Netflix

Introduction

Netflix, an internet service provider, came into being in Los Gatos, California, in 1997. The company provides services all over the world viz, Australia, Japan, parts of Europe. It also provides flat rate DVD-by-mail in the US via permit reply mail.
The company has innovated and reinvented its HR practices to create the viral Netflix Culture Desk (NCD). The new practices are however not in sync with traditional practices. The basis of Talent Management philosophy of Netflix are governed by two main principles:
1. The best thing you can do for employees is hire only ‘A’ players to work with them”. “Excellent colleagues trump everything else.”
When individuals work with people who are equally good and of the same calibre, they are motivated to perform and are happy to work in the team. However, if they are not equally hard working, a lot of time is spent on identifying and rectifying their mistakes which make people unhappy and frustrated after a certain level. Employees prefer working alone rather than with people who are subpar.

2. The second element of the company’s approach is a willingness of letting go of people whose skills no longer required, “no matter how valuable their contributions had once been”.

Key Elements of HR Policies

Keeping these principles in mind, HR practices and policies have been framed by the HR Department. The following five are the key elements of these principles:
1. Hire, Reward, and Tolerate Only Fully Formed Adults

The company has realised that productivity increases if employees who are hired have a sense of practicality and logic, rather than depending on pre-determined policies. This helps to reduce cost too. It employs those who give more importance to company interests rather than self motives and who understand the need of a performance-oriented workplace. If this is achieved, then 97% of the employees would be doing the correct thing. This ensures saving of time spent on framing and implementing HR policies to deal with problems caused by the remaining 3%. Netflix tries its level best not to employ such people and get rid of them if it has committed such a mistake.
Adult like behaviour means having open and free discussions with one’s colleagues, subordinates and bosses. For example, when the company started operating, there was a standard paid-time-off policy, by which employees received 10 vacations, 10 holidays and a few sick leaves. An honour system was used through which employees were expected to maintain a count of the number of leaves they were taking and inform the managers about the same. However, when Netflix went public, there was discontent among the auditors. Inspire of this, they went ahead with an informal system since no California law governed vacation time. Salaried employees were asked to take as many number of leaves as they felt was appropriate while bosses and workers were asked to decide this amongst themselves mutually. Hourly workers in warehouses and call centres were expected to follow a more structured framework. However, certain level of guidance was provided. Employees working in finance or accounting were not encouraged to take offs at the beginning or end of the quarter, since they were busy times. The main objective behind this system was to give importance to fairness rather than consistency, because the fact remains that leeway is given to only high-performing employees.
The company’s expense policy is five words long: “Act in Netflix’s best interests.”

2. TELL THE TRUTH ABOUT PERFORMANCE:

The company does not follow the system of formal reviews of the performance of its employees. It feels that system is too ritualistic in nature and becomes in frequent when implemented. Also, the existence of bureaucracy and rituals for assessing productivity does not lead its improvement. So today, employees and managers are expected to have discussions on their performance on a regular basis and as a part of their daily work. In some functions namely, sales, product development and engineering, it is very evident as to how well the employees are performing.
Instead of a formal review system, the organisation tells the particular employee the truth by being open a direct. It follows a 360 review policy, which is fairly simple: employees are asked to identify things which their colleagues should start, stop or continue. Earlier, an anonymous software was used for this purpose, but now a signed feedback is in place for it. Some teams prefer conducting the 360s face-to-face. It believes that if employees are spoken to frequently, honestly and simply, results can be improved.

