Sample A Business Management Ee

IB Diploma Programme 2017-2018
Netflix’s Corporate Culture and Leadership Style
To what extent can Netflix attribute their success to
their corporate culture and leadership style?
SESSION: NOVEMBER 2018
IB SUBJECT OF ESSAY: BUSINESS AND MANAGEMENT
WORD COUNT: 3992 WORDS

Table of Contents
INTRODUCTION..................................................................................................................3
About the Company.....................................................................................................................3
About the Research Question......................................................................................................4
About Netflix’s Financial Success..................................................................................................5
METHODOLOGY.................................................................................................................5
NETFLIX’S SUCCESS.............................................................................................................6
Defining Success...........................................................................................................................6
Netflix’s Financial Data and Ratio Analysis...................................................................................7
NETFLIX’S CORPORATE CULTURE........................................................................................9

Blake and Mouton’s Managerial Grid.........................................................................................10
Maslow’s Hierarchy of Needs.....................................................................................................11
People not processes..................................................................................................................12
Further Analyzing the Culture at Netflix.....................................................................................15
NETFLIX’S LEADERSHIP STYLE...........................................................................................16

A Leader.....................................................................................................................................16
About Netflix’s Leadership style.................................................................................................16
Shared decision making..............................................................................................................18
Daniel Pink’s Theory...................................................................................................................19
Analyzing the data gathered......................................................................................................22
CONCLUSION....................................................................................................................23
BIBLIOGRAPHY.................................................................................................................25
APPENDICES.....................................................................................................................31
Appendix A:................................................................................................................................31
Appendix B.................................................................................................................................32
2
INTRODUCTION
About the Company
Netflix was started in 1997, by Reed Hastings and software executive Marc Randolph. The
company’s main focuses and aims are to provide an online streaming platform to consumers
to watch a number of various entertainment sources, for example, movies and documentaries
which they can view on an electronic device of their choice. 1 Over the years, under the
amazing corporate culture and leadership that have been fermented over the years, it has
grown into the multinational company that it is today, grossing a tremendous value of around
4 billion dollars at the end of 2017. 2 When looking at Netflix’s logo in Figure 1, the letter
“N” revolves around the concept of providing never-ending stories to their customers.3
Figure 1, Netflix’s logo 4
1
“About Netflix.” Netflix Media Center, media.netflix.com/en/about-netflix. Date Accessed: 20 September
2017
2
“Financial Statements.” Netflix - IR Overview - Long-Term View,
www.netflixinvestor.com/financials/financial-statements/default.aspx. Date Accessed: 13 March 2018
3
Netflix Brand Site, partner.netflix.com/en/assets/brand-symbol/. Date Accessed: 24 July 2018
4
Netflix Brand Site, partner.netflix.com/en/assets/brand-logo/. Date Accessed: 24 July 2018
Although Netflix operates in a dense market, it has been able to retain a majority of the
market share due to the fact that they are a very large company with immense resources5 and
gives its main priorities towards the employees and this can be seen by allowing them to
make many decisions in the company.6 Even though most of the other company cultures
revolve around strict rules and regulations and red tape, Netflix’s culture is more of an open
and flexible culture that focuses on performance and giving flexibility to its employees rather
than focusing on rules and regulations.7 The leadership style also revolves around this
culture, therefore, this has led me to form the research question of this study to be “To what
extent can Netflix attribute their success to their corporate culture and leadership style?”
About the Research Question
To a large extent, I find this RQ to be important as it helps to analyze this multinational
corporation’s incredibly unique way of human resource management. Netflix’s culture and
leadership are different from most companies in the world and yet they are doing well and
this can be seen in their growing number of subscribers. I believe that corporate culture and
leadership style has a direct effect on Netflix’s increasing success despite its flexibility which
is unique and admirable thus the importance of the role of culture and leadership is analyzed
through the aforementioned research question.
5
Lynley, Matthew. “Netflix Nears a $150B Market Cap as Its Subscribers Continue to Balloon.” TechCrunch,
TechCrunch, 16 Apr. 2018, techcrunch.com/2018/04/16/netflix-nears-a-150b-market-cap-as-its-subscribers-
continue-to-balloon/. Date Accessed: 19 May 2018
6
Venkatraman, Rohini. “Why Netflix CEO Reed Hastings Takes Pride in Every Decision He Doesn't Make.”
