem significant while entering the international market. Ryanair also had first-mover advantage in a specific geographic region which was an important factor in the success of Ryanair among other low fare airlines (Albers et at. 2010).

Leadership or Culture

Leadership in an organization influences and motivates the people of the organization to achieve the desired goal. An effective leader could ensure a clear vision of the future of the organization and communicate the correct strategy so that the people of the organization are committed towards the goal (Johnson et al. 2011). Leadership values play an important role in the outcomes of an organization in the form of performance and culture. The performance of an organization can be characterized by an escalation of commitment and the growing value of leadership has influenced the strategic decisions of organizations (Carter and Greer 2013). After facing tremendous losses in 1990, Michael O’Leary was brought in as the new CEO of Ryanair and Tony Ryan suggested he visit Southwest Airlines in Dallas to understand the fundamentals of the low-cost business model in the airline’s industry (Box and Byus 2007). Michael O’Leary’s significant entrepreneur leadership helped Ryanair by launching a low-cost airline business model and holding its position in the European market (Albers et at. 2010). Under his leadership, Ryanair’s profit increased while the public image drops because he made expenditure as top agenda and not the feedback of the public. According to the poll of the British Government in the year 2013, Ryanair scored a negative rating of 35 percent. The same year, Ryanair announced revenues of 4.8 billion Euros and a net profit of 569 Euros making it one of the most revenues generating airlines. The value proposition plays a crucial role in the success of Ryanair, though people are aware that Ryanair doesn’t provide excellent services, but they do get attracted to the low fare. Ryanair’s goal is not to be loved but to understand the true value of what is offering (Thomas and Thomas 2015). Michael O’Leary’s leadership quality reflects in his public statements when he reiterated the vision of Ryanair that is to simply continue to be the largest low-cost airlines in Europe. (Box and Byus 2007).