UNIVERSITI TEKNOLOGI MARA (UiTM)

FACULTY OF ARSHAD AYUB GRADUATE BUSINESS

SCHOOL

EXECUTIVE MASTER IN BUSINESS ADMINISTRATION

OPM 770
OPERATION MANAGEMENT

INDIVIDUAL ASSIGNMENT
Strategy Provides Competitive Advantage at NETFLIX

Prepared by:
MOHD. NIKMAN NADZMI BIN JUSTIM
(2018873474)

Prepared for:
DR. NURAZREE MAHMUD
 INTRODUCTION

Netflix is amongst the most recognizable dotcom brands today. Netflix, Inc. co-
founded by Reed Hastings and Marc Randolph in 1997, starting as a DVD sales and
rental by mail but after a year they focused on online DVD rental service. In 2007,
Netflix introduced streaming media online while retaining its DVD rental service, and
have since added increasing amounts of content that enable consumers to enjoy
entertainment directly on their internet-connected screens. They started expanding
online streaming internationally in 2010. Netflix, Inc. has become the world’s leading
subscription streaming entertainment service with more than 182 million paid
streaming memberships in over 190 countries enjoying TV series, documentaries and
feature films across a wide variety of genres and languages. Netflix content is
increasingly exclusive and curated, and includes their own original programming. In
order to continue being at the forefront of the streaming programming industry, Netflix
is closely focused on the ability to be viewed on as many Internet-connected screens
as possible. Starting as a DVD rental service, the company encountered difficulty in
maintaining a sustainable, cash-flow-positive business before their popularity
escalated through their status as pioneers in there structuring of the online
entertainment streaming industry. This perception aligns with Netflix’s strategic
mission of revolutionizing the way in which people access and engage with content.
Their stated vision of how to accomplish the aforementioned is to become the best
global entertainment provider (meaning one whom is the fastest, the easiest, and the
most reliable), licensing the world over and helping content creators find a global
audience. While Netflix has dominated the online streaming market, the space is
changing rapidly and so the company must continually re-evaluate their strategy in
order to realize sustained success. Through an internal and external analysis of
Netflix, this case study examines the strategic challenges facing the streaming giant
and provide it’s lesson learnt.

SWOT Analysis of Netflix

Netflix’s Strengths – Internal Strategic Factors:

1. Exponential Growth – In the past ten years, Netflix has become an influential brand
for online streaming content not only in the US but across the world.
2. Global Customer Base – Netflix is serving over 190 countries across the world,
having a global customer base. There are over 182 million subscribers of Netflix, and
it gives the company a strong bargaining power with the studios for securing exclusive
content.
3. Originality – Another one of its strength is that Netflix has been producing original
content over the years with the highest quality. Some of its original shows like Stranger
things, Narcos, Mindhunter, and Orange is the new black became so popular that its
subscriber count kept increasing over the quarters.
4. Adaptability – Netflix adapted to various technologies instantly by providing
streaming on all internet-connected devices like personal computers, iPads, mobile
devices, and televisions. Due to this, their business grew immensely over the years.
5. Competitive Pricing – The pricing strategy of Netflix has given it leverage over its
competitors. The plans that Netflix has designed are affordable and offer great value.
 Netflix’s Weaknesses — Internal Strategic Factors:

1. Growing Operational Costs – The original content produced by Netflix gives it

a competitive advantage, but the cost of supporting this content keeps growing.
2. Limited Copyrights – Netflix does not own most of its original programming, and this
affects the company negatively. The rights taken from other studios expire after few
years, and that content starts appearing on other sites.
3. Increasing Debt – Netflix is serving its diversified content in many countries around
the world which requires huge amounts of money. Netflix keeps adding to its long-term
debt to fund new content. The increase in debt every year is the sign of a significant
weakness.
4. Lack of Green Energy – Netflix has still not utilized renewable energy and hasn’t
created a business model to promote environmental sustainability. Contrary to this,
other tech companies like Amazon, Google, have already started using renewable
energy to help sustain the environment. The four tech giants have committed to using
100% renewable energy for their businesses. The lack of green energy utilization has
a negative impact on the brand image of Netflix.

Netflix’s Opportunities – External Strategic Factors:

1. Expand Customer Base – With such a huge current subscriber base, Netflix can tap
into many other countries and expand its services and subscribers. They can start to
target the countries where it is currently not available. Recently, Netflix expanded its
operations and added a few more countries on its operation list. However, it is still
unavailable in China, Crimea, North Korea, and Syria.
2. Refresh Content library – It can expand its content licensing by increasing the
contracts with various movie distributors. Additionally, Netflix should refresh its content
library as it is now producing its original content.
3. Alliances – It can also partner up with various telecom providers and offer bundle
packages in different countries. Alliances and partnerships can prove to be beneficial
for Netflix.
4. Niche Marketing – Producing region-specific content in their local languages is also
another big opportunity for Netflix. Niche marketing has been proven beneficial for
Netflix. For example, it started an original TV series ‘Sacred Games’ in India, and
Spanish series (La casa de paper (Money Heist), which are massive hits.

Netflix’s Threats — External Strategic Factors:

1. Competitive Pressure – Netflix is not the only one which provides digital streaming
around the world. Its competitor base keeps increasing every
year. HBO, Amazon, Hulu, AT&T, and YouTube are competing continuously with
Netflix by giving repeated access to new and original content to its subscribers.
2. Government Regulations – Strict governmental rules and regulations regarding
service providers like Netflix in many countries can be a big threat for them. For
example, Netflix expansion to China will be unlikely because of its restriction on
foreign content.
3. Piracy – Digital piracy is still at its peak as thousands of people around the world find
ways of downloading media content because of high monthly costs which they cannot
afford. It is another big threat that Netflix faces.
Netflix strategic approaches to competitive advantage:

1. Competing on differentiations

Netflix’s differentiated competitive strategy is focused on two primary components,

content, and user experience. The company invests a tremendous amount of
resources into new content development especially its original shows and movies,
moving away from their previous strategy of focusing on licensing content under
ownership by other studios. The billions of dollars that are invested towards content-
production are largely spent on attracting industry-best directors, writers and actors
whom are given a tremendous amount of autonomy, enabling them to do their jobs
well. Secondly, the most noteworthy component of Netflix’s competitive strategy is that
of the user experience, which the company has prioritized. The interface is simple and
consistent across all devices; it is easy to navigate, and Netflix doesn’t try to blend
advertising content into its streams.

2. Competing on Costs

Netflix Inc.’s generic strategy is cost leadership, that is ensures competitive advantage
through minimized costs and, frequently, minimized selling prices. Netflix broadly
acquires more customers in the online entertainment market, in contrast to focus
strategies that concentrate on specific market segments. This broad approach of the
generic strategy aligns with Netflix’s intensive growth strategies, which prioritize
market penetration. The approach relies on the company’s business model and value
chain, which satisfy customers partly through personalized customizations, such as in
mobile app settings.

3. Competing on Response

User experience is the most subtle and underrated aspect of what makes Netflix
special. The interface is simple, user-friendly and consistent across all devices;
whether accessing Netflix through smartphone, tablet, laptop, or big-screen TV, it is a
strikingly simple interface. Poster thumbnails will help viewer navigate through a
sorted and categorized catalog where the presentation is driven by their viewing
habits. If we like action thrillers, shows of a similar style in our Netflix panels will be
showed.

Global Operation Strategy

Transnational Strategy

Netflix adopted Transnational Strategy as their global operation strategy. A strategy

that combines the benefits of global-scale efficiencies with the benefits of local
responsiveness. Moving out material, people or idea outside. As of 2019, it had
operations in over 190 countries, and more than half of its 182 million subscribers lived
outside of the US (Netflix, 2019). Netflix’s global strategy is unique in that it must
secure content deals on a regional basis. The company faces many regulatory
restrictions, and customers in new markets often prefer local-language tailored
content.
Netflix’s global strategy is important in that there already exists strong competition in
many foreign countries, where leaders offer localized content that mitigates any
opportunity for a first-mover advantage.

10 Strategic OM Decision

1. Goods and services: The plans that Netflix has designed are affordable and
offer great value. Subscribers can watch unlimited movies, either on DVD or
streaming for an affordable price of $8.99 a month. It is less expensive than
cable movies or going to the cinema and also offers a wider selection. For a
higher price, subscribers can even get premium plans.
2. Quality Management: Netflix has an international brand to look after, so quality
is of high importance to them. Their reputation established as the premier go-
to platform for entertainment, Netflix implemented quality control structures and
certification process that ensured all content met high standards. Eventually the
Netflix Delivery Standard for videos (4:3 aspect ratio) got support from post-
production houses, which were mentored by designated Netflix team. This
eliminated the problem of “different versions” from one content owner to
another and empowered them to deliver a smooth experience to their
customers.
3. Process and Capacity Design: Netflix continued its strong run with significant
growth in its international subscribers. As players such as Hulu and Amazon
invest heavily in quality content, it is believed that the streaming war will be
fought largely on original content. While Amazon is looking to acquire live sports
broadcasting rights, Netflix is clear that its focus will remain on quality movies
and TV shows.
4. Location: While Netflix continues to expand into more territories worldwide,
they maintain a relatively small global presence, with 12 offices worldwide that
is Los Angeles, Brazil, Netherlands, Taiwan, United Kingdom, Philippines,
India, New York, Singapore, and two offices in Japan. The central localization
effort is driven from Netflix’s two California offices. There is the headquarters in
Los Gatos (“LG”) office, located next to other tech giants in California’s Silicon
Valley and the Los Angeles(“LA”) office, where the original content is produced.
Localization work for Netflix is generally managed of one of these two offices.
5. Layout Design and Strategy: There are a few existing tools that are used by
Netflix. Content Hub serves as their DAM (Digital Asset Management) system,
and there is a terminology tool for managing key names and phrases. Netflix is
strongly committed to developing their own end-to-end workflow management
system. They are preferring to develop this internally to increase the level of
security and control they have over the process.
6. Human Resources and Job Design: Netflix has hired a lot of very intelligent
and capable people to work on the team. This strategy, coupled with their
inherent corporate agility, has allowed them to grow very fast. Their strong
commitment to attracting the top talent, supporting and training them means
that they will be facing less quality issues.
7. Supply Chain Management: All of Netflix’s preferred suppliers, which they call
“Badged Vendors” are listed online by Netflix’s Media Engineering and
Partnership team, which manages the supply chain.
 Netflix chooses to work with multiple specialized vendors rather than pursue
the single-sourced “one stop shop” solution that has been increasingly common
in the localization industry, so they need a diverse vendor base.

8. Inventory: Netflix uses the types of inventory that are most appropriate to its
business. Different types of inventory have different effects on business. The
role of each type of inventory depends on how it is used in the business. At
Netflix, the following inventory types are used:

i. Just-in-time inventory - For the DVD-by-mail service, Netflix uses just-in-

time inventory management. In just-in-time inventory management,
videos are recorded onto DVDs upon customers’ requests. The DVDs are
then shipped from the company to the location of the customers.
ii. Serialized inventory - Netflix uses serialized inventory for its online
streaming service. In serialized inventory, products are monitored based
on their unique serial numbers or codes. For example, each movie has
its own serial number. The role of this type of inventory is to ensure that
Netflix efficiently monitors its products and services.
9. Scheduling: Netflix subscriber can access to online streaming video across all
devices through smartphone, tablet, laptop, or big-screen TV anytime and
everywhere.
10. Maintenance: Netflix use predictive analytics, based off the previous things
been watched, and suggest movies that viewers are going to enjoy. Now,
instead of going into the store and having all the information to sift through,
Netflix does all that work for you and picks the movie it thinks you’ll like best.
Basically, it helps streamline, prolong, and vastly improve the process of
operations. These technologies can automatically predict maintenance and
doesn’t require as many checks since this new approach does.

CONCLUSION/LESSON LEARNT

Netflix is a company in constant flow and has therefore basically made its product its
corporate philosophy. The use of state-of-the-art technologies, some of which have
been developed in-house, does not primarily serve to maximize profits, but rather to
consistently develop them further with the aim of providing the best possible customer
experience. That is what we should ultimately learn from Netflix: The customer
experience is the way to success. This can be achieved through strategic
approached to competitive advantages by implementing necessary strategy as
mentioned above.
REFERENCE

Arthur A. Thompson et. al. (2019), “Crafting & Executing Strategy: The Quest for
Competitive Advantage (Concepts and Cases), Mc Graw Hill Education.
Amelia Moore (2019), Netflix’s Generic Strategy, Business Model & Intensive Growth
Strategies, Rancord Society.
https://www.forbes.com/sites/greatspeculations/2017/04/20/a-closer-look-at-netflixs-
content-strategy/#71f8f1bf1fc5 (accessed 04th July 2020, 09.15 p.m.).
Joel D. Wisner (2016), Operations Management: A Supply Chain Process Approach,
SAGE Publications. Pg. 53.

Netflix, Inc. (2019). Netflix’s Official Website.

Netflix, Inc. (2019). Netflix, Inc. Form 10-K, 2019.

Patty McCord (2014). How Netflix Reinvented HR. Harvard Business Review.

Varun Penamatsa (2018). Netflix Inc. A Strategic Analysis. Northeastern University