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Key Innovative Leadership Lessons from Netflix: Analytical Essay
When you think of global content-production, media services, online streaming of movies, and DVD-rental services in one train of thought, one name sure does come to mind-NETFLIX. Forever immortalized as the one company that ran Blockbuster out of business, Netflix has not only carved a niche for itself in the OTT Media space but they have made a clear statement to the world- we have come to stay. This journey did not start in a day and there have been days of little beginnings for this global brand.
On 2nd August, 1997, when Reed Hastings and Marc Randolph started Netflix in Scotts Valley, California, they probably had not envisioned that they would create a company that would cause a global disruption. The company started out with DVD sales by mail, but a year later on the 14th of April 1998, Netflix changed it course and set out for a path it would tread for the next 9 years- DVD rentals. With only 30 employees and 925 titles, Netflix adopted the pay-per-rent model closely following after its rival, Blockbuster.
Netflix started expanding internationally in 2010, starting off in Canada. Netflix is now a globally known brand in 190 countries. China, Syria, North Korea, and Crimea remain the only uncharted waters for Netflix dues to due to local restrictions and US sanctions respectively. Ranking 4th in a list of the 50 most successful digital media companies in the USA, Netflix has indeed set the pace, while giving its competition such a Youtube, Hulu and Amazon a run for their money. With current revenue of 15.8 billion dollars, Netflix is currently the world’s 7th largest internet company by revenue closely following China-based companies Tencent and Alibaba. Netflix recently declared in April 2019 that it has about 148 million paid subscriptions worldwide, including 60 million in the United States, and over 154 million subscriptions.
Over 2 decades of massive growth, disruptive innovation and international expansion has placed Netflix at the forefront of the content-producing industry. One of the key ingredients that has been attributed to the Netflix’s success has been their fresh, exciting and customer-centric programming, With an astonishing 126 new series and films produced in 2016, Netflix’s structure and strategy for exclusively acquiring and creating content gives them the opportunity to produce this much content. Netflix’s first original series was ‘House of Cards,’ which premiered Feb. 1, 2013. was the first series ever to release all of its episodes all at once, and it was the first streaming series to be nominated for an Emmy Award. Not long after, it was followed later in that year by the even more successful ‘Orange Is The New Black.’
On January 22, 2018, the company crossed $100 billion in market capitalization, becoming the largest digital media and entertainment company in the world, bigger than every traditional media company except for AT&T, Comcast and Disney. It became the 59th largest publicly traded company in the US S&P 500 Index. Netflix achieved this great feat but not without a substantial amount of competition- Amazon, Hulu and Youtube being the fiercest of them. Netflix still stands out with competitive advantage in its large customer base, global presence, original content, differentiated and superior customer experience, intuitive user interface and consistently growing financial performance.
A big propelling force to the success of this global brand has been its BOLD style of leadership and the unique organisational culture that is encouraged by the leaders of Netflix. There are a couple of lessons to pick up from the global change maker and disruptor, Netflix. Bold leaders are comfortable with thinking big, setting extremely high goals, or tackling a large project. They are not afraid to pick a fight with a powerful competitor. Typically they seek to move at a faster pace than others and are willing to take personal responsibility for an unpopular decision.
Let’s take a look at the BOLD innovative lessons to learn from Netflix’s leadership
B – be brave
Bold leaders are usually pioneers; they are usually the first at doing something or doing what others are doing but in a different way. They are known for tasking risk and venturing into terrains where others have been too sceptic to tread. They are global disruptors and model creators. They are known for creating a whole new industry of their own, setting the pace for others to follow. Bold leaders are courageous and are always willing to go with their gut feeling irrespective of what the crowd is saying. They have an unconventional way of thinking and are not afraid to invest in an unproven idea.
This was the story for Netflix, starting out as the first DVD-rental company in the world. As technology and video services evolved, through the early 2000s Netflix recognized an opportunity to tap into an undiscovered market. By 2007, Netflix doubled as a DVD rental and video streaming service. When it comes to comes to streaming videos, Netflix clearly outdoes its competitors. However Netflix did not launch streaming service until 2007 and instead operated in direct competition with Blockbuster rental services. Netflix’s initial business model challenged brick-and-mortar Blockbuster by offering online movie rentals for a low monthly subscription.
