Netflix: We Got It Right!

Watch the on-demand recording of our  May 2013 Book Discussion Web Cast with Edward E. Lawler III and co-author, Dr. Christopher G. Worley, as they discuss their book, Management Reset: Organizing for Sustainable Effectiveness. 

The views expressed in this blog are soley attributed to Edward Lawler from his article in Forbes.com , and as adapted from his book, Management Reset, and do not necessarily reflect the viewpoints of The Conference Board.

There is no doubt that organizations need to be more agile given the rapidly changing business environment that they face. In our 2012 book, Management Reset, Chris Worley and I argue that one key to making the human capital side of organizations more agile is adopting what we call a “travel light” talent management philosophy.

The literature on talent management has often argued that the best way to assure an organization has the right talent is to internally develop it, invest in it and have relatively long term employment relationships with individuals. One advantage of this is that it builds loyalty and the willingness of individuals to sacrifice for the good of the organization.

The problem with the career approach is that change often requires new skill sets and new approaches to dealing with business issues that aren’t quickly learned and developed. This is where the “travel light” approach is superior. It argues strongly for “temporary” relationships between individuals and organizations. Responsibility for an individual’s career and skills shifts from the organization to the individual. Employment is “guaranteed” for only as long as an individual has the skills the organization needs.

When writing our book, we searched for a good example of a company which was agile and committed to a travel light approach to talent management. Eventually, we found what we thought was a great example, Netflix NFLX +6.17%. Its approach to talent management was best summarized by a comment their HR VP made to us during an interview, “The reward for doing a good job today is having a job tomorrow. We cannot guarantee work. It’s up to individuals to have the skills that the organization needs. If they have them, they have a job. If they don’t have them, they don’t have a job.”

Shortly after we sent the final version of our book to our Publisher in 2011, Netflix became the object of a great deal of negative publicity. Their CEO did a major restructuring and rebranding of the company with the respect to their two lines of businesses, DVD home delivery and video streaming. To say the least, it was poorly handled and in October of 2011, Netflix announced that it had lost 800,000 U.S. subscribers as a result of the poorly handled change. Imagine our disappointment given that our book was about to be released praising them for their agility.

It didn’t matter of course that the change was made by the CEO and was not particularly relevant to their “travel light” talent management model. We were very much in the position of being business authors who praise a company only to find that it is not worthy of the praise. At the very least we had good company. The same thing has happened to Tom Peters and more recently, Jim Collins.

However, maybe we weren’t so wrong in praising the agility of Netflix. Recent news from Netflix suggests that they have made a rather amazing transformation. They have gone from being a home deliverer of discs to a producer of video content and streamer of video content to the homes of global subscribers, including a voice recognition system named “max” that quizzes subscribers and gives them movie suggestions. They have produced an original series, “House of Cards,” revived “Arrested Development”, and recently announced a deal that calls for DreamWorks to produce more than 300 hours of original programming for them. By one count, Netflix has more subscribers now than HBO. This is from a company, which only a few years ago, was a leader in distributing DVDs that were made by others to the homes of people on a subscription basis. Needless to say, in order to make this transition, they needed people with radically different skill sets and different management approaches.

It’s too early to declare that Netflix is a dominant force in the entertainment industry, but it’s not too early to acknowledge that they have successfully changed their business model in a very short period of time. They have done what many other companies in the entertainment industry have been unable to do: execute a major change. One of their earlier competitors, Blockbuster, is essentially gone because they were unable to make the change that Netflix has made.

In retrospect, Netflix looks like a good example of a company which has a talent management model that allows major changes in the technology it uses and in its business model. It reinforces the view that the “travel light” model is a valid and appropriate one for certain companies. It fits particularly well with those organizations that are in very rapidly changing environments and where technology is moving at a rapid pace.

This blog first appeared on Forbes.com on 06/24/2013.

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