Netflix Firm’s Change Management and Organizational Structure

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Netflix Inc. is a media and entertainment company best known for its digital streaming platform. Founded in 1997 by Reed Hastings and Marc Randolph in California, the company originally focused on subscription-based video rental services by mail.

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However, by 2007, with the advent of available technology, Netflix became a pioneer in commercial streaming media alongside its rentals. Eventually, the company became primarily focused on streaming, becoming essentially the household name associated with this type of entertainment, exceeding its competitors (Hosch, 2020). If Netflix is to maintain its leading position as a streaming service, it requires innovation similar to its ability to shift to a new segment of media early in its history. This paper will examine the previous change initiatives of Netflix as well as the company’s structure and leadership enabling the innovation.

Type of Change

In 2007, Netflix underwent major operational and organizational change by introducing streaming to its traditional DVD rental model. In 3-4 years, streaming became its primary business and focus. Using the four types of change introduced by Balogun & Hailey (2004), the change is most fitting of evolution. This transformational change that is implemented gradually through inter-related initiatives and is commonly proactive in the context of need for future change.

There were no specific breakpoints in the industry yet as rental video services either by mail such as Netflix or brick and mortar shops such as Blockbuster were still operating well. However, Netflix recognized shifting sentiments and markets early on. There are insider accounts that Netflix both saw early signs of struggles at Blockbuster which famously went bankrupt as well as the recognition of the influence of digital video from the rising popularity of amateur Youtube creators.

It became clear that the people were willing to trade some elements of fidelity and loading times for convenience, comfort and speed of watching content online (Kyncl, 2017). This ultimately sparked the transformational evolutionary change of Netflix’s transition, which was incredibly difficult to achieve at the time, both from a technological perspective as well as practical and legal elements.

Instead of focusing on tactical operations and aims, Netflix aims for long-term strategic objectives. Short-term, low level options are often insufficient for achieving high-level organizational goals, but the Larger Goal pivot as termed by Pant & Yu (2019), is challenging to achieve. Netflix pivoted in very dynamic and calculated manner, combining its digital expansion with international expansion which allowed for almost a tenfold growth in annual revenues over a decade. The strategic Larger Goal was to provide a video-on-demand platform that would allow subscribers to access content on virtually any device with a screen and internet connection, something that has not been done at this scale beforehand with professionally filmed content.

Power Dynamics

The vision of Netflix as an on-demand streaming service has always been the dream of the founder and CEO Reed Hastings. Notably this was an idea of his since the company’s inception, but the technology did not allow for it to be fulfilled. As the idea became a reality, Hastings drove this strategic initiative. At first, it was nothing more than a volunteer project for Netflix employees, but eventually became a company-wide change. Unfortunately, very little is known about the power dynamics or internal politics at Netflix.

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It is known that Reed Hastings as the founder and CEO has tremendous influence over the company direction, particularly the transition to streaming which he envisioned from the start. As a founder and general support and respect among Netflix management, employees, and stockholders gives him the power to make substantial changes. Many of the top management, such as content director Ted Sarandos have been with Netflix from its early days.

Resistance to Change Effort

Netflix has shown their ability to implement successful change management consistently throughout the major events and transitions in the company’s history. This is achieved through their organizational culture and design which virtually throws out most traditional parameters and positions the company as an inherently creative firm. This is critical since typical industrial companies seek to reduce variation and error, while Netflix actually enhances and embraces it.

It is seen in culture, organization, products, and all aspects of the company. Combined with the culture of freedom and relative lack of oversight for employees and candid openness, there is virtually no resistance to change within Netflix. When any change occurs, leadership is vital, and it is critical that leaders and management are aligned toward the common goal, which is what occurred during the major change transition. Netflix clearly communicates the nature of change, provides expectations, and communicates to every layer within the organization. The most common factors to resistance to change are fear and insecurity, often due to lack of knowledge.

Employees at Netflix are more concerned with their performance capabilities and effectiveness rather than new changes. In fact, given the free nature of employment at the company, employees understand what is expected of them and are committed to the missions and objectives of Netflix, otherwise they simply do not work there anymore. Organizations which simply command employees are inflexible and do not receive their full value unlike Netflix which emphasizes development and freedom for employees to portray their talents (Rosenberg & Mosca, 2011).

A vital element of successful change management is understanding the values which matter to the organization. When companies are aware of the values fit with the organizational goals, they begin to make calculated and practical decisions. As a company Netflix is not exceedingly bureaucratic and much less hierarchical, that allows it to empower staff and be much more flexible to change.

By replacing rules with transparency, accountability, and trust, Netflix has most likely one of the highest rates of employee engagement among major firms of such size. The company sincerely believes in the hiring of talented individuals with reason and common sense acting as the guide to employee behavior and work (McCord, 2015). It can be argued that Netflix as an organization operates as a unified living organism, notably operating in a rapidly changing industry but also maintaining an internal organization that is known to rapidly change as well to respond to whatever market forces. Thus, Netflix emphasizes its ability for change, via its organizational culture concept. Going forward, Netflix should not modify any of these structural or cultural factors that enable ease of change. It is an unorthodox but effective model that has been working for Netflix for more than two decades and continues to push the company to innovate.

