Integrative Running Case Study: Netflix
Mount Vernon Nazarene University

MAN3083 Organizational Behavior
BBAM03ON
September 15, 2012

Abstract
Within this case study, people will learn about the innovative start up of Netflix, and how the company changed the landscape of renting DVD’s. People will see how Netflix CEO Reed Hastings came up with the idea of ordering first run movies by internet and having them delivered right to people’s front door. Many changes to the business structure had to be made to fight off competitors and even joining forces with another. Because of its innovation to new ideas, and looking into the future, Netflix continues to be the leader in how people view their movies at home.

Integrative Running Case Study: Netflix
Part I In April of 1998, Netflix set out to do what no other DVD rental retailer has ever done; rent first run movies over the internet, receive them by mail, and then return them by mail (Griffin & Moorehead, 2012, p. 59). This all came about when Reed Hastings returned a late DVD to Blockbuster and paid a hefty penalty in the process (Griffin & Moorehead, 2012, p. 59). This set off a whole use of concepts, looking into the future, and making the necessary changes that set Netflix apart from its competitors. The one thing that Reed Hastings was able to do as CEO at Netflix, was look into the future and see that the straining economic conditions required a change in how the company reprimanded its customers for late fees and charged them for subscribing. Additionally, Netflix seemed to use the most inexpensive way to get the company’s vision to its consumers; by word of mouth, as satisfied customers had no problem spreading the word about the direction the company was heading (Griffin & Moorehead, 2012 p. 59). All of the past innovative ideas paid off as Netflix ended 2009 with a whopping 12.3 members which was up 31 percent from 2008 (Netflix Company Website, 2012). Probably the most significant customer strategy presently is the low monthly price that Netflix members can pay to instantly watch movies and TV programs streamed over the internet to PCs, Macs and TVs (Netflix Company Website, 2012). The desired outcome by both Netflix and Blockbuster was to become the number one provider of movies to watch at home. Blockbuster became the leader in renting movies from their numerous stores around the country, and Netflix became the leader in providing movies to consumers through mail and delivered straight to their homes (Griffin & Moorehead, 2012, p. 57). Looking at the growth and competitive strategies of both Netflix and Blockbuster from a Situational Perspective as described in Griffin and Moorehead (2012, p. 18) it shows that there were variables that were considered in the decisions both companies made. Wal-Mart was offering movies for sale at a low price and Amazon was looking to get into the mix as well (Griffin & Moorehead, 2012, p. 58). With these variables looming over the horizon, Netflix lowered its rental rates leaving Blockbuster hanging by itself with the higher rates, and once Blockbuster realized that a change was needed, it was too late (Griffin & Moorehead, 2012, p. 59). With looking ahead and changing the direction of the company, Netflix continued to show gains in both subscriptions and profits while Blockbuster continued its downward spiral coming close to bankruptcy in March of 2010 (Griffin & Moorehead, 2012, P. 59). Netflix competes in a market that is always under a relentless attack by its competitors. In Griffin and Moorehead (2012, p. 58) it mentions that both Wal-Mart and Amazon came up with their own versions of getting movies to their customers. The one thing that is working against Netflix is the fact that these two entities have very deep pockets to launch such an assault, and can wait the required amount of time to see if the effort was a success. Netflix has to consistently change with the environment and the economic conditions. This writer knows from a personal perspective that speed and convenience is the only way to watch a movie, and having such a hectic schedule means that leaning towards movies on demand is the way to go. This writer’s family usually uses Netflix for movies on demand, but Amazon is giving it a run for its money. When looking at the offers of movies for a monthly charge from Netflix and Blockbuster, Blockbuster offers the best deal compared to Netflix. Even though one is getting 17 movies for a
$1.17 compared to $1.41for 12 movies; the question remains whether or not consumers actually get 17 movies a month. This writer would choose convenience and a user friendly process rather than the amount that could be rented.
