Netflix’s Turn to Streaming through Kotter’s 8 Stage Process

Introduction

As of now, Netflix is known as the American and the world leader in online video streaming, offering its customers a wide range of products on a subscription basis. However, Netflix has first risen to prominence as a DVD rental company, and quick subscription-based DVD rentals remained its mainstay since the beginning of the 2000s (Randolph 2019). Shifting toward online streaming services, which the company’s founders perceived as the future of the industry, required enacting massive change. Kotter’s (1996) 8 Stage Process provides a suitable model to evaluate this change. The company demonstrated mixed results in creating a guiding coalition and communicating the change vision and fell short of generating short-term wins but successfully pushed forward in other respects toward an overall positive result.

Establishing a Sense of Urgency

Ensuring that the change is perceived as urgent is the first crucial step of the process according to the 8 Stage Model. In this respect, Netflix succeeded in portraying the shift toward online streaming services as urgent. In 2011, the company announced that it would separate its DVD rental services into a separate business as well as separate subscription fees for DVD and online services (Allen et al., 2014). This decision had negative effects, including customer backlash, that would be covered in the later sections of this paper. Still, it corresponded to Kotter’s (1996) principle that introducing change as urgent required bold and even risky decisions. In this respect, creating a sense of urgency was successful on Netflix’s part.

Creating the Guiding Coalition

Netflix’s result in putting together a cohesive team of effective and powerful leaders to enact change was initially mixed, but the company succeeded eventually. When the split and a change in price plans were first announced, one of the executives opposed the decision publicly, which indicated serious problems with creating a guiding coalition. Yet eventually, CEO Reed Hastings put together a team with his co-founder Mark Randolph, HR head Patty McCord, and several other high-ranking executives to enact the corrected vision (McCord, 2014). Thus, Netflix had a very rough start in building a cohesive guiding coalition but eventually succeeded at that.

Developing a Vision and Strategy

Regardless of the shortcomings of Netflix’s change, the company’s vision was one of the best aspects of its approach to change. Netflix perceived online streaming as the future of the industry and was consistently determined to reshape itself accordingly. This vision did not change or waver despite the initial setbacks, but the original strategy of splitting the company into two businesses proved short-sighted. Hastings himself referred to this particular decision as one of the greatest mistakes of his career (Jackson, 2015). Thus, the vision was very clear and consistent and free of either excessive micromanagement or authoritarianism, in full accordance with Totter’s (1996) principles. However, the original strategy required serious adjustments, such as canceling the plan to split the business.

Communicating the Change Vision

The company’s results in communicating the change vision were mixed. On the one hand, it stated clearly that it intends to focus more on the online streaming services rather than DVD rentals that constituted its mainstay previously and communicated it to the employees. On the other hand, it failed to communicate justifications for the intended structural change and the new price plans to the customers. Both measures were announced in July 2011, to an extreme backlash, and Hastings only issued an open letter explaining the measures and offering his apologies for the turmoil in September (Allen et al., 2014). Thus, the company was not very successful in communicating the vision to all stakeholders.

Empowering Employees for Broad-Based Action

Netflix fared very well in terms of empowering employees, in no small degree due to its HR policies. One staple of the company’s corporate culture was a prominent emphasis on constructive criticism (Jackson, 2015). More importantly, conversations between the managers and the employees about the work process were a rule of thumb in Netflix, thus providing the employees with a way to deliver their constructive criticisms (McCord, 2014). It corresponded to Kotter’s (1996) recommendation of “helping more people to become more powerful” perfectly (p. 101). Hence, Netflix’s approach to employee empowerment was a success directly conducive to positive change.

Generating Short-Term Wins

One would look in vain for any considerable short-term wins in the initial phase of Netflix’s decisive shift toward online streaming services – in anything, the short-term results were disastrous. Approximately 800,000 customers left the company for good, dissatisfied with the decision to split it (Allen et al., 2014). The company’s share prices also declined sharply, reflecting this popular sentiment (Allen et al., 2014). Even though Netflix canceled the decision to split the company into two separate businesses oriented on DVD rentals and online streaming, its reputation was already damaged. Overall, Netflix’s short-term performance upon enacting change was more about damage control than generating wins.

Consolidating Gains and Producing More Change

In contrast, the company fared much better in the mid-term and long-term perspectives. By 2013, it has fully recovered from the 2011 backlash. Its stock price tripled in that year alone, and its customer base grew to 29 million, as opposed to 23 million two years before (McCord, 2014). More importantly still, the company managed to maintain the momentum by diligently expanding beyond American Market and, by 2018, its customer base totaled 137 million worldwide (Profit&, 2019). Thus, the company successfully evaded the danger of underestimating the work that is still before it and slowing its pace – a peril that Kotter (1996) wars extensively about. From this perspective, Netflix was very successful in consolidating its mid-term gains and pushing forward.

Anchoring New Approaches in the Culture

Successfully implementing this change and maintaining the pace over a long time required rooting the corresponding approaches in corporate culture, and Netflix succeeded in it. One of the cornerstones of Netflix’s HR management and corporate culture was only hiring fully developed adults capable of making responsible decisions (McCord, 2014). This approach, combined with the communication openness, created a positive climate for a sustained pace of change, as the new ideas and initiatives occurred more frequently and had an easier time reaching the top. As a result, there was no single person who generated all the ideas and on whom the change process hinged, and the company was able to push forward at a fairly consistent pace.

Conclusion

To summarize, Netflix’s shift to online streaming services from its previous DVD rentals mainstay was imperfect but generally successful. The company managed to create a sense of urgency, even though succeeding in building a change coalition took some time. Communicating the vision of change was flawed, resulting in a severe backlash from the customers and stockholders, and the short-term results were fairly abysmal. However, the vision was very clear and consistent, and the employees – empowered to act, which eventually transferred to impressive mid-term and long-term results. Rooting the practices necessary for change in corporate culture allowed Netflix to keep its pace and continue demonstrating positive results across a long distance.

References

Allen, G., Feils, D., & Disbrow, H. (2014). The rise and fall of Netflix: What happened and where will it go from here? Journal of the International Academy for Case Studies, 20(1), 135-144.

Jackson, A. (2015). Netflix: How Reed Hastings changed the way we watch movies & TV. Mason Crest, 2015.

Kotter, J. P. (1996). Leading Change. Harvard Business School Press.

McCord, P. (2014). How Netflix reinvented HR. Harvard Business Review, Web.

Profit&. (2019). 7 real-life examples of successful change management in business. Web.

Randolph, M. (2019). That will never work: The birth of Netflix and the amazing life of an idea. Little, Brown, and Company Publishing.

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BusinessEssay. 2023. "Netflix’s Turn to Streaming through Kotter’s 8 Stage Process." January 17, 2023. https://business-essay.com/netflixs-turn-to-streaming-through-kotters-8-stage-process/.

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BusinessEssay. "Netflix’s Turn to Streaming through Kotter’s 8 Stage Process." January 17, 2023. https://business-essay.com/netflixs-turn-to-streaming-through-kotters-8-stage-process/.