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Publication Date: February 02, 2023
Industry: Media industry
Industry: Advertising industry
Industry: Media, entertainment, and professional sports
Source: McGraw-Hill Education
The case is set in 2023. The protagonists are Ted Sarandos and Greg Peters, co-CEOs of Netflix, a subscription streaming service and content production company. In Q4 2022, Netflix gained 7.7 million new subscribers (223 million worldwide) after losing 1.2 million in the year's first half. The scale of subscriber defection (in Q1 and Q2) across all geographic regions other than Asia concerned investors. By mid-2022, Netflix's share price plummeted by over 72%. The streaming company's market capitalization fell from $306 billion in November 2021 to a low of $74 billion, a loss of $232 billion. Dubbed the streaming wars, Netflix must contend with a host of competitors, some of them with deep pockets: Amazon Prime, Apple TV+, Disney+, HBO Max, Hulu, Paramount+, Peacock, and YouTube TV, among others.
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The Reinvention of HR: The Netflix Case
- Industry Leaders
- Market Insight
In the early days of Netflix, Reed Hastings , Co-Founder and CEO, asked Patty McCord (Chief Talent Officer) to write out the company’s core values, which led to – quoting Sheryl Sandburg, COO of Facebook – “one of the most important documents ever to come out of Silicon Valley”.
In this interview series, we will talk with Human Resources leaders about Netflix’s famous innovative HR practices.
Episode 3: A discussion with Klaus-Peter Bastgen – former CHRO of Ströer who recently joined Deutsche Giganetz GmbH as Senior. Vice President Human Resources – about some of Netflix´s best practices:
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Netflix prides themselves on hiring the best talent available in the market, offering top dollar payment.
Hire the best, absolutely. I have worked in many companies with different approaches on hiring and I can confirm attracting the best will save costs in the long term, aside from the obvious benefits of having a talented, high-performing workforce that will boost the performance of the firm.
Netflix has something called the “keeper test,” which is a measure for management to fire or retain staff. It’s very simple; a manager is supposed to ask: “If one of the members of the team was thinking of leaving for another firm, would I try hard to keep them from leaving?” If the answer is “no”, that team member is out.
I am definitely against this test. In my view, this creates a “fear culture” in the firm which might turn out to be counterproductive.
Netflix decided not to pay performance bonuses and put that money in their base salary to retain talent.
I really like that. I believe people perform best when they are engaged, motivated and feel fairly compensated. A donkey will not run faster if you put 3 carrots on the stick instead of one. Especially in a company where you have such high performing employees, you expect them to try their best without additional incentives. I do like company shares/stock options as part of the compensation package though.
What do you think about the unlimited vacation policy?
Dangerous. Unlimited vacation in a competitive environment like that will inevitably turn into employees taking less holiday than they would if there was an official, fixed policy. You risk employees potentially having burn-outs. Those high performing cultures and employees have to be taken care of to be able to keep this momentum in the long run. I have unfortunately been a witness of this in the past; it leads to exploitation while it needs to be long term farming. It must be ok in a company to take time off.
Rather than submit reports detailing money spent on mileage, meals, hotel rooms, and office supplies, employees are expected to spend money “acting in Netflix´s best interests”. What’s your take on this no limits travel and expense policy?
I think there needs to be a budget control. I am sure this might work for specific projects, however it is too risky to implement company-wide. I do not see this policy working out in many scenarios.
What is your take on Netflix’ approach on transparency and the “open the books” policy for the employees?
I like this a lot. Sharing financial and strategic information with everyone in the firm will contribute to creating an atmosphere of trust and engagement. Not only that, but it will also help the workforce to understand negative decisions such as budget cuts or lay-offs.
One of Netflix’ takes is to get rid of Performance Improvement Plans (PIPs). Take that money you were going to invest on the PIP and instead give it to the employee in the form of a generous severance package. What do you think about this approach?
I think this is not always the best way. Are you sure that employee which is having performance problems is a lost case? Will be less costly for the company to hire another one which might face similar or different challenges? This also contributes to the previously mentioned “Fear-culture” and thinking that you can get fired so easily. Often an underperforming employee is a manager´s fault for not having been able to develop them correctly.
If you enjoyed reading this interview, please also have a look into Episode 1 & Episode 2 .
- Reed Hastings & Erin Meyer – “No rules rules: Netflix and the culture of Reinvention” (2020)
- Patty McCord – “How Netflix reinvented HR” – Harvard Business Review, January 2014
- Harvard Business School →
- Faculty & Research →
- July 2020 (Revised November 2020)
- HBS Case Collection
Pricing at Netflix
- Format: Print
- | Language: English
- | Pages: 33
About The Author
Related Work
- Faculty Research
- Pricing at Netflix By: Elie Ofek, Marco Bertini, Oded Koenigsberg and Amy Klopfenstein
Microsoft: A Case Study in Strategy Transformation HBR On Strategy
- Entrepreneurship
In early 2015, Microsoft’s senior leaders were facing a set of difficult decisions. The firm had been struggling to innovate and grow as fast as its competitors. Now they were considering new opportunities that would yield higher growth but lower margins — like shifting away from perpetual licensing to focus on subscription sales. Harvard Business School professor Fritz Foley studied this period of transformative change at Microsoft for a business case study he wrote. In this episode, he shares how Microsoft’s leaders analyzed different options and worked to get both investors and employees on board with new ideas about growth. He also explains how the company’s risk-averse culture evolved in order to execute such a huge transformation. Key episode topics include: strategy, growth strategy, business models, corporate governance. HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week. · Listen to the original Cold Call episode: The Transformation of Microsoft (2018) · Find more episodes of Cold Call · Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org ]]>
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- Copyright 2023 Harvard Business School Publishing Corporation. All rights reserved.
