Unit 1: Exploring Business (Part A/B)
Exemplar Coursework for BTEC Level 3 Business Studies
A Report on the Success of Businesses with Reference to Netflix and Impact HK
Introduction
This is a report on what makes business successful with reference to two contrasting businesses, Netflix and Impact HK. Netflix is a large online streaming platform that provides TV shows and movies to people in 190 countries. ImpactHK is a homeless charity based in Hong Kong.
Features of Business
Ownership
Netflix is a public limited company. This means that it is owned by its shareholders who can purchase shares on a stock market. Netflix is listed on the NASDAQ stock exchange in New York under the stock code NFLX. The money investors pay for a share can be used to develop the company and profits are split between shareholders based on the proportion of shares they own. Shareholders can vote on major decisions in the annual general meeting (AGM). Public limited companies have limited liability meaning that the shareholders can only lose the amount of money they invested if the business cannot make its payments.
Impact HK is a charity. A charity is a non-profit organisation set up to help people in need. Charities are not owned by individuals but overall control is given to a board of trustees. The board of trustees at Impact HK are Sunil Sujanani, Cliffton Syngkon, Terri Appel, Elizabeth Seymour Jones, Peter Wong and Geet Goenka. Charities have limited liability meaning that individuals involved are not personally responsible for the debts of the charity.
Purpose
Netflix’s purpose is to supply services for a profit. The service they supply is the streaming of online TV shows and movies. Netflix operates in the quaternary sector of the economy. The quaternary sector deals with knowledge based services including media and IT.
Impact HK’s purpose is to supply friendship, food, shelter, education and employment to homeless people in Hong Kong and is a non-profit organisation. Impact HK operates in the tertiary sector of the economy. The tertiary sector offers services to the population. Impact HK uses volunteers to help provide their services.
Scope and Size
Although it originated in the USA, Netflix is an international business as they have operations in multiple countries. According to Netflix, they now have subscribers in 190 countries. It would be classed as a large organisation as they have more than 250 staff. According to Statista, Netflix had more than 8,600 employees in 2019.
Impact HK is classed as a national business as they have multiple operations across Hong Kong. It has 12 employed staff so it would be classed as a small business. The classification of a small business is between 10 and 49 staff.
Stakeholders
Definition of Stakeholders
A stakeholder is any individual or organisation with a vested interest in the operations of a business. Internal stakeholders have a direct relationship or actively contribute to the activities of a business. External stakeholders are affected by the activities of a business but do not directly contribute to its activity.
Internal Stakeholders
Managers are employees of an organisation who have been given responsibility for a department, project and/or group of staff. Their objectives will include meeting departmental targets and receiving bonuses.
Managers can influence a business by making recommendations for overall strategy and improving performance of teams they manager. At Netflix, managers include Bozoma Saint John who is Chief Marketing Officer, Rachel Whetstone who is Chief Communications Officer and Mark White who is Vice President of Product Engineering. At Impact HK, managers include Michelle Wong who is Programme Manager and Annabella Cheng who is the Head of Education and Mentorship.
Employees are people who work for an organisation in a specific role. Their objectives includes good pay and working conditions.
Employees have varied influence over a business depending on how replaceable they are or how well they are protected by laws and trade unions. Employees may threaten to strike or leave and an organisation’s response may depend on how much impact their absence will have on the organisation’s performance. At Netflix, employees include software engineers, product designers, accountants and administrative assistants. At Impact HK, employees include programme coordinators, counsellors and walk leaders.
Owners are the individuals who own the organisation. They are accountable for the activities of the organisation, they receive profits based on their share of ownership and have usually invested capital into the organisation.
Owners (shareholders) can have an influence on a business’ strategic direction because they can vote about major decisions and if they are not pleased with the performance of a business, they may choose to invest in alternative businesses. At Netflix, the owners of the business are the shareholders. Anybody can buy a share or group of shares on the NASDAQ stock exchange. Impact HK does not have owners as they are a charity. They are controlled by a board of directors including Sunil Sujanani and Elizabeth Seymour Jones.