Part II Netflix currently enjoys brand recognition and brand loyalty. So it is safe to say that if someone joins Netflix, there is a good chance they will stay with the company (Griffin & Moorehead, 2012, p. 230). Being first in the industry to offer this concept certainly has its advantages, and Netflix was able to capture the interest of people which caused its popularity to quickly spread (Griffin & Moorehead, 2012, p. 232). What is not seen or known by most that use Netflix is the behind the scenes employees that quality control all DVD’s and help make for a positive movie experience by customers (Griffin & Moorehead, 2012, p. 232). The person in this job position must be disciplined, patient, and efficient, as being timed to do your work cannot be an easy task (Griffin & Moorehead, 2012, p. 232). It is clear in Griffin and Moorehead (2012, p. 232) that the vast majority of these DVD inspectors start out as temps from employment agencies, but are able to collect a few benefits to make taking the job worthwhile. It is almost a Learning Based Perspective the employees have when working under these conditions as a permanent change of behavior is certainly needed (Griffin & Moorehead, 2012, p.107). This writer believes that flexible work arrangements would help offset some of these working conditions since DVD inspections can be done during any part of the day. Also some special daytime lighting might help as the first shift starts at 3 A.M., and much of their shift is during nighttime hours (Griffin & Moorehead, 2012, p. 232). If Netflix concentrated on the Need Based Perspective, improvements like the ones mentioned would fill some of the needs of the employees as working conditions are improved (Griffin & Moorehead, 2012, p. 93). As mentioned earlier, Brand loyalty is what keeps customers with Netflix, it is a team effort as hourly employees and managers strive for perfection right down to having the right movie in the right jacket to improve on a 99.5% accuracy rate (Griffin & Moorehead, 2012, p. 232). A positive churn rate is very important to a company as it tracks how many subscribers are lost in a year. Salaried employees like a senior software engineer are up to the challenge of working on complex problems, and breaking them down into manageable solutions (Netflix Company Website, 2012). As Netflix grows, more and more employees are continually added that may force the company to rethink its incentive plan. Eventually, this could be a problem as perks like endless vacation time could take its toll on the company. Again, perks like flexible work schedules could be an alternative to a financial commitment for so many employees. Also, this writer knows that reorganization can be an unwelcome change for a company like Netflix. Personally going through reorganization for growth was a difficult task that was a challenge for everyone in this writer’s organization. It took a total buy in to the idea and it also involved ridding the company of negative leaders that did not share in the enthusiasm it took to get the job done.
Part III Within this case study, one can see that customer satisfaction and retention is the driving force behind Netflix’s success. Providing customers with first run movies is very important, however, matching the customer with “backlist” movies which consist of older, independent movies accounts for the majority of the company’s rentals (Griffin & Moorehead, 2012, p. 427). Advancement in technology is vital to getting the right movies to the right customers, and Netflix went as far as monetarily rewarding anyone that could improve on this process (Griffin & Moorehead, 2012, p. 426). A mentioned in part two of this case study, Many of Netflix’s hourly employees like DVD inspectors are hired through temp agencies (Griffin & Moorehead, 2012, p. 232). This could be one of the reasons that there is not more emphasis on teamwork as it must be a high turnover rate position. Even though there is some compensation as far as medical benefits, something can be said for the lack of unity amongst employees that a temporary position seems to create. To have a team oriented approach to employees doing their job, it is very important that they know the effort they are putting forth will eventually have a reward. This writer can speak from experience that temporary employees do not have the drive, or even willing to work with other team members to get the job done. There is almost a sense of feeling taken advantage of when going to work. If Netflix could somehow eliminate the day to day grind as a temporary employee, teamwork and unity would improve if the uses of temporary agencies are eliminated. Managing up productive employees in front of the others can play a big part in the morale of the Netflix’s hourly employees. Also, have a reward system that each temporary employee can work for and apply towards a permanent position. Cinematch is a big part of Netflix’s success as this special software accounts for sixty percent of all of the company’s rentals (Griffin & Moorehead, 2012, p. 426). It automatically detects the type of movies one is interested in and matches with others that could be rented. This recommender system has always been in place but was improved upon when Hastings gave a reward for improving on its accuracy (Griffin & Moorehead, 2012, p. 426). This whole idea of improving the accuracy with a reward not only came from the CEO Reed Hastings, but from the support of the whole upper management staff as well. Kelly Bennett who is the Chief Marketing Officer and Jonathan Friedland Chief Communications Officer has the task of getting the idea of a reward system information out to the public. Neil Hunt, Chief Product officer controls the movies and what is presented to consumers, Patty McCord who is the Chief Talent Officer keeps her reigns on the human recourses part of bringing movies to consumers, and David Wells who is the Chief Financial Officer has to control the money for both running the company and offering rewards for its improvement (Netflix Company Website, 2012). Most importantly, as in any business, communicating the ideals of a company is very important. Reed Hastings has done a great job in communicating with consumers, as Netflix continues to enjoy operating at the top (Griffin & Moorehead, 2012, 427). This writer does believe that expanding into social networking such as Facebook will reach the new generation of consumers. Griffin and Moorehead (2012, p. 354) describes this as Transformational Leadership as the owner needs to recognize whether a change is needed. Change in age of customers, demographics, and economic conditions are all part of what Mr. Hastings has to decipher as he runs Netflix and attempts to keep them on top.
