Netflix's Organisational Culture 615s6p

NETFLIX: A TOUR OF ORGANIZATIONAL CULTURE: ABOUT NETFLIX: Started as a DVD rental and distribution company in 1997, in Scott valley California, NETFLIX has transformed itself into an online content streaming giant over the decades. In 2007 NETFLIX has entered into online content streaming business retaining the DVD rental business. In 2010 it has expanded its services internationally. By the year 2017 NETFLIX has extended its services to 190 countries and has an ambitious target of providing services in 200 countries. NETFLIX has about 109 million paid subscribers out of which 55 million are from United States. The company has recorded revenue of $21.9 billion as at October 2017 compared to $16.4 billion at the same time last year.

A BRIEF INTRODUCTION TO NETFLIX’S CULTURE AND VALUES: NETFLIX has a culture of freedom and responsibility. This sounds simple and easy. All the employees in NETFLIX are expected to operate under the same cultural principles mentioned above. The culture of freedom and responsibility applies largely to the salaried employees, as the hourly employees have more organized work environment. According to the so-called “Netflix culture deck,” a 124-slide presentation that's legendary in Silicon Valley. The management of NETFLIX classifies their culture into basic seven aspects. • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development. 1

The value system in NETFLIX:

NETFLIX doesn’t believe in a verbose description of values. The values that are followed and expected from the employees are quite simple. There are some basic values expected. They are: 

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Judgment: Making wise decisions despite ambiguity, identifying root causes and get beyond treating symptoms, knowing what should be done now and separating it from what could be improved later. Communication: Being a good listener, being concise while dealing with writing and articulating speech, treating people with respect independent of the status and disagreement, and more importantly maintaining calm poise in stressful situations. Curiosity: rapid and eager learners, understanding the company’s strategies relating to markets, people, subscribers, trends, etc.

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Innovation: re-conceptualizing issues, discovering practical solutions to hard problems, creating new ideas that prove useful, minimizing complexity and finding time to simplify. High performance: It is believed in NETFLIX that every employee is someone to look up to and learn from. Unlike many companies NETFLIX practices the process of severance packages to those who perform adequately. It is believed that everyone is part of one family not a team. The interaction between the managers and the employees are high and the performance evaluation techniques are also quite different from other companies.

Freedom and responsibility: The following traits are expected by the company from any employee to be a part of the organization,

• Self motivating • Self aware • Self disciplined • Self improving • Acts like a leader • Doesn’t wait to be told what to do • Never feels “that’s not my job” • Picks up the trash lying on the floor • Behaves like an owner The company’s model is to increase the employee freedom as it grows and not restraining it. The culture always tries to innovate the concept of employee freedom constantly to derive long term benefits out of it. The main idea is to avoid the shrink of talent density along with growth. 4

Context not Control:

The management of NETFLIX always tries to allot work to employees according to the requirement rather than controlling them. The following are the insights and understanding to enable sound decisions at NETFILX: Context • Strategy • Metrics • Assumptions • Objectives • Clearly‐defined roles • Knowledge of the stakes • Transparency around decision‐making Control • Top‐down decision‐making • Management approval

• Committees • Planning and process valued more than results. 5

Highly aligned, loosely coupled:

• Highly Aligned – Strategy and goals are clear, specific, broadly understood – Team interactions are on strategy and goals rather than tactics – Requires large investment in management <me to be transparent and articulate and perceptive and open • Loosely Coupled – Minimal cross‐functional meetings except to get aligned on goals and strategy – Trust between groups on tactics without previewing/approving each one – groups can move fast – Leaders reaching out proactively for ad‐hoc coordination and perspective as appropriate – Occasional post‐mortems on tactics necessary to increase alignment 6

Pay top of market:

Pay top of market is core to high performance culture one outstanding employee gets more done and costs less than two adequate employees. NETFLIX endeavors to have only outstanding employees. 7

Promotions and development:

In some time periods, in some groups, there will be lots of opportunity and growth at NETFLIX. Some people, through both luck and talent, will have extraordinary career growth. Baseball Analogy: Minors to Majors • Very talented people usually get to move up, but only true for the very talented • Some luck in of what positions open up and what the competition is • Some people move to other teams to get the opportunity they want. • Great teams keep their best talent • Some minor league players keep playing even though they don’t move up because they love the game.

