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Netflix is on a path to dominate the world, but will its culture survive?

New Economy Editor at LinkedIn

In January 2015, Netflix CEO Reed Hastings announced he would once again transform the entertainment powerhouse that he founded nearly 20 years before. After shifting the company from a DVD-by-mail company to an uber-successful online streaming service, Hastings boldly set his eyes on global expansion.

It’s now all but certain that the company with $6.8 billion in revenue will achieve this goal: Netflix added a record-high 6.7 million subscribers in the first quarter (4.5 million from outside the U.S.), and the service is now available in more than 190 countries. But as Netflix aggressively expands internationally into new markets, the company is quickly learning what about their famed company culture translates abroad  — and what doesn’t.

Ranked No. 11 on LinkedIn’s Top Attractors list in the U.S., Netflix is among one of the most sought-after places to work. Emphasizing top pay for top performance and generous severance for those who don’t make the cut, Netflix’s company culture is characterized by a cutthroat mentality that only works for the highest achievers. By all accounts, that culture has thrived in Los Gatos, Calif., as well as Beverly Hills where Netflix hosts more than 90% of its lean 2,450-person streaming operation. Employees almost unanimously say that the best part about working at Netflix is “stunning colleagues” — not lavish perks or amazing lunches — and LinkedIn data supports that belief. Monthly job applications at Netflix rose 217% year-over-year from February 2015 to February 2016.

One of the fastest-growing companies in the Fortune 500, Netflix saw a 23% increase in revenue in 2015 mostly due to international growth. As Netflix looks to expand its 150-person international workforce, the company is tapping into expert resources to help with the transition. Now chief decision makers are figuring out if the same values that brought them to prominence will work outside the ever-growing Silicon Valley tech bubble.

“The culture that we have celebrates candidness, honesty and being blunt. That is something that may work particularly well in the western U.S., but not elsewhere,” said Chief Product Officer Neil Hunt. “We have gone through many transitions and there is always a new challenge, which has been exciting and interesting.”

‘Good communication is subtle’

In many ways, Netflix is the antithesis of many Silicon Valley tech companies. There are absolutely no Ping-Pong tables on their campus or hordes of software engineers freshly out of college walking around in T-shirts and hoodies. Unlike most tech employer campuses within commuting distance of the Bay Area, at Netflix you won’t be hard-pressed to find someone over the age of 35 walking around the office. A company that famously claims to only attract “fully formed adults,” Netflix demands self-sufficiency from employees and rewards them accordingly. That’s also why the company doesn’t recruit talent right out of college. There is no vacation policy, no annual employee reviews and a five-word expense policy that simply tells employees to “Act in Netflix’s best interests.” The details of this culture are highlighted in a culture deck that Netflix originally published in 2009. With 14.5 million page views, the deck was once characterized by Facebook COO Sheryl Sandberg as  “the most important document ever to come out of the Valley.”

Now as Netflix looks to take those tenets of success and open new offices abroad, Tawni Cranz, Netflix’s Chief Talent Officer, is responsible for translating the famous deck internationally. Starting as a director of human resources nearly 10 years ago, Cranz took over the C-Suite role in 2012 from Patty McCord, the talent guru who is in large part credited for creating Netflix’s original culture deck. (McCord famously moved on from Netflix after her failing to keep up with the company’s evolutionlike the very culture she created mandates.)

In the last two years, Netflix has experienced a 27% growth in headcount annually. With so many new faces coming in the door, Cranz is finding that how company culture is communicated needs to change. Cranz says she is accomplishing this by offering sessions around topics like “leading at Netflix,” a way to make sure that leaders are leading through the lens of things that are important to Netflix.

“There has always been a piece of once you get in, then you experience the culture and marinate in it,” she said. “But now we have these orientation meetings with 10 people and it’s highly likely that six of them are new. If six of them are new, you need to do something to accelerate that feeling of marinating in the culture.”

While accelerated learning efforts seem to go over smoothly in the U.S., Cranz did acknowledge some challenges with international employees, particularly in Tokyo. Since 2015, Netflix has had about 30 employees in Japan. Initially, these Japanese workers resisted or “weren’t familiar” with Netflix’s practice of expressing feedback — both good and bad — in front of large groups, Cranz said. While that radical candor is something that worked in the U.S., Japanese employees were intimidated by the idea of hearing harsh words from others in anything besides a private setting.

“We offered support, mentoring and modeling, and it is working really well there,” she said. “They like the efficiency and effectiveness [our culture] breeds. They like the trust it builds.”

To help its Japan-based employees with issues like this one, Netflix hired Erin Meyer, a professor at international business school INSEAD and the author of “The Culture Map.” In her book, Meyer focuses on the globalization of the workforce and how cultural differences impact international business. Netflix refused to talk specifically about its work with Meyer, and the author declined to be interviewed. Yet in “The Culture Map,” Meyer describes a corporate culture clash that echoes what Cranz told me about Netflix’s Tokyo audience. In Japan, Meyer writes, messages are often conveyed implicitly — a far cry from Netflix’s blunt ways of communicating.

