Framework for international business strategy formation

Advisory case study for Netflix

Mia Arola

Peter Babicz

Daniel Bukovszky

Ida Elisabeth Sorlie

Managing in a Global Context

Team 1

January 27, 2015

Agenda for today

1. Presenting framework for international business strategy formation

2. Using the framework on the case study of Netflix

Managing in a Global Context – Team 1

• Attention! Interactive session!

Managing in a Global Context – Team 1

• Strategies for international business are evaluated based on thourough internal an external analysis

Forming international business strategy with a comprehensive framework

Internal Analysis

• Core Competency

• Product Offering

• Value Chain

External Analysis

• PESTLE (macro)

• 5 Forces (meso)

• Stakeholder (micro)

SWOT Analysis

&

Strategy

Formation

Managing in a Global Context – Team 1

• Comprehensive internal analysis is conducted using the Core Competency, Product Offering and Value Chain theories

Execution of internal analysis based on 3 theories

Internal Analysis

• Core Competency

• Product Offering

• Value Chain

External Analysis

• PESTLE (macro)

• 5 Forces (meso)

• Stakeholder (micro)

SWOT Analysis

&

Strategy

Formation

Internal analysis (I) – Determening core competencies of the company

• Theory – C.K. Prahalad and G. Hamel

• Combination of resources – competitive advantage

• Criteria• Difficult to imitate, replicate

• Access to markets

• Contribute to customer benefits

• Create new markets - tablets

• Core competency ≠ product

Managing in a Global Context – Team 1

• Core competencies are a source of competitive advantage

• Problem Solution

• Value creation, satisfying needs

• Product mix - balance

• Depth, length, width

• Upward stretch

Internal analysis (II) – Determening product offering of the company

Managing in a Global Context – Team 1

• Product selection is as important as the product you are selling

• Michael Porter (1985)

• Activities value

• Inputs vs outputs

• Strategically important

• Cost drivers

• Maximize value – minimize costs

• Transfer - effectiveness

Internal analysis (III) – Determening the value chain of the company

Managing in a Global Context – Team 1

• By breaking down the model into activities, we can examine the strategically important elements

Managing in a Global Context – Team 1

• Comprehensive external analysis is conducted based on the PESTLE, 5 Forces and Stakeholder theories

Execution of external analysis based on 3 theories

Internal Analysis

• Core Competency

• Product Offering

• Value Chain

External Analysis

• PESTLE (macro)

• 5 Forces (meso)

• Stakeholder (micro)

SWOT Analysis

&

Strategy

Formation

Managing in a Global Context – Team 1

• PESTLE analysis provides a comprehensive view on the external macro forces affecting a company

External Analysis (I) – Exploring the firm’s macro level with PESTLE

PPolitical

Environment

EEconomical Environment

SSocial

Environment

TTechnologic

al Environment

• Framework can be expanded to PESTLE (Adds the legal and environmental factors)

• PESTLE often forms the threats and opportunities of the SWOT analysis

• Analyses the company’s environment on a macro level

Managing in a Global Context – Team 1

• Porter’s 5 Forces analyses the industry and its competitiveness, provides support for business strategies

External Analysis (II) – Exploring the firm’s meso level with 5 Forces

Industry Rivalry

Threat of New Entrants

Buyer PowerThreat of

Substitutes

Bargaining Power of Suppliers

• Threat of New Entrants• Barriers to entry, industry profitability,

brand equity

• Bargaining Power of Suppliers• Strength of distribution channel

• Buyer Power• Customer’s sensitivity to price changes

• Threat of Substitutes• Switching costs, ease of substitution

• Industry Rivalry• Advertising expenses, innovativeness etc.

• Level of rivalry

Managing in a Global Context – Team 1

• Stakeholder analysis explores the firms micro level and focuses on relationships, encompassing ethical and social issues

External Analysis (III) – Exploring the firm’s micro level with Stakeholders

FIRM

Government

Investors

Customers

Suppliers

Society

Trade Associations

• Analyses external environment from the aspects of various stakeholders

• Highlights the relationships between the firm and its stakeholders

• Takes ethical and social dimensions into consideration

• Some stakeholders are of more importance than others

Managing in a Global Context – Team 1

• SWOT analysis is conducted and strategies are formed based on findings in the internal and external analysis

Conducting SWOT analysis and forming strategies based on findings

Internal Analysis

• Core Competency

• Product Offering

• Value Chain

External Analysis

• PESTLE (macro)

• 5 Forces (meso)

• Stakeholder (micro)