INTERPRETING NETFLIX’S ORGANISATIONAL CULTURE THROUGH FRAMEWORKS This was just a brief introduction to Netflix’s organizational culture. Next we will be interpreting Netflix’s organizational culture through various frame works. William G Ouchi an American professor and author in the field of business management provided a framework to interpret the organizational culture of a company. According to him, the organizational culture of a company can be interpreted through the company’s commitment to its employees, the speed of its evaluation of the employee’s performance, its decision making process, and responsibility for decision outcomes and the company’s concern for its people. Netflix is famous for its policy of hiring only “fully formed adults”. This means they hire people who have both high potential and will always do the right thing in the company’s best interests. Once they are a

part of Netflix, employees are given a lot of freedom and creative space. But the down side of this is that, they are always expected to perform at their level best and if they fail to do so are quickly shown the door. Hence Netflix’s commitment to its employees is only short term that is as long as they continue performing at their best. At Netflix they believe in setting the context and not exercising control. This means that, when a high performing and talented employee goes wrong, they first look at what context they failed to set. Instead of directly finding faults in the employee involved. Hence the decision making outcome impacts the entire group rather than the single individual only. Netflix believes that logic and common sense works better than formal policies. They believe that their employees are matured enough to do the right thing. Hence the decision making is implicit and informal, rather than being formally spelt out. Netflix does not believe in formal performance evaluation procedures which are rigid and ritualistic. Rather they believe in frequent informal s. The employees are evaluated both quantative and qualitatively. Netflix depicts a holistic concern for its employees. There ,employees enjoy many facilities such as competitive salaries, very liberal polices with regard to vacation times and parental leaves and dress code, in which the employees are allowed to take as much time off as needed and act according to their judgment as responsible employees. Also even when an employee is let go, they are given a very generous severance package. According to TOM PETERS-ROBERT WATERMAN an organization’s culture is reflected in the way they conduct their business. Next we have looked into Netflix’s organizational culture through Tom Peter’s framework. A BIAS FOR ACTION: This implies being task oriented i.e. giving completion of work the top priority. This could be achieved only when there is open communication and informal organization culture. Netflix hires people that they describe as “Fully Formed Adults” who will work in the best interest of the organization. Netflix makes sure that all the employees are giving their 100% consistently and there is continuous . Netflix doesn’t believe in formal periodic performance review and doesn’t measure people’s work by no. of hours spent in the office but by their accomplishments. If the employee is not performing up to the standards set, then they are let go by offering them an attractive severance package. For example: one Netflix manager wanted to conduct Performance Improvement Plan with the Quality Assurance Engineer named Maria. She had performed brilliantly in the past. But as the technology was evolving, her job and skill set were no longer required by the company. So Netflix decided to tell this to her up front and offered a great severance package. Netflix believed that people will not feel bad if they were told the truth. ENCOURAGE AUTONOMY AND ENTERPRISE:

This implies encouraging innovation and risk taking behavior. Culture at Netflix is such that it provides freedom to its employees to come up with new ideas but also place responsibility on them to get those ideas to work. It encourages independent decision making by employees and taking smart risks. It encourages employees to be open and question whatever is inconsistent with Netflix values so that innovation is facilitated. Netflix works with the best directors, producers and artists and give them the creative freedom which has translated into production of best shows on TV. Also Netflix has named its conference rooms after movies such as King Kong & Dark age to motivate employees and remind them of their achievements and encourage continuous innovation. ENCOURAGE PRODUCTIVITY THROUGH PEOPLE: It means that organizations believe that people are its assets and treating them with respect and dignity is a prerequisite for motivating employees to put in their 100% at work. Under this type of culture, employees work together cohesively to increase productivity and achieve organizational objectives by developing ideas together and continuously innovating. Netflix treats its employees as grown-ups and believe that they are capable of behaving decently. They do not want to hire “Brilliant jerks” and want to maintain a conducive environment for fostering innovation. Netflix culture also states that employees there are part of a dream team and not a family. This dream team requires its to achieve objectives by working with the best team mates (experts in their fields), caring for their team mates, rewarding them according to their performance and knowing that being on the team is not permanent. HANDS ON MANAGEMENT (Value driven effort): This implies that the management s its employees, their ideas, regularly interacts with them to discuss their progress and keep the communication lines open. It includes management’s efforts to clarify policies of the company and employee mentoring also. Netflix addresses its values as “human values” and not “American values” and aims to use these values as a yardstick for hiring when they are expanding in other countries with different cultures. For example: when Netflix expanded in Japan, they noticed that Japanese workers are not open to and don’t want to hear severe in front of large no. of people. This was exact opposite of the values that Netflix stands for. The talent officer, Cranz offered immense and mentoring to their Japanese employees which has transformed their thinking and they like it due to the trust it builds among employees. STICK TO THE KNITTING: This implies staying in business they know the best and delivering great work and not diversifying in every other business which would give mediocre results. Netflix dominates the Video on demand industry. It started in 1997 with DVD rental by mail business. They continued with the DVD and Blu-Ray business while expanding into online streaming business. So they kept on modernizing the technology and their business model within the same industry and became market leaders in that.

