Title: Netflix Reinventing HR Case Study
Sub Category: Case Study
Subject: Human Resource Management
Netflix was founded in 1997 by Marc Randolph and Reed Hastings which has emerged as a leading internet entertainment platform. Netflix has emerged as a pioneer in reinventing the wheel of HR by adopting an approach to talent and culture which has nurtured creativity and innovation within the company. The case depicts an example of how Netflix’s talent philosophy has enabled it to attracts, retain, and manages a high-performing workforce. The author quotes his interaction with two employees John and Laura depicting the essence of talent management practices at Netflix. Firstly, the author quotes his conversation with John who was happy to work overtime being the only single guy managing the entire department in event of right-sizing impeding after a burst of World Wide Web and 9/11 which resulted in the loss of three engineers from his department but he was happy to work alone instead of working with subpar performers in his team. Secondly, the author quotes her conversation with Laura who was a high-performing employee but had to be laid off from Netflix due to a misfit with the development after its IPO was launched as IPO required CPO from a pure accounting background. Netflix offered a severance package to her which made her happily leave the company. McCord, How Netflix Reinvented HR, (2014).
What is the strategy adopted by Netflix to make a new team?
How the company do form its policy to hire the new staff?
How innovation does drive the company’s CEO to form a new policy of pay schedule?
How differentiation took place in Netflix policies as compared to other competitors?
Does the frequent evolution in technology play its role in the emergence of new HR policies of Netflix?
Hire, reward, and tolerate only fully form adults practices at Netflix which suggests that companies can get better results and at a lower cost if abandon all the HR policies and let the logic and common sense prevail within the company. Netflix possesses no formal policies impeding from the fact that 97% of employees will do nice things whereas 3% are trouble makers which require formal policies. Netflix only hires people who have a desire to join a high-performing workplace and always put the company’s interest first. Netflix promotes adult-like behavior within the company where managers and bosses have an open communication channel with subordinates to discuss
HR-related issues on a case-by-case basis. Care narrates an event after being public where SOX law mandated the company to create more leaves and adapt format leave policy but Netflix did the total opposite where salaried employees were given liberty to choose the time and date of their leave in consultation with their manager. However, some departments like a warehouse, accountants, and Customer service were offered structural policies. For example, accountants can only take leave at the beginning or end of the quarter. On contrary, the case states another event where the company made an expense policy of “Act in Netflix’s best interests” where company agents saved a substantial amount of cost by booking flights themselves instead of an expensive travel agent. The main idea behind these practices includes hiring correctly as Netflix only aims for Star performers which can be easily managed through communication and common sense. Formal policies within the company unlike, Netflix which required high maintenance costs are shunned by Facebook because it is aimed towards a small number of employees. In a nutshell, Netflix has successfully challenged the traditional HR mindset and suggests that leaders must create culture and talent management practices that feature teamwork and performance resulting in significant cost reduction.
Talent management (TM) serves to present pressure on human resources to improve talented outcomes due to inefficient succession planning and global competition to retain talented employees. Global talent management comprises of series of HRM activities conducted within the global context to manage talent from differential roles of management. The process of talent management includes systematic identification, development, and support of roles for the high potential individual. The major aim of the management of talent is then to engage, develop, and retain them so these talented individuals play an essential role in the organization’s future performance. (King, 2015) Netflix’s management practice of eliminating formal performance review is backed by the notion that “always tell the truth about performance. Netflix practices have raised the eyebrows of HR people who still can’t believe that Netflix does not possess a format review system. The reason why Netflix has shunned performance appraisal because Netflix believes that formal performance appraisals are often ritualistic and very infrequent. On contrary, Netflix made performance feedback as a standard and organic part of work during a conversation between managers and employees. Netflix believes that formal performance appraisals result in bureaucracy and rituals as they are driven by fear of coercion and litigation. Thus, the traditional performance appraisal system has a culture of Performance Improvement Plans (PIP’s) where managers recommend an employee for PIP with written objectives and deliverables for the duration of time. On contrary, Netflix believes in firing a low-performing employee by telling employee truth that “your skills no longer fit our role” instead of sending her on PIP with a severance package which will dramatically reduce the chances of a lawsuit. At Netflix, leaders are responsible for creating a company culture. The corporate culture of Netflix is similar to Google with the soft and open loft-style office where chefs cook food for the entire staff. The office of Netflix has created a fun atmosphere with a foosball table and pool tables.
