Category Archives: TechNews

HOW NETFLIX DISRUPTED THE VIDEO INDUSTRY Through Organizational Development (Research Paper)

Abstract

This paper is a research on how Netflix went through organizational development from a DVD post-to-mail rental business back in 1997 to an online video streaming platform, during a period when Blockbuster was the biggest DVD rental business and very little people in America had access to DVD players. The research also explores the role Netflix played in changing the entire video streaming industry. This study utilized various articles and opinion piece from select experts within the industry and video streaming users of various platforms other than Netflix.

Today, Netflix is a foremost Worldwide Online Streaming, Video and TV Production business.

According to Statista, video streaming online is one of the most widely used internet activities in the world. As at 2015, internet video viewers surpassed 200 million in the United States where most users viewed funny videos, movie trailers and music videos. And with the inclusion of mobile devices like smartphones and tablets, video streaming over the internet is set to consume about 1.46 million TB per month with mobile device users reaching 137 million in 2019, in the United States alone.

“More than a few video-on-demand companies have made their name in the area of paid streaming content, with Netflix being the most widely known example” having a 37 percent of peak period downstream traffic. Netflix made revenue of $5.5 billion, in 2014. (Statista, 2016)

Netflix Inc, is an entertainment company which was founded 1997 in California by Reed Hastings and Marc Randolph. It began by shipping DVD via US mail to customers who will watch it and mail the disc back. However, Netflix had two major challenges that it faced as a startup that would operate in an already established industry.

First, only 2% of the United States household had DVD players in their homes and secondly, there was Blockbuster, a provider of VHS home movie and video games that run video rental shops across the US, which was the “undeniable video rental leader, having over 2,800 stores in the US (Phillips, Ferdman 2013) and eventually 8,000 worldwide with about 60,000 employees”.

This research explores the external environmental pressure for change at Netflix which with a handful startup of 30 employees, was able to take on a big organization such as Blockbuster. It will also explain the following key organizational development process that made Netflix a success: The difference between Netflix organizational model and its other competitors – The organizational strategy used at Netflix for its development, how the use of technology revolution was responsible for Netflix success and how Netflix present structure with its disruptive innovation is sustaining change within the organization.

 

Netflix Organizational Structure and Strategy

October 19 1985, the founder of Blockbuster, David Cook opened the first store in Dallas, Texas. Cook had a creative background experience in the management of large databases, so after opening a few stores, he built a $6 million warehouse that could serve as a logistic center to many stores in one day. Then he came up with a strategy that allows him to customize each store according to the neighborhood in which the store is opened, stocking up the store with movies that fit the demographic profile of people who live in that neighborhood. Using this organizational model, at its prime in 2004, Blockbuster opened about 8,000 store nationwide. This business strategy included having customers to pay a large flat fee of about $65 to offer unlimited movie rentals for the lifetime of the membership. Blockbuster would charge customer, a first day rental of $2.99 for new released movies and $1.99 for older movies. A late fee charge of 99 cents per day for up to 10 days was also applied, capping fees at $10 (Laura 2010). “In 2000, Blockbuster had collected an approximately $800 million in late, representing 16% of its revenue”, AP published in 2010. Blockbuster business model and strategy was so successful that it started acquiring many other businesses to expand.

The most defining moment for Blockbuster was however when customer Reed Hasting was charged $40 on late fee for the return of a VHS movie, Apollo 13, in 1997 (Harress, 2013). Hasting, out of anger on the high cost of fee, started up Netflix. In view of the Blockbuster organizational model, Netflix understood it could not immediately match the capacity of Blockbuster multi stores structure, so it remodeled the Blockbuster’s organizational structure. The concept of Netflix started in the early days of DVD where only about 2% of the US households had DVD players. But Netflix saw that if the market grew to about 20% of the households, it will become a successful company.

