CASE OF: NETFLIX
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Content Page
[Link]…………………………………………………pg3
1.1 Background……………………………………………………………pg3
[Link] BODY
2.1 The STEEPLE Model…………………………………………………pg4
2.2 The implementation of STEEPLE in Netflix………………………...pg4
2.2.1 SOCIAL-CULTURAL………………………………….………..pg5
2.2.2 TECHNOLOGICAL…………………………………………….pg6
2.3 The business strategy of Netflix………………………………………pg7
2.3.1 Porter’s strategy, Miles and Snow and VRIO models………....pg7
2.4 Netflix Human Resources strategy………………...…………………pg9
3. RECOMMENDATIONS…………………………………………….pg11
4. CONCLUSION………………………………………………………...pg11
5. REFERENCES……………………………………………...…pg12
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1. INTRODUCTION
The aim of this report is to critically analyze how external factors affect the
business strategy of Netflix, one of the most well-known companies in the world. This
assessment will be approached through the STEEPLE model from which two external
factors will be scrutinized thoroughly. Moreover, the Netflix business strategy will be
examined via academic business theories and models, as well as how Human
Resources functions adjust to the organization’s business strategy. Finally,
recommendations about the company will be provided according to the analysis that
will be contacted.
The methodology that was utilized for this cause was the thorough research of the
predated bibliography on business models and theories, as well as examining,
analyzing, deducting results and finally drawing a conclusion out of them.
1.1 Background
Netflix is an American company based in Los Gatos, California. The platform
enables viewers to watch content such as movies, TV shows, anime, series and
documentaries via the internet and streaming service. It was founded in 1997 by two
young entrepreneurs, R. Hastings and M. Randolph. For the first nine years, Netflix
functioned so that clients borrowed DVD by mail and from 2007 it became a content
streaming company (Voigt et al., 2017). Since 2010, it has begun operations in
regions around the world, with the exception of China, Crimea, B. Korea and Syria
(Lobato, 2020). A notable fact is that it has offices in Italy, France, Netherlands,
Singapore, Germany, Canada, Australia, Mexico, Spain, United Kingdom, Republic
of Korea, Brazil, Japan, India and the United States of America, as well as employing
twelve thousand eight hundred employees (Netflix, 2022). Netflix is a company that
managed to make its own productions in the media space and has reached the point of
having 247.2 million paid subscribers worldwide as of the third quarter of 2023.
(Statista, 2023)
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2. MAIN BODY
2.1 The STEEPLE Model
The STEEPLE can be described as a fundamental business model as well as a
global macroenvironmental analysis tool. It consists of seven external factors that can
influence an organization in its business plan design. In other words, it is a tool that
helps companies improve their products, services and quality (Kelly, 2018).
STEEPLE is consisted of Socio-cultural (demographics/ consumer power/ gender
roles/ employee relations/ consumerism /skilling /cultural differences), Technological
(AI, automation), Economic (rates of inflation, interests and taxes/exchange
rates/wage/trade agreements/freedom of labors), Environmental (consumer demand
and public pressure for eco-friendly products-processes/ law and regulation), Political
(government policies/ grants and subsidies), Legal (wide range of law and regulation
on issues such as employment rights/ workplace health and safety) and Ethical
(ethical codes and standards/ ethical and reputational risk) factors. These factors are
continuous monitoring of environmental developments, quick adaptation to it, and
anticipation of potential future changes are important capabilities for the rescue and
development of an organization (Shaw, 2002). But how does the STEEPLE business
model implement to the Netflix organization?
2.2 The implementation of STEEPLE in Netflix
Economic: Subscription-based services as a priority will be at the cost of the
subscription (Kweon & Kweon, 2021). Netflix provides competitive prices for
subscribers while also considering both the taxation of each country it operates in and
the services it offers (depending on the devices that will have access to the platform
and the quality they want High Definition / Ultra High Definition). Finally, the
subscribers are allowed to cancel anytime the subscription without penalty
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(Fleischman et al., 2021a). Netflix closed 2022 with 31.6 million dollars in revenue
and had a 3.6 million dollars increase from the previous decade (Statista, 2022).