Demirbag, Collings, Tatoglu, Mellahi, & Wood, (2014) states that strategic talent management has significant benefits for both individuals and companies as it quantifies the value of aligning business strategy with talent management to calculate the return on investment from aligning and integrating HR strategy. Demirbag et al., (2014) findings show that strategic talent management alignment of a single employee result in $27,044 more sales, $18,641 more in market value, and $3,814 more in profit. Furthermore, findings also suggest that it results in a 7.5% decrease in employee turnover. Huang, (2001) findings show that if a talent management strategy is aligned with the business strategy it enhances employees morale, increases productivity, enhance discretionary effort, enhance customer satisfaction, improve the process and machine efficiency, encourages innovation and creativity, and last but not least enhance the financial performance of companies. At Netflix, managers own the task of creating successful teams and only managers are accountable to leaders question whether what their team aims to achieve within 6 months or 1 Year. Managers are responsible to engage in conversation with their team members and find a perfect place where their skillset and expertise fits better. Management has no ideal compensation policy as managers are responsible to talk about compensation like adults. The case states an event of the author which narrates that during his tenure at Netflix, they did not pay a performance bonus as Netflix believes that it is useless when you have a high performing team and stars.
Netflix does not provide a salary base but instead practices equity-based compensation where employees are asked to give their number as valuable information. Instead of offering direct and indirect rewards, Netflix provides compensation which is a combination of salary and stock options as it measures the personal tolerance of risk amongst employees. Share options are offered every month at Netflix at a discounting price enabling Netflix employees to own the equity in the company. The stock option offered to Netflix employees significantly contributes towards employee retention while reducing voluntary turnover. In a nutshell, managers at Netflix are always been guided by the leader to create a team that accomplishes great where the manager serves as a coach or mentor.
Lewis & Heckman, (2006) divide the concept of talent management into three streams which include (a) human resource management, (b) projecting staffing needs and managing succession planning, and (c) management of talented people. The first stream emphasizes traditional HR practices of recruitment, selection, leadership development performance management, and training. The second stream of talent management comprises the planning of resources and their session planning to a higher position. The third stream of talent management comprises of management of talented people by differentiated high performances with poor performers and filling all the positions. Glaister, Karacay, Demirbag, & Tatoglu, (2017) states that there is a difference between human resource management and talent management as HRM emphasizes on every employee in the organization whereas talent management only emphasizes on an exclusive set of pools, position, people, and practices which hold highest strategic value for the firm. Talent management is a key transmission mechanism that only focuses on contextual value and the differential contributions of key organizational members. However, talent management cannot be achieved in solo mentality as it is the combination of HRM practices that interact with talent management practices to achieve organizational performance. The bundle of HRM comprises of kill enhancing (training), motivation enhancing (rewards) and opportunity‐enhancing practices (work design), recruitment and selection, and workforce planning.
The Korn Ferry Institute, (2013) states that the concept of strategic talent management can be divided into two elements which include (a) vertical alignment and (b) horizontal alignment. Vertical alignment refers to connecting business needs with an individual performance which can be achieved with human resource practices such as training and motivation to implement a particular strategy. The primitive goal of HR management is to foster such role behavior backed by business strategies which defined whether which role will play a pivot role for the firm to achieve competitive advantage. Horizontal alignment on the other hand refers to the notion by which human resource practices integrate with the human resource goal. HR practices act in bundles and must be optimized to have a significant effect on individual behaviors and practices. These HR practices must be optimized.
