Introduction
In a business environment where companies always experience competition from their rivals who manufacture and sell similar products, change is not only an inevitable undertaking, but also a necessary aspect of driving innovation and attaining a competitive advantage (Goffin, Lemke & Koners 2010). Since it is considered as an imperative aspect of innovation, a company cannot let change to happen without managing it in a manner that will fit the organization’s structure and achieve the desired results (Willard 2009; Wysocki 2011).
As a result, managers must adopt suitable models of change management in order to ensure that all stakeholders embrace the change without much or any resistance (Ball 2010). This paper will discuss the various models used to manage change, define a case study of a company in regard to the Netflix organizational change, identify problems that appear in the case study, and provide solutions for them.
Literature Review
Practically, the various steps included in the models of change cannot take place completely in the real-life situations (Bernoff & Schadler 2010; Blood 2013). As a result, most of the change models that are evident in Netflix are not necessarily complete in accordance to the theoretical stipulations (Berry & Fazzio 2010). In some instances, the agents of change skip some steps or undertake several stages at the same time so that it becomes difficult to isolate the distinctive levels (Cooper 2012; Deshmukh & Naik 2010.
Lewis Three Step Model
Lewis proposed a model that introduces a change in three steps, including unfreezing, moving and freezing. Following the struggles that Netflix has undergone in an attempt to introduce price plans in correspondence to the cost of the Internet and licensing fee, the company adopted strategies that envisage the Lewis Three Step Model.
The CEO first expressed dissatisfaction of customers with one price plan. He stated that all customers are not satisfied with one price plan bearing in mind that the customers have different need (Barr 2011; Bell & Koren 2010). In essence, this was a tactic of unfreezing the existing price plan to prepare customers for change. Second, the company has expressed their intention to introduce the proposed model. This implies that the company is prepared to make the change (Bransley 2010; Bell & Koren 2007; Delimitrou & Kozyrakis 2013). However, they have not accomplished the last stage of freezing back to normalcy.
The Process of Transition
There are various aspects of the process of transition that have been shown in the Netflix’s attempt to introduce three tiers of price plan. In regard to the process of transition, there are three steps that have been portrayed including anxiety, fear and threat. In this case, it is important to understand that the company is in the process of introducing the new price plan, but it has not implemented it at this point. When the CEO announced their intention to change the prices in January, 2014, the customer expressed fear and anxiety that the plan might lead to a situation such as the one experienced in 2011. In addition, the change has been challenged by investors because they seem to have little confidence in regard to the ability of Reed Hastings to introduce the change successfully.
Kotter’s-8-Steps Model.
In regard to Kotter’s eight steps, it is evident that the company has already implemented the first step of this model. In this case, the CEO has successfully convinced the customers about the importance of making changes in the price plan. When he was announcing about the company’s intention to introduce the plan, Hastings said that one price was not fit for all customers. This argument seeks to capture the attention of the customers since it portrays the company’s commitment to their welfare.
Additionally, the CEO has shown diligence in regard to creating a strong coalition. In this case, he has included his co-founders when making this decision in contrast to what he had done in 2011 where one of the executives had opposed the decision publicly. In addition, he has created a strong vision with the help of his coalition members. In essence, this implies that they have implemented the third step of Kotter’s model. Besides the creation, the CEO and his co-founders have accomplished the fourth step of this model by communicating their vision to the customers and investors.
According to their report, they aim at introducing a price plan that caters for all customers in accordance to their preferences and financial capabilities. Accordingly, the company has implemented the first four stages of Kotter’s-8-step model.
The Technology of Leading Sustainable Change
Another model of change management that is essentially evident in the company’s attempt is the technology of leading sustainable change (Durrant, J & Holden 2009; Erskine 2013; Feher & Towell 2010).
The technology of leading this change incorporates three aspects that include the mind-set, emotional conviction, and capability. The CEO has been capable of harmonizing the three aspects considering the difficulties he experienced in 2011 when he introduced price hikes (Feuerverger & He 2012; Gallaugher 2010). First, the CEO has facilitated the collection of factual data in order to support the importance of introducing new price plan. In this case, he stated that the company needed a different price plan based on the fact that customers are not satisfied with one service provision.
Importantly, this step has occurred simultaneously with that one of the motivational conviction. In this case, the reason that was provided shows the urgent necessity of changing the old price plan which is both conservative and insufficient. He has also formed a strong team stating with his co-founders. This implies that the CEO has implemented the three steps of this model. Essentially, these are the models that the company has employed in its quest of introducing a new price plan.
