Sunday, 30 November 2014

Netflix changing HR not just TV

Netflix (NFLX) has changed the way we watch TV. Their on demand TV internet service makes much more sense than traditional TV viewing. Its no surprise that they are also innovating in their own company changing the Human Resources (HR) relationship. Unlike other companies NFLX does not have a fixed amount of vacation days, if you do the work you can holiday as much as you would like. NFLX is bringing both HR and TV to the modern age.

Creative versus industrial firms
A little while ago NFLX released a slideshow talking about their values and culture, largely as a recruiting tool for the company. Its what the founder Reed Hastings wishes he knew when he started his company. It has become NFLX's constitution. You can find the full 124 page presentation at slideshare currently at 9.8 million views. Its a memo for today's businesses as the majority of human resource processes are based around managing industrial firms but not creative firms. A manufacturing company is all about efficiency and not making errors. While in a creative world small errors are okay if you are able innovate quickly and get to the desired result. In a creative firm one really great employee could be worth ten average employees so you can afford to pay up.

As they say below NFLX is run like a team not a family. But unlike a team there are no fixed positions. The numbers of superstars needed is not limited. Great people create growth which attracts more talent which lets them accomplish even more.

Source: Netflix Culture: Freedom & Responsibility

Rewarding performance not effort
At NFLX great work is rewarded even if it required minimal effort. The focus is on output not effort. This focus on performance trickles down to holidays. NFLX does not track hours worked per day so they also do not track vacation time. If you get your work done you can vacation as much as you want though if you want 30 days off in a row you need to get a sign off from HR.

Source: Netflix Culture: Freedom & Responsibility

Flexibility more important than efficiency
NFLX believes that most companies curtail freedom and become bureaucratic as they grow. Processes get introduced as companies become bigger and more complex. It is a preferred outcome to undisciplined and chaotic growth. As companies grow they tend to dilute the talent pool as the bureaucracy drives high performing employees out. The growing size means the focus becomes on being more efficient but at the cost of being less flexible. NFLX's solution is to keep the bar high by growing the amount of high performance employees faster than business complexity. This means attracting great people and giving them the freedom to make a big impact. It also means concentrating the business on a few big products versus small ones so complexity does not increase too fast.

How to get the best team?
By awarding top of the market compensation and giving them freedom to make decisions. NFLX believes that hiring and working with the best is a better perk than free lunches.

Source: Netflix Culture: Freedom & Responsibility

When paying staff NFLX management use the keeper test. They consistently look to pay the amount it would take to keep you if you were leaving. Staff can choose how much of their compensation they receive in shares or cash. No matter how well NFLX is doing they will pay top market prices for the best staff. Just like a sports team NFLX pays their top prices whether they are winning or losing. Unlike Goldmans or other high performance firms NFLX avoids top or bottom rankings. They don't want employees to compete with each other they want all their employees to be in the top 10% relative to their global peers. No annual reviews just regular talk about your performance.

They actually encourage their staff to take a recruiters call, ask them how much and send this number back to HR. Where can I apply!


Disclosure: Decisive does not have a position in Netflix (NFLX) stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.