“Good communication is subtle, layered and may depend on copious subtext, with responsibility for transmission of the message shared between the one sending the message and the one receiving it,” Meyer writes.

Despite these stark differences, Cranz didn’t indicate that Netflix will change its hiring strategy abroad to reflect other cultural norms. Calling Netflix’s values like impact, courage and judgment human values — not “American values” or “Silicon Valley values” — Cranz said she is confident that as the company expands, so can its culture.

‘A very homogeneous culture’

While Cranz is working to expand Netflix’s culture to new teams in different countries, Chief Product Officer Neil Hunt is in many ways doing the very opposite. Unlike most tech companies who have product teams spread across the world, Hunt has worked hard to keep all talent working on the product itself located in Los Gatos.

He likes that no matter where he is on campus, he can talk to practically anyone on the product team within 90 seconds, he told me.

“They are all right here in these two buildings,” he said while motioning around the room. “It’s a very homogenous culture. The advantage is that it frees us up to practice alignment. What it costs us is that we can’t tap into pools of talent that are not in commute distance of this facility. That is a trade-off that continues to get questioned.”

Mat Schaffer started working as a reliability engineer for Netflix in 2013. Schaffer loved it there, but says he had to move on after about two years: He wanted to relocate his family to Japan. Unfortunately, the engineer said he found that higher-ups at Netflix were resistant to the idea of him staying on the team while living abroad. “Keeping people colocated is great, but the industry is moving to more and more remote work,” Schaffer said. “I think Netflix is being a bit shortsighted in that regard.”

(santacizevska / Twenty20)

Although the company is forward-thinking if not trendsetting when it comes to other advancements in employment like unlimited vacation and paternity leave, Netflix won’t entertain the concept of remote work. In fact, Hunt seems bullish that his decision to keep the product team centralized will be the right one. When CEO Hastings announced Netflix was expanding its services internationally, Hunt soon after gave a presentation to the product team with a simple message: Aim low. What he meant is not to aim for low results, but rather to make Netflix work just as well on a $1,000 flat-screen TV as on an $8 Android device that undoubtedly millions of potential subscribers use abroad to stream videos.

Shortly after the presentation, he said he could immediately feel the seachange effect that his words had. Product managers and engineers were coming up to him to explain how they were tweaking their strategy to reflect the “Aim low” objective. Product alignment like that just can’t happen with a distributed team, he said.

“An important piece of any business is having a culture and maintaining it,” he said. “For the people who don’t fit in, they shouldn’t come here. That is another trade-off we are willing to make.”

‘No shame in being cut by an Olympic team’ 

On the off chance that someone who doesn’t fit what Hunt and others are looking for lands at Netflix, he or she will know it’s not the right place almost immediately. Internally, Netflix employees equate working there to playing on a pro sports team: If your impact is not up to snuff, you get replaced by a better player.

“There is no shame in feeling like you’ve been cut by an Olympic team,” said Cranz. “The level of performance at Netflix has risen so dramatically in the last five years that when you come in you’re great, and when you leave you’re great too.”

When I spoke with employees who works out of the Los Gatos office, they uniformly repeated Cranz’s Olympic team analogy without any prompting. Netflix even supports a distribution list for workers to share their stories when they leave the company either voluntarily or not. One employee said people are rarely upset when they are let go. Instead they feel grateful for having the opportunity to “play with the best of the best.”  

Despite the external perception that Netflix is a firing machine, Hunt said their turnover rate is about 15% and about half of that turnover is involuntary, which is in line with standards across the tech industry. Every company fires workers; Netflix just appears to be more transparent about the process. Schaffer, who ended up quitting and moving to Japan with his family last year, says that of the engineers he knew that were let go, they “just didn’t feel that bad about it.”

Netflix’s generous severance packages help, and in many cases, engineers can even leverage getting fired to land another job at a top tech company, Schaffer said. While it’s too soon to tell whether this transparent approach to hiring and firing will hurt Netflix abroad, Schaffer can see how the company might have some issues replicating its culture among Japanese employees. Everyone he knows who works for the company out of its Tokyo office has at least some experience working for an American company, he told me.

“In Japan, you pick one company and you stay on until you retire. Even if you don’t perform, that company does everything to try and keep you on,” Schaffer said. “For a lot of people it could be a breath of fresh air, but I can see people in Japan being shocked by Netflix’s culture.”

When I told Hunt that it seems every software engineer in the Bay Area knows a software engineer who has been fired from Netflix, he didn’t seem fazed by my observation. After working there for 16 years, it’s clear that he thinks that perception — even if it makes its way abroad — won’t prevent them from getting the best talent in the door.

“I have no control over what people who get let go say,” Hunt said. “What I would hope is that we treat them with dignity and respect so they say, ‘OK, I didn’t make it. I understand why and I agree with the decision.’”

Only employees, however, really know if this utopian vision for firing that Netflix presents is a reality or just corporate speak. Would you take the risk to find out?

Posted on June 21, 2016

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