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Data to Backup the Topic:
This case study is based upon the personal observations and observations (with CEO of Netflix) of Patty McCord the founder of Patty McCord Consulting and former chief talent officer at Netflix; she has written the CEO’s unconventional HR practices. The study is based on the non-traditional shifts taken by the CEO of Netflix and also the innovation in the field of business, the entire study is based upon the examples quoted in the interview with the CEO of Netflix. Data is analyzed based on these examples and further investigated. The very first example is of the conversation took place shortly after the 09/11 incident that we had to downsize our company’s strength. The first conversation happened with an IPO “Laura” whose services were no longer required as business was shifting to the DVD’s and I openly told her that her services are no longer required and we are giving you a severance package, though she was sad to leave the company as she was our library in charge with the package we were giving to her was that much enough that she may choose her new path easily. The second conversation took place three months later than the first one and one of our managers who was leading the whole team and after the 9/11 he had to work for hours to manage the work and being the CEO I told him that don’t worry we are looking forward to making a team for you but his answer was quite astonishing to me as he said he is OK with this as he has to manage others work too, to correct their mistakes and he has understood that he was leading a herd, and now he has understood that he is capable of managing all the works alone instead of relying on the other team members.
Discussion & Analysis:
McCord, How Netflix Reinvented HR, (2014), has interviewed with the CEO of Netflix and dig out the reshaped policy of HR in terms of hiring an individual and basis of firing the individual of no further use. An interview with two former employees was cited as an example by the interviewee and he has mentioned the policy in these two interviews mainly that how after 9/11 the whole scenario has been changed and what are the viewpoints of the employees of the company. In further he has talked about a former colleague who was fired based on no relevance to the work and he describes that we have changed the shape of our firing policy of the employees as we give them a reasonable amount in the name of a severance package which was enough to keep her steady until she finds a new path for her. In the later years, we have decided to reshape the module of our company with the reason for implying an odd way in the hiring of the new employees; we decided to leave this to our talent managers. The first golden rule of our policy was to hire, reward, and accept only completely molded grownups in terms of creating an environment where anyone can say anything even to the bosses, it was to create an atmosphere where the barrier of communication can be removed within the office premises. Furthermore, we have brought a change in the traditional view of the expenditure that companies can allocate the resources but we deviated from the tradition and establish the viewpoint that company’s fund for themselves; in terms of traveling or eating lavishly so that we changed the perspective of consulting a travel agent and to pay him the sum we allowed the employees to book their tickets online to plan their trips.
There is another policy in different companies that they implement performance improvement plans for the employees with weaker capabilities are indulge in training programs and being trained for the improvement, but as a key challenge the CEO decided to deviate from the traditions and instead of working on the PIPs he just decided to remove the employee with the weaker capabilities with a reasonable severance package; he further quoted an example of a manager who came across to establish a PIP’s for one of the most credible employees so that her capabilities can be enhanced as per the shift of innovation but being the CEO I refused with the argument instead of organizing a PIP why don’t we just tell the person that as you are unable to adopt the innovation so we offer you a severance package in the name of her services and tell the truth so in this way, we can avoid lawsuits, as well as the employee, will establish her way to the new career. Telling the truth about the performance and laying off the hands from the low performer is better than to organize a PIP and to wait for the performance whose chances are relatively less to be successful.
Historically, the phrase talent management gained a reputation when McKinsey consultants coined the term “War for Talent”. Kamel & David, (2009) defines talent management as a “set of activities and process which requires systematic identification of key positions which contributes to organizational strategic advantage.” It includes the development of talented and high performing employees to fill the roles while ensuring that they are continually committed to the organization. Despite having a culture of HR excellence, the case narrates few bottlenecks faced by Netflix. Firstly, a culture of casualness affects the high performing ethos of leaders. The second issue faced by Netflix includes a lack of awareness of employees about how the business operates like most of its employees are tech-savvy and not financially savvy which hinders the capacity of a business to perform better. The third issue faced by start-ups like Netflix includes split personality issues. In a nutshell, the case concludes good talent managers think like business people and innovators instead of being an HR people who drive most of their effort on morale improvement initiatives. Netflix should focus on key areas of talent management which include (a) Talent Strategy and Planning, (b) Sourcing and Recruiting, (c) Performance management, (d) Learning and Development, (e) Succession Planning, (f) Leadership Development and (g) compensation. (Deshmukh, 2012).
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