The key to its strategy was that few movie stores had DVD for rent. So, Netflix leveraged on the light weight of the discs by shipping DVDs directly to people’s home at an affordable rate – VHS was heavy. People did not have to leave their homes to rent and watch videos. This also saved Netflix the huge capital cost of setting up video stores across the US. Netflix also offered DVD rental for $4, plus $2 shipping for a seven-day period and it did away with late fee policy. Multiple options were offered the customers. Disc could be kept longer for additional fee, new movies on DVD copies were sold at 30% discount and customers could decide to buy the copy, at a favorable cost, if they did not want to return the DVD copy. In addition to these, Netflix was one of the first few companies to rent DVD by mail.

 

Netflix Technology Innovation to sustain Development and Change

First, the pricing model. Hastings was a tech entrepreneur with a Masters in Computer Science from the Stanford University. Within two years after startup, Hastings leveraged on technology innovations at the time, the internet, to create a pricing model of – using the service for as long as you want, for a fixed monthly fee. Customers could now also browse a large collections of movie titles online and receive in their mailboxes. In addition, because of the low-cost production of the DVD and the compactness, Netflix could eventually do away with the late payment policy.

Netflix also tapped on another technology trend – streaming. Broadband internet and WiFi service was on the rise. Portable mobile devices were getting cheaper and widely in use. By 2007, Netflix launched a service to stream video contents directly to user’s portable devices and home TVs. Netflix bet heavily on the use of technology to drive its business that it kept on spending to entice customers to its website, on the assumption that it would become more profitable after the brand has established itself better. Netflix used technology to develop an extensive custom-made video-recommendation system based on customer’s reviews. This made it easier for customers to pick a very good movie without having to, first, view it. In 2003, Netflix crossed the 1 million subscriber mark, opening additional 5 shipping centers. By 2005, it was shipping 1 million DVDs by mail every day with over 35,000 titles to choose from its web services.

Sustaining Development through Vision and Internal Change Drivers

Netflix Vision and Mission statement states that “Our core strategy is to grow our streaming subscription business domestically and globally. We are continuously improving the customer experience, with a focus on expanding our content, enhancing our user interface and extending our streaming services to even more interconnected devices”. This was a clear vision statement from the CEO, Reed Hastings for the future of Netflix

Netflix continued to innovate and sustain its development. It started to develop its own content called Netflix Originals. These were contents that are distributed exclusively on their services. A success story of the use of technology to create content is “House of Cards”.

House of Cards is a show that was created from data-driven programming. Netflix with 27 million subscribers in the US and 33 million worldwide, collected data – like when you pause, rewind, fast forward, reviews, ratings; from its customers to create a bespoke show. With this strategy, Netflix was able to connect more with its customers and further increase customer’s satisfaction. Many industry experts believe Netflix has affected the way audience watch TV content. Neil Hunt, Netflix CPO, believes that Netflix strategy has created a model on how television will be viewed in 2025, that is, watching shows and TV content at their own pace. People will no longer be forced into a 30 or 60-minute slot once a week.

In conclusion, Netflix was able to remodel Blockbuster’s organizational structure by taking advantage of the many flaws from its big size and multi stores model, using disruptive technology innovations and continuous technology improvement to sustain its development and self-changing strategy by linking selection to objectives and measuring progress, as it grows. Blockbuster, on the other side, failed to adapt and change.

Finally, Netflix understood that making timely modifications in the light of experience will normally be more effective than attempting not to deviate from plan (Palmer, Dunford and Buchanan (2016). Netflix did a lot of fine-tuning as it expands its business, “building the plane as it flies”. By 2011, Netflix had become an American success story for an organization with well-paid, well-managed employees and happy customers. It had overtaken a big competitor using technology, or as Harvard Business Review called it “big bang disruption.” Netflix shares hit $299 a share in 2011 from a 2003 $22 per share, becoming the first platform one will think of, when it comes to Online Video Streaming.