Successful Netflix Change Management
When focusing on how Netflix is planning to introduce the new price plans, Gallaugher (2010) stated that the company is seeking for a breakthrough rather than incremental change. Incremental change refers to situation where success is achieved gradually due to undertakings that build on the members’ skills and commitment. On the other hand, breakthrough refers to profound success that is realized over a short period of time. Bransley (2010) stated that a company realizes breakthrough when it changes the paradigms of the organization.
On the hand, he revealed that if it needs incremental changes, it must concentrate on the behaviors and attitudes of the various stakeholders (Bransley 2010). In the case of Netflix, the CEO is concentrating on changing the organizational structure by splitting the company and introducing two additional price plans. This implies that the company is seeking to achieve a breakthrough rather than incremental change that needs a lot of time to give real results.
Role of Sponsor Change Agent
Bransley (2010) stated that change can be introduced successfully if the agents sponsoring it are involved actively in the process of implementation. Reed Hastings, who is the CEO and the sponsor of price changes, has been involved in the process of implementing the proposed plans. In this regard, he has been involved in making critical decisions, communicating them to the public, and defending the company against criticisms that arise in relation to the proposed changes. The active involvement has been a crucial force in regard to implementing the new price plans.
Netflix Change Management: Case study
Netflix is known as one of the most successful companies in the technological field where it has been providing streaming services and selling DVDs by sending them through email. These services are provided to the customers on a constant subscription that warrants them the opportunity to access unlimited materials such as movies and e-books. The companies have been struggling to introduce changes in its organizational structure and pricing plans. The most important attempts of introducing such changes were experienced in 2011 where the company entered into severe crises owing to the introduced changes.
In 2011, Reed Hastings, who is the CEO of the company, announced that the company had sought to split the DVD-by-mail form the streaming services. In this case, he stated that DVD services could operate as a different company known as Qwikster. According to his report, he explained that the name of the new company was chosen to portray the company’s intention of quick delivery. He stated that the two services were based on the premises that the two businesses had different benefits (Villarroel & Taylor 2013).
As a result, the management felt that the two services needed distinct marketing strategies and cost structures. During the announcement, it was made stated clearly that this plan could start applying to new subscribers immediately while the existing subscribers were affected after one month. However, the company reversed their decision whereby Qwikster was dissolved so that the two services were provided from the same company (Tuzhilin & Koren 2008).
Besides splitting the company, Netflix changed its price plan where it abandoned the original one that required customers to pay a monthly subscription of $7.99 for unlimited access of DVDs and streaming. In the updated price plan, they split the DVD and streaming provisions where the customers were required to pay $7.99 for each of those services (Vickers, A & Fearn 2010). This implied that the customer could either choose to subscribe to one of the services at $7.99 or both at $15.98.
This plan was introduced amidst sustained criticisms claiming that the access for DVDs was not satisfactory since the company had limited stock. According to business analysts in USA, the company experienced a shortage of DVDs’ supply due to the increased licensing fee charged by DVD owners in order to distribute their content. In fact, this shortage forced the company to start developing its own content despite the lack of the required human resources. This undertaking also led to the overloading of the employees due to the added job description.
Analysis
Introduction of Drastic Changes
In this case study, it is evident that the company sought to introduce two critical changes in regard to their structure and pricing plan. Pricing and organizational structures are sensitive areas that can lead to insolvency if they are not changes carefully and strategically (Ghimire 2011; Gilbreath 2010; Girard & Parsons 2012).
In essence, when the company split the services into streaming provision and DVD-by-mail service, it meant that most of them had to quit one of the services and maintain the other. Practically, splitting the company implied that the customers would be forced to visit the two websites in order to find for a movie (Harmon 2007).
Whereas the change presented customers with operational difficulties, the company announced their plan and implemented it immediately. Expectedly, the introduction of Qwikster, could come with other provisions that customers needed some time to learn (Goldfayn 2011; Harmon 2007; Harris 2010). As a result, immediate split was a completely doomed decision that could only see customers abandon the company and subscribe with their competitors (Goffin, Lemke & Koners 2010).
Additionally, the decision to split the company into two sections was followed by a new price plan that presented another challenge to the customers. In this case, the provision of DVD and streaming services separately led to division of price subscription. After these changes, the customers were needed to pay twice the original amount in order to access the two services since they were provided under different protocols.
Also, the customers were notified about one month prior to the implementation thus leading to drastic change of budget besides the operational difficulties. As a result, they did not have enough time to conceptualize and understand the necessity of those changes as explained by the CEO. This implies that the two changes were implemented drastically rendering them risky, destructive and financially invalid.
Changes Insensitive to Company’s Credibility
When making any changes in an organization or a business, it is extremely important to consider the credibility of the company in the face of its stakeholders (Hamada 2010; Harmon 2007; Ingwer 2012). It is fundamentally necessary to maintain their trust towards the company by ensuring that the company’s principles are upheld (Hastrup 2013; Hernaez 2011; Holgersen 2011).