3. MANAGERS OWN THE JOB OF CREATING GREAT TEAMS

Discussing the military’s performance during the Iraq War, Donald Rumsfeld, the former defence secretary, once famously said, “You go to war with the army you have, not the army you might want or wish to have at a later time.” When managers are in the process of creating teams, their approach is exactly the opposite of this. They are asked to imagine a documentary about the goals to be achieved in the coming six months, the results of those, what the team is required to do to achieve those goals and how is it different from what it is doing today.
Next, they are asked to brainstorm about the skills required to make the images in the documentary a reality. They are not supposed to think about the existing team with which the managers are working. Once this is completed, they are expected to match it with the current performance of the team and analyse how different the two are and what should be done so that both match well. In case of many mismatches, there must be an honest conversation with the team members to put them in departments where their skills fit better. Also, employees with the right skills should be hired.
This was a challenge that the organisation faced when it shifted from DVDs by mail to a streaming service. This shift required Netflix to store huge volumes of data on the cloud and analyse how a large number of people could reliably access that data. For this, they needed to hire people who have profound experience in cloud services who have worked with giant companies namely, Google, Amazon, Facebook, which are not easy to get hired at. But the compensation policy of the company made it easier for them at their task- Be honest and treat people like adults. It did not pay performance bonuses since it believed that if the right people have been employed who are fully formed adults and for whom the company comes first, extra pay will not motivate them to work harder.
The company also follows Market-based pay and employees were encouraged to discuss with competitors if they got an opportunity, to get an idea of the market rate of their skills and talent. It also uses Equity compensation but it is not similar to the way other companies use it. The employees are asked to choose how much (if any) of their compensation would they like to have as equity. If they choose this option, then accordingly their salary is reduced. Netflix believes that the employees are the best judge for themselves and can understand the trade-offs and decide the best options for themselves and their families, including their personal tolerance for risk. Every month, this option was provided but at a slight lower rate than the one prevailing in the market, which would be cashed immediately- there was no vesting period.
Managers are continuously reminded that building and developing great teams should be their utmost priority. They were not reviewed according to how well they mentored their team members nor how fast their paperwork was completed. The objective was to employ people with the right skills because great teams accomplish company goals and objectives and great work.

4. Leaders Own the Job of Creating the Company Culture

There are three issues to be given importance when moulding corporate culture. The first being a mismatch between the company values and the behaviours being conditioned among the employees. A casual attitude displayed by some can hinder the high-performance ethos managers want to develop in the company. When leaders go unprepared for meetings and rely on charm and IQ, it sets a wrong example and affects their own performances. The company tries to model behaviour that matches with the values and goals to build company culture.
The second issue being that employees must be mature enough to understand the levers that drive the business. Even if the company hires individuals who are willing work hard and perform, it is important to communicate to them about the processes in the entity and the behaviours that are rewarded and encouraged to achieve company goals. For example, the employees at Netflix were giving too much importance to subscriber growth without realising the expenses involved in it namely, purchasing DVDs and establishing distribution centres before collecting money from new subscribers. Employees need to understand that in spite of a revenue growth, expenses need to be curbed and controlled.
The third issue being the split-personality start-up. At Netflix, for example, employees need to be communicated that there is a difference between the hourly workers at the call centres and salaried staff at the headquarters. So when the finance team decided to shift to direct deposit paychecks, it had to be reminded that some call centre workers do not have bank accounts. That’s a small example highlighting a bigger issue: As leaders build a company culture, they need to be aware of subcultures that need different management. 5. Good Talent Managers Think Like Businesspeople and Innovators First, and Like HR People Last

It is the duty of the HR department to come up with initiatives that motivate employees to put in more efforts. Distributing free goodies and celebrating will not help in the long run if the company’s products are not liked by consumers or if the stock price falls. In Netflix, the HR thinks of themselves not as HR but businesspeople. They keep thinking as to how the company is performing, what is beneficial for it, how to communicate this to employees and how to explain them the meaning of performance-oriented organisation.
Here’s a simple test followed by Netflix: if the company follows a performance bonus plan and a random employee is asked, ‘Do you know specifically what you should be doing right now to increase your bonus?’ If he or she does not have any answer, the HR team isn’t making things as clear as they need to be.”
It is essential for employees to know and understand the meaning and significance of high performance. Netflix ensures that performance level is clearly defined and matches with the goals of the company so that employees put in efforts according to this to achieve success for the company. If the employee feels that he/she can get better opportunities to perform elsewhere, then the HR allows them to resign and leave with whatever they have earned and achieved. They are not held as hostages in the organisation.

Semco

Semco, a Brazilian company, was on the verge of collapsing but it transformed itself soon by introducing new policies with respect to its employees. They were given complete freedom to choose what work they wanted to do, where and when they wanted to do and also to determine how the salary was decided and paid. The employees run the organisation, as a whole. The organisational structure that has been used to empower the employees and implement the new HR policies makes this company a unique one.

Key Elements of HR Policies

The unique features of their HR policies were:
1. AUTONOMY

The employees are bestowed with the freedom to choose what they want to do as per their wishes. They themselves decide and determine their work timings, salaries/wages and dress code for the organisation. Performance evaluation is done on the basis of targets being met on time rather than on the number of hours employees spend on meting these targets and working to produce output.