External Stakeholders
Suppliers are organisations that provide a business with goods and services in exchange for money. Their objectives include regular orders and prompt payments.
The suppliers of a business can have an impact on the brand image. If the quality of what a company buys from a supplier declines, the quality of the end product will also decline. It is important for any organisation to check the quality of their suppliers. Suppliers also have more influence if they have a monopoly. When an organisation has multiple suppliers they have more power to negotiate. According to Netflix’s income statement, they spent $1,829,600 (USD) on technology and development in 2020. ImpactHk spent a total of $3,212,795 (HKD) in 2019, including $614,195 (HKD) on housing.
Lenders are organisations that provide larger sums of money to organisations with the agreement that the money will be paid back in smaller installments with additional interest payments. Their objectives are for organisations to borrow from them rather than rivals and make payments on time.
Lenders can influence a business by changing the terms of a loan and the level of interest charged. This can have an impact on the cash flow of a business. If a lender believes that a business will be reliable in repayments and is borrowing a large sum of money, they may offer them more desirable interest rates. According to Netflix’s balance sheet, Netflix had $15,809,095 (USD) of long term debt on December 31st 2020. ImpactHK does not have any lenders, all of their income comes from donors.
Competitors are rival organisations that provide the same or similar products or services. Their objectives are to draw customers away from rivals.
Competitors have different levels of influence depending on their position in the market. Market leaders usually set the price. It is not advisable for small businesses to get into a price war with larger ones that benefit from economies of scale. When competing with a larger competitor, smaller businesses need to make non price changes. Online streaming is a growing industry and as a result, competition is increasing for Netflix. Their main competitors include Amazon Prime, Hulu, Disney + and Apple TV. ImpactHK does not have any direct competition as all charities in Hong Kong have similar values but donations made to other charities may reduce the donations ImpactHK receives.
Trade receivables are the customers who have been issued an invoice but not paid it yet. They may have received the product or service but have been given a credit period of between 30 – 90 days.
Trade receivables have different levels of influence depending on the size of their orders. Customers who make large orders with large payments may negotiate longer payment terms. Although this may have a negative impact on cash flow in the short term, a business may agree to this to avoid losing a large customer. At Netflix, customers pay for their subscription before they have access to the service so Netflix does not have any trade receivables. ImpactHk rely on voluntary donations so also do not have any trade receivables.
Trade payables are organisations that a business owes money to for receipt of products or services. They may have received a product or service already but have been given between 30 -90 days to pay it.
Trade payables have a different level of influence depending on how much they value the custom of a business. They may agree to a longer payment term with a larger business that makes larger orders. This would have a positive impact on a business’ cash flow. According to Netflix’s balance sheet, they owed $656,183 (USD) in accounts payable on December 31 2020. ImpactHK likely have trade payables to suppliers of their office resources and food suppliers.
Customers are individuals or organisations who buy products and services from a business. Their objectives include receiving high quality products at reasonable prices.
Customers can have an influence on a business by not choosing to purchase their goods and services. This encourages businesses to meet the needs of their customers. With increased use of social media, customers have much more influence on others by what they share about their experiences of products and services. Netflix’s customers are people who subscribe to their streaming platform. In Hong Kong, a basic package is $63 (HKD), standard is $78 (HKD) and Premium is $93 (HKD). At ImpactHK, the customers are the donors. They can pay an amount of their own choice which goes directly to supporting homeless people.
Government agencies and departments are sectors of the government responsible for overseeing a specific area of government policy. Government objectives are to improve living standards of the overall population.
Governments can influence businesses by changing laws that can make operations more difficult and imposing tariffs and quotas for imports. Netflix exists in over 190 different countries so will need to understand the policies of different governments. It is part of their long term strategy to develop a better understanding of these differences. Netflix does not have a presence in the large China market due to challenging government regulation. ImpactHK operates only in Hong Kong so they are only affected by one government. They are trying to work with the government to provide better support and to help the government better understand how some of their restrictions impact negatively on homeless people.
