The Power of Culture

  • April 2, 2017
  • Nate
  • 0 Comments

[This is a guest post from our own Nate Straub]

Netflix is interesting.  Their HR policies are even more interesting.  I’ve viewed the Netflix Culture powerpoint at least 5 times, witnessed the adoption of the principles, and subsequently their success and failure at various firms.  While many may argue they aren’t very groundbreaking in the era of open floor plans, exercise ball chairs, and ping pong tables, we have to remember that while Netflix may not have done it first, but they did it right.

One Does Not Simply Have Awesome Office Perks

The biggest outcry of comes from disbelievers who witnessed the follies of open vacation plans and people taking advantage of otherwise generous workplace perks.  I believe that many of the issues that stemmed from the introduction of these policies were related to timing and intent.  Let’s take a moment and get some advice from a favorite Boromir meme:

All jokes aside, I think many companies have implemented things like this for all of the wrong reasons.  Open vacation wasn’t introduced at Netflix to be a perk; rather, it was introduced because they wanted to trust their employees and give them more autonomy.  That concept is core to the Netflix HR mantra and can be applied in most scenarios.  Remote work policies, travel and expense policies, you name it; most of the time proper judgement can and should be applied if the individual truly cares about the success of the organization they work for… it isn’t rocket science whether you should stay at the Waldorf or the Garden Inn.  That being said, I think it’s still important to have some level of documentation to level-set.  Depending on where people originate from, they may have certain expectations specifically about expenses that vary widely from the companies goals (such as cutting expenses or reducing cost).  Transparency from management plays a big role in the choices people make, especially when they know that those choices impact their company in a negative way.

And The Results?

Almost everyone remembers Netflix’s almost disastrous decision to split streaming and dvd into two separate entities.  The New York Times reported that “about a million customers canceled their subscriptions, while Netflix’s share price plummeted to less than $53 from $300.”  An insider look at the subsequent transformation is best stated below:

Executives said the process was challenging and required juggling two distinct cultures, one with fast-paced growth and the other in long-term decline, as well as managing intense pressure from investors and investing in new initiatives, many of which did not work.

NOTE: More information on the changes that took place can be found here.  It’s pretty interesting, through process improvement (and I’m sure some significant decline in the DVD market) they’ve managed to cut their logistics team by 75% at their Fremont location.

Since then, Netflix has shown an impressive 21.72% 5-year average EBITDA margin, compared to 3.18% in the industry and 8.68% in the S&P.  Their year over year annual revenue change has been above 20% since 2013, with an impressive 30.26% in 2016.  They smashed all of their earnings estimates in 2016 as well.  One may argue that the 5-year EBITDA average is a bad measure for Netflix due to all their off-balance sheet activity (licensing activity — both liabilities and assets — isn’t included until a title is released), however when comparing direct to competitors such as Hulu, HBO GO, and Amazon, it’s still doing extraordinarily well.  Their operating margin is also about double that of the industry average.

All of that success is predicated on the principles outlined in the Netflix Culture Powerpoint.  The company was founded in 1997 and is coming up on it’s 20th anniversary on August 29th. You can’t achieve the globalization and success that it has achieved without adopting a culture of hard work, continuous learning, and good decisions.  I’m lucky to work at a company where these things are valued, we’re compensated well — oh, and we have an open vacation policy too.

 

 

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