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IMAGES
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The firm draws on five key tenets: Hire, reward, and tolerate only fully formed adults. Ask workers to rely on logic and common sense instead of formal policies, whether the issue is communication ...
There's no doubt that many leaders can see glimpses of the future of competition and innovation by looking at how the company does business. For one, Netflix has shown that big data is powerful ...
Netflix's strategy constitutes a new approach to growth that the author calls exponential globalization, and it's one that other companies can use too. Netflix's global growth is a big ...
The case is set in 2023. The protagonists are Ted Sarandos and Greg Peters, co-CEOs of Netflix, a subscription streaming service and content production company. In Q4 2022, Netflix gained 7.7 million new subscribers (223 million worldwide) after losing 1.2 million in the year's first half. The scale of subscriber defection (in Q1 and Q2) across all geographic regions other than Asia concerned ...
From its earliest days, Netflix leadership had fostered a workplace characterized by such values as excellence, maturity, transparency, accountability, candor, and autonomy. The Culture Deck, later dubbed the Culture Memo, documented how Netflix's culture had evolved and enabled the organization to repeatedly innovate, disrupt, and pivot.
Netflix Inc. (Netflix) had surpassed Blockbuster, the previous movie rental leader, before making the successful transition to digital delivery of video content. But despite Netflix's success, in 2017, numerous competitors, including both established, mainstream content producers and digital upstarts, were making it difficult for Netflix to recreate its earlier dominance. Critics pointed to ...
Abstract. In autumn 2011, Netflix was working to right the ship after publicly stumbling through a price hike and strategic shift and then retreat. The company was changing its business model to focus on streaming video service rather than the DVDs by mail that had brought the company success and praise. One important wrinkle in this business ...
Abstract. Reed Hastings founded Netflix with a vision to provide a home movie service that would do a better job satisfying customers than the traditional retail rental model. But as it encouraged challenges it underwent several major strategy shifts, ultimately developing a business model and an operational strategy that were highly disruptive ...
First, it didn't enter all markets at once. It started slowly, in countries that were similar to its U.S. home market. Using what it learned in these markets, it expanded to a few dozen countries by 2015, and then continued learning and growing from there. Second, it adapted to local cultures and preferences, using that knowledge to appeal to ...
The 'Netflix' case describes how Netflix created the business model of delivering DVDs using mail services. Essentially, Netflix exploited a whitespace that other players, such as Blockbuster, could not engage in primarily because they were constrained by their own business models. The case allows the instructor to develop the details of the ...
The protagonists are Ted Sarandos and Greg Peters, co-CEOs of Netflix, a subscription streaming service and content production company. In Q4 2022, Netflix gained 7.7 million new subscribers (223 million worldwide) after losing 1.2 million in the year's first half. The scale of subscriber defection (in Q1 and Q2) across all geographic regions ...
A case study on how the streaming giant rewrote the rules of human resource management. Background: Netflix, the global streaming powerhouse, has emerged as a notable disruptor.
Netflix's Bold Disruptive Innovation. by. Adam Richardson. September 20, 2011. Every now and then, the business world presents us with a lab experiment that we can observe in realtime. Netflix ...
Case Study How Netflix Reinvented HR By Patty McCord [Cued From Harvard Business Review, January-February 2014 Issue] Sheryl Sandberg has called it one of the most important documents ever to come out of Silicon Valley. It's been viewed more than 5 million times on the web. But when Reed Hastings and I (along with some
Originally published in: "Harvard Business Review", 2014 Length: 8 pages Topics: ... When Netflix executives wrote a PowerPoint deck about the organization's talent management strategies, the document went viral - it's been viewed more than 5 million times on the web. ... The Case Centre is a not-for-profit company limited by guarantee ...
Reinventing HR: The Netflix Case. HR. Industry Leaders. Market Insight. December 25, 2020. In the early days of Netflix, Reed Hastings, Co-Founder and CEO, asked Patty McCord (Chief Talent Officer) to write out the company's core values, which led to - quoting Sheryl Sandburg, COO of Facebook - "one of the most important documents ever ...
The Reinvention of HR: The Netflix Case. HR. Industry Leaders. Market Insight. January 25, 2021. In the early days of Netflix, Reed Hastings, Co-Founder and CEO, asked Patty McCord (Chief Talent Officer) to write out the company's core values, which led to - quoting Sheryl Sandburg, COO of Facebook - "one of the most important documents ...
In spite of the heightened competition in the streaming industry, some analysts and customer willingness-to-pay surveys suggested that Netflix had the opportunity to implement another rate hike in the near future. By May 2020, Netflix must decide whether to increase prices again, or whether it should consider a different pricing model altogether.
The 'Netflix' case describes how Netflix created the business model of delivering DVDs using mail services. Essentially, Netflix exploited a whitespace that other players, such as Blockbuster, could not engage in primarily because they were constrained by their own business models. The case allows the instructor to develop the details of the capabilities that have allowed Netflix to deliver ...
Save. Summary. Netflix's model has been undeniably successful to date. However, fighting the blockbuster content-acquisition and creation battle is becoming ever more expensive, and it involves ...
The bundle does that for them—very profitably. This is shaping up to be a breakout year for Netflix. On January 22, the former DVD-rental company became the seventh member of Motion Picture ...
HBR On Strategy curates the best case studies and conversations with the world's top business and management experts, to help you unlock new ways of doing business. New episodes every week. · Listen to the original Cold Call episode: The Transformation of Microsoft (2018) · Find more episodes of Cold Call
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