NetFlix: Practical Examples of People, Process, and Culture in Creating Innovation

In keeping with the traditional analysis of innovative success, a post hoc examination of an organization known for innovation provides anecdotal evidence of the impact of people, process, and culture on organizational success.  By most accounts, Netflix, Inc. (Netflix) is considered a prime example of successful innovation.  Netflix is the leading Internet-based television network and counts some 44 million customers in 40 countries streaming more than one billion hours of content (Netflix, 2014).  Since its initial public offering in 2002, Netflix has moved from an innovative provider of DVD rentals-by-mail to become the dominant player in the pure-play Internet streaming market, a market they almost single-handedly pioneered (Netflix, 2014).  Netflix has enjoyed significant growth in market share, customers, and stock valuation over the years, and the stage has been set for further growth through international expansion, strategic partnerships, and the creation of their own content (Ramachandran, 2014a, 2014b, 2015; Ramachandran & Stynes, 2015; Schwartz, 2015). An examination of key elements of Netflix’s success suggest that business models is not the only thing that Netflix has innovated on the road to becoming a household name.

One of the better-known innovations of Netflix is the organizational culture playbook they developed.  Incorporating aspects of both people and culture, the Netflix employee handbook was presented in 127 presentation slides (McCord, 2014).  From a people perspective, Netflix purports to “hire, reward, and tolerate only fully formed adults” (2014, p. 4).  Among the corporate values are the courage to speak your mind, the ability to make sound independent judgments, being curious, and being innovative (Hastings, 2009).  Hastings also suggests “adequate performance gets a generous severance package” (slide 22).  Netflix not only states a goal to hire and retain only the best people, but also sets an upfront expectation of a culture that supports innovation.  A key element in the Netflix employee methodology is a management philosophy to create a culture of freedom and innovation with employee self-discipline and freedom eliminating many of typical corporate controls like performance reviews, bonuses, and managed vacation time (McCord, 2014).  According to the founder of Netflix, “we’ve had hundreds of years to work on managing industrial firms … we’re just beginning to learn how to run creative firms” (McCord, 2014, p. 6).  McCord reports the development of a culture conducive to innovation is seen as a primary responsibility of Netflix leadership.  Netflix, as an organization, demonstrates a commitment to attracting the right people (knowledge) and fostering a culture that fosters innovation.

Interestingly, the Netflix philosophy that supports the people and culture, eschews formalized process.  According to the Netflix culture definition, process is only required when the complexity of the business exceeds the capability of the people (Hastings, 2009, slide 47).  Hastings declares process, while useful for avoiding the chaos of increasingly large organizations, a limit to the flexibility of the organization to adapt as the business environment changes.  The Netflix response is to drive the percentage of high-performance employees faster than the rise of business complexity to maintain an informal and adaptable organization.   The apparent success of this approach calls into question whether process is independent of people and culture.  It is possible an innovative culture, or superior human capital, mediates the necessity of formalized processes for the diffusion of innovation throughout the organization. It is also possible that Netflix either lacks the need for existential knowledge that would benefit from more formalized approaches to knowledge development (Wilson & Doz, 2011), or that Netflix is simply ignoring the benefits of more formalized knowledge development approaches.  Whether superior knowledge resources and culture mediates the need for more formalized processes is a provocative notion that simply underscores how little is known about how to achieve successful innovation.

References

Hastings, R. (2009). Netflix culture: Freedom & responsibility. Retrieved August 8, 2015, from http://www.slideshare.net/reed2001/culture-1798664

McCord, P. (2014). How Netflix reinvented HR. Harvard Business Review, (JAN-FEB). Retrieved from http://hbr.org/

Netflix. (2014). 2013 annual report. Retrieved from http://ir.netflix.com/

Ramachandran, S. (2014a, November 18). Netflix sets its sights down under. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Ramachandran, S. (2014b, December 17). Dish Network to integrate Netflix app into its set-top boxes. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Ramachandran, S. (2015, February 4). Netflix to launch in Japan. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Ramachandran, S., & Stynes, T. (2015, January 20). Netflix steps up foreign expansion. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Schwartz, F. (2015, February 9). Netflix offers streaming video in Cuba. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Wilson, K., & Doz, Y. L. (2011). Agile innovation: A footprint balancing distance and immersion. California Management Review, 53(2), 6–26. http://doi.org/10.1525/cmr.2011.53.2.6

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