Communities are people who live in the vicinity of a business and are affected by its presence where they live. Their objectives may be for the business to reduce damage to the environment and provide jobs and improve infrastructure in the area.
If local communities are happy with the activities of a business it may be more likely to become customers or seek employment with them. If they are unhappy, with the level of pollution for example, they may raise awareness through petitions, boycotts and publicity. Netflix’s headquarters are in San Jose in California but they also have offices in Los Angeles, New York, Washington, Paris, Berlin, Mexico City, Amsterdam, Manila, Singapore, Madrid, Hsinchu and London. ImpactHK is only based in Hong Kong in an area called Tai Kok Tsui. This is a residential area in close proximity to areas with high levels of homelessness.
Pressure groups and interest groups are groups of individuals who share similar values about certain issues. They attempt to change business behaviour and public policy to better meet the needs of the citizens or the environment.
There is a pressure group called ‘Netflix Addicted to Smoking’ who found that Netflix has an unnecessarily large number of characters openly smoking on their shows. They are campaigning to reduce the number of scenes where characters are smoking. ImpactHK will not be directly affected by pressure groups but will share similar values to organisations such as Amnesty International who aim to improve human rights.
Relationships with Stakeholders
Netflix
As a public limited company, Netflix must produce an annual report each year with its achievements, financial statements and plans for the coming year. This document is produced for shareholders but is available on Netflix’s website for any stakeholder to view. This can help shareholders assess the return on their investment and make decisions on their future investments with Netflix. Other stakeholders can make judgements about how well the activities of Netflix meet their own needs. For example, non-English speaking customers may like their stated aims of producing more non-English content which may inform their decision to continue their subscription. This is especially important with the rising competition for streaming platforms.
Netflix pride themselves on good communication with their employees. They have policy documents on all areas of employment available to staff so they are clear on expectations. The corporate documents that share strategic vision are available to all staff and are open to editing so any member of staff can give feedback to senior leadership. Regular memos on research on products and competitors are sent to all staff to keep them well informed.
There is a huge emphasis on team collaboration through open face to face conversations. All of this is published in the ‘Netflix Culture memo’, this document explains the expectations of staff in terms of how they communicate with the people in their teams and their managers. This is good because it encourages people to listen to each other and share ideas. The aim of this strong collaboration is to improve the products for the customer.
ImpactHK
ImpactHK produces an annual report each year which is published on their website. This is not as detailed as those produced by public limited companies such as Netflix but it includes key activities and successes, finances and plans for the future. This offers donors an insight into how their money was used and can aid their decisions on whether to continue to donate in the future. ImpactHK states on their website that they feel it is important to be transparent with their finances in return for the trust their donors place in them.
Jeff Rotmeyer, the CEO at ImpactHK, communicates with potential donors and volunteers through regular press interviews and talks at schools and with corporate teams. These face to face visits allow him to explain the issues that the charity is trying to address and how people can get involved.
ImpactHK reaches out to the homeless people they are aiming to help through face to face communication. One of these methods is through their ‘Kindness Walks’. During these walks, staff and volunteers visit areas with high numbers of homeless people to distribute food. During these walks, homeless people have an opportunity to speak to people about further support that is available to them. These walks are effective because homeless people have little access to other forms of communication about support available such as the internet.
Overall, Netflix and ImpactHK have different pressures in terms of their relationships with their stakeholders. As a profit making organisation with rising competition, there is a lot of pressure for Netflix to communicate financial returns and financial projections so that investors can make judgments on whether to invest. This places a lot of importance on their annual reports Although ImpactHK does produce an annual report, a very important relationship with stakeholders is the interaction between staff and homeless people which can only take place face to face.
Organisational Structure
Functional Areas refer to the teams of people within an organisation who have been grouped together for a particular reason. It may be because they share skills or they have skills that compliment the whole team.
