Netflix Company is one of the leading entertainment corporations that provide their customers with access to TV series, movies, animations, documentaries, and games in different genres and languages. Netflix Inc. was founded in 1977 by the current CEO, Reed Hastings, and Marc Randolph, where they rented DVD through the mail but was only located in the United States of America. Key decision makes include Reed Hastings and Ted Sarandos, the current CEOs, and the departmental managers. Netflix Inc. has grown to accommodate over 220 million subscribers scattered over a global market in more than 190 nations (“Topic: Netflix,” 2022). However, Netflix has reported its first drop or decrease in the number of subscribers in 2022 after an uninterrupted decade of growth. The company recorded a loss of 200,000 subscribers in the first quarter of 2022 and one million in the second quarter (Richter, 2022). In this case, a drop in the number of subscribers leads to decreased revenue income which would greatly impact the company’s performance.
There are a number of reasons that have led to this significant drop in paid memberships or subscriptions. According to Stoll (2022), many Netflix subscribers canceled their memberships because of the high price they have to pay for the services. This follows the fact the average monthly service of the company has increased substantially over the years forcing their users to substitute with cheaper video streaming alternatives or even stop using the services entirely. This leads their subscribers straight to their competitors, which decreases their market share. Moreover, subscribers deal with the high price by sharing their Netflix accounts with others which enables them to split the cost of the subscription. This is because individuals would have to pay more than the average subscription fee to be able to receive good quality services making it expensive to maintain Netflix memberships.
Another reason for the drop in the number of paid memberships is that Netflix has no download option. Allowing customers to download videos for offline watching, especially those with slow connections, would significantly increase the number of subscribers (Pilipets, 2019). As a result, Netflix has failed to meet the customer’s satisfaction in providing them. For this reason, change is necessary for Netflix to ensure that it is able to maintain its competitive advantage as well as its market share in the entertainment industry.
Factors That Drive the Need for Strategic Change in Netflix
Netflix conducts its business in a very competitive environment with companies such as YouTube, Showmax, Amazon Prime Video, Disney Plus, and HBO Max that provide similar services. For this reason, companies like Netflix will need to change if they are to maintain their competitive advantage and market share by improving their cost structure and meeting consumer demands and preferences. A competitive advantage allows an organization to generate superior services compared to those of its rivals, giving it an edge in the market (Cetinkaya et al., 2019). However, a company is only able to maintain its competitive advantage for a certain period because of imitations from its rivals and will need to grow with changes to preserve its market advantage (Adekiya, 2016). Therefore, maintaining a competitive advantage in Netflix means that the organization is able to change with the customers’ demands, trends, and events. This will lead to an increased number of memberships which will enable the company to control its market share. As a result, a loss in competitive advantage in the market will lead to a drop in company revenue.
Changing customer needs is another factor that necessitates the need for change in an organization. Customers’ needs are always evolving, and companies would need to come up with innovative ways to fulfill these needs, thereby providing them with new areas of business opportunities. For this reason, Netflix will need to continually investigate its business environments to enable it to determine when changes in customers wants emerge. This is because customer satisfaction directly influences customer loyalty which forms the basis of sustainability in an organization (Adekiya, 2016). As a result, successful companies are those that are able to provide services as well as goods that conform to the customers that want them, in what quantity and price, and when they want the services and products. This will lead to customer loyalty which is a way used to measure success in the marketing strategy of an organization. On the contrary, a company that is not able to meet customers’ demands is likely to lose its customers to its rivals that can fulfill the customer’s preferences (Adekiya, 2016). Therefore, Netflix will need to come up with ways such as controlling their cost of service and generating download options that will ensure that their customers remain satisfied.
Change Management Models
As much change is an important aspect of the company’s success, it has to be managed in ways that will fit the structure of the company and achieve the anticipated outcomes. Therefore, companies have to implement suitable change management models that make it possible for all stakeholders to accept required change with little or no resistance. A change management model works as a guide that smooths and drives change efforts by providing detailed steps and processes to follow (Galli, 2018). Moreover, it explains the different factors that influence change in an organization and clarify the stages used to warrant success in the process of change management. Some of the change management models that can be used include Kurt Lewin’s change management model and Kotter’s 8 Steps Change Management Model.
Kurt Lewin’s Change Management Model
Lewin’s change management model was developed by Kurt Lewin in the 1950s. The model divides the change process into three stages, namely unfreeze, change, and refreezing. Unfreezing is the preparation stage that ensures the organization accepts the need for change. Basically, it means having flexibility and an open mind in embracing change that is motivating change and setting clear goals. It also signifies breaking the current comfort zone and preparing for new change (Cummings et al., 2016). Moreover, the unfreezing stage indicates that old perspectives and ideas are no longer working hence new ones are needed. This second step enables an increase in positive group behaviors toward change or intensifies the manager’s or leader’s pressure for change (Hussain et al., 2018). In addition, forces that challenge the status quo will cause minimum tension and resistance compared to ones that are applying for change which will enhance the effectiveness of change. This can be done by ensuring that leaders are able to communicate with their employees about the importance of change and encourage them to accept change and promote their involvement.