Inc.com, Inc., 25 Apr. 2018, www.inc.com/rohini-venkatraman/why-netflix-ceo-reed-hastings-takes- pride-
in-every-decision-he-doesnt-make.html. Date Accessed:19 July 2018
7
“Culture At Netflix | Netflix Jobs.” We Are Netflix, jobs.netflix.com/culture. Date Accessed: 20 September
2017
About Netflix’s Financial Success
Over the years, Netflix has been able to increase the amount of revenue and profits that it has
been making and being able to grow from a simple DVD rental service back in 1998 to a
multinational corporation streaming service.8 Coupled with this, they have been able to
produce their own content, which has helped to lower their own costs as they do not have to
buy their premium content from third-party production companies.9 Their financial success
can be seen by their increase in net profit from 122,641,000 in 2015 to 558,929,000 in
2017.10
Hypothesis
A culture surrounding freedom and flexibility with shared decision making is important for
the success of a company. With such a culture, employees feel valued and trusted
contributing in a better way towards the company’s success by means of new methods and
innovations. This could help to improve the quality of services creating more customer value.
METHODOLOGY
In order to back up all the claims made throughout the course of this extended essay, a wide
range of secondary data has been utilized. This includes articles about Netflix’s corporate
culture, leadership style and financial success. Being a public limited company, Netflix’s
recent financial statements are available and therefore, have been analyzed in the essay. This
8
“Netflix's History: From DVD Rentals to Streaming Success - BBC Newsbeat.” BBC, BBC, 23 Jan. 2018,
www.bbc.co.uk/newsbeat/article/42787047/netflixs-history-from-dvd-rentals-to-streaming-success. Date
Accessed: 18 July 2018
9
Bushey, Ryan. “How The $400 Million Loan Netflix Just Took Out Will Help It Undercut
Hollywood.” Business Insider, Business Insider, 5 Feb. 2014, www.businessinsider.com/why-netflix-makes-its-
own-shows-2014-2/?IR=T. Date Accessed: 18 May 2018
10
5
investigation into Netflix’s human resources element of the business and their successes have
been tackled by analyzing profitability ratios of Netflix, Blake and Mouton’s managerial grid
and discussion of Maslow’s and Pink’s motivational theories.
NETFLIX’S SUCCESS
Defining Success
Success refers to the accomplishment of an aim or purpose.11A company can choose to
measure their success based on a number of factors such as growing sales revenue, customer
satisfaction or number of employees.12 To Netflix, the most important way to measure the
success of the business is simply, the subscriber count 13 as with an increase in subscribers,
their sales revenue increases which helps to identify their profitability and measure their
financial success.
A business’s success can be measured in terms of the following. 14
1) Financial Success Revenue, Profitability and Liquidity
2) Customer satisfaction Customer complaints and reviews
3) Increase in the number of new customers Increase in sales, number of new subscribers
11
“Success | Definition of Success in English by Oxford Dictionaries.” Oxford Dictionaries | English, Oxford
Dictionaries, en.oxforddictionaries.com/definition/success. Date Accessed: 30 July 2018
12
Markowitz, Elliot. “Five Ways to Measure Your Company's Success.” Channel Futures, 28 Feb. 2013,
www.channelfutures.com/best-practices/five-ways-measure-your-companys-success. Date Accessed: 23 July
2018
13
McAlone, Nathan. “How Netflix Measures Success.” Business Insider Singapore, Business Insider Singapore,
2 Feb. 2016, www.businessinsider.sg/netflixs-most-important-metric-2016-2/?r=US. Date Accessed: 25 July
2018
14
Kappel, Mike. “6 Ways To Measure Small Business Success.” Forbes, Forbes Magazine, 8 Mar. 2017,
www.forbes.com/sites/mikekappel/2017/03/08/6-ways-to-measure-small-business-success/. Date Accessed: 6
May 2018
6
4) Employee satisfaction Performance review
5) Stay current on the market Innovations and advancements
6) Owners expectation Expectation vs outcome
Netflix’s Financial Data and Ratio Analysis15
Extracts from the income statement and balance sheet will be used along with ratios to
analyze Netflix’s financial success over the last 3 years.
Summarized Financial Information of Netflix
(in thousands) 2015 ($) 2016 ($) 2017 ($)
Sales Revenue 6,779,511 8,830,669 11,692,713
Gross Profit 2,188,035 2,800,768 4,033,047
General and Administrative Expenses 407,329 577,799 863,568
Operating Profit 305,826 379,793 838,679
Net Profit 122,641 186,678 558,929
Capital Employed 6,673,247 8,999,953 13,546,430
Cash and Cash Equivalent 1,809,330 1,467,576 2,822,795
As seen in the table above it is clear that the financial performance of Netflix has improved
over the years as it can be seen by an increase in sales revenue which could be attributed to
the customer retention and the additional subscribers who have subscribed to Netflix.
15
16
As seen in the graph above there has been a gradual increase in the number of subscribers
over the years which currently stands at 125 million people as of the first quarter in 2018.
