Sunday, October 23, 2011

The Netflix Culture & Mistake

Netflix’s culture was described in a recent edition of the Business Insider. It makes an interesting read. At more than one hundred pages, it is quite long and detailed – but worthwhile.

While it is described as a statement of its company culture, it is more of a guide and blueprint for its employees on how the company operates or, perhaps more accurately what is expected of its employees.

Netflix’s culture document has three principal themes – Performance, Freedom, Responsibility - and expands into seven specific requirements which are listed below:
Values are what we value.
High Performance.
Freedom & Responsibility.
Context, not Control.
Highly Aligned, Loosely Coupled.
Pay Top of Market.
Promotions & Development.
 The several factors frequently emphasized:
“Performance” is the most important variable leading to success – it is cited repeatedly throughout the statement. It will overcome context and control failures, responsibility issues and success with hiring and promotions.
An indication of Performance’s importance are two warnings to employees: “Accomplish amazing amounts of important work.” “Adequate performance gets a generous severance package.”
“Think strategically.” “Focus on strategy & goals.”

“Minimize written rules.”

“Communication.” “Frequent department meetings.” “Honest, candid, non-political communication.” “Challenge prevailing assumptions.” “Courage to say what you think.” “Quick to admit mistakes.”

“Open internally about strategy and results.” (i.e., the company makes sure all employees are thoroughly familiar with its strategy and results)

“Judgment.” Largely refers to how decisions are made: Identify root causes, not symptoms. Think strategically, not tactically. Make good decisions regardless of uncertainties – i.e., do your homework.

“No toleration for brilliant jerks” Smart but difficult to work for managers are not retained.
In the first few pages they surprisingly go out of their way to harpoon Enron’s value statement that was displayed in Enron’s lobby: Integrity, Communication, Respect, Excellence.

It is unusual for a company’s culture to be a written document. Although one of the world’s most successful companies – Wal-Mart – publishes a statement of culture.

By comparison, in my fifteen years at Emerson Electric Co. there was none and one was never discussed. We all understood the culture and the company’s values. It was exactly the same as Netflix’s emphasis throughout its culture statement: “Performance” and “Strategic Focus”.

Netflix acknowledges that they know they are not perfect but continue to work toward achieving their goals by stating in the culture document: “We are getting better” “We keep improving our culture as we grow. We get better at seeking excellence.” This certainly gives credibility to the constructive perspective that supports Netflix’s statement of culture are.

However, Netflix does make mistakes. One major error was this year’s decision to separate its DVD service from its Internet streaming service. Three weeks after the spin off decision was announced, Netflix reversed itself and decided to not spin off its DVD service. It decided to keep both services under one name and one Web site.

The positives:
● The quick realization of a mistake with the reversal decision being made just three weeks after it was announced. (It took Coca Cola three months to reverse its New Coke decision.)

● A candid admission that a mistake was made and that hubris was a factor.

● The 60% price increase. It may make the mistake fade quickly, if it sticks, as it will have a significantly favorable impact on profitability.
The negatives:
● Contrary to its culture statement on Judgment, thorough homework for this decision was not completed.

● The admission that hubris played a big role.
● Can the company recover? Will competition capitalize on the error? Will customers accept the 60% price increase? Will Netflix record Net Losses in 2012?

Click on this link for Netflix's culture document.