Organizational Culture

The Netflix organizational culture has some similarities to that of many technology firms is that it values employees over process. In 2009, Hastings and other top management published a manifesto of sort regarding their views on organizational structure and culture. It was highly unorthodox and discredited by many, but Netflix has shown it to work and be effective. While the Netflix employees do get significant benefits, the company’s vision of the workplace is “a dream team in pursuit of ambitious common goals” (Brooks, 2018, par. 6). These are the espoused values according to Schein’s model.

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The company places vital emphasis on teamwork, which drives its policy as well as internal politics. Staff are encouraged to share, stand up, and be transparent. This includes highly sensitive or uncomfortable topics. However, this allows the Netflix workplace to thrive as well as be increasingly diverse for women and minorities unlike other major tech companies (Brooks, 2018). Company employees are provided with guidelines, some direction, but ultimately have absolute freedom in their work, including when, where and how they choose to work. These are the artifacts based on Schein’s model. However, they are also expected to perform at an excellent level, not abuse the trust placed in them, and demonstrate usefulness to the company.

Managers are encouraged to use the so called ‘keeper test’ to determine periodically if an employee is the right fit for the company. Those who do not adhere or support the company values are removed but those who remain are highly committed, passionate, and talented employees, fostering a culture of excellence at the company (Osur, 2016). This can be considered the basic underlying assumptions according to Schein’s model.

As mentioned earlier, Netflix culture contributed to the general organizational change in the transition. The tight-knit, performance-based teams on which the company culture is built allowed for Netflix to seamlessly transition as the employees were actually driven to foster and implement these changes due to the loyalty and excellent performance. Netflix does not make major decisions unless they are fitting with the core values of the company, and the employees ultimately support these core values that promote effective change management. Therefore, Netflix’s past change initiatives, including the major transition to digital and then becoming an international entertainment company as well have also aligned with the culture. It is likely to remain the same in the future, as the culture continues to be the very core foundation of Netflix’s success and internal operations.

Structure and Design

Netflix has a unique unitary (U-form) organizational structure which maintains some level of hierarchy for purposes of executive control and direction. However, the structure design is much more horizontal compared to other hierarchical businesses of such size and scope. The design reduces the management levels needed to escalate issues or bring ideas from the bottom line to the executive leadership. Netflix also maintains a corporate structure divided by functional groups for various organizational operations, geographical divisions for managing domestic and international streaming, and divisions for the various product and operation types that it produces. This structural but modified approach accounts for the flexibility and responsiveness of the company to either change or crisis (Anderson, 2019).

Netflix organizational structure.
Figure 1: Netflix organizational structure (Anderson, 2019).

The company’s structure and design provide significant freedoms and responsibilities to employees as discussed earlier, avoiding a top-down decision-making approach. The design which contributes to its ‘no rules’ culture allows the company to be extremely flexible; thus, adjusting to major shifts and changes such as when Netflix became a full-pledged streaming platform. The structure of Netflix leaves the major decision-making to department heads and management. In a recent interview, the CEO Hastings noted that he sometimes goes for months before making major decisions. The CEO largely oversees significant strategic decisions but does not include himself in the micromanagement aspects of the various elements of the company (Bloomberg Technology, 2020).

Employees and management are expected to perform at the highest excellence but are provided the freedoms to essentially manage their own work. In terms, of change, it is evident that employees are given structure without stifling them. According to Gulati (2018), the employee freedom exists within a well-defined framework of guidelines cultivated towards the organization’s purpose. Therefore, combined with the culture, the company’s design draws heavily on the experience and expertise of both leaders and workers. It is the mid-level management and workers that inherently drive the change of major strategic initiatives. Thus, by applying their passion as well as expertise, to implement the best possible outcomes and decisions for the company’s services within their respective functional groups and responsibilities.

References

Balogun, J., & Hailey, V. H. (2004). Exploring strategic change. New York, NY: Pearson Education.

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Bloomberg Technologies. (2020). Netflix culture is ‘on the edge of chaos,’ says co-CEO [Video file]. Web.

Brooks, R. (2018). Workplace spotlight: Netflix company culture focuses on “people over process.” Web.

Gulati, R. (2018). Structure that’s not stifling. Harvard Business Review. Web.

Hosch, W. L. (2020). Netflix. Web.

Kyncl, R. (2017). The inside story of how Netflix transitioned to digital video after seeing the power of YouTube. Vox. Web.

McCord, P. (2014). How Netflix reinvented HR. Harvard Business Review, 92(1), 71-76. Web.

Osur, L. (2016). Netflix and the development of the internet television network [Disseration]. Web.

Pant, V., & Yu, E. (2018). Conceptual modeling to support the “larger goal” pivot – An example from Netflix. In R. Buchmann, D. Karagiannis, & M. Kirikova (Eds.), The practice of enterprise modeling. PoEM 2018. Lecture notes in business information processing (vol. 335) (pp. 394-403). Cham, Switzerland: Springer.

Rosenberg, S., & Mosca, J. (2011). Breaking down the barriers to organizational change. International Journal of Management and Information Systems, 15(3), 139-146. Web.

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