Ratios
2015 (%) 2016 (%) 2017 (%)
Gross Profit Margin 32.27 31.72 34.49
Net Profit Margin 4.51 4.3 7.17
Return on Capital Employed 4.58 4.22 6.19
As seen from the statistics above, the profitability ratios have improved which shows that as
of 2017 the gross profit margin was 34.49% which has improved gradually together with the
net profit margin which has moved up from 4.51% in 2015 to 7.17% as of 2017. The
16
“Number of Netflix Subscribers, Users 2018.” Statista, www.statista.com/statistics/250934/quarterly-number-
of-netflix-streaming-subscribers-worldwide/. Date Accessed: 25 July 2018
8
financial success was largely due to the valuable contributions of its employees due to their
motivation as a result of the open and flexible culture that had led to the innovative programs
adding value to Netflix’s brand.
Therefore, the owner’s expectations for Netflix have surpassed what he expected. This is
clear as the value of Netflix amounted to $100 billion as of January 2018 even though it
started off as a basic online DVD rental company in 2008.17 This success has been attributed
to Hastings policies of giving freedom and flexibility which has motivates its employees
reduced bureaucracy and contributed to its success. 18
NETFLIX’S CORPORATE CULTURE
Netflix has a unique corporate culture, one that many companies might see as unorthodox and
not suitable for their business. Netflix’s corporate culture values integrity, excellence, respect
and collaboration. The leader himself emphasizes the importance of this.
The focus of Netflix's culture centers around
1. Independent decision making by employees
2. Employees sharing information with each other
3. Retaining the most talented and extraordinary people
4. Avoiding strict rules and regulations 19
17
“Netflix's Value Just Hit $100 Billion Thanks to Big Subscriber Gains.” Fortune, Fortune,
fortune.com/2018/01/22/netflix-earnings-subscriber-growth-100-billion/. Date Accessed: 20 July 2018
18
Tiwari, Aditya. “Netflix Employees Are The Happier Than Google, Facebook, And Microsoft
Employees.” Fossbytes, Fossbytes, 2 Nov. 2017, fossbytes.com/netflix-employees-happiest-google-facebook-
microsoft/. Date Accessed: 19 July 2018
19
2017
9
Blake and Mouton’s Managerial Grid
Through the use of this tool, it is evident that when analyzing Netflix that they have equal
concerns about both the results and the people. Thus, they can be categorized as Team
Management. 20 This means that Netflix appreciates talented people and this is clear as they
only hire high-quality employees who help to generate high-quality products which, therefore
appeases Netflix’s concern for results so as to keep their customers satisfied. 21
The flexible culture and freedom given to employees together with Netflix’s concern for the
task is much better as Netflix can ensure that their two stakeholders who are its employees
and customers are kept satisfied.
20
“The Blake Mouton Managerial GridLeading People and Producing Results.” From MindTools.com, Mind
Tools, www.mindtools.com/pages/article/newLDR_73.htm. Date Accessed: 2 August 2018
21
Kruse, Kevin. “Netflix Has No Rules Because They Hire Great People.” Forbes, Forbes Magazine, 9 Jan.
2017, www.forbes.com/sites/kevinkruse/2016/09/05/netflix-has-no-rules-because-they-hire-great-people/. Date
Accessed: 8 May 2018
Maslow’s Hierarchy of Needs
This theory discusses that humans are motivated to satisfy 5 basic needs. Theorized by
Maslow, the theory’s focus is on the 5 different needs that employees require that is shown in
the diagram below.22
Self-Actualisation
Esteem Needs
Social Needs
Security Needs
Physiological Needs
Figure 2, Maslow’s Hierarchy of Needs23
With good remuneration being paid as seen by its employees agreeing to a fair pay24,
employees can fulfill their basic necessities, achieving their physiological needs. As long as
the employees are high performers their job is relatively safe.25 With unlimited holidays and
some vacation paid for, employees are able to fulfill their social needs. These social needs are
22
Hoang, Paul. Business Management. IBID Press, 2014. Date Accessed: 16 November 2017
23
24
Swanner, Nate. “Netflix Shows Perks Matter as Much as Pay.” Dice Insights, Dice, 14 Nov. 2017,
insights.dice.com/2017/11/08/netflix-perks-pay-packages/. Date Accessed: 24 July 2018
25
Stenovec, Timothy. “One Huge Reason For Netflix's Success.” The Huffington Post, TheHuffingtonPost.com,
7 Dec. 2017, www.huffingtonpost.com/2015/02/27/netflix-culture-deck-success_n_6763716.html. Date
further met through teamwork that is encouraged. With the valuable and high performers
being promoted, the esteem needs are met which leads to a higher level of intrinsic and
extrinsic motivation, leading to better performance and contributing towards Netflix’s
success. 26
People not processes
Netflix has gradually eliminated the strict rules and regulations and made it very flexible for
employees to feel more comfortable so that they would want to perform better by themselves.