Human Resources is the function that ensures the organisation hires the best staff and gets the most out of them. Responsibilities include, the recruitment process, assessing salaries, arranging training and putting in place methods of motivation.
Netflix executives published a document called Netflix Culture: Freedom and Responsibility. In this, they outlined their unique human resources techniques to improve staff performance such as an honesty system in tracking absences and removing formal appraisal systems.
At ImpactHK, there is a combination of paid and volunteer staff. The recruitment process is more formal for paid staff but all people involved need training on how to deal with situations such as when a homeless person speaks about a trauma.
Research and Development is the team of people who investigate and test new ideas for products, services and processes.
Netflix’s key areas of research and development are personalization and search, content studio, streaming and marketing and growth.
ImpactHK have recently been researching other activities to support homeless people, such as nutrition, fieldtrip, language courses and making kindness mats. Kindness mats are doormats made from used plastic bags.
Sales is the function that interacts with the customers to trade goods and services in exchange for money.
Netflix does not use traditional advertising methods and focus more on social media campaigns to reduce costs in order to invest more in developing their TV shows and movies. The Netflix social media team posts memes of their shows on various social media platforms with links to direct customers to their website.
ImpactHK have a promotional video in YouTube, have been interviewed by various local newspapers and radio stations and regularly visit schools to spread the word.
Marketing is the function that is responsible for best understanding the needs of the customer and working with the other functions to ensure those needs are met through the organisations’ products and services.
Netflix uses an algorithm to better understand their customers. They record viewing history, times of day customers watch shows and for how long they watch them for. With this information, they can make further recommendations on shows to watch.
Purchasing is the function that buys goods and services used by the business. They may research suppliers to find the best quality and prices.
According to Netflix’s income statement, their main items of expenditure are marketing, technology and development and administration.
According to ImpactHK’s annual report, they spent $164,325 on food for the homeless between April 2018 and March 2019.
Production and Quality is the function responsible for manufacturing products. They take raw materials from suppliers and turn them into finished goods. Quality can be ensured through quality control or quality assurance.
The production and quality function at Netflix is the filming and production of the content on their platform. Departments within this function include content acquisition, creative content, post production management and animation.
The production function at ImpactHK is managing and improving the quality of the services they offer to homeless people including kindness walks, providing meals in the guestroom, getting people into housing and counselling.
Finance is the function responsible for managing money in an organisation. They set budgets for the other functions, process payments and produce final accounts.
At Netflix, the finance function will collect payments from customer subscriptions and because they are a public limited company, they will produce final accounts such as balance sheets and income statements each year.
At ImpactHK, the finance function will manage the collection of donations through Payme, cheque, direct transfer and direct debit. They also prepare the financial highlights of each year which are included in the annual reports.
Customer Service is the function that deals with customers on an individual level. This may include answering questions about products before and after purchase and dealing with complaints.
Netflix has an extensive help centre for customer enquiries with a range of pre answered questions. If a customer does now find an answer in the help centre, they can call customer service hotline or use their live chat.
ImpactHK have information on their website about all of their programmes and how to volunteer and an enquiry form for further questions.
IT is the function responsible for installing and maintaining equipment, software and systems to communicate and store information. This includes computers, servers and telecommunications.
As an online streaming platform, Netflix has a large IT function with departments including online security, studio technologies, video encoding and server management.
ImpactHK has a smaller IT function than Netflix. They have a simple website with contact forms which is likely updated by their administration team. Most of the work done by ImpactHK is face to face.
Administration is the function responsible for keeping all other functions organised and providing office support. Activities include filing, recording meetings, taking phone calls and making bookings.
Netflix has a wide range of administrative functions including communications, legal and public policy and travel and transportation.
At ImpactHK, the administration function includes Doris Lee who handles budgeting and office administration and Kathryn Yuen who is the programme coordinator.
