Strategic HR and CEO at Netflix

Abstract

When the CEO of Netflix, Reed Hastings created the company in 1995, he a vision of more than just revolutionizing the way we watch entertainment. He also had a vision of running a company with a culture that exemplified freedom and responsibility. Netflix took the necessary time to restructure their Human Resources Management from a tradition approach to a strategic approach. Hastings and other leaders began to realize that treating their employees like adults by allowing them to act on good-will instead of formal rules and policies would have a greater effect on organizational success by creating happier employees. In this analysis, we see how strategic HRM shapes the culture at Netflix, enhanced employee engagement and produces exemplary results. We also analyze Corning’s 4 stages of Human Capital Planning, why it is necessary and how it aligns HR and business strategy.

Strategic HR at Netflix

In today’s day and age, we are seeing a change in society that is forcing Human Resources departments around the globe to re-strategize in order to recruit and retain employees. The traditional approach to HR is slowly becoming a thing of the past as many companies put an emphasis on strategic HR. There are a few differences in the two styles, for example, the traditional approach calls for HR personnel to act as transactional change followers and respondents, while strategic HR suggests they act as transformational change leaders and initiators. Another example is the job design. Traditional HR enforces tight division of labor, independence and specialization. Strategic HR on the other hand enforces flexibility, cross-training, and teams (Mello, 2014). The world-renowned Netflix demonstrates strategic HR in different ways. One way they do this is by not providing formal training for employees and encouraging employees to manage their own career development. That is unheard of at a company that practices traditional HR; where staff in the HR department are responsible for employee education and trainings.

Reed Hastings, who is the CEO of Netflix, along with HR leaders came to the conclusion that it just is not necessary to do such a thing. Reed states, “I used to worry that we didn’t do training and developing, but then we previewed some training videos and supporting materials, it was awful” and describes it as “nauseating and a waste of time” (Grossman, 2010). Hastings does not provide professional development opportunities for his employees as he does not believe employees should rely on their company to blueprint their careers. On the other hand, traditional HR makes it their duty to provide trainings and see it as their responsibility to professionally develop their employees for the betterment of the organization. Another practice at Netflix that demonstrates a difference between traditional and strategic HR is their pay policy. Netflix does not give incentives or bonuses, but this is made up for by their top of the market salaries. In traditional settings, performance-based raises are given, or an annual base amount is added to your salary.

At Netflix annual salary increases are given based on three questions:

1. What could this person get elsewhere?

2. What would we pay for a replacement?

And

3. What would we pay to keep this person if he or she had a more lucrative offer elsewhere? (Grossman, 2010).

Additionally, employees have the option of accepting their pay in cash or a combination of cash and company stock.

Employee Engagement and Commitment

According to Institute for Employment Studies “Engagement: A positive attitude held by the employee toward the organization and its values” (Mellow, 2014). We see this demonstrated at Netflix based on their stats showing that over 90% of employees believe they are compensated fairly and around 75% of employees did not want to change their jobs (Bort, 2017). A big contributor to the enhanced employee engagement at Netflix is their attendance policy, or lack thereof. Not only does the company encourage their employees to come and go to work as they please, but they also don’t grant PTO or an allotted vacation time. Instead, employees can take vacation or any other necessary leave whenever they choose. This practice puts an emphasis on productivity outcomes as opposed to productivity hours. One reason for this is because leaders at Netflix realized that creativity can be stimulated outside of work in a way that it cannot while on the clock. Micromanaging and hounding employees about their day to day activities and process can have the complete opposite effect on employees, but Netflix has found the balance between freedom and responsibility. A company culture that aligns with employees’ values usually results in employee satisfaction; the more satisfied an employee the more engaged he/she will be. Netflix has mastered this. The company fosters an environment that attracts individuals who understood and identified with the business and sought a flexible working environment. Overall, they have created a culture that invites trust, creativity, freedom and autonomy; resulting in enhanced employee engagement.