SIMPLE FORM, LEAN STAFF Netflix has a customer driven business model. Its business model (i.e. online streaming services) will work anywhere where there is an Internet connection. Netflix maintains a lean staff unlike other technology companies. Currently it employs just 4700 employees. Since Netflix demands achievement oriented employees, they selectively hire employees and do not recruit candidates straight from college. SIMULTANEOUSLY LOOSELY & TIGHTLY ORGANIZED It implies being tightly connected with the values that the organization believes in but still giving freedom to the employees to perform in accordance with the standards set by the organization. On one hand, Netflix believes in its values very strongly and hire only those employees who can fit; otherwise they are shown the door. This could be further seen in the instance when they expanded into Japan where employees were initially uncomfortable with the values followed at Netflix. But Netflix managed to enforce its values through mentoring Japanese employees. On the other hand, it gives full autonomy to its employees to develop ideas and take decisions on their own to make those ideas work. They treat their employees like grown- ups and do not have policies for enforcing things on them. Bate’s framework recognizes certain cultural traits and then goes on to understand an organization’s culture based on whether it falls on the negative or positive side of that cultural trait though, there is no such thing as a good culture or a bad culture. Netflix interpreted as per Bate’s Framework:

DEPERSONALIZATION Personal Criticism is not accepted. No one is allowed to point a finger at another person.

Personal Criticism and praise are allowed and appreciated.

Negative pole - - - - - - - - - - - - - - -

Positive pole + + + + + + + + + + + + + + +

In the Netflix culture document created by Patty MacCord Netflix’s Chief talent Officer, she argues “too ritualistic and infrequent” and she also goes on to saying that regular and informal works far better than rigid and scheduled reviews .This fact clearly demonstrates the fact that at Netflix, personal informal criticism is appreciated so Netflix tends to the positive pole with regards to depersonalization.

UNEMOTIONALITY Mostly avoids sharing emotions and feelings with each other.

There is complete transparency with regards to how one feels. People freely share their feelings and emotions with each other.

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According to the Netflix culture document it says “We model ourselves on being a team, not a family” which shows that for Netflix, professionalism is clearly more important than emotions thus tilting the Un emotionality factor towards the Negative pole.

SUBORDINATION Authority is never challenged.

People may take personal responsibility and are allowed to question inappropriate decisions and instructions.

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“You question actions inconsistent with our values” is a part of Netflix’s courage values according to MacCord’s culture document which shows that the authority can be questioned for making decisions which the employee feels is inconsistent with the organization’s values thus Netflix culture goes towards the positive pole when it comes to subordination.

CONSERVATISM Change is seen as something unnecessary and impossible.

Welcomes change along with accepting the risks involved with it.

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The kind of business that Netflix is in and given the kind of competition it faces Netflix can’t follow conservatism. So, it tends towards the positive pole again when it comes to conservatism. “We just took risks with the people stuff, just like we took risks with the business” is what MacCord says when she talks about the changes in Netflix’s work culture. Thus this further enhances our above stated fact.

ISOLATION People are restricted to themselves and their own department mostly. Several sub departments and sections are visible.

Boundaries do not matter and people discuss issues with those from other areas.

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At Netflix people are encouraged to discuss with one other .People are encouraged to give informal reviews as discussed previously, they are encouraged to share information with one another which shows that for Netflix boundaries don’t usually matter and hence shifts them again towards the positive pole when it comes to isolation.

ANTIPATHY People are usually distant and untrusting.

People trust and help each other.

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Substantial evidence was not available to conclude about which way this trait shifts though employees are encourage to be transparent and direct with each other.

Netflix’s Structure and Culture Netflix has a functional organizational structure, which is segmented by the aims of its functions themselves, rather than by customer segments or regions. The different functional division that Netflix hold is Marketing, Talent, Operations, financial and operating, Product and content. The model of organizational structure that Netflix follow is “The mechanistic model “ because the structure is highly centralized, as CEO Reed Hastings has direct control over the six departments, each with individual managers. Netflix follows rigid departmentalization, clear chain of command till the first level as the organizational flow beyond this point is not structured after this the work is mainly divided into teams sharing common goal . Charles Handy Model of Organization Culture applies in many a case when we talk about Netflix organizational culture. Out of the four types of culture that this model holds i.e. Power, task, Person, Roles – the Netflix holds Task culture because here they Create context, don’t control - Managers are encouraged to set a strategy, define metrics, clearly define roles, and be transparent around decisionmaking rather than making unilateral decisions Other examples of task culture at Netflix are:  

They tolerate only high performance- high performance is only valued in the organization. Highly aligned, loosely coupled - Netflix’s general mentality is to have very clear strategies and goals across the company and within teams.