The second step, the change or moving step, is the implementation step, where change is put into practice, and the leader manages change and keeps supporting, empowering, and communicating with the employees. This promotes and encourages team commitment, participation, and knowledge sharing among employees. With this positive attitude, the organization is able to benefit from various quality information and ideas that significantly contribute to successful change (Hussain et al., 2018). Leaders can enhance employee engagement and knowledge sharing by constantly motivating them through rewards and acknowledgments. At this stage, the leader is obligated to create trusting relationships with their employees, which will facilitate how they will be devoted to succeeding in the proposed change. This can be done by ensuring leader transparency and recognizing employee input which cements employee engagement and promotes effectiveness within the company. Finally, the last stage involves sustaining the implemented change. This is done by binding the new changes into the company’s culture by establishing change supports and barriers. Furthermore, it facilitates the development of means that will help maintain the change, such as ensuring employee involvement into ensuring that the change is lifelong or permanent.
Netflix can use Kurt Lewin’s change management model, which will help the company acknowledge that its cost structure, as well as strategies used to enhance customer satisfaction, are no longer working. Therefore, the company can work towards ensuring that the subscription price is lowered to give their customers an opportunity of getting quality services at a cheaper price. As a result, the company can use the cost leadership strategy to implement the change to lower the membership fee and lure in more customers. The cost leadership strategy allows organizations to provide unique services to their customers at a lower price compared to the market rivals (Surono et al., 2020). This strategy enables the company to gain higher revenue returns while maintaining quality products. Thus customer satisfaction and loyalty will be maintained as they are able to get preferred services at cheaper prices and quality.
Kotter’s 8 Steps Change Management Model
The Kotter’s 8 steps change management model was developed by John Kotter in 1995. The model consists of 8 stages, including creating urgency, starting a powerful solid coalition, forming a clear vision, sharing the vision, empowering activities, accomplishing wins in short periods, establishing o the change, and stabilizing the change (Hamdo, 2021). From the start, leaders need to develop a kind of urgency in change between decision-makers where they should concentrate on influential stakeholders and top managers who will help advertise the perceived change to other stakeholders such as employees. After marketing, managers will then have to create a clear vision that is easily understandable by all stakeholders, who will help in effectively realizing the change. The leaders should then empower their employees afterward to ensure that they are actively involved in the change procedure and reward the most effective workers. This will promote employee motivation and enhance their participation, thereby encouraging quick wins. Finally, leaders will have to start new company systems based on the change achieved. This will ensure that future actions and plans will be directly associated with the new change, which will enhance its stability.
Netflix can use this model to implement changes in its cost structure to meet the customers’ demands. This will help the company sufficiently market the need for change to key decision makers as well as inform employees on the correct steps to take in ensuring that their cost structure is modified. Moreover, leaders can use steps in this model to ensure that their employees remain motivated by actively empowering and rewarding them when and focused on the set vision concerning the change. This will make employees provide effective solutions and ideas, which will lead to the successful implementation of the change (Hamdo, 2021). In addition, Netflix will be required to develop systems that will help cement or reinforce the stability of the achieved change.
Types of Changes
There are different types of changes that can take place in an organization, including personnel change, organization-wide change, and transformational change. Personnel change occurs when an organization is faced with rapid expansion or employee cutback. This happens when either on a small scale where workers quit or leave the team or on a large scale where employees quit or join the corporation. Employee cutbacks in Netflix can have a negative influence on an organization as it induces anxiety and fear among employees. This will, in turn, promote the lack of motivation among workers as they will always be worried about potential layoffs. Moreover, it results in decreased employee retention and involvement. On the other hand, mass hiring, which is a result of rapid expansion, promotes employee retention and engagement as they are not worried about being fired (Senior & Swailes, 2016). However, mass hiring has its disadvantages, including employee disorganization and vulnerability to cultural changes. Moreover, new staff indicates that the company will have to offer training and support.
Organization-wide change can be defined as a large-scale conversion that influences the whole organization. For instance, in Netflix, this kind of change could involve redefining a firm’s leadership structure or the addition of new policies, all of which aim at changing the company’s nature. This kind of change affects every single employee and is long-term. Examples of organization-wide change can include implementing a new anti-harassment policy or when a section or the whole organization is merged with another corporation. Furthermore, this type of change requires high levels of planning and communication throughout the company (Senior & Swailes, 2016). If communication is handled carelessly, confusion is bound to occur as the structure, and possibly the status quo will have changed. Employees end up being confused about who to follow and what to do, which will affect the company’s performance.