Netflix capitalized on the success of the DVD and its rapid expansion into United States homes, integrating the potential of the Internet and e-commerce to provide services and catalogues that bricks-and-mortar retailers could not compete with. Netflix also operates an online affiliate program which has helped to build online sales for DVD rentals as well. The company offers unlimited vacation time for salaried workers and allows employees to take any amount of their pay checks in stock options. Netflix introduced the monthly subscription concept in September 1999 and then dropped the single-rental model in early 2000. Since that time, the company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per-title rental fees.
In creating an unusual or uncommon concept or as in this case an industry that has not existed prior to its time, not everyone can bring out organisation out of the expected chaos. This is one thing that bold leadership of Netflix has been able to achieve.
O – Organized Chaos
When you are dealing with innovation, you will often charter into unknown territories and leaders will need to be comfortable with that. Organisations with a focus on short-term benefits often find it difficult to effect any disruptive change. When dealing with innovation, you have to be prepared for the long haul. This involves not only personal mental but only preparing your team for what lies ahead. When leading an innovation, it is only advisable to expect the unexpected because there is no one who has gone ahead in your field of interest to model after. There would be a lot of uncertainty and nothing is etched in stone. You also must be willing to sacrifice short term benefits on the altar of long term success.
Running an organization in ‘Business as Usual’ mode is like running a 5K as you can predict with good certainty when you will reach and race itself will be in-line with your expectation. However, leading innovation means you will have to own massive change which will be like running 150 mile ultra marathon – there will be lot of uncertainty, things will not go as planned, and above all it will test your grit.
With a fast growth rate curve that continues to surprise Wall Street analysts, Netflix chooses to invest in “rapid recovery” rather than on preventive measures and risk management. Rather than trying to predict every possible outcome of every decision ahead of time, they recognize problems when they occur and fix them quickly. In Reed Hastings words, Netflix is a creative-inventive market, not a safety-critical market like medicine or nuclear power. You may have heard preventing error is cheaper than fixing it — Yes; in manufacturing or medicine…but not so in creative environments.”
This process in itself has not been without criticisms. Netflix has been openly criticized from many quarters for its bold move, of splitting off its DVD-by-mail business from its streaming business. The DVD business will now go by the name Qwikster, and the streaming business will stay under the Netflix brand. Surely, this move has upset some of Netflix’s customers but it’s the long-term decision that the leadership of Netflix is willing to make.
L- Leading Innovation:
If you are willing to play it safe, then its a piece of cake. There is nothing unpredictable about the whole show. Hardly would anything catch you by surprise. The words- Bold leaders and innovation are like two inseparable twins but you must understand that leading innovation not only means that you will means doing the unconventional, but it also means accepting the fact that some projects will fail. You will hits some roadblocks and encounter challenges you have no relevant skills to solve. In situations like this, you have to be vocal and communicate when in doubt. Be willing to collaborate with those who have these skills. Bold leaders are willing to go all their way to not only recruit the very best on their team, but also kept them on the team whilst training them to be relevant for changing times.
In 2009, Netflix CEO Reed Hastings published a 124-page slide deck which the COO of Facebook, Sheryl Sandberg referred to as the most important document to ever come out of Silicon Valley. This document outlines how he hires, fires and rewards Netflix’s employees. The hub of the Netflix culture is summed up in 2 words- Freedom and Responsibility. Netflix operates on the principle of giving each employee of the company to make their own wise decisions based on critical judgment on behalf of the organization. build a sense of responsibility in people and empower them to do things. In order to create a sense of ownership, Hastings says, sharing information across the ranks is essential. Having led previous companies immersed with procedures and bureaucratic bottlenecks, Hastings created a dummy-proof system where every employee was allowed to think for themselves. When he co-founded Netflix with Marc Randolph, they envisioned an organization that would run on the theme- “ with no process but no chaos”.
Right from 2015 through to 2018, Netflix had approximately 7100 full-time employees, of which 6900 of them were employed in the company’s streaming segment. So far, their experiment in radical openness seems to be working. In a study conducted by Blind, a platform that conducts anonymous polls about employee experience in 2017, Netflix topped the ranking for employee satisfaction and employee pay.
One of the top core values at Netflix is independent decision-making by employees. The ideas of freedom and responsibility course through its oft-quoted Culture Deck: “We believe that people thrive on being trusted, on freedom, and on being able to make a difference…We are dedicated to constantly increasing employee freedom to fight the python of process.” This translates to an open leave policy, no set rules on expense accounts or travel, and no spending ceilings on contract signings. Good judgment, not administration, is the operating principle. The Netflix culture has always been a subject of discussion amidst business leader as to its unconventional and radical methods but effectiveness.