However, Netflix believes that the absence of rules makes it easier for them that has led to
their success. 27 Rather than focusing on rules, Netflix invests its time and resources towards
hiring high performing employees and rewards them continuously and eventually weeding
out low performers. 28
By hiring the most qualified and high performers they are able to reduce the rules as these
employees would handle the activities efficiently and the unnecessary rules can be avoided.
Offering unlimited vacation for its employees was one such policy that puts back the rules
aside but this does not mean that they have the entire freedom of taking unlimited holidays
but they are able to take it in a more responsible way. For example, accountants were asked
to be in office during the beginning and end of the quarter when the financial reporting is
required. 29 This gives them a degree of responsibility and flexibility at the same time.
26
27
28
2017
29
However, the data gathered was published by Netflix and thus the extent to which freedom is
given to the employees might be exaggerated to show the benefits of working at Netflix to
attract more talented employees.
By simply hiring the most exceptional employees, Netflix is able to have a trusted, valued
relationship with their employees. They also do this by offering 360-degree appraisal and
compliment their employees with numerous fringe benefits. 30 In doing so, they have
managed to attract the best employees whom are motivated to come to work every day,
striving to make the company’s customers happy.31 This unorthodox corporate culture is
clearly seeming to be working as this has resulted in a rise in sales revenue year by year. 32
Netflix offers flexibility to their employees by giving its employees the ability to take as
much as leave as they want, whenever they want as long as their supervisors are aware and
they have met their work-related goals and targets. 33
They also eliminated the formal method of controlling expenses on travel and rather
implemented ‘Act in Netflix’s best interests.’ 34 This means that employees could spend but,
with that statement in mind, they would not excessively spend. This makes employees feel
30
“Netflix and Accenture Have Reappraised Performance Appraisals; Have You?” ETS, 27 Apr. 2018,
www.etsplc.com/netflix-and-accenture-have-reappraised-performance-appraisals-have-you/. Date Accessed: 19
July 2018
31
Carbon60. “How Netflix Hire the Best People and Keep Them.” Carbon60, 5 Oct. 2017,
www.carbon60global.com/blog/how-netflix-hire-the-best-people-and-keep-them. Date Accessed: 20 May 2018
32
33
Pink, Daniel H. “Netflix Lets Its Staff Take as Much Holiday as They Want, Whenever They Want - and It
Works.” The Telegraph, Telegraph Media Group, 14 Aug. 2010,
www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/7945719/Netflix-lets-its-staff-take-
as-much-holiday-as-they-want-whenever-they-want-and-it-works.html. Date Accessed: 25 September 2017
34
Parr, Alissa. “7 Aspects of Netflix's Company Culture That You'll Want to Copy.” Client Study: General
Electric Hiring Large Volumes with Application System and Pre-Employment Tests,
www.selectinternational.com/blog/7-aspects-of-netflixs-company-culture-that-youll-want-to-copy. Date
Accessed: 19 October 2017
that the fringe benefits are not merely provided for the sake of it but rather for them to enjoy
and use the funds provided by the company to enjoy themselves, but with a sense of
responsibility so that they do not overspend.35
Furthermore, as these travel expenses are meant for all employees they feel that they are
treated equally and will put in equal effort. According to Adams equity theory, people
maintain a fair relationship between the performance and rewards in comparison to other. 36
Therefore, Netflix’s employees would put as much effort as their colleagues to better
contribute towards the company’s success and thus, creating a greater level of trust and
making them feel valuable in the organization that they work for.37
However, there were a hand few employees who would over spend as there was no limit
which increased the costs, but the majority of them spent the money carefully. Overall, the
program of offering more flexibility was a success and most of the employees acted
responsibly. Netflix believed that companies spend time coming up with rules and regulations
for the 3% of employees who require the rules and ignore the needs of the remaining 97%.