Benefits of Enhanced Employee Engagement

Employee engagement should focus on the well-being of employees in addition to organizational effectiveness, which is the challenge a lot of companies can’t balance. Many studies have found a positive relationship between employee engagement and organizational performance outcomes, employee retention, productivity, profitability and even customer loyalty. Studies have also shown that the more engaged employees are, the more likely a company is to exceed the industry average in its revenue growth (Markos & Sridevi, 2010). Netflix can attest to the fact that employee engagement creates accountability and responsibility; since they have restructured their organization in a way that enhanced their employee engagement their market capital has grown to over $100 billion, and this number is expected to continually rise. Additionally, in 2018, Netflix added 7.41 million new subscribers which has drastically increased streaming revenues to around $3.6 billion. An interesting perspective from Reed Hastings shows exactly how his employees’ enhanced engagement contributes to the company’s success. He encourages employees to not see their colleagues as family, the way that a lot of work environments tend to do; instead, look at it as a sports team. New hires are onboarded with a mindset to compete and use their talents to help the team “win” by contributing to the its success. The unique culture at Netflix that promotes high performance is claimed to be the reason for the companies growing success. The chart below shows the correlation between employee practices and business results (Vance, n.d.)

The Annual Strategic Planning Process

Corning’s four stages of human capital planning is a tool that gives business unit generalists shared tools and language for deconstructing client business strategy into applicable steps for talent development and allows HR functions to identify and prioritize needs business-wide (Mellow, 2014). When Corning’s company began to expand, HR leaders came up with four transformational goals that include strong business linkage, global HR processes, scalable solutions and continuous cost improvement. They needed to do this in order to better link HR function strategy with business strategy for ultimate success. There are four steps in Corning’s process. The first step is to determine the type of talent required to execute the critical business initiative.

During this step, HR should answer three questions:

1. What are the key business challenges?

2. What are the critical business initiatives?

3. What capabilities and types of talent are most/least critical? (Babcock, 2008).

This is when leaders should find vital business initiatives that will be the focal point for the next couple of year. Additionally, they will need to decide what roles will be of most significance to the initiative as well as which roles will be most affected. The second step is to determine the number of people required over the time of the critical business initiatives. Leaders should do a strategic analysis to make an accurate estimate by considering things like retirement, turnover, etc. Modeling and forecasting can give leadership vital information about the implications of different human resource strategies that can be used to support the goals of the organization.; modeling techniques can range from the simple to complex (Ulferts, Peterson et al., 2009). Step three is to identify and prioritize talent gaps and determine best approaches for closing the gaps. This is where Corning would scrutinize every gap to understand shortages and how to close gaps by using a “build vs. buy” strategy.

It builds when the timing of the talent needs is at a place where it can reconstruct existing talent, or when the specific skills it needs can’t be found in the external labor market. It “buys” when the talent need is crucial and can get external talent way quicker than reconstructing existing talent (Babcock, 2018). This essentially helped Corning identify pros and cons of hiring versus developing talent. The fourth and last step is to identify actions necessary to align the talent with business. This is where HR strategy is aligned with business strategy. Human capital planning needs are assessed by HR to determine what priorities are and what actions need to be taken and then develop goals and objectives. At this point, HR changes its process to align with the needs, budget requirements and staffing obligations. Three major components are looked at: 1) corporate strategy and the implications of that strategy, 2) HR function strategy and 3) the outputs of the human capital planning process, or the HR implications of each business strategy (Mellow, 2014). Corning’s offsite HR Annual Operating Plan (AOP) is where these components are analyzed. The result is an AOP summary that allows HR to align the service delivery with the company’s needs.

Conclusion

When Netflix had to lay off a significant number of employees and became more successful after the fact, they took a risk in restructuring their human resources management from traditional to strategic. Examples of this approach include Netflix’s flexible pay policy, vacation policy and honor system that they trust their employees with. Since doing so, Netflix has experienced an increase in enhanced employee engagement which as a result, has helped Netflix to exceed organizational goals whether qualitative or quantitative. This company demonstrates the positive outcomes that strategic HR can have on a company when utilized properly.

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