Part IV In any successful business, it is important to fend off any competitors challenge and make it a positive experience for both sides. In this case study, it is known that the relentless advancement of both Amazon and Wal-Mart in the movie rental business was a challenge for Netflix, but in the end, Netflix did what it had to do to stay on top of the movie rental world (Griffin & Moorehead, 2012, p. 558). Netflix has always looked ahead as far as innovation, from coming up with new products, to working out deals with its competitors, namely Wal-Mart (Griffin and Moorehead, 2012, pp. 557-558). Netflix has enjoyed the benefits of Radical Innovation with the implementation of their version of Video on Demand (VOD) which started for the company in 2007 (Griffin & Moorehead, 2012, p. 511). This has brought them out of the typical video by mail that got the company started and moved Netflix to a System Innovation that the company ran on in the late 90’s to the Early 2000’s (Griffin & Moorehead, 2012, p. 511). Technology will forever shape the Incremental Innovation side of businesses, and Netflix is at the forefront of improving its technologies to continue the applications of radical and systems innovation (Griffin and Moorehead, 2012, p. 511). This writer has described the hourly warehouse personnel like DVD inspectors, and how the fast paced process required a special person. Salary employees are required to uphold the same standards and engineers cover a wide variety of duties at Netflix (Netflix Company Website, 2012). Netflix engineers must have strong leadership and communication skills to interact with people below them and develop systems that provide a finished product for the customer (Netflix Company Website, 2012). Netflix engineers must also address the user needs and build systems around those needs, as this will eventually detect issues before the customers do and get them taken care of as quickly as possible (Netflix Company Website, 2012). Netflix engineers are expected to take ownership of their product for the customer and make sure that it functions effectively to complete the process and eventually the output of the product (Netflix Company Website, 2012). There is no doubt that the Netflix company website reflects the size of the company with the amount of job opportunities there are just for the engineering position alone (Netflix Company Website, 2012). As forty engineering positions are available at its Los Gatos California location shows that the company continues to grow and the organizational technology gets more complex (Netflix Company Website, 2012). Growth and technology are major components that make up an Organizational Structure which is described to us in Griffin and Moorehead (2012, pp. 466-473). Over the course of this case study, this writer has learned the tremendous organizational Technology that Netflix holds. It is now known that Netflix did what it had to do to improve its product that helped it rise above its competitors through innovations like Cinematch and DVD quality processes (Griffin & Moorehead, 2012, p. 426). Not only was Netflix forced to make its changes, they anticipated it. Looking ahead is what Reed Hastings was all about, especially the move from DVD rentals to Video on Demand in its Continuous-Process change explained to us in Griffin and Moorehead (2012, p.532). Competitors within Netflix’s task environment forces the company to stay focused, figuring out ways to stay ahead and be a viable competitor (Griffin & Moorehead, 2012, p. 470). Netflix has provided a culture of high performance of their workers that have the freedom and responsibility to put forth a good product (Hastings, 2009). It is a culture where the development is a priority of the company through its workers, compensated with top of the market paid (Hastings, 2009). The cultural behavior at Netflix is controlled by who the company hires and promotes, as they use a nine step checklist with communication and selflessness standing out to accomplish this (Hastings, 2009). Netflix’s strategic vision seems to be letting the valued employees to be free, and not restrict them with policies and procedures; keeping a clear head, and advancing the company (Hastings, 2009). One of the goals is to be big and fast and flexible; to rise over its competitors, and provide a quality product for its customers (Hastings, 2009). Throughout the years at Netflix, there has been a need for change to stay ahead of its competition. In the beginning of Netflix, the idea was to let consumers get DVD’s ordered on the internet and delivered straight to their homes (Griffin & Moorehead, 2012, p. 57). During this early time period, Netflix envisioned a need for a change so it defined the problem, implemented the change, and dropped the rental prices to leave Blockbuster behind (Griffin & Moorehead, 2012, p. 59). In later years, Netflix recognized that a change was needed with Wal-Mart nipping at their heels with DVD sales. The continuous change process called for Netflix to work out a deal with Wal-Mart to promote each other’s strengths to its customers, resulting in a win/win for both companies (Griffin & Moorehead 2012, p. 557-558). Reed Hastings was a true visionary as resolving problems quickly and looking into the future has put Netflix on the map, and it does not look like it is going anywhere soon.