However, Netflix focuses on looking after the most important workers that they require and
believe in carrying out the recruitment process that focuses on excluding the hiring of the 3%
of employees who might not be of use to the company. 38
35
Schneider, Laura. “Netflix Careers and Opportunities.” The Balance Careers, The Balance Careers,
www.thebalancecareers.com/netflix-careers-and-opportunities-2071317. Date Accessed: 4 August 2018
36
“What Is Adam's Equity Theory? Definition and Meaning.” Business Jargons, 13 June 2016,
businessjargons.com/adams-equity-theory.html. Date Accessed: 20 July 2018
37
Healey, Bianca. “Netflix and Trust: Why This Is the Number One Hiring Trend.” HRM Online, 12 Jan. 2017,
www.hrmonline.com.au/section/featured/netflix-trust-number-one-hiring-trend/. Date Accessed: 26 April 2018
38
“Netflix's Expense Policy Is The Exception-Not the Rule: This Week in the Back Office.” PEX, 17 June 2016,
www.pexcard.com/blog/netflix-s-expense-policy-is-the-exception%E2%80%94not-the. Date Accessed: 4
August 2018
Further Analyzing the Culture at Netflix
Netflix’s culture is further emphasized by encouraging an honest relationship between
employees so as to create bonds between them, cohesiveness and above all, teamwork.39
They do this by getting employees to start having conversations with one and another in their
teams by introducing a “start, stop, continue” dinner. During the dinner, everyone in the team
has to give feedback on another, to each other’s faces.40 They say what is truly on their mind
and in doing so, their feelings do not get bottled up. They say something that they want their
colleague to start, stop and continue doing and it helps to create a more trustworthy and
cohesiveness relationship between employees and this helps with teamwork as the employees
have learnt to trust one another.41 Although saying these difficult statements, especially to the
person’s face may seem daunting, Netflix even goes out on a limb to encourage employees
not to spare their bosses which may seem increasingly challenging. Another method is by
conducting the keeper test which is where employees can walk up to their boss and question
about the implications of them leaving the firm and what they can do to change their mind. 42
While other companies want their employees to feel part of a “family”, Netflix does not want
that but instead wants employees to feel a part of sport team. Reed Hastings believe that this
is more beneficial as between team players there is often lot of warmth and when a new
player is introduced, everyone tries to help them. This is the culture that is cultivated in the
39
“Culture At Netflix | Netflix Jobs.” We Are Netflix, jobs.netflix.com/culture. Date Accessed: 20 February
2018
40
Huspeni, Andrea. “6 Things You Need to Know About How Netflix Built Its Powerful
Culture.” Entrepreneur, Entrepreneur, 29 June 2017, www.entrepreneur.com/article/296209. Date Accessed: 26
April 2018
41
April 2018
42
offices of Netflix. He believes that a “family” like structure of lifetime employment and
unconditional support is not good for business as then employees might slack off as they feel
as they will always be part of Netflix despite their work performance which will negatively
affect company. 43
NETFLIX’S LEADERSHIP STYLE
A Leader
A leader is a person who influences others towards achieving the shared goals of the
organization. He/she helps influencing the behavior of people, helps followers fulfill their
needs, introduces new changes, helps solving conflicts effectively and ensures that his
subordinates are trained and have the proper skills. 44 Netflix’s leader CEO, Reed Hastings
has been an inspiration to the employees and has been the reason behind the success of
Netflix in transforming the DVD store in 1998 to multinational company that generated
$11.69 billion worth of revenue in 2017.45
About Netflix’s Leadership style
The leadership style that is adopted at Netflix follows the teachings of their influential CEO,
Reed Hastings. He has incorporated core values such as staying ahead of the competition, the
belief that employee and freedom work together as well as the realization that getting bigger
does not defiantly mean getting worse. He has passed these ideas down throughout the chain
43
April 2018
44
“What Is the Importance of Leadership in Any Organisation?” Your Article Library, 16 Dec. 2013,
www.yourarticlelibrary.com/leadership/what-is-the-importance-of-leadership-in-any-organisation/1014. Date
45
“Netflix: Annual Revenue 2017 | Statistic.” Statista, www.statista.com/statistics/272545/annual-revenue-of-
netflix/. Date Accessed: 25 July 2018
of command, so that no matter where you work at Netflix, this is the mindset of any great
leader.46 In working at Netflix, a situational leadership can be identified as one can argue that
in certain cases, the leadership style is of democratic in nature while in others, it is of a
laissez-faire leadership style.
Reed Hastings has focused on two main aspects namely freedom and responsibility. He has
given a lot of freedom and room for mistakes to his employees encouraging them to
contribute towards decisions.47 This was seen by the statement made by Reed Hastings “Our
general model of freedom and responsibility, having amazing talent density, giving people
great freedom and room to make mistakes has been successful for technology, marketing, and
original content”. 48 This would encourage employees to continuously generate ideas and
innovative methods which could be beneficial for the company.