Organisational Structure
Netflix has a hierarchical organizational structure which is organised into key business functions which are each overseen by a director. These include marketing, content and talent. A hierarchical structure is a structure that organises staff into different functions with people at the top of the hierarchy making most of the decisions. This can be beneficial in such a large organisation as Netflix with their 8,600 employees due to the clear lines of authority and staff know exactly who they need to report to. As a result of having many levels in the hierarchical structure at Netflix, there are many opportunities for promotion. This can be motivating for employees lower down in the hierarchy and improve staff retention. By organizing staff into separate functions, training and development of staff can be improved. For example, staff working on content development can focus on the skills involved rather than switching between functions and therefore contributing more towards the organisation’s aims of creating best in class TV shows.
ImpactHK has a matrix structure. There are a variety of projects each with somebody responsible but staff are flexible in working between these projects. Projects include kindness walks, the guest room and housing. The benefits of this structure are that there is clear leadership of each project with somebody ensuring that project objectives are met. Matrix structures make efficient use of staff and as a small organisation, it may not be possible for staff to remain in one function so having flexible teams allows staff to be utilised fully in achieving the organisation's aims.
Business Mission, Vision and Values
Mission
The mission of a business is its overall purpose or reason why it exists and its activities. It is often communicated in a mission statement which is a short description of this purpose.
“At Netflix, we want to entertain the world. Whatever your taste, and no matter where you live, we give you access to best-in-class TV shows, movies and documentaries. Our members control what they want to watch, when they want it, with no ads, in one simple subscription”
“ImpactHK’s goal is to provide the homeless with a connection to friends, society and a safe and comfortable home. When we feel that any of these homeless friends are willing, committed and ready to take the leap, we will endeavor to provide funds necessary for them to set up their own home.”
Vision
The vision of a business is where the owners of the business want it to be in the future. This is communicated in a vision statement which can inform the organizational objectives.
According to ClearCompany, Netflix’s vision statement is “Becoming the best global entertainment distribution service. Licensing entertainment content around the world. Creating markets that are accessible to filmmakers.”
Values
Business values are the beliefs and moral principles that guide the vision and mission of an organisation. They may include innovation, integrity and quality.
Netflix identifies the values they care the most about as judgment, communication, curiosity, courage, passion, selflessness, innovation, inclusion, integrity and impact.
ImpactHK’s key value is ‘to be kind’
Aims
Business aims are the targets of a business.
According to Netflix’s annual report 2019, they aims are “Our core strategy is to grow our streaming membership business globally within the parameters of our operating margin target. We are continuously improving our members' experience by expanding our streaming content with a focus on a programming mix of content that delights our members and attracts new members. In addition, we are continuously enhancing our user interface and extending our streaming service to more internet-connected screens. Our members can download a selection of titles for offline viewing.”
While getting the homeless off the streets and settled into employment and their own homes. ImpactHK seeks to provide a stepping stone that is filled with love, kindness and opportunity to help homeless people getting off the streets.
Objectives
Business objectives are the steps a business needs to take to meet their aims.
According to Netflix, their objectives are
To grow to 60-90 million members in the US
To achieve a 16% operating profit margin
To add more content, language and better Netflix experience for members.
To develop non-English language originals from places such as Mexico, France, Italy, Japan and Brazil
To review policies to ensure they are in line with changing expectations of governments regarding streaming.
According to ImpactHK, their objectives are
To provide a rehabilitative support programme that is totally holistic in its approach,
To offer counselling, financial advice, mentorship, nutritional advice, physical activity, language learning and job opportunities.
Open a second counselling centre
To launch a seniors programme for elderly homeless people
Business Success
Business Success at Netflix
As a profit making organisation, an easy way to measure Netflix’s success is revenue and company value. According to their financial statements, revenue increased by over $4m USD in the past year and total assets increased by nearly $20m USD. As a result of this, we could say that Netflix has been successful in meeting their aims and objectives.