Environmental: The environmental crisis is now one of the most important issues
of the modern era with many and constant disasters affecting the world (Komatsu et
al., 2022). The motto of the company is “firstly, the environment”. The next decade is
critical and Netflix wishes to manage climate change sustainably. It has committed to
halving its emissions by 2030. It will achieve this by optimizing its energy use, then
electrifying it and decarbonizing the rest.
Political: The company is fully aligned with the laws of each region and the
content it displays in each country is filtered according to its culture.
Legal: Netflix is a company that respects its staff and secures them with every
benefit provided by law and more. Paid time off to non-primary caregivers for an
addition to a family (this is inclusive of birth, adoption and other additions), access to
on-site daycare, reduced childcare costs, or backup childcare, medical insurance,
dental insurance, mental health benefits outside of what is covered by insurance (e.g.,
employee assistance program, mental health apps) (Sadq, 2013).
Ethical: It is important to protect data in the internet space as Netflix uses personal
data of subscribers, while the subject of copyright is important.
2.2.1 SOCIAL-CULTURAL
Social-cultural: Turning the world from TV to the internet has created a huge
growth opportunity on a streaming platform. Netflix is a multinational company
active in many countries around the world, so there are time and cultural differences
between staff. The organization has twelve thousand eight hundred employees, with
their benefits being numerous and in various areas. Initially, flexible working
schedules are offered as well as working from home (Netflix, 2022). The working-life
balance is one of the most vital requirements for employees, and achieving it results
in employee engagement, better employee performance and increased employee
loyalty (Austin-Egole et al. 2020). Also, according to data provided by the official
Netflix site, the percentage of female employees is 49.6%, while women in leadership
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positions (Directors and above) are 51.4%. While more than half (52.9%) of the
workforce in the United States is comprised of historically excluded ethnic and/or
racial backgrounds, including Asian, Black, Hispanic or Latino, Middle Eastern or
North African, Native American and Pacific Islander (Netflix, 2022). We conclude
that the company’s political diversity is highlighted. Netflix has also improved its
overall culture around inclusion by expanding this insertion strategy team to
international markets such as Latin America, Asia-Pacific, Europe, the Middle East,
and Asia. This diversification should help Netflix grow into these markets even more
in the future as they are expected to contribute more towards revenue each year as the
United States and Canada markets slow down. Finally, the company analyses in-depth
demographics as it reaches global audiences and takes customer preferences into
account. A typical example is that country-specific productions and topics are offered
(Lobato, 2020). Hence, there is material in many languages and the age restriction
with movies and series for children, teenagers and adults is always taken into account
(Asaye Bobmanuel, 2022).
2.2.2 TECHNOLOGICAL
Technological capital is fundamental to securing competitive advantage from
competing companies. Netflix is a pioneer in utilizing AI and further developing it
(Verganti et al., 2020). The recommended system used is one of the most advanced
and is the main reason why Netflix obtains significant competitive advantage.
Through a state-of-the-art algorithm, Netflix filters a set of factors to recommend the
ideal programs for each viewer (Steck et al., 2021). It is a system that depending on
the category of the content that the subscriber watches as well as the rating he/she
implements on what they see, displays corresponding movies/series. Also, depending
on specific periods of the year, for example Christmas, it recommends Christmas
movies. Moreover, it suggests content according to the trends of the country that the
viewer resides (Gomez-Uribe & Hunt, 2016). Meanwhile, whilst observing some
‘blanks’ in the effectiveness of the existing system, the responsible department
applied the A/B test method, in which it proposed a selection according to the existing
recommendation method plus a neutral option to observe audience preference more
accurately (Amatriain & Basilico, 2015). Finally, a program called ‘Hermes’
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developed by the platform quickly assesses subtitles and provides their best quality. A
new parameter to consider seriously is the 5G Internet entry that will affect all
technology.
2.3 The business strategy of Netflix.
Netflix’s business strategy revolves around the acquisition of content including
licensing agreements and original production combined with the personalized user
experience for global expansion. Leverage advanced streaming technology, cloud
infrastructure and data analytics to optimize content delivery. Its strategy focuses on
offering a wide variety of high-quality entertainment to a global audience through a
user-friendly platform. A company which follows with customer-centric orientation
that bases its sustainability on subscribers, who through their assessments and
platform options also help the organization grow (Morris, 2022).