SWOT Analysis

&

Strategy

Formation

Managing in a Global Context – Team 1

• Strengths and weaknesses are determined by internal analysis

• Opportunities and threats are embedded in external environment

Combining internal and external findings into a SWOT analysis Strenghts

Opportunities

Weaknesses

Threats

Basis of strategy formation

Internal Analysis

External

Analysis

Managing in a Global Context – Team 1

• SWOT analysis serves as basis of generic strategy formation

• Make decisions based on strategy and don’t get stuck in the middle

Forming generic strategies based on the SWOT analysis

Cost Leadershi

p

Differentiation

Cost Focus

Differentiation Focus

Dif

fere

nti

atio

n

Lo

w C

ost

Broad Scope

Narrow Scope

Porter’s Generic Strategy

Ansoff’s Generic Strategy

Market Developm

ent

Diversification

Market Penetratio

n

Product Developm

ent

Existing Markets

New Markets

Exi

stin

g P

rod

uct

s

New

Pro

du

cts

Managing in a Global Context – Team 1

• Tradeoffs such as decomcratization/globalization and digital/linear make Netflix an interesting company to do case study on

Netflix case study (I) – Presenting client’s Q & hot topics of the company

• Video on demand - the streaming sector overlap others

• Media convergence: behaviorial shift from linear mediums

• Video consumption & Internet TV on the rise (multiscreen)

• License rights & «window» distribution system inviting piracy

GLOCAL industry &

preferences

Client’s Question:How can Netflix monetize content under Web 2.0 &

keep capturing value internationally?

Managing in a Global Context – Team 1

• Comprehensive external analysis is conducted based on the PESTLE, 5 Forces and Stakeholder theories

Execution of external analysis based on 3 theories

Internal Analysis

• Core Competency

• Product Offering

• Value Chain

External Analysis

• PESTLE (macro)

• 5 Forces (meso)

• Stakeholder (micro)

SWOT Analysis

&

Strategy

Formation

Managing in a Global Context – Team 1

• Pairing the right people with content through effortless interface

• Alliviating search costs for the consumer

Netflix case study (II): Examining external environment and market trends

• The content business: cultural offerings are the driving force

• Business models selling access – advertising avoidance

• Digital marketplace: unlimited shelf place & offerings

• Tribes not segmentation: personalization is the next frontier

Leveraging long tails: NICHESvs. HITS

Managing in a Global Context – Team 1

• Many different types of players intertwined

• Ultimately, the consumer wins: unlimited & varied offerings

Netflix case study (III): Analysing the 5 Forces in the firm’s environment

Direct competitors:Amazon Prime, HBO,

YouTube, iTunes, Apple TV

SYNTHESISIntense

Competition

Managing in a Global Context – Team 1

• Comprehensive internal analysis is conducted using the Core Competency, Product Offering and Value Chain theories

Execution of internal analysis based on 3 theories

Internal Analysis

• Core Competency

• Product Offering

• Value Chain

External Analysis

• PESTLE (macro)

• 5 Forces (meso)

• Stakeholder (micro)

SWOT Analysis

&

Strategy

Formation

Managing in a Global Context – Team 1

• Combined competencies: recycling cheaper, older or niche content + high quality Netflix Original Series + superior platform experience

Netflix case study (IV): Analysing the internal competencies of the firm

• Large content library (2 billion hours) + superior platform (4K)

• Recently producer of high quality content (House of Cards, Orange is the New Black)

• Strategic partnerships to reissue old content (Dreamworks, Miramax) + assuring digital quality & usability (Microsoft, Google)

Managing in a Global Context – Team 1

• SWOT analysis is conducted and strategies are formed based on findings in the internal and external analysis

Conducting SWOT analysis and forming strategies based on findings

Internal Analysis

• Core Competency

• Product Offering

• Value Chain

External Analysis

• PESTLE (macro)

• 5 Forces (meso)

• Stakeholder (micro)

SWOT Analysis

&

Strategy

Formation

Managing in a Global Context – Team 1

Netflix case study (V): Presenting the SWOT analysis

STRENGHTS:• High brand recognition • Large content library• Producer of HQ series• Sophisticated digital interface

WEAKNESSES:• Lacking up-to-date titles• Balancing local & global taste• Costly international expansion

(license rights paid per country)

OPPORTUNITIES:• Exponential growth in IP video

market• Personalization of content &

services: successful recommendation systems

THREATS:• Increased competition, rivalry,

free models, piracy• Outdated content distribution

system• Expensive license rights• Net Neutrality

• Well-timed growth & expansion gives a solid market position

• Threats cannot guarantee long time leading position in market

Managing in a Global Context – Team 1

• Service value and international branding facilitates value capture

• The best strategy focuses on Netflix Experience

Netflix case study (VI): Differentiation strategy recommended for client

BRAND LEADERSHIP

CONTENT LEADERSHIP

• Content creation: netflix originals

• Content variation: digital catalogue

• Content curation: browsing technology, recommendation systems