How Netflix Reinvented HR By Patty McCord Presented by: Maryam Halimi

Background 1997 1999 2006 2007 2011 2013 2014 2017 Founded in 1997 by Reed Hastings and Marc Rudolph as a way to rent movies online http://www.cnn.com/2014/07/21/showbiz/gallery/netflix-history/ http://money.cnn.com/2017/04/17/technology/netflix-subscribers/ https://bits.blogs.nytimes.com/2009/09/21/netflix-awards-1-million-prize-and-starts-a-new-contest/?_r=0 https://www.wired.com/2012/04/netflix-prize-costs/ http://www.nytimes.com/2011/10/25/technology/netflix-lost-800000-members-with-price-rise-and-split-plan.html

Background Netflix introduces subscription service. 1997 1999 2006 2007 2011 2013 2014 2017 Netflix introduces subscription service. Unlimited movie rentals, for one monthly fee.

Background 1997 1999 2006 2007 2011 2013 2014 2017 Netflix announces an open competition to create a new algorithm for filtering and online browsing. “Netflix Prize” of $1M is awarded to team of 7.

Background Netflix begins online streaming service. 1997 1999 2006 2007 2011 2013 2014 2017 Netflix begins online streaming service.

Background Netflix announces plans to split streaming and DVD rentals. 1997 1999 2006 2007 2011 2013 2014 2017 Netflix announces plans to split streaming and DVD rentals. Announcment of Qwikster (DVD by mail) causes a sharp decline in subscriptions. The idea is quickly abandoned by Netflix due to customer complaints.

Background Netflix invests $100M in 2 seasons of “House of Cards” 1997 1999 2006 2007 2011 2013 2014 2017 Netflix invests $100M in 2 seasons of “House of Cards” Resulted in an increase in Netflix’s exposure.

Background Netflix has more than 50M subscribers. 1997 1999 2006 2007 2011 2013 2014 2017 Netflix has more than 50M subscribers. Stock price: $400/share (10x more than in 2009)

Background Netflix nears 100M subscribers mark 1997 1999 2006 2007 2011 2013 2014 2017 Netflix nears 100M subscribers mark

Company Culture: Freedom and Responsibility How did it start? 2001 – Company forced to layoff one-third of employees due to the dot com bubble burst and the 9/11 tragedy. IPO was put on hold. Rise in DVD popularity increased subscriptions for DVD-by-mail service. Workload increased greatly, with 30% less staff to shoulder the increase. Management response: Employees that were laid off were not critical to operations. The laid off employees actually caused more work. Lesson: “The best thing you can do for employees…is hire only “A” players to work alongside them.”

The Five Tenants of Netflix’s Talent Acquisition and Management Hire, Reward, and Tolerate Only Fully Formed Adults Tell the Truth About Performance Managers Own the Job of Creating Great Teams Leaders Own the Job of Creating the Company Culture Good Talent Managers Think Like Businesspeople and Innovators First, and Like HR People Last.

Hire, Reward, and Tolerate Only Fully Formed Adults Treat your workers like adults. Instead of developing long-winded company policies, ask employees to act in the best interest of the company. Will work 97% of the time if you hire the right people. Have strict hiring criteria, and take action quickly if hiring mistakes are made. Create a company culture of honest and clear communication. For example: Vacation Policy: Take whatever time you feel is appropriate. Expense Policy: “Act in Netflix’s best interests.”

Tell the Truth About Performance Eliminated formal reviews: “too ritualistic and infrequent” No PIP’s: Performance Improvement Plans Not effective Lead to the same ending most of the time Encouraged employees to have informal and honest conversations frequently with one another (initiated by both managers and subordinates).

Managers Own the Job of Creating Great Teams Managers should start by imagining their ideal team: What accomplishments do you see the team achieving in 6 months? What skills are required to reach this goal? Does your current team meet these skill requirements? Recruit people with the right skills.

Leaders Own the Job of Creating the Company Culture Three areas that need attention: Mismatch Company ideals not matching behaviors of management. Making employees aware of what is driving the business towards success Letting employees know what exactly it take for the company to succeed. Example: Taking expenses into considering, not just revenue. Split-Personality Being aware of the differences between different departments and sectors of an organization. Example: Difference between Sales and Finance.

Good Talent Managers Think Like Businesspeople and Innovators First, and Like HR People Last. What’s good for the company? How do we communicate that to employees? How can we help every worker understand what we mean by high performance? Lesson: Expectations should be clear, for both management, and employees.

Key Takeaways Netflix strongly emphasizes: Working towards the benefit of Netflix. Creating ideal teams with “A” workers. Correcting hiring mistakes quickly. Treating employees like adults. Think like businesspeople, not HR people.

Conclusion When you hire the right employees, you can treat them like adults and expect them to use common sense 97% of the time.

Quiz What is Netflix’s Expense Policy? What realization did Netflix have in 2002, after it’s initial layoff? What is Netflix’s key approach towards management of employees?

Quiz Answers Act in Netflix’s best interests. That company performance is not dependent on the number of employees, but by the performance of the individual employees. Treat employees like adults.