 

Oyinloye Adebola

California Miramar University

 

 

References

Pouge, David. (January 25, 2007). “A Stream of Movies, Sort of Free”. The New York Times

Stellar, Brian. (October 21, 2013). “Netflix hits Milestone and Raises Its Sights”. The New York Times. http://www.nytimes.com/2013/10/22/business/media/netflix-hits-subscriber-milestone-as-shares-soar.html

BBC News. (December 2013). “Blockbuster to close more stores as 427 more jobs to go”. http://www.bbc.com/news/business-25232069

Wired. (May 2014). “What Television will look like in 2025, according to Netflix”. https://www.wired.com/2014/05/neil-hunt/ .

Staistics Portal. (January 2016). “Statistics and Facts about online video usage”. https://www.statista.com/topics/1137/online-video/

Laura Heller (Mar 3rd, 2010). “Late fees are back at Blockbuster; goodluck with that”. AOL Finance https://www.aol.com/article/2010/03/03/late-fees-are-back-at-blockbuster-good-luck-with-that/19380683/

Associated Press (September 2010). “Blockbuster tries to rewrite script in bankruptcy” http://www.cleveland.com/business/index.ssf/2010/09/blockbuster_tries_to_rewrite_s.html

Paul Holland (June 2015). “The netflix startup story”. Venture Beat. http://venturebeat.com/2015/06/26/the-netflix-startup-story-video/

Palmer, I., Dunford, R., Buchanan, D.A. (2016). “Managing Organizational Change”: A Multiple Perspectives Approach. New York NY. McGraw-Hill Education

David Carr (Feburary 2013). “Giving Viewers What They Want”. NY Times. http://www.nytimes.com/2013/02/25/business/media/for-house-of-cards-using-big-data-to-guarantee-its-popularity.html

 

Your Phone Photo shot better than iPhone 7?

If you live in a larger city, chances are you’ve seen the ‘Shot on iPhone’ billboards that have been dotted around for a few years now.The award-winning campaign has long been an impressive way to highlight the quality of images that can be captured on Apple’s phones, with the photos showcasing various different subject matters…

via Can photos from your phone look like they were ‘Shot on iPhone 7’? — TechRadar – All the latest technology news

Top 5 Best Online Communication Tools in 2017

With the rise of the internet, computers and mobile technology, so much has changed in the business world over the decades. And of course, it’s critical to implement the right devices and applications into your everyday operations, not just to boost productivity, but to keep up with – or stay ahead of – the competition.If…

via Top 5 best online collaboration and communication tools in 2017 — TechRadar – All the latest technology news

WhatsApp enables two-step verification

Looking for a little more security in your digital life? If you’re a WhatsApp user, you’re in luck.The messaging service has just turned on two-step verification for all its billion-plus users. Once you activate the optional feature, anytime you (or anyone else) tries to verify your phone number, a six-digit passcode created by yourself must…

via WhatsApp enables two-step verification for added security — TechRadar – All the latest technology news

 

Case Study: Mount Cedar Technologies Inc.

2016-06-17 15.30.36

Introduction to Mount Cedar Tech Inc

Mount Cedar Technologies, which began as an importer and distributor of computer accessories but later grew into an IT infrastructure integrator that specializes in hardware, software and security solutions, from an employee of 6 to 170 in 2006, is having an organizational behavior challenge. The company lacked an organization structure that can help improve on its operations’ effectiveness. Even though the decision making was highly decentralized, there was no cooperation among the managers therefore, each department were making independent decisions, without coordination or communication.

 

Mount Cedar Technologies Vision

In trying to analyze and provide suggestions that can improve or enhance Mount Cedar Technologies’ organizational challenge, we need to find out what the company’s vision is. According to Neil Kokemuller (2017), A mission and vison are standard and critical elements of a company’s organization strategy. Most established companies develop organizational vision statements which serves as foundational guides in the company’s objectives. The case study has not mentioned any mission or vision statement for the company, and this is an underlying factor in shaping an organizational culture. Where mission relates to goals and refers to the overriding purpose of the organization, Vision refers to the desired future state of the organization” (Johnson et al., 2011 p.8).