It was clear that Netflix has made severe mistakes in regard to securing their credibility in the face of their customers (Healy 2010; Linden & Conover 2009; Lusted 2013). For example, it was evident that the company reversed the decision of splitting their services whereby they re-integrated the two services and continued with the original business model in which DVDs and streaming services were provided under the same company.
The re-integration took place after few weeks of lamentation and criticisms from various quarters. This portrayed lack confidence and raised critical questions on the company’s foresight and research. It also implied that the company did not have a well-defined plan of implementing their original plan of splitting their services. In addition, their attempts to regain respect and credibility have been impeded by strong resistance from stockholders and consumers.
In addition, the investors put pressure on the CEO since they almost lost their holdings during the splitting. In this case, splitting the company meant that the returns for the investors could reduce drastically since they had invested under the Netflix Company rather than Qwikster (Ransohoff 2010). In response to the investor’s complaints, Reed Hastings mocked them stating that he needed a food taster, and that is why he could not blame them for their criticisms.
This was an additional insult that resulted from poor implementation of change. In essence, change should be introduced in a manner that does not disparage the dignity of the company since it needs to maintain the trust and loyalty of the customers.
Lack of Proactive Approach to Change
In light of introducing and managing change managers are required to exhibit a proactive approach when handling the process (Komives & Wagner 2012; Lawes & Rider 2010). In this regard, they are required to anticipate and foresee problems and risks that could necessitate a change (Legutko 2012; Martin & Fellenz 2010). This implies that the company could be prepared to initiate the process of change gradually in order to avoid afflictions that could paralyze the organization (Marquardt 2011; Paul 2011).
However, the case study portrayed lack of proactive approaches in various instances. In the first instance, the company should have anticipated the increase in licensing fees bearing in mind that the company did not have its own content. In this case, the management should have anticipated such risks since the company did not develop its content, but practiced brokerage between the DVD developers and consumers (Rettie 2001; Roebuck 2012).
This implied that at the long-run, the DVD developers could have sought to sell their content directly and discourage brokerage by putting measures such as increasing licensing fee. If they had anticipated such eventualities, they could have been prepared to make changes in a manageable manner rather than take drastic measures that could paralyze the company.
In addition, the case study shows that the company decided to introduce price plans despite the criticism regarding the limited availability of DVDs. This undertaking showed that the management did not foresee the possible backlash of customers owing to increased prices without improvement of services’ quality or fixation of sustained problems. This problem is intensified by the insensitivity of the CEO towards the company’s investors, although they play an important role to determine the success of a company. In fact, it is regrettable that the CEO could afford to mock the investors claiming that he did not blame them because he needed food tasters.
Change Insensitive to Stakeholders’ Needs
Changes that are introduced to an organization should not be implemented for the sake of the management and the financial prosperity without considering the welfare of the customers as well as other stakeholders (Ryle 2011; Sarin 2010; Tihanyi 2012). In response to the question of the price changes, the company spokesman explained that the DVD and streaming services were split since the company felt that the two were different businesses.
Further, he stated that the splitting was necessitated by the need of the company to market the two services differently. However, they did not explain how they considered the operational and financial need in light of making their decision. In addition, the CEO mocked the investors showing his insensitivity towards the needs and concerns of stakeholders in the process of inducing change (Zeng & Gualdi 2013).
Conclusion
In regard to the problems identified in the case study, the company should apply the Kotter-8-steps model. First, it should create urgency such that all stakeholders want the pricing plan to change and the company to split. In this case, the executive must come up with idealistic proposals explaining the reasons as to why splitting and changing the price plan is important to all stakeholders (Weinberg, Sutherland & Cooper 2010).
Second, the executive must form a strong coalition with people who have influence in terms of politics, expertise and job status. This will call for identification of true leaders within the organization such that the coalition is capable of leading change. Thirdly, the CEO must harmonize all the identified opportunities, threats, and concepts in order to come up with a vision for the process. The vision should be easily understood by all the stakeholders so that they can embrace the process.
In the fourth stage, the CEO should communicate this vision to the stakeholders and make sure that he repeats it often bearing in mind that it will face competition from many people daily. After communicating the vision to people and establishing buy-in, the CEO should identify the obstacle that could be inhibiting change, including employees and company’s structure. Having streamlined the organizational structure, then he should create short-terms wins to give the company members an early taste of success in order to motivate them.
Then, Mr. Reed Hastings should go a step ahead to build change and incorporate the attained change in the company’s structure so that it becomes a part of the organizational culture. This will help the company to cope with the existing pricing conflict since the process is gradual and inclusive contrary to the one introduced in 2011 that was not only drastic, but also unilateral.
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