The letter is D – Double – down:
Asides from being brave and dauntless, maximizing organized chaos and leading innovations, This is another area of leadership where Netflix stands out unequivocally. It is not just enough be on top, you have to stay on top- this is usually the challenging part. You have to be willing to stay ahead in the game. This basically refers to making major decisions that bring about astronomical returns in the long run. Here, we are considering exponential growth and not just linear returns. It involves removing limitations and every box that impede opportunities for mega returns. Developing specialized small teams, changing incentive structure to account for short term failure and providing autonomy with right resources to your team can help drive these kinds of projects.
Netflix has evolved over the years and has adapted to the changing customer taste. Now, customers can access Netflix video streaming services through products and gadgets that support the Netflix app from major game consoles to internet-enabled TV’s, mobile devices and so on.
Failure to adapt to the evolving landscape of digital technology and underestimating a potential competition was the undoing of the brick-and-mortar company, Blockbuster. It lost its position as an industry leader and ran out of business because it chose to ignore Netflix. On the other hand. Netflix maintains its industry supremacy and continued growth by its ability to adapt to the changing environment of both the video streaming and the cable industries. With every category of competitors that entered the video streaming space, Netflix introduced innovation and differentiated its service from the rest. One of such differentiation has been by offering access to original Netflix programs. In a bid to give everyone access to their Netflix, in April 2015, Netflix added an audio description and screen reader support to help the blind and the visually impaired.
Netflix has produced several award-winning series, including ‘Stranger Things, “House of Cards” and “Ozark” which are all still part of Netflix’s efforts to differentiate and innovate from traditional video streaming. On December 12, 2013, the Netflix earned six Golden Globe Award nominations, including four for House of Cards. On July 10, 2014, Netflix received 31 Emmy nominations. Netflix got the largest share of 2016 Emmy award nominations among its competitors, with 16 major nominations. However, streaming shows only got 24 nominations out of a total of 139, falling significantly behind cable.
Netflix has no doubt changed the way and manner in which
The rise of Netflix has affected the way that audiences watch televised content. Netflix’s CPO Neil Hunt points out that the Internet allows users the freedom to watch shows at their own pace, so an episode does not need cliff hangers to tease the audience to keep tuning in week after week because they can just continue into the next episode.[364] Netflix has allowed content creators to deviate from traditional formats that force 30 minute or 60 minute time slots once a week, which it claims gives them an advantage over networks. Their model provides a platform which allows varying run times per episode based on a storyline, eliminates the need for a week to week recap, and does not have a fixed notion of what constitutes a ‘season’. This flexibility also allows Netflix to nurture a show until it finds its audience, unlike traditional networks which will quickly cancel a show if it is unable to maintain steady ratings.[365
Netflix has strayed from the traditional necessary production of a pilot episode in order to establish the characters and create arbitrary cliff hangers to prove to the network that the concept of the show will be successful. Kevin Spacey spoke at the Edinburgh International Television Festival about how the new Netflix model was effective for the production of House of Cards: ‘Netflix was the only company that said, ‘We believe in you. We’ve run our data, and it tells us our audience would watch this series.” Traditional networks are unwilling to risk millions of dollars on shows without first seeing a pilot, but Spacey points out that 113 pilots were made in 2012; 35 of them were chosen to go to air, 13 were renewed, and most are gone now. The total cost of this is somewhere between $300 million and $400 million, which makes Netflix’s deal for House of Cards extremely cost effective, according to Spacey. Netflix’s subscription fee also eliminates the need for commercials, so they do not need to appease advertisers to fund their original content, a model similar to pay television services such as HBO and Showtime.
The Netflix model has also affected viewers’ expectations. According to a 2013 Nielsen survey, more than 60-percent of Americans said that they binge-watch shows, and nearly 8 out of 10 Americans have used technology to watch their favourite shows on their own schedule. Netflix has continued to release its original content by making the whole season available at once, acknowledging changing viewer habits. This allows audiences to watch episodes at a time of their choosing rather than having to watch just one episode a week at a specific scheduled time; this effectively gives its subscribers freedom and control over when to watch the next episode at their own pace.
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