Hastings’ never give up attitude can be seen by after his failure in trying to launch Pure
Software, he went on to learn from the mistake of having too many rules and trying to find
ways to prevent mistakes from happening by setting rules and procedures. He found that this
was not likely to work and having strict policies was only going to wear out the hardworking
and highly skilled people eventually. 49 When he started Netflix, he aimed at focusing on the
people and culture rather than the rules and regulations. By doing so, Netflix was able to find
46
“Netflix Founder Reed Hastings: Make as Few Decisions as Possible.” Stanford Graduate School of
Business, www.gsb.stanford.edu/insights/netflix-founder-reed-hastings-make-few-decisions-possible. Date
47
Roettgers, Janko. “How Netflix Ticks: Five Key Insights From the Company's New Corporate Culture
Manifesto.” Variety, Variety, 21 June 2017, variety.com/2017/digital/news/netflix-company-culture-document-
1202474529/. Date Accessed: 27 July 2018
48
April 2018
49
April 2018
success and compete directly with well-established firms like HBO. 50
Shared decision making
Reed Hastings prides himself delegating authority to his employees to carry out the decision
making and processes. This means that the managers and employees who are delegated work
and empowered would feel motivated and contribute effectively. This was seen by the
success of the TV series launched by Netflix known as “House of Cards”. According to
Hastings, he gave the project the green light after a meeting that only lasted for 30 minutes
which meant that the employees themselves had taken the responsibility to ensure that
everything was in place and only required Hastings for the final sign off for approval. To
ensure that the decisions are effective, they needed to employ the most talented people which
is seen by their focus to recruit and retain only the best. This was further confirmed by the
fact that Hastings stated that they turned down a lot of people and take time to hire the best.51
It was identified that Netflix’s employees were the most satisfied employees in terms of
compensation and job satisfaction. Employees had mentioned that they were highly satisfied
with the company and would not opt to leave their jobs and would opt to stay in that position
as compared to the employees at Netflix’s competitors. This was mainly due to the freedom
and flexibility given to them regarding working hours, holiday entitlements and team
working culture.52
50
April 2018
51
“Netflix Founder Reed Hastings: Make as Few Decisions as Possible.” Stanford Graduate School of Business,
www.gsb.stanford.edu/insights/netflix-founder-reed-hastings-make-few-decisions-possible. Date Accessed: 14
October 2017
52
Tiwari, Aditya. “Netflix Employees Are The Happier Than Google, Facebook, And Microsoft
Employees.” Fossbytes, Fossbytes, 2 Nov. 2017, fossbytes.com/netflix-employees-happiest-google-facebook-
microsoft/. Date Accessed: 19 July 2018
Netflix has been successful in its innovations as seen by their continuous involvement in
introducing unique services to engage their customers better. An example is the UI upgrade
which has made it easier for subscribers to help them decide faster on what they should watch
rather than having to scroll through lists. This innovation is one of the many including
allowing its consumers to download content on their mobile devices to view their revenue
generating television series such as Stranger Things. 53 These innovations have been made
possible through the flexible shared decision-making platform given to Netflix’s employees.
Daniel Pink’s Theory
According to Pink, three elements were stated to create intrinsic motivation which included
Autonomy, Mastery and Purpose. 54
Autonomy
Autonomy refers to the desire to direct their own lives. Pink centered autonomy around four
aspects namely time, technique, team and task. As for time, it focuses on allowing employees
to have flexibility over when they can complete the tasks and focus on output rather than the
time. Regarding technique, it was seen that employees should be provided the initial guidance
on how to complete the task and then be left to tackle the project in the way they are most
comfortable. Concerning teams, employees choose the people they want to work with. Lastly,
task refers to allowing employees to have regular creative days where they can work on the
project or problem they wish to solve.55
53
Fast Company Staff. “Why Netflix Is One Of The Most Innovative Companies Of 2017.” Fast Company, Fast
Company, 19 Apr. 2017, www.fastcompany.com/3067462/why-netflix-is-one-of-the-most-innovative-
companies-of-2017. Date Accessed: 17 May 2018
54
55
“Motivation - Pink (Three Elements of Intrinsic Motivation) | tutor2u Business.” tutor2u,
www.tutor2u.net/business/reference/motivation-pink-three-elements-of-intrinsic-motivation. Date Accessed: 14
July 2018
Reed Hastings believes that talented people will thrive when they are let alone which led to
him introducing the culture of independence. At Netflix, they can complete the tasks the way
they wish to do so and regarding flexibility in terms of timings and carry out tasks without
having managers to track them.56
Hasting’s prides himself in making few decisions as possible and lets his team come up with
the ideas which he has stated has led to Netflix’s success and its sales revenue exceeding
$11.7 billion last year and has also overtaken the well-established cable television.57
Mastery
Mastery refers to continuously improving on something that matters. According to Pink, a
lack of opportunity to prove themselves by tackling complicated staff could make them bored
and demotivate them. Thus, he centered mastery around four aspects which included
autonomy, clear goals, immediate feedback and Goldilocks tasks. 58
At Netflix, they take time in hiring the most talented and innovative employees who would