One reason why could be their relationships with their staff. In order to develop the standard of content to appeal to customers, it is important to improve productivity and quality of output from staff. Human resources experts at Netflix place a huge emphasis on the culture within Netflix and have various strategies such as flexible working and good parental benefits. As a result of this, Netflix staff feel valued and motivated to contribute well to the aims and objectives of the organisation. The drawback to this strategy however, is that there is always the risk that when giving staff optional working hours, it may lead to them becoming complacent.
Another reason for their success is their organisational structure. Netflix has clear functional areas with specific skills. Functions include creative content, post production management, VFX and virtual production and animation. By remaining in one functional area with people who have a similar skill set, staff can continue to improve those skills through repetition. However, a drawback to staff focusing on one skill set is that they may begin to find repetition boring and motivation and therefore productivity may begin to decline.
Netflix has clear aims and objectives which are communicated clearly to all stakeholders. These objectives inform all decision making including in functional areas and their corporate culture strategy. As a result, Netflix has continued to evolve their content to meet various tastes and interests which has resulted in over 195 million subscribers worldwide. Having clear aims and objectives allowed staff to work towards clear and measurable targets that contribute towards Netflix’s overall goals. However, a drawback of set targets is that they can limit creativity as staff become too focused on that specific target.
Netflix has recently been criticized because of some of their content. Anti smoking campaigners have criticized them for the amount of characters who are smoking in their shows. There has also been backlash about some of the shows that have been recently cancelled due to the proportion of them that star women and people from the LGBTQ+ community. This may highlight a lack of understanding of their customers.
Overall, it can be seen from Netflix’s growth that they have been very successful in achieving their aims and objectives. However, there may be a need to improve some of their market research in terms of groups that customers feel are under represented.
Business Success at ImpactHK
ImpactHK is not a profit making organisation but their success can be measured by the growth in the number of people they support and programmes they offer. For example, they began doing one kindness walk per month and now do more than 50.
One reason for their success is the communication with stakeholders. Jeff Rotmeyer, the CEO, spends a lot of time doing press and school visits. This face to face communication is very effective and helps encourage both potential donors and potential volunteers. However, face to face communication can be very time consuming.
Another reason for the success of ImpactHK is the clear values of the organisation. The key value of ImpactHK is ‘to be kind’. This informs everything they do. This value appeals to human nature and can be very motivating to staff and volunteers. The only drawback to this is that it could be seen as vague so individual objectives may need to be more clear.
Something that is difficult for ImpactHK is that homelessness is not a problem that they can solve and they can only help people that want to be helped. As a result, they spend a lot of time reaching out to people but only a small proportion actually take the steps to get off the streets. This could be demotivating to people and places pressure on the leadership to keep staff and volunteers motivated despite the low numbers of people who accept help.
Overall, ImpactHK has been very successful in terms of meeting their objectives. Although they may never solve the issue of homelessness in Hong Kong, they have achieved their mission in offering a route for people should they choose to accept it
Research Log
https://www.youtube.com/watch?v=SXzzyaVBkWY – Jeff Rotmeyer on Simon Squibb
https://impacthk.org/
https://about.netflix.com/en - About us Netflix
https://www.statista.com/statistics/587671/netflix-employees/#:~:text=Netflix%3A%20employee%20count%202019&text=As%20of%202019%2C%20Netflix%20employed,the%20number%20recorded%20in%202016. Netflix employee count
https://bestpractices.clearcompany.com/company-mission/index.html#:~:text=The%20vision%20of%20Netflix%20is,that%20are%20accessible%20to%20filmmakers - Netflix vision statement
https://hongkongfp.com/2020/08/17/covid-19-homeless-population-grows-as-charities-close-community-services/ - Government and homelessness
https://advanced-television.com/2018/03/21/pressure-group-netflix-addicted-to-smoking/
https://www.bbc.co.uk/bitesize/guides/z6scbdm/revision/4
https://www.techinasia.com/netflix-china-nope
https://www.statista.com/statistics/250934/quarterly-number-of-netflix-streaming-subscribers-worldwide/#:~:text=How%20many%20paid%20subscribers%20does,Netflix's%20total%20global%20subscriber%20base.