Hans Hinterhuber and Wolfgang Popp (1992, p.106) defines vision as “an orientation point that guides a company’s movement in a specific direction. If the vision is realistic and appeals both to the emotions and intelligence of employees, it can integrate and direct a company”.

 

Assessing the Leadership Style

Even though John Curtis, the CEO, has been instrumental to the growth of the business, his present leadership style had become problematic to many including the top management. He surprised people by showing uninvited to meetings and employees are expected to provide impromptu responses to unprepared questions thrown at them. Since Curtis has been perceived as being an issue, he cannot be recommended as a change leader. So, Mount Cedar Tech. need to restructure its organization, and what the company need is a distributed leadership which could be used to effect an organizational change. Research has also shown how change is driven by large number of organizational members, in an approach that is called “leadership constellations” (p. 17)

 

Creating an Organizational Structure that Promotes Creativity

The case study identified that the company lacked an organization structure that can help improve on its operations’ effectiveness. And one way to achieve this to create an organizational structure that promotes creativity. According to “Making Innovation Structures Work”, a McKinsey Global Survey results, Executive say their companies use multiple organizational approach to drive innovation and that the success of these efforts depends on integrated strategy.

While 86% say the structure of their separate functions positively influences outcomes, results however suggested that the most important factor of success is how creativity is integrated into corporate strategy. Therefore, some of the general characteristics of organizational innovation Mount Cedar Tech. can put in place to promote creativity, are

  • Allowing everybody understand that they are capable of generating creative ideas
  • Organizational culture that can smother creativity
  • If any one comes up with a great idea, let them understand – ‘no need to tell, just show it’

 

Improving Mount Cedar Tech. using Communication and Employee Empowerment

At Mount Cedar Technologies, decision making was highly decentralized which resulted in the loss of possible gains to be obtained from cooperation among managers. Ideally, having a flat structure and decentralized decision making should make an organization work more efficiently, and allow it to react quickly to business situation, however, if there is no coordination or proper communication, there will be a resulting silo effect in which each department will make decisions by itself.

Research has shown that effective lateral and work group communication leads to an improvement in overall company performance. Here are a few ways organization communication can increase decision making effectiveness and a productive organizational behavior

  • When information is not transferred correctly to the right people, there might be miscommunication as seen at Mount Cedar Tech. it is important to have a good communication system, so that everyone understands the goal and can work together towards it. E.g. to launch a new product on Facebook, new goals and tasks should be properly communicated to the employees
  • Effective communication can also empower employees and improve productivity if they have more information, about specific tasks. Mount Cedar Tech employees where not empowered and were not encouraged to risk taking. In fact, department managers acknowledged that they were busy reacting to problems and customer issues, allowing them no time to coordinate or listen to their employees. This is because managers don’t have information about how to deal with specific tasks.
  • Communication also creates healthy and productive cultures in an organization. If employees and managers have good working relationships with each other, the organizational behavior of the company improves.
  • Effective organizational communication also increases accountability. When employees and managers are provided with clear instructions, they know what is expected from each of them. This will break silo effect in an organization, and managers can work together in tandem with the organization mission and vision.

 

Addressing Diversity and Minority

Christensen and Cornelissen (2011, pp. 402-3) argue that organizations have to work with many voices, with different views and ideas, so that communication can be ambiguous and inconsistent for this reason of accommodating diversity in an organization: “vague and equivocal language allows organizations to talk about themselves in ways that integrate a variety of members and stakeholders without alienating anyone”. This is key to Mount Cedar Tech. as it was also lagging in the advancement of women and minorities.

 

Organizational Motivation and Reward

Finally, it is important to keep employees motivated and rewarded. Mount Cedar Tech, experienced complaints from employees who did not feel equitable treated, which resulted in the loss of talented employees. According to Lipman (2013) here are 5 easy ways (which are self-explanatory) to motivate employees

  • Align individual economic interests with company performance
  • Take a genuine interest in the future path of an employee’s career
  • Take a genuine interest in their work-life balance
  • Listen
  • Do unto others as you would have done unto you

 

Mount Cedar Technologies Inc.