2. Doing only what was needed

It is not mandatory for the employees to attend meetings. If the required quorum for the meeting is not met, it indicates that the agenda for the meeting is not important enough. There are two positions at the board meeting which are left unoccupied, to be filled up by the employees on a first-come-first serve basis. In addition to this, they are encouraged to raise questions, clarify doubts and queries, leave any meeting midway if interest is lost from it and attend meetings whose agenda interests the employees.

3. Bottom-up approach

The corporate executives were nominated by the employees of Semco. They were also responsible for the entry of the company into new business fields and areas and its exit from the existing ones. They were also bestowed with the veto power through which they could nullify the decisions of the CEO too.

The organisation employs people with great talent and gives them freedom which encourages them to stretch beyond their self-imposed limits. If anyone in the company is asked – “who is in charge”? the most likely reply will be “no one”. It promotes ownership and accountability by giving up control over employees. Semco is one entity that does not have job titles, organisational charts nor a headquarter. If an office is needed, one needs to go online and reserve space at one of the few satellite offices scattered around Sao Paulo. It believes in the fact that if it does not even know where its employees are working, it is not possible to keep a check and monitor them. Hence, the only element that gets reviewed and evaluated is performance.
Many employees, including factory workers pre-determine their own salaries and work schedules. They are also given eleven different options to choose from for the mode of salary payment. The associates had to re-apply for their jobs every six months which was an indirect check on their salary amount. If the compensation amount decided was unfair, the employee would soon need to look for a new job. This is because the compensation of employees is directly connected to the profits and gain of the organisation. Employees are also encouraged to take half a day off every week but by doing so their salary reduces by ten percent. They are encouraged so that they pursue some hobby of theirs while working so that they can relax and not be overburdened by their workload. The company also believes that it is not practical to force people into retirement when they are at the peak of their intellectual level. In Semco, employees get to select their managers and analyse their performance twice a year. These results are posted so that it is open to public view.
The company encourages its employees to develop a “go with your guts” feeling while making and implementing decisions. This provides ownership and accountability to the employees which make them rational and practical in decision-making since the onus is on them.
Participation and involvement are the key elements in the principles followed by Semco. Employees are motivated to give their ideas, opinions and suggestions and be participative in nature. They are expected to look for opportunities for self-development and progress.
The core values of the company are: Democracy, information and profit-sharing, based on which are the HR policies of the company. These values are interdependent, so if any one of them is removed, the others lose their significance.
Democracy in other words refers to employee participation and involvement. The organisation believes in the fact that workers will be happy and motivated to work if their working conditions are controlled by themselves. But many times it has been difficult to implement this due to various reasons being hierarchial structure, size of the organisation, lack of motivation and ignorance on the part of employees. This is because in production units, where managers are vested with power and authority, do not allow subordinates to take decisions. Hence, they feel helpless and de-motivated at times and do not care much about the productivity and company performance.
The HR department strives to inculcate a sense of belongingness and heightened involvement among the employees. By doing so, the company saw an improvement in performance and productivity. Sales had doubled while the inventory fell. Eight new products were launched, which the Research and Development team had been working on. The overall quality of products improved which had a positive impact on company productivity and retention of employees.
Semco gives a lot of importance to leadership in its day-to-day operations. For this, managers are asked to develop a more democratic style of decision making to incorporate the opinions of employees. Also, employees do not get promoted until and unless all subordinates interview them and give their consent. Employees are also asked to fill up a feedback form to assess the credibility of the company and evaluate managers and are asked to answer questions like what will make them leave the company or what will encourage them to go on strikes.
The organisation takes decisions through mutual consent among employees. They are asked to vote on a certain issue to implement democracy in the policy. In one instance they voted for a bigger plant for the marine division which the counsellor disagreed to, while in another, they vote against the acquisition of a company by Semco. When votes of employees are taken into account by the management, it helps to improve the credibility of the system.

Employees are hired as adults and also treated like adults since they are given full control over their work. There are no rules and regulations in the company. It believes that norms do not solve any problem. Hence, employees are expected to use their common sense and sense of judgement.
There is no dress code to be followed. This is because the HR feels that if a company needs to prove its seriousness through a dress code, then it lacks more meaningful proof.