2.3.1 Porter’s strategy, Miles and Snow and VRIO models
M. Porter developed a model whereby a business should not plan in line with
its competitors but in line with the industry in which it operates searching for growth.
This examines five parameters: Internal Rivalry, Substitute Products and Services,
Entry of New Competitors, Bargaining Power of Consumers, Bargaining Power
of Suppliers (Budiharso, 2022). In the first stage, Netflix did not face strong
competition, but since 2019, with the entry of companies as big as Disney, the status
of competition changed. Still, Netflix remains the most powerful platform in the
revenue and subscriber market (Meng et al., 2022). Netflix is expected to close as
many productions as possible around the world and offer unique hardware to buyers
in high quality. As a result, it retains its first position in the market. Regarding stage
two, Netflix offers entertainment. A service that everyone finds everywhere and is
subjective. A new generation shift to short-term video is also observed. Netflix strives
to build a loyalty relationship with subscribers using all available technological means
to personalize entertainment for everyone. Importantly, it is utilizing marketing tricks
that go into the customer’s subconscious like ‘Netflix and Chill’. In the third stage,
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the fear of a new competitor is low because Netflix is well-established in the field
with strong agreements (Sadq, 2013). On the fourth level, the consumer actually has
no way to get a better price, however Netflix offers a low subscription rate with many
options in the packages. Prices also differentiate depending on the market targeted
which helps win the competitive advantage. Finally, by giving the opportunity to the
subscribers to cancel the subscription whenever they want, gives them a sense of
freedom. In the final stage, Netflix still enjoys the confidence of producers as the
number one platform in the market, but also because of its own (in house) producers it
manages to have reduced costs (Asaye Bobmanuel, 2022).
As Porter analyzes, there are four dimensions that a strategic plan is built for
the competitive advantage: Overall cost or differentiation, cost or differentiation
focus. Netflix has a low-cost range and is trying to offer something different. It has
subscriptions that are divided into three levels (basic, standard, premium) to cover the
entire spectrum of buyers and their need for multi-device use. It has also launched
new cost-effective packages for mobile-users. Differentiating is very important to the
organization as they are continuously striving for the maximum competitive
advantage. To that end Netflix has its own productions, individual country-specific
materials, multi-language materials and subtitle selection, strong recommendation
system and ad-free content (Fleischman et al., 2021a).
According to the Miles and Snow framework dividing strategies into
defenders, prospectors, analyzers and reactors, it is concluded that Netflix should be
considered a prospector because it has an innovative understanding, reacts quickly to
change taking risks and seeks new methods to optimize its product. The company tries
to act proactively and not reactively under the hard competitive environment. Always
looking for new productions, has as its center of change the subscribers' preferences.
An example of the innovative recommendation system it uses is the famous ‘Netflix
prize’ that anyone who founds an algorithm to improve this recommendation system
would earn one million dollars (Bennett and Lanning, 2007).
Last but not least, is the VRIO model. A model that leads a strategy step by step to
whether it will ultimately acquire the competitive advantage. First of all, if the
product or service is valuable. If so, we move on to the second step if the product or
service is rare. In the same way, the next assessment is whether or not the service is
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inimitable, which if not, there is a temporary competitive advantage. If so, the last
stage is showing that the organization can use these products or services to increase
revenue and stabilize its brand in the marketplace (Vilkevicius and Stanislovaitis,
2017). In the case of Netflix which has films and series of its own production, as well
as exclusive productions with production companies, all steps of the VRIO are
covered, as well as in the recommendation system it uses. On the other hand, the fact
that it is streaming and the subscribers can choose when and where to see anything
they wish to, accomplishes all the criteria of the VRIO from the inimitable which
offers a short-term competitive advantage on Netflix. Overall, the company gathers
many competitive advantages, demonstrating why it is considered the industry leader
with the most subscribers in the world.
2.4 Netflix Human Resources strategy
Such a large company realizes that a large share of its success is owed to its staff.
The top priority of the Human Resources department is to always hire the best with a
future goal of relying on five key pillars of how employees want to engage.