Transformational change involves transformations taken to restructure the strategy and processes that can lead to a change in work culture. In Netflix, this kind of change can be an outcome of mergers, investments, production lines, and changes in technology. The transformations taken in this case affect the entire company. This kind of change enables an organization to establish and apply programs that are in line with the new requirements and continue to perform effectively in the environment of its functions (Karaxha et al., 2018). Moreover, transformational change is accompanied by a change in employee roles and responsibilities. As a result, workers will be required to develop new skills and act in ways that can accommodate the changes enacted. Therefore, this will negatively affect the performance and development of employees due to unclear demands in their roles (Yan et al., 2022). For this reason, negative perceptions, behavior, and attitudes are triggered among employees, which decreases individual performance and increases resistance to change.
Barriers to Change
Companies can have clearly defined visions for the required transformations and a structurally and technically thorough foundation for managing the changes yet be faced with obstacles. Barriers such as resistance from employees and communication breakdown that can affect the success of the organizational change (Palmer et al., 2017). Identification of these significant obstacles to change within an organization aids in establishing the mechanisms and steps of change that may be of use in completing the realization of the process.
Employee Resistance to Change
The success of a required change in a company begins with people, and its failure can happen due to the human nature of unwillingness to accept or embrace change. The decision to restructure and re-size an organization may compromise some workers’ jobs, which may incline them to resist the change. This may be due to some employees lacking the necessary behavioral traits to easily accommodate and adapt to the perceived change, which could reduce employee effectiveness and participation (Palmer et al., 2017). This leads to decreased productivity and performance of the organization.
The way companies treat their workers in the course of a change controls the success of the change and the organization’s performance. For this reason, organizations that want to enact a change will have to determine their employees’ readiness and the areas that need to be focused on. Moreover, leaders can find ways to support, encourage and empower their employees to ensure the change is successfully implemented. This can be done by training their workforce to adapt and grow during the transformation and educating them on the importance of the change required (Palmer et al., 2017). In addition, managers can reward their employees when they attain the desired results of change implementation. Furthermore, the company will have to create a strong leadership structure that will be used to guide the employees successfully through the change.
On occasion, decisions taken on major changes in the organization are taken at the highest level of management and then passed down to employees. Therefore, the reason for changing and how the transformation will occur maybe not be clear to the workers. Communication is a very important factor during transformation. Thus, poor communication in an organization negatively influences the successful implementation of the suggested change. Hence to prevent this problem, the human resource department should be involved early in the plan for change to ensure that their workforce remains motivated and continues to participate (Palmer et al., 2017). Moreover, they should provide adequate time to ensure that the employees understand what is needed of them to accomplish the set goal of organizational change and leave room for feedback before the change is commenced.
Effective communication fosters awareness and understanding of the reasons that necessitate change. As a result, employers must communicate information to their workforce in multiple ways, such as through e-mails, training sessions, and meetings, and different sources like human resource and management departments. The provided information must be clear and truthful about the benefits and difficulties that can be encountered during the change. Furthermore, organizational leaders should make sure to develop and provide their employees with key information regarding change implementation and linked with the success of the company. Moreover, they should listen and reply to their workers’ concerns, misunderstandings, implications, and obstacles to change to ensure that all issues that may hinder success are addressed (Palmer et al., 2017). In addition, managers should be careful with the timing of delivery of information on change and withhold necessary it until it is needed. This will ensure that rumors are controlled to avoid miscommunication among the employees, which will negatively influence the success of the perceived change within the company.
Conclusions and Recommendations
Netflix Company has been faced with a drop in the number of subscriptions which has led to the organization needing change to ensure that they are able to maintain its competitive advantage. This has been because of the high cost that customers are required to pay to continue to enjoy membership within the company. The company has also failed to adapt and grow with customer preferences, which has made it fail in its customer satisfaction strategy. As a result, their clients have opted for cheaper companies that are able to meet their needs and preferences, such as those that provide them with a download option that will enable them to watch offline and at a lower. Therefore, this has led to a drop in subscriptions and can negatively impact the company’s performance. This is because they can lose their competitive advantage in the industry and lose their control in the market share to their rivals that are able to meet the customer’s demands.
As a result, the company should consider changing its cost structure by using the cost leadership strategy. The cost leadership strategy will allow them to provide their clients with cheap but quality services that align with the customers’ preferences. Moreover, since the customers’ needs are always changing, Netflix should ensure that they are able to determine and grow with the customers’ demands as they change. This will help the company maintain its competitive structure as it will gain customer loyalty.
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