Can Netflix continue managing, in CEO Reed Hastings’ words, “on the edge of chaos” as it transforms from a tech firm into a global entertainment giant?
Hastings and former Chief Talent Officer Patty McCord were the main architects of Netflix’s singular corporate culture. Together they created the Netflix “culture deck”, a PowerPoint presentation called “Freedom and Responsibility”, which made waves in the human resources world, influenced countless startups, and has received 20 million views since Hastings posted it online in 2009. He is currently working with INSEAD professor Erin Meyer to expand the culture deck into a book.
At the centre of Netflix’s high-performance culture is its approach to human capital management, which is often summarized as “hire the best people, and get out of their way”. It is the antithesis of micromanagement. Employees are given a free rein on decision making, spending, time off and other matters. High performers are rewarded generously. Everyone else is swiftly shown the door.
Hastings considers Netflix’s culture the key to its success. It was designed to help the company stay innovative and maintain peak performance in the hypercompetitive streaming media industry. So far, it has worked: Each of Netflix’s 7,900 full-time employees generates an average of $2.6 million in annual revenue and $26.5 million in shareholder value. The company’s share price has risen 500-fold since going public in 2002, according to The Economist.
Hastings’ ability to act years ahead of the entertainment industry, and bring the rest of his company with him, is inarguably a crucial factor. He dove into streaming media back in the late 2000s. By the time TV networks and movie studios recognized the disruption and started grabbing content licences, Netflix had moved into original content creation. “Every time that Netflix faced a roadblock it found a clever way to work around it and emerge stronger,” said Michael Nathanson of consulting firm MoffattNathanson. Netflix may not have been so nimble if employees had to wait for approvals from higher-ups.
The question now is whether the same approach to human capital will work as Netflix’s transformation into a global entertainment behemoth proceeds. What was once a company of likeminded technologists now has a huge influx of people trained in Hollywood studios, who bring with them a very different mindset. It also has a diverse global workforce – and some aspects of the Netflix corporate culture may not translate well, such as the non-hierarchy and “radical candour”, which gives everyone license to challenge anyone else’s ideas.
Further, now that entertainment is increasingly dominated by conglomerates such as Disney, and Netflix is competing against them directly, it could be forced to diversify into other industries. Takeovers are the most likely means, and these would entail the integration of outsiders. As Hastings himself acknowledges, a strong culture “is a material weakness if you are going to make big acquisitions.”