Case Study:
Netflix's Human Resource Practices Enhance Employee Retention
[In the summer of 2009], an internal Netflix file found its way onto the Internet. The 128 PowerPoint slides set out the company's culture and talent management strategy. Observers speculated how leaders at the usually guarded Netflix had let such a document leak. As the commentary-pro and con-continues to flow, Reed Hastings, Netflix's chief executive officer, concedes that corporate leaders leaked the document intentionally "to allow job candidates to self-select." Netflix has a controversial tough love approach to human capital management. It features a culture governed by few rules and zero tolerance for poor or average performers. Workers can earn top-of market pay but no bonuses or long-term incentives, and they are responsible for their own development. "It's not the Bible, it's just our documentation of what's working for us," Patricia J. McCord, chief talent officer and one of the architects of the company, says of the approach .... Today the company delivers movies by mail and video streaming. At the end of 2009, it had 12.2 million subscribers, and revenue for the year reached $1.67 billion, up 22% from the previous year. Netflix recruiters have added staff at a rate of more than 20% annually. The company has 1,644 employees, about 500 of whom are salaried professionals .... At Netflix, HR professionals serve on the top management team, and McCord and Allison Hopkins, vice president for human resources set the tone .... Software engineers, who make up the majority of the professional staff, are the creative lifeline of the organization, and McCord is obsessive about attracting and recruiting the best. Engineers, she observes, have little patience for bureaucracy .... Hastings and McCord recognized that elite talent in the Silicon Valley could pick and choose where they worked; many other employers also pay top dollar. W hat else could Netflix do to recruit? The key to differentiation, they concluded, was to deliver a culture that attracted people who identified with and understood the business, who yearned for a flexible work environment with few constraints, and who-more than anything-wanted to be rubbing elbows with the best talent. At Nettlix's modern headquarters in Los Gatos, California, there are no badges or security checkpoints. There is also no dress code. People, most of whom are casually dressed, come and go continuously ....
The "creative employee we compete for thrives on freedom," Hastings says. "We're more focused on the absence of procedure-managing through talented people rather than a rule book." But the dearth of rules does not mean that it's a free-for-all environment: the few rules are reviewed by counsel and are "in compliance of federal laws," Hastings says. "We try to manage by strong ethics; we're strong on fairness and equity." You won't see Netflix recruiters on college campuses or at entry-level career fairs. "We get a different kind of person than other software companies," McCord says .... In contrast, new hires at Netflix typically have 7 to 15 years of experience. "They're accomplished deliverers," McCord says. "You need to know your craft so you can make a contribution when you walk in. You need to be mature, with enough experience to be able to make independent decisions." And you need to be drawn to the business; Netflix's ranks overflow with film aficionados. People who are not interested in "the context " of the business need not apply .... In other companies, Hopkins says, "policies are written for the lowest common denominator. Here, we don't have to do that. You don't have to write things down. W hen someone does something wrong, we tell them it was wrong. After that, either they get it or they're out." Hopkins contrasts Netflix with Hewlett-Packard, where, she says, "Everything was done by policy." ... "We are a performance culture based on intellectual prowess," Hastings says. "We try to be fair, but [the length of an employee's Netflix career] is not our primary concern. If someone is not extraordinary, we let them go." Based on personal observations, he says the payoff from an extraordinary performer vs. an average one in creative fields is tenfold. Here then, is perhaps the characteristic that distinguishes Netflix from others recruiting top talent: Leaders are unwavering in their quest for quality and results. If even one person is assessed as mediocre or average during the annual review process but permitted to continue working for Netflix, the elite aura surrounding the workforce will be compromised. Loyalty to people not producing or facing minor setbacks or personal distractions is tolerated, but not for long. "Keeping the house clean is essential to who we are," Hopkins says. "Too often, really good workers are frustrated at having to work with others who they perceive as average or worse performers. When we ask people why they chose us, they tell us it's not for the money. It's the other stuff. [It's] 'the places 302 PART 4 * Organizing we worked didn't fire people they should have fired.' " ... Voluntary employee turnover at etflix is low. The top six executives have been with the company from the beginning. W hen it comes to terminations, managers follow two rules: No surprises. Employees must know where they stand. Annual 360-degree reviews provide "direct and honest feedback," Stokes says. "It's tough to get used to doing them, but when they're done right, they're better than top-down evaluations." ... No-fault divorces. Wherever possible, an amicable departure is engineered. "We want them to keep their dignity," McCord says. "In many companies, once I want you to leave, my job is to prove you're incompetent. I have to give you all the documentation and fire you for poor performance. It can take months. Here, J write a check. We exchange severance for a release. To make etflix a great company, people have to be able to leverage it when they leave " by subsequently getting good jobs. The line manager delivers the news with coaching from HR professionals. "We don't coddle, it's not about asking how does someone feel," Hopkins says. "Usually, people find new jobs quickly." To date, no one who has been terminated has sued .... "There's no road map that plots out your career," Stokes adds. "I 've been here three years, and so far my job and responsibilities have changed every six months." Hastings says people should manage their own career paths and not rely on the company. "The way you develop yourself is to be surrounded by stunning colleagues. We surround people and let them develop themselves," he explains. Formal training, except where mandated by law, is not offered. Hastings and HR leaders conclude that most training materials are not useful. "I used to worry that we didn't do training and developing, but then we previewed some training videos and supporting materials," McCord recalls. "It was awful. Reed said, 'This stuff is nauseating and a waste of time."' ... etflix salaries are based on market conditions but not on company performance-a practice shareholders could find vexing if the company experiences a downturn. For now, the rationale comparing top talent to major-league pitchers who receive star-level pay whether the team wins or loses-prevails. To be promoted, a person has to be a superstar in his or her current role and often be willing to take a reduction in pay to take on the new assignment. Executives want people to move up for the challenge, with the expectation that they will earn more once they have proved themselves.
Q1. How would you describe Netflix's organizational culture? Explain.
Q2. If you were hiring people at Netflix, what questions would you ask applicants to determine if they would fit into the corporate culture? Generate three to five questions.
Q3. What are the specific human resource practices that Netflix is using to recruit and retain high quality employees? Explain why they are effective in this context.
Q4. What is your evaluation of Netflix's approach to training and performance appraisal? Discuss your rationale.
Q5. Do you like Netflix's approach to firing employees? Explain.
Q6. would you like to work at Netflix? Provide your rationale.
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.