Encourage decision-making by employees, share information openly, broadly and
deliberately, communicate candidly and directly, keep only our highly effective
people, avoid rules. A strategy that can be explained through the flexible firm model
that Atkinson suggested in 1984 and with quality circles describes an employee
company relationship, which each employee is welcome to communicate his or her
thoughts and idea of slavery openly (Fleischman et al., 2021b). The pursuit of the
Human Resources department is to be able to associate staff with the company’s
business strategy (Lei, Slocum and Slater, 1990; table 1). As a prospector, Netflix
wants employees who are innovative, flexible and self-contained. The goal is to create
and maintain a dream team. A model that is like a sports team, not a family term
because it loses professionalism. A dream team is about pushing yourself to be the
best possible teammate, caring intensely about your team, and knowing that you may
not be on the team forever. Dream teams are about performance, not seniority or
tenure. It is up to the manager to ensure that every player is amazing at their position,
plays effectively with others and is given new opportunities to develop. That is how
the company keeps winning the championship (entertaining the world). Unlike a
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sports team, as Netflix grows, the number of players also grows. We work to foster
players from the development leagues so they can become the stars of tomorrow. To
achieve this is the result of some action based on the employee engagement objective.
Netflix does not supervise the employee, but it makes it clear to him what his
responsibilities and responsibilities are, as well as how much time he should have
completed them. A clear report of his role and what the company expects from them.
It makes sense, because we're talking about a business that's spreading around the
world. As a result, employees have the opportunity to work as many hours a day as
they want and as many days as they want, which allows the employee to be creative
and self-managed. The company also has a salary-specific mindset. Compared to the
standard on the market to give bonuses to employees, Netflix chooses to give very
high wages. It may run contrary to conventional thinking, but Netflix believes
bonuses can crush creativity. “People are most creative when they have a big enough
salary to remove some of the stress from home,” Hastings wrote (Rodriguez, 2020).
The employee happiness at Netflix is listed in the Top 5 of similar size companies on
Comparably. Compensation is an important aspect of employee happiness and at
Netflix, 83% of employees feel they are paid fairly, 88% are satisfied with their
benefits, and 77% are satisfied with their stock/equity (Comparably, 2023). In
conclusion, some key goods that the company offers can be highlighted in order to
achieve employee engagement. Parental leave of four to eight months for both birth
and adoption of a child, free counseling and coaching sessions to harmonize mental
health of the staff, private health insurance and finally, in case of an employee’s move
to another country, there is a talent mobility team that helps to quickly adapt the
employee and undertakes to handle distracting issues, so that he/she is focused on
achieving the company’s goals.
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3. RECOMMENDATIONS
A very successful company as it is proven that should be ready to react promptly
to hold its dominant position since the competition is on the rise. Should new
subscribers be offered a weekly free trial in order to come in contact with the material
that could entice them to subscribe. Also, make commercial agreements to put web
banners on the platform menu to increase revenue while lowering the subscription
price. By having a platform with customer-centric and mouth-to-mouth marketing
approach increases its reputation and will thus win over many new subscribers. The
plans should also include an expansion into the China market that will result in new
revenues and new productions. Finally, regarding Human Resources Management to
further enhance employee creativity, competitions could take place, where each
employee would make recommendations to improve the company with the best to win
a trip gift or a cash prize. Also, even though remote working is preferred, employees
should be encouraged to come to the company's offices once at least a month and/or
to engage in bonding rituals such us departmental events outside of working hours in
order to create more personal relationships.
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4. CONCLUSION
In summary, Netflix is a role model in its industry with a specific plan that soon
turned it from a national business to a multinational business that is growing until
today. It has a specific and clear business strategy that aligns it with the organization’s
Human Resources strategy and as a result, a satisfied staff who enjoys many benefits,
as a result of which they perform effectively and establishes Netflix the brand that
everyone knows, trusts and literally puts in their home. Αn incident that turned out not
to be a random fact, but as a result of an organized strategy, which is based on
fundamental strategic theories and adapts to the needs of the recent time. Filtering the
market demands efficient and the external factors which affecting the service/
product, creates the competitive advantage, which seeks for every organization.
Concluding, the mission and vision of a company is decisive, producing its survival
and development in any competitive environment that has been formed in the system
of free markets.
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