Application of Concepts from the Integrative Running Case Study In the healthcare industry where this writer is a Plant Operations Director, It is imperative that Continuous Change Processes that is discussed in Griffin and Moorehead (2012, pp. 533-535) take place to always improve the process for the safety and wellbeing of patients and visitors. Many factors in the healthcare industry force changes in the problem solving, and the processes in which people operate within the facility. Ever-changing laws and regulations force this writer’s organization to consistently evaluate the changes necessary, allocate the funds, and implement the change. Unannounced visits from accrediting bodies like The Ohio Department of Health (ODH) and The Joint Commission can play a big part of the healthcare facilities survival if the inspections do not pass, so improvement is always sought after. The influence of these regulators to this healthcare system is described in detail by Griffin and Moorehead (2012, p. 470). Structural Imperatives which is described to us in Griffin and Moorehead (2012, pp. 466-472) is a big part of how Avita Health Systems size, technology, and environment are important to how the organization is perceived by others. With the purchase of Bucyrus Hospital a couple of years ago, the size of Galion Hospital doubled with the extra facilities and personnel that were gained. It was so significant that a parent name had to be implemented, resulting in the birth of Avita Health System. Size of the organization is the first determinate to Structural Imperatives described to us in Griffin & Moorehead (2012, p. 466). This also describes the Transformational Leadership that our CEO had and is discussed in Griffin and Moorehead (2012, p. 354) how leaders have the ability to see the need for change and transform the organizations culture. The CEO of this organization was able to see a vision that no other CEO before him as the thought of purchasing another healthcare system during the hard times of 2008 was unheard of. Talks of cutting back at Galion Hospital were going on and many were wondering if their jobs would be secure, along with the Bucyrus Hospital employees who were already losing their jobs because of the looming bankruptcy. If not for this vision and transformational leadership, many in Crawford County would be without work and a out of state firm would either sell of the assets and close Bucyrus hospital, or sell to one of our competitors. It was a complete transformation of the culture of both organizations that made this merger a success. In the healthcare industry, managers are consistently looking at the policies and procedures to simplify their direction to employees for better understanding. The constant changing of patient needs calls for each department to improve its process that eventually takes the input (which is the patient needs) and turn them into a productive and positive output (which is patient satisfaction). The whole process of people, policies and procedures, and mechanical services all contribute to the Organizational Technologies that Avita Health System has, and is discussed in Griffin and Moorehead (2012, pp. 468-470). There is no way that our organization can survive if the patient cannot recommend the organizations services to their family and friends on a patient satisfactory survey which is sent to them after their treatment. It takes a total commitment by the managers to drive this home to the employees under them with positive reinforcement.

References
Griffin , R. W., & Moorhead, G. (2012). Organizational behavior: Managing people and organizations (10th ed.). Mason, OH: South-Western Cengage Learning.
Hastings, R. (2009, August). Netflix culture: Freedom and responsibility. Retrieved from http://www.slideshare.net/reed2001/culture-1798664
Netflix Company Website. (2012). Retrieved from https://signup.netflix.com/

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