Designing A High-Performance Organization

 

Adebola Oyinloye

California Miramar University

ORGANIZATIONAL DEVELOPMENT AND CHANGE

 

References

Palmer, I., Dunford, R., Buchanan, D.A. (2016). “Managing Organizational Change”: A Multiple Perspectives Approach. New York NY. McGraw-Hill Education

Neil Kokemuller (2017). “Importance of Mission Vision in Organizational Strategy” http://smallbusiness.chron.com/importance-mission-vision-organizational-strategy-16000.html

McKinsey & Company (September 2012). Making Innovation Structures work: Mckinsey Global Survey results. http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/making-innovation-structures-work-mckinsey-global-survey-results

Pavel Aramyan (Octoboer, 2015). 5 ways workplace communication effectiveness can increase productivity. http://explore.easyprojects.net/blog/5-ways-workplace-communication-effectiveness-can-increase-productivity

Victor Lipman (March, 2013). 5 Easy Ways to Motivate and and Demotivate Employees. Forbes. http://www.forbes.com/sites/victorlipman/2013/03/18/5-easy-ways-to-motivate-and-demotivate-employees/#344ce3e9682d

 

Organizational Change: External Environment Alerts and Internal Pressures to Change

Business organizations are not protected from external environment threats, neither have they been able to successfully create an infallible system to guard against internal organizational pressures when the need for unintended Organizational Change arises.

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Change managers, who are either the CEOs of a company or Project Managers are often part of the organizational process to help an organization do things differently or achieve a specific goal, and when external environment is the reason for change within an organization, they are on ground to identify these potential problems.

Here are a few Potential Threats from External Environment Influence that can force an organization to change its structure

  • Economic or political factors that influences External environment cause for organization change are often the most complex issues to address, as it affects the entire socio-environment in which the organization exist.

The 2015 Nigerian economic collapse into a ‘forced recession’ as a result of the transition from One political party to another, is a strong indication why organization must be adaptable, as consumers tighten their belt during such crisis, causing a demand-supply flow issue. Companies that were ill-prepared have since closed-shop

  • Competition with other business organizations are a common threat which any Change Manager can easily identify and should, somewhat, always be prepared for; For example, if the competition releases a range of new product; this can threaten market share and may result to hiring and firing

 

  • Other external environment factors include Technology, which is a constant evolving threat and often shapes how an organization is restructured, in terms of using technology to deliver quality service or its effect on organization staffing – employee lay-offs, recruitment or job description change.

 

  • And Globalization, which is a new entrant. This often related to business organization aspiration for global expansion and the need to capture new market.

 

In contrast, Organizations do often assume they have complete control over most internal environment factors that may effect change, because organization owns its people, culture, process and structure. However, one of its biggest pressure for change is Growth.

Organizations are expected to grow over the years as a sign of success (Dylan 2004). However, growth or lack of growth can both create some sort of complexity that pressures for change in an organization. And this change could lead to Organizational Restructuring (either employee down-sizing where growth is stalled or new recruitments, where its growing).

Introduction of a new CEO or a functional manager and internal power grabs and politics between stakeholder interests and decision makers are also internal environment pressures, that can call for change in organization

For instance, the introduction of a New CEO “can significantly impact business strategy and corporate culture”

In my opinion, since both external and internal environment factors are both influential to any organizational change process, the external factors are most impactful.

Most organizations are started out of the vision and goals of its sponsors and stakeholders, which often comes with a change process as contained in the organizational internal process, to address most expected threats that may arise.

However, the effect of external environment factors is highly unpredictable to an organization. For example, the political transition to President Mohammed Buhari in 2015, and his subsequent economic fumble have triggered a lot of instability across most business organizations in all sectors in Nigeria, forcing many businesses to close, downsize or restructure

 

Class Presentation by Adebola Oyinloye, Jan 2016

Organizational Development and Change Class