go ahead and improve on things and engage in continuous learning. 59Adequate performance
is also said to be rewarded with a severance package further motivating employees an
opportunity to master themselves. This is possible, given that they hire people who have good
judgement, communicate effectively and are innovative. Managers at Netflix are encouraged
56
“At Netflix, Autonomy above All Else.” Business Management Daily, 13 Apr. 2017,
www.businessmanagementdaily.com/48674/at-netflix-autonomy-above-all-else. Date Accessed: 18 May 2018
57
Quito, Anne. “Netflix's CEO Says There Are Months When He Doesn't Have to Make a Single
Decision.” Quartz at Work, Quartz, 19 Apr. 2018, work.qz.com/1254183/netflix-ceo-reed-hastings-expounds-
on-the-netflix-culture-deck-at-ted-2018/. Date Accessed: 24 July 2018
58
“Netflix Founder Reed Hastings: Make as Few Decisions as Possible.” Stanford Graduate School of Business,
www.gsb.stanford.edu/insights/netflix-founder-reed-hastings-make-few-decisions-possible. Date Accessed: 14
October 2017
59
to set strategies, define metrics, clearly define roles and be transparent around decision
making. The mentality at Netflix is to have apparent strategies and goals across the company
and within teams. This gives them the ability to master the process and contribute more
productively.60 Given that Netflix also would work hard to retain employees and fight to keep
the high performing employees through the keeper’s test, they ensure that the valuable asset
to Netflix which is their skilled employees remain.61
Purpose
Purpose refers to the desire to do things that matter and where there is a precise meaning to
doing it. Making a difference is more important rather than having the primary aim of
maximizing profits.62 To ensure that employees have a sense of intrinsic motivation through
having a purpose it requires that the mission and goals of the organization are properly
communicated to employees and they know what is going on. 63 Employees are required to
know the importance that they play in the organization so that they feel that there is a purpose
for working hard. 64
At Netflix, they pride themselves on retaining the best and giving them the flexibility
regarding completing the tasks. Employees are provided with clearly defined goals and are
trained to work towards innovation as they are given a reward in the form of better pay if
60
61
“The Netflix 'Keeper Test'... And the Courage to Take It.” Lornerubis.com, www.lornerubis.com/2015/08/the-
netflix-keeper-test-and-the-courage-to-take-it/. Date Accessed: 19 July 2018
62
“What Motivates Us?” Harvard Business Review, 16 July 2015, hbr.org/2010/02/what-motivates-us.html.
Date Accessed: 16 July 2018
63
“Communicating Your Organization's Mission and Vision.” Communicating Corporate Mission and Vision |
ClearCompany, bestpractices.clearcompany.com/company-mission/index.html. Date Accessed: 14 May 2018
64
2017
they perform well. This is seen by the severance pay for high performers and the possibilities
of bargaining more for pay if they perform well encouraging them to be more productive.
Analyzing the data gathered
The data gathered from online articles were mostly company specific articles prepared by
Netflix, which showed the positive aspects of the company. There was very little information
about the negative aspects of the company, making the information biased. Furthermore, the
financial performances are for the previous years and therefore, is not a clear indication of the
future performance as sudden changes in the external environment can affect operations. The
flexible culture has been viewed as the most useful culture for Netflix because nothing has
gone wrong as yet. However, it is important to note that this does not guarantee that
everything would be smooth in the future for Netflix.

CONCLUSION
In response to the research question “To what extent can Netflix attribute their success to
their corporate culture and leadership style?”, it could be deduced that the corporate culture
and leadership style of Netflix has contributed significantly towards its success including its
financial success and innovations and becoming a market leader.
It was seen that the flexibility, freedom and trust given to employees by Netflix had improved
their performance contributing towards the company’s success. In 1998, Netflix was just a
DVD rental store which has transformed into a multinational giant that generated revenue of
$11,692,713,000 in 2017, despite giving employees so much freedom that hardly any
company would do. 65
Despite this success, the negatives of such an open culture and the freedom given by the
leader cannot be overlooked. This is because some would take advantage of this which could
affect Netflix negatively. Nevertheless, the ability to contain the adverse effects is something
that is admirable in its leader Reed Hastings. With an increase in Netflix’s revenue and
profitability and an increase in the number of subscribers that has led to a rise in its market
share, one could contend that the corporate culture and leadership that forms the core of
Netflix has been behind its success.
Given the above and the growing focus on open and flexible cultures, the essay concludes
that Netflix’s culture and the leader’s style has contributed towards its success. By reducing
65
““Financial Statements.” Netflix - IR Overview - Long-Term View,
the variables and focusing on the main aspects of culture and choosing the most appropriate
sources, the 4000-word count constraint was made use of expertly. However, there is a scope
for future research to be carried out to analyze the changes that are happening in the external
and internal environment and its effects on Netflix’s success and the possibility of analyzing
other areas of concern rather than just focusing on corporate culture and leadership style.
