framework for international business strategy formation advisory case study for netflix mia arola...
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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