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CEO Reed Hastings started Netflix in 1997 after becoming angry about paying Blockbuster Video $40 for a late return of Apollo 13. Hastings and Netflix struck back with flat monthly fees for unlimited DVD rentals, easy home delivery and returns via prepaid postage envelopes, and no late fees, which let customers keep DVDs as long as they wanted. Blockbuster, which earned up to $800 million annually from late returns, was slow to respond and lost customers in droves.
When Blockbuster, Amazon, and Walmart started their own mail-delivery video rentals, Hastings recognized that Netflix was in competition with “the biggest rental company, the biggest e-commerce company, and the biggest company, period.” But with an average subscriber cost of just $4 a month compared to an average subscriber fee of $15, Netflix, unlike its competitors, made money from each customer. Three years later, Walmart abandoned the business, asking Netflix to handle DVD rentals on Walmart.com. Amazon entered the DVD rental business in Great Britain, expecting that experience to prepare it to beat Netflix in the United States. But, like Walmart, Amazon quit after four years of losses. Finally, 13 years after Netflix’s founding, Blockbuster declared bankruptcy. With DVDs mailed to 17 million monthly subscribers from 50 distribution centers nationwide, Netflix is now the industry leader in DVD rentals.
However, its expertise in shipping and distributing DVDs won’t provide a competitive advantage when streaming files over the Internet. Indeed, Netflix’s streaming video service is in competition with Amazon’s Video on Demand, Apple’s iTunes, Hulu Plus, and others. Moreover, unlike DVDs, which can be rented without studio approval, U.S. copyright laws require streaming rights to be purchased from TV and movie studios before downloading content into people’s homes. And that creates two new issues. First, does Netflix have deep enough pockets to outbid its rivals for broad access to the studios’ TV and movie content? Second, can it convince the studios that it is not a direct competitor so they will agree to license their content?
Netflix must also address the significant organizational challenges accompanying accelerated growth. Hastings experienced the same problem in his first company, Pure Software, where he admitted, “Management was my biggest challenge; every year there were twice as many people and it was trial by fire. I was underprepared for the complexities and personalities.” With blazing growth on one hand and the strategic challenge of obtaining studio content on the other, how much time should he and his executive team devote directly to hiring? Deciding where decisions will be made is a key part of the management function of organizing. So, should he and his executive team be directly involved, or is this something that he should delegate? Finally, what can Netflix, which is located near Silicon Valley, home to some of the most attractive employers in the world, provide in the way of pay, perks, and company culture that will attract, inspire, and motivate top talent to achieve organizational goals?
If you were in charge of Netflix, what would you do?
Americans generate a quarter billion tons of trash a year, or 4.5 pounds of trash per person per day. Thanks to nearly 9,000 curbside recycling programs, a third of that is recycled. But, that still leaves 3 pounds of trash per person per day to be disposed of. With 20 million customers, 273 municipal landfills, 91 recycling facilities, and 17 waste-to-energy facilities, Waste Management, Inc., is the largest waste-handling company in the world. It generates 75 percent of its profits from 273 landfills, which can hold 4.8 billion tons of trash. And because it collects only 110 million tons a year, it has plenty of landfill capacity for years to come.
You joined the company a decade ago and, after three and a half short years as deputy general counsel and then chief financial officer, became chief executive officer (CEO). Corporations, cities, and households are greatly reducing the amount of waste they generate, and thus the amount of trash that they pay Waste Management to haul away to its landfills. Subaru of America, for instance, has a zero-landfill plant in West Lafayette, Indiana, that hasn’t sent any waste to a landfill since 2004. Noneǃ And Subaru isn’t exceptional in seeking to be a zero-landfill company. Walmart, the largest retailer in the world, has also embraced this goal, stating, “Our vision is to reach a day where there are no dumpsters behind our stores and clubs, and no landfills containing our throwaways.” Like those at Subaru and Walmart, corporate leaders worldwide are committed to reducing the waste produced by their companies. Because that represents a direct threat to Waste Management’s landfill business, what steps could it take to take advantage of the trend toward zero waste, which might allow it to continue growing company revenues?
Another significant change for Waste Management is that not only are its customers reducing the waste they send to its landfills, they’re also wanting what is sent to landfills to be sorted for recycling and reuse. For instance, food waste, yard clippings, and wood—all organic materials—account for roughly one-third of the material sent to landfills. Likewise, there’s growing demand for waste companies to manage and recycle discarded TVs, computer monitors, and other electronic waste that leaks lead, mercury, and hazardous materials when improperly disposed of. However, the high cost of collecting and sorting recyclable materials means that Waste Management loses money when it recycles them. What can the company do to meet increased customer expectations on one hand, while still finding a way to earn a profit on high-cost recycled materials?
Finally, advocacy groups, such as the Sierra Club, regularly protest Waste Management’s landfill practices, deeming them irresponsible and harmful to the environment. Everywhere that Waste Management’s top managers look, they see changes and forces outside the company that directly affect how they do business. Should they take on the company’s critics and fight back, or should they focus on business and let the results speak for themselves? Should they view environmental advocates as a threat or an opportunity for the company?
If you were in charge of Waste Management, what would you do?
Over two decades, your predecessor and boss at the Walt Disney Company, Chief Executive Officer (CEO) Michael Eisner, accomplished a great deal, but his strong personality and critical management style created conflict with shareholders, creative partners, and board members, including Roy Disney, nephew of founder Walt Disney.
One of your first moves as Disney’s new CEO was repairing relationships with Pixar Studios. Pixar’s management argued that the company should have total financial and creative control over its films. When Disney CEO Michael Eisner disagreed, relations broke down, with Pixar seeking other partners. On becoming CEO, you approached Pixar to buy the company for $7 billion. More important than the price, however, was promising Pixar total creative control of its films and Disney’s storied but struggling animation unit.
Although Pixar and Disney animation thrived under the new arrangement, Disney still had a number of critical strategic problems to address. Disney was “too old” and suffering from brand fatigue as its classic but aging characters Mickey Mouse (created in 1928) and Winnie-the-Pooh (licensed by Disney in 1961) accounted for 80 percent of consumer sales. On the other hand, Disney was also “too young” and suffering from “age compression,” meaning it appealed only to young children and not preteens, who gravitated to Nickelodeon, and certainly not to teens at all. Finally, despite its legendary animated films, over time Disney products had developed a reputation for low-quality production, poor acting, and weak scripts. With many of Disney’s brands and products clearly suffering, you face a basic decision: Should Disney grow, stabilize, or retrench? If Disney should grow, where? Like Pixar, is another strategic acquisition necessary? If so, what company should it acquire? If stable, how do you improve quality to keep doing what Disney has been doing, but even better? Finally, retrenchment would mean shrinking Disney’s size and scope. If you were to do this, what divisions would you shrink or sell?
Next, given the number of different entertainment areas that Disney has, what business is it really in? Is Disney a content business, creating characters and stories? Or is it a technology/distribution business that simply needs to find ways to buy content wherever it can, for example, by buying Pixar and then delivering that content in ways that customers want?
Finally, from a strategic perspective, how should Disney’s different entertainment areas be managed? Should there be one grand strategy (i.e., growth, stability, retrenchment) that every division follows, or should each division have a focused strategy for its own market and customers? Likewise, how much discretion should division managers have to set and execute their strategies, or should that be controlled and approved centrally by the strategic planning department at Disney headquarters?
If you were CEO at Disney, what would you do?
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