BIBLIOGRAPHY
Books:
1. Hoang, Paul. Business Management. IBID Press, 2014. Date Accessed: 16 November
2017
Websites:
1. “About Netflix.” Netflix Media Center, media.netflix.com/en/about-netflix. Date
Accessed: 20 September 2017
2. “At Netflix, Autonomy above All Else.” Business Management Daily, 13 Apr. 2017,
www.businessmanagementdaily.com/48674/at-netflix-autonomy-above-all-else. Date
3. Bushey, Ryan. “How The $400 Million Loan Netflix Just Took Out Will Help It
Undercut Hollywood.” Business Insider, Business Insider, 5 Feb. 2014,
www.businessinsider.com/why-netflix-makes-its-own-shows-2014-2/?IR=T. Date
4. Carbon60. “How Netflix Hire the Best People and Keep Them.” Carbon60, 5 Oct.
2017, www.carbon60global.com/blog/how-netflix-hire-the-best-people-and-keep-
them. Date Accessed: 20 May 2018
5. “Communicating Your Organization's Mission and Vision.” Communicating
Corporate Mission and Vision | ClearCompany,
bestpractices.clearcompany.com/company-mission/index.html. Date Accessed: 14
May 2018
6. “Culture At Netflix | Netflix Jobs.” We Are Netflix, jobs.netflix.com/culture. Date
Accessed: 20 September 2017

7. Fast Company Staff. “Why Netflix Is One Of The Most Innovative Companies Of
2017.” Fast Company, Fast Company, 19 Apr. 2017,
www.fastcompany.com/3067462/why-netflix-is-one-of-the-most-innovative-
companies-of-2017. Date Accessed: 17 May 2018
8. “Financial Statements.” Netflix - IR Overview - Long-Term View,
www.netflixinvestor.com/financials/financial-statements/default.aspx. Date Accessed:
13 March 2018
9. Healey, Bianca. “Netflix and Trust: Why This Is the Number One Hiring
Trend.” HRM Online, 12 Jan. 2017, www.hrmonline.com.au/section/featured/netflix-
trust-number-one-hiring-trend/. Date Accessed: 26 April 2018
10. Huspeni, Andrea. “6 Things You Need to Know About How Netflix Built Its
Powerful Culture.” Entrepreneur, Entrepreneur, 29 June 2017,
www.entrepreneur.com/article/296209. Date Accessed: 26 April 2018
11. Kappel, Mike. “6 Ways To Measure Small Business Success.” Forbes, Forbes
Magazine, 8 Mar. 2017, www.forbes.com/sites/mikekappel/2017/03/08/6-ways-to-
measure-small-business-success/. Date Accessed: 6 May 2018
12. Kruse, Kevin. “Netflix Has No Rules Because They Hire Great People.” Forbes,
Forbes Magazine, 9 Jan. 2017, www.forbes.com/sites/kevinkruse/2016/09/05/netflix-
has-no-rules-because-they-hire-great-people/. Date Accessed: 8 May 2018
13. Lynley, Matthew. “Netflix Nears a $150B Market Cap as Its Subscribers Continue to
Balloon.” TechCrunch, TechCrunch, 16 Apr. 2018,
techcrunch.com/2018/04/16/netflix-nears-a-150b-market-cap-as-its-subscribers-
continue-to-balloon/. Date Accessed: 19 May 2018

14. Markowitz, Elliot. “Five Ways to Measure Your Company's Success.” Channel
Futures, 28 Feb. 2013, www.channelfutures.com/best-practices/five-ways-measure-
your-companys-success. Date Accessed: 23 July 2018
15. McAlone, Nathan. “How Netflix Measures Success.” Business Insider Singapore,
Business Insider Singapore, 2 Feb. 2016, www.businessinsider.sg/netflixs-most-
important-metric-2016-2/?r=US. Date Accessed: 25 July 2018
16. McCord, Patty, and Ram Charan. “How Netflix Reinvented HR.” Harvard Business
Review, 27 June 2016, hbr.org/2014/01/how-netflix-reinvented-hr. Date Accessed: 14
October 2017
17. “Motivation - Pink (Three Elements of Intrinsic Motivation) | tutor2u
Business.” tutor2u, www.tutor2u.net/business/reference/motivation-pink-three-
elements-of-intrinsic-motivation. Date Accessed: 14 July 2018
18. “Netflix and Accenture Have Reappraised Performance Appraisals; Have You?” ETS,
27 Apr. 2018, www.etsplc.com/netflix-and-accenture-have-reappraised-performance-
appraisals-have-you/. Date Accessed: 19 July 