Discussion Post response
Netflix is facing several challenges in their current business model, such as: Increased competition; higher operating costs; loss of customers; poor management decisions; falling stock values; and global expansion (Allen, Disbrow, & Feils, 2014). Disruptive innovation initially had a positive effect on Netflix; evidenced by their fast growth, and rapidly increasing stock value (Allen, Disbrow, & Feils, 2014). However, as they began to switch to a more traditional business model (i.e. expand into global markets, and increase prices), at the same time that other companies began using disruptive innovation to compete with them, disruptive innovation had a negative effect on Netflix; evidenced by the loss of sales, and plummeting stock values (Allen, Disbrow, & Feils, 2014)
Disruptive innovation typically benefits the disruptive business and the consumer. A company that utilizes a disruptive business model has a significantly higher (10 times) chance of being successful than a traditional business, as a disruptive model concentrates on consumers that the traditional business typically ignores (Maldonado, 2014) by providing product/services that are less expensive,m and not quite as robust, to those who typically could not afford products/services offered by larger corporations. Conversely, disruptive innovation negatively affects established organizations by taking away revenue. While the disruptive company starts by targeting consumers that the established company does not pursue (Christensen, Johnson, & Rigby, 2002), eventually other consumers will forego the higher prices of the established company, and take advantage of the lower cost product/service of the disruptive company, even though they may have to sacrifice a level of quality to do so (Maldonado, 2014).
Netflix is pretty well established in the market; and it has two choices for the future. It can choose to pursue a traditional business model, and continue it's ”grow at any cost” strategy, in which case it would more than likely have poor growth in the future (Allen, Disbrow, & Feils, 2014); or it can reinvent itself as a disruptive organization, and find new and emerging markets to pursue. If Netflix pursues a disruptive strategy, then they will need to follow Christensen's model for doing so. They need to develop a model that passes Christensen's litmus tests: Does it target customers who do not use current products because they are too costly or complex; are the target customers willing to use a simpler product; and will the product/service be easier for the customer to use (Christensen, Johnson, & Rigby, 2002)?
Netflix will need to also ensure they have the resources necessary to implement their new disruptive strategy (Christensen, Johnson, & Rigby, 2002). They will need funds, and managers who understand, and have skills in, implementing disruptive strategies; and they will need to ensure that their processes and procedures are such that they allow the disruptive strategy to be implemented without hindrance (Christensen, Johnson, & Rigby, 2002).
References
Allen, G., Feils, D., & Disbrow, H. (2014). The rise and fall of Netflix: What happened and where will it go from here? Journal of the International Academy for Case Studies 20(1), 135–143. Retrieved from https://eds-b-ebscohost-com.ezp.waldenulibrary.org/eds/pdfviewer/pdfviewer?vid=6&sid=0e4f3fa8-3542-4a47-8e3c-71cee6b1c93d%40sessionmgr120
Christensen, M., Johnson, M. W., & Rigby, D. K. (2002). Foundations for growth how to identify and build disruptive new businesses. MIT Sloan Management Review, 43(3), 22-32. Retrieved from https://eds-b-ebscohost-com.ezp.waldenulibrary.org/eds/pdfviewer/pdfviewer?vid=6&sid=a417c093-5a7e-4bc1-b74e-a08f26be2d21%40sessionmgr104
Corsi, S., & Di Minin, A. (2014). Disruptive innovation ... in reverse: Adding a geographical dimension to disruptive innovation theory. Creativity and Innovation Management, 23(1), 76–90. Retrieved from https://eds-b-ebscohost-com.ezp.waldenulibrary.org/eds/pdfviewer/pdfviewer?vid=4&sid=a417c093-5a7e-4bc1-b74e-a08f26be2d21%40sessionmgr104
Maldonado, E. R. (2014). How to identify disruptive new businesses. Global Conference on Business & Finance Proceedings, 9(1), 510–520. Retrieved from http://www.theibfr.com/ARCHIVE/ISSN-1941-9589-V9-N1-2014.pdf
Donald
Netflix was facing a quagmire. They are the perfect example of an organization that took an idea and made it better, reaping quick growth. The thought of bringing DVD’s to the customers door was ingenious at the time. People are always looking for ways to save time & money. The home delivery did both. It enabled the customers to order from the comfort of their home, and delivery was to their door. I remember using this service myself, before the price hike.
Netflix had a strong cash flow, but the challenges they faced were internal and external. The internal was the leading management was stagnant at a time it needed to be forward thinking. They did not have any form of innovation in place to help the organization’s continual growth. The also made some hasty decisions without thinking them through, as for the consequences. Utilizing the initial cashflow, they should have taken and invested into Research and Development (R&D), instead of waiting, procrastinating. They could of easily purchases some start up companies, or expanded on their existing strategies, keeping them ahead of the external competition.
I believe what they did to Blockbuster, happened to them due to the disruptive approach. They took the base model of renting DVD’s and made it more convenient for the market. This is something Blockbuster had no interest in as they made money on the people leasing the Blockbuster names for their personal chains. Then at the end of the Blockbuster era, I remember them trying the order at home convenience. But at this time, they had lost majority of their market.
To me, Netflix didn’t learn from their initial action. What they did to Blockbuster in turn happened to them, as they were not looking towards the next step for customer needs. As for streaming, the technology was just blooming as they entered the market. What they needed to do is analyze the competition, and their potential investment into the sector. At that time, Netflix was a major player with many opportunities.
Tends that companies that takes the risk on what other organizations feel inadequate reap rewards. This is a risk, so risk analysis needs to be completed thoroughly.
I like the strategies of looking at what it takes to survive and grow:
· Always be looking for a growth whether it be with acquisitions, or innovation. Remember even a small return is better than no return. Example, look at what Subway has done over the past few years. Willing to take a costly sandwich with a large return on investment (ROI), reducing cost to compete, and accept a smaller ROI. This was very smart as it enabled them to stay in a very competitive market.
· Always be watching the competition, and never feel you are too big to be taken down. I remember working for Wyeth Biopharma, thinking this Fortune 500 could never be taken. Then low and behold, they were purchased by Pfizer. Wyeth had a strong R & D pipeline, and market share in multiple sectors. For Pfizer to sustain their continued growth, they needed what Wyeth had. Purchasing Wyeth strengthened Pfizer’s market portfolio within many sectors.
References
Allen, G., Feils, D., & Disbrow, H. (2014). The rise and fall of Netflix: What happened and where will it go from here? Journal of the International Academy for Case Studies 20(1), 135–143.
Čiutienė, R., & Thattakath, E. W. (2014). Influence of dynamic capabilities in creating disruptive innovation. Economics & Business, 26, 15–21. doi:10.7250/eb.2014.015
Corsi, S., & Di Minin, A. (2014). Disruptive innovation ... in reverse: Adding a geographical dimension to disruptive innovation theory. Creativity and Innovation Management, 23(1), 76–90. doi:10.1111/caim.12043
Maldonado, E. R. (2014). How to identify disruptive new businesses. Global Conference on Business & Finance Proceedings, 9(1), 510–520.