The Team culture at Netflix is highly remarkable, they have a team called Dream Team in which all of your colleagues are extraordinary at what they do and are highly effective collaborators. Their version of the great workplace is a dream team in pursuit of ambitious common goals, for which they spend heavily. It is on such a team that you learn the most, perform your best work, improve the fastest, and have the most fun

BARRIERS   

Netflix organizational culture has zero tolerance for poor performance, this leads to high turnover ratio and employees are under constant fear and pressure of performing well. Due to high turnover rate there is less domain expertise. There is a lot of uncertainties among the employees regarding their career path and sometimes they do not have clear direction of how things should be done.

THE IMPACT The impact of culture is really hard to overstate. Given the importance of culture and consequences of cultural issues many companies are proactively issuing culture “manifestos”. Netflix culture presentation

combines high expectation with an engaging employee experience. Generous corporate perks such as unlimited vacation, flexible work schedules and limited supervision balance a strong focus on results with freedom and appreciation for the expected achievement. Implementation of such work culture has the following impacts: 

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Encourages Innovation:-Netflix does not follow a strict hierarchical culture. Employees are encouraged to think outside the box and they can get their expenses approved without the permission of their immediate managers. This helps to create a positive work environment. Company treats them as” fully formed adults” and they are bestowed with great amount of freedom so that they can take risks and innovate without being bogged down by the process. Since it follows the motto of “freedom & environment”, Netflix attracts and nourishes individual with innovative frame of mind. High Performance-oriented Culture: In Netflix people are expected to work at a super high level. They are expected to work ionately and give their best. Netflix states that in procedural work, the best are 2 times better than the average and in creative work, the best are 10 times more effective than the average. This helps in raising the productivity of the company as company encourages its employees to stretch their limits which consequently help to make the best use of time. However the flip side is that they tolerate “only” high performance. Any performance less than the average are frowned upon and people are easily shown the back door. This inculcates a “fear of culture” since it is too easy to fire people. Employees are asked to not make friends as they might have to fire that person the other day. In Netflix people have intense pressure to perform and should not be preferred by person who demands job security and stability. No-formal process culture: Netflix abandoned formal performance reviews because they were too ritualistic. They encouraged informal conversation which helps the employees to get honest about their performance whether it be positive or negative since they believe in the policy of “honesty always”. Work-life balance: Company doesn’t limit expense or vacation time, instead leaving it to employee to take as much time as they want, but also asks them to put in extra hours when necessary. This helps the employee to manage their work time and family life in a way that is suitable for them. Review method: There is no fixed number of working hours and people are rewarded only on their performances. No other factors like seniority are taken into . Challenges with international employees: Cultural differences often create unexpected misunderstandings. The culture in Netflix was more of egalitarian type and Japanese generally follow hierarchical culture in their organizations. Also they were not comfortable regarding the informal s as they were not used to harsh words and were unaware of the concept of “honest” . Thus the concept of “freedom “often created hindrance in the smooth working of the organization when international employees are taken into consideration. Impact on career prospects: The Company hires the best talent in the town. As an employee people get the chance to work with some finest minds in the country. This learning always comes handy when employee switches from Netflix to any other company. This ultimately helps in improving their career prospects.

Conclusion “If you want to build a ship, Don’t drum up people together to collect wood, And don’t assign them task and work, But rather teach them long for the endless immensity of the sea.” Netflix’s new culture document ends with the following lines by a famous French aristocrat and poet – Antoine de Saint. These lines focus on being a visionary, rather than clearly defining what needs to be and how to do a job, we believe in empowering people so that they can take their own decisions and act upon them. If we give direct orders to people on how to do things, these might reap results in the shorter run but in the long run, limits the thinking capability of the people; it limits their vision and their logic. If you really want someone to be successful let the make their own decisions and follow their own vision. These lines aptly apply to the work culture at Netflix. The basic outline of Netflix work culture is that it treats its employees like adults; it gives them a lot of freedom to take their own decision. They want their employees to make the best sense of their judgment and logic. Their organizational culture encourages their employees to be innovative, to make decisions according to the situation without being worried about the process or taking permission from the authorities. They believe that employees are responsible for their own decision. They believe in empowering and trusting their employees. They believe in Smart work rather than in hard work. They have always believed in adapting to change and being proactive. It believes that people should rely on logic rather than on formal policies. It has a very organic work model where you can easily talk to your authorities and put forward your views. Netflix has a very performance-driven culture, where employees get benefits based on their performance and if you are not able to perform well you will be asked to leave the company. Netflix believes in risk-taking and values employees who value performance over stability. They do not believe in work hard and play hard culture. It believes in a culture where people are ambitious and share a common goal of betterment of the organization and working best to their efficiencies. Netflix does not believe in sharing of your emotions, it strongly believes that organization is not your family but it is a team where you should work best to your efforts to make your team the best team. Each member should put in a lot of effort to increase the efficiency and abilities of the team. Netflix’s culture has been a driving force for their success and dictates their structure and how do they conduct their business.