1 What functional strategies does an organization need?

2 What might provide the basis upon which an organization decides on a competitive strategy?

3 Apply what you have learned in this lesson by reading the case below and answer the questions that follow

There’s no doubt that people like to watch movies, but how they watch those movies has changed Although many people still prefer going to an actual movie theater, more and more are settling back in their easy chairs in front of home entertainment systems, especially now that technology has improved to the point where those systems are affordable and offer many of the same features as those found in movie theaters Along with the changes in where people watch movies, how people get those movies has changed For many, the weekend used to start with a trip to the video rental store to search the racks for something good to watch, an approach Blockbuster built its business on Today’s consumers can choose a movie by going to their computer and visiting an online DVD subscription and delivery site where the movies come to the customers—a model invented by Netflix

Launched in 1999, Netflix’s subscriber base grew rapidly It now has more than 244 million subscribers and more than 100,000 movie titles from which to choose “The company’s appeal and success are built on providing the most expansive selection of DVDs, an easy way to choose movies, and fast, free delivery” A company milestone was reached in late February 2007, when Netflix delivered its one billionth DVD, a goal that took about seven-and-a-half years to accomplish— “about seven months less than it took McDonald’s Corporation to sell one billion hamburgers after opening its first restaurant“

Netflix founder and CEO Reed Hastings believed in the approach he pioneered and set some ambitious goals for his company: build the world’s best Internet movie service and grow earnings per share (EPS) and subscribers every year In 2011, though, Hastings made a decision that had customers complaining loudly

Netflix’s troubles began when it announced it would charge separate prices for its DVDs-by-mail and streaming video plans Then, it decided to rebrand its DVD service as Qwikster Customers raged so much that Netflix reversed that decision and pulled the plug on the entire Qwikster plan As Netflix regained its focus with customers, it was once again ready to refocus on its competitors Success ultimately attracts competition Other businesses want a piece of the market Trying to gain an edge in how customers get the movies they want, when and where they want them, has led to an all-out competitive war Now, what Netflix did to Blockbuster, Blockbuster and other competitors are doing to Netflix Hastings said he has learned never to underestimate the competition He says, “We erroneously concluded that Blockbuster probably wasn’t going to launch a competitive effort when they hadn’t by 2003 Then, in 2004, they did We thought???well they won’t put much money behind it Over the past four years, they’ve invested more than $500 million against us“

Not wanting to suffer the same fate as Blockbuster (it filed for bankruptcy protection in 2010 and was sold to Satellite TV service provider DISH Network in 2011), Netflix is bracing for other onslaughts In fact, CEO Hastings, defending his misguided decisions in 2011 said, “We did so many difficult things this year that we got overconfident Our big obsession for the year was streaming, the idea that ‘let’s not die with DVDs‘” The in-home filmed entertainment industry is intensely competitive and continually changing Many customers have multiple providers (eg, HBO, renting a DVD from Red Box, buying a DVD, streaming a movie from providers such as Hulu, Apple, and Amazon) and may use any or all of those services in the same month Video-on-demand and streaming are becoming extremely competitive To counter such competitive challenges, Hastings is focusing the company’s competitive strengths on a select number of initiatives He says, “Streaming is the future; we’re focused on it DVD is going to do whatever it’s going to do We don’t want to hurt it, but we’re not putting much time or energy into it” Others include continually developing profitable partnerships with content providers, controlling the cost of streaming content, and even licensing its original series In fact, it just licensed its first original series called “House of Cards” and starring Kevin Spacey

With other companies hoping to get established in the market, the competition is intense Does Netflix have the script it needs to be a dominant player? CEO Hastings says, “If it’s true that you should be judged by the quality of your competitors, we must be doing pretty well“

Sources: S Woo and I Sherr, “Netflix Recovers Subscribers,” Wall Street Journal, January 26, 2012, pp B1+; J Pepitone, “Netflix CEO: We Got Overconfident,” CNNMoneycom, December 6, 2011; D McDonald, “Netflix: Down, But Not Out,” CNNcom, November 23, 2011; H W Jenkins, Jr, “Netflix Isn’t Doomed,” Wall Street Journal, October 26, 2011, p A13; C Edwards, “Netflix Drops Most Since 2004 After Losing 800,000 Customers,” BusinessWeekcom, October 25, 2011; N Wingfield and B Stelter, “How Netflix Lost 800,000 Members and Good Will,” New York Times Online, October 24, 2011; C Edwards and R Grover, “Can Netflix Regain Lost Ground,” BusinessWeekcom, October 19, 2011; and R Grover, C Edwards, and A Fixmer, “Can Netflix Find Its Future By Abandoning the Past?” Bloomberg BusinessWeek, September 26-October 2, 2011, pp 29-30

a Describe what you think Netflix’s competitive strategy is using Miles and Snow’s and Porter’s frameworks Explain each of your choices

b What competitive advantage(s) do you think Netflix has? Have its resources, capabilities, or core competencies contributed to its competitive advantage(s)? Explain

c How will Netflix’s functional strategies have to support its competitive strategy? Explain

d What do you think Netflix is going to have to do to maintain its competitive position, especially as its industry changes?