EXTERNAL AND INTERNAL ENVIRONMENTAL ANALYSIS 7
Externaland Internal Environmental Analysis
Netflixis the leading global internet television network, which has over 69million members in approximately 60 countries the members enjoyabove 100 hours of movies and TV shows in a day. Members have thebenefit of watching as much as they desire anytime and in any place(Gulati et al., 2014). This report will present an external andinternal environmental analysis of Netflix, assess the organization’scompetitive position as well as possibilities, and discuss how thestructure of the organization affects the organization’sperformance.
Inconsidering the external environment of the organization, porter’sfive forces can be used by the organization in providing a clearunderstanding of the competitive powers that the organization has,which it can use in building defenses against its weaknesses. In theindustry that Netflix operates, competitive rivalry is high. The highrivalry emanates from a vast number of content providers in theindustry. This stems from the fact that most of the content providersalready have own streaming alternatives, and Netflix relies heavilyon licensing agreements. Alternatively, there are lower barriers toentry in the industry since the content providers make profits fromthe contents that they offer and they can afford to provide astreaming alternative when it comes to a bundle package deal(Krishnadas, 2015).
Thebiggest external factor influencing Netflix performance is thesuppliers. The organization heavily relies on license agreements anddo not own the content. This offers a huge challenge to Netflixbecause a supplier may enter into an exclusive deal with anothercontent provider. In case such a scenario happens, customers arelikely to move to another content provider in case the provideroffers richer content. Since Netflix offers DVD services, they haveto pay for extra license rights. DVD margin is very critical to theorganization in determining the profit margins however, with anincrease in streaming and decline of DVDs demand, the future marginsof the organization could be greatly affected. In addition, there arecheaper alternatives in the industry to watch content for instance,Hulu provides a free service where customers can watch the latest TVshows for free (Krishnadas, 2015).
Theexternal environment can also be analyzed from the PEST model. Thepolitical environment can have an impact on the organization’soperations for instance, distribution restrictions. In theorganization’s case, international policies and laws may affect thedistribution of content. For example, in Germany, the organizationcannot offer some violent content because the country has a severerating system for violent content, which Netflix offers (Braun &Latham, 2014).
Economicenvironment is another external environment, which can affect theoperations of Netflix. The interest rates as well as exchange ratesare likely to affect the margins of the organization. For instance,since Netflix is based in America, its margins can be affected whenconverting a weaker currency into dollars.
Socialenvironment such as cultural aspects like trends can easily influencethe profitability of the organization. A major social aspectaffecting Netflix is the decrease in the demand for the consumptionof content using a physical disc while demand for online streaming ison the rise. This is a dangerous trend because DVD by mail emerges asthe strongest segment of Netflix (Braun & Latham, 2014).
Alternatively,the technological environment is also very critical to theorganization’s performance (Krishnadas, 2015). The growth ratewithin the technology space is of immense importance. For instance,the expansion of the 4G networks may be a benefit to customers sincethey would be capable of watching better quality videos however,this would present a threat to the content providers because it wouldchoke their network speed.
Thereare different strengths and opportunities that the internalenvironment of the organization offers. The resources of theorganization are one of the elements that provide these strengths andopportunities. The management of Netflix has an open and transparentinfrastructure, which creates an excellent public image for theorganization. In terms of human resource management, the organizationtakes an innovative approach through permitting brainstorming anddevelopment of potential ideals for the organization. Netflix alsorewards its employees and fires those who do not reach theirstandards of working (Krishnadas, 2015).
Technologydevelopment is an area that the organization is taking seriously. Theorganization has put in place a technology, which permits customersto stream high quality content that they desire at a lower bandwidthrate (Keating, 2013). This is a critical aspect since it wouldincrease the number of customers willing to use lower bandwidth ratefor higher quality content a move that would increase theprofitability of the organization. In marketing its products, Netflixrelies on a word of mouth from subscribers who help them in gainingmore customers. In order to attract more customers and increase theirsales, Netflix provides a one month free trial to their new customers(Pride & Ferrell, 2014).
Theorganization has a functional organizational structure, whereby thestructure is segmented by aims of its functions instead of customersegments or regions (Pride & Ferrell, 2014). The structure ofNetflix is centralized such that the CEO has direct control over thedepartments, which have individual managers. This is critical ininfluencing the performance of the organization since there isexcellent flow and delegation of functions.
Majorstrengths in the internal environment of Netflix are its popularityand convenience. In attaining its strategic plan of increasing itsshareholders’ value, the company would need to expand its streamingsubscription both internationally and locally. Netflix has awell-developed ecosystem for use on different internet-connecteddevices such as mobile devices, televisions, and computers. Theorganization has engaged in licensing an increasing number of contentfor the streaming platform the organization is also looking for moreways of increasing the amount of content so as to enhance the userexperience (Keating, 2013). Thus, the popularity and convenience thatthe organization has, is a plus towards its strategic plan ofincreasing shareholders’ value.
Theweakness of the organization is that there is a decline in the DVDmembership. This is due to the growth in streaming over recent years.The decline in DVD membership is expected to continue and this mayaffect the profitability of the organization. Another major weaknessaffecting the organization is that its international operations arenot yet profitable (Braun & Latham, 2014).
CompetitivePosition and Possibilities
Theorganization has a significant combination of membership,accessibility, and brand awareness which allows the organization toremain competitive in regard to other streaming content providers(Braun & Latham, 2014). In order to cope with their weaknessesand threats that exist in the industry, the organization needs toredirect resources from the delivery services so as to enhancestrengths. Offering the ever-expanding streaming content to customerswill help the organization serve as well as attract a broader base ofcustomers.
Braun,M., & Latham, S. (2014). MasteringStrategy.Santa Barbara: ABC-CLIO.
Gulati,R., Mayo, A. J., & Nohria, N. (2014). Management.Mason, OH: South-Western Pub.
Keating,G. (2013). Netflixed:The epic battle for America`s eyeballs.New York : Portfolio/Penguin.
Krishnadas,D. (2015). Fuse:Foresight-driven understanding, strategy and execution: move thefuture.Singapore: Marshall Cavendish Business.
Pride,W. M., & Ferrell, O. C. (2014). Marketing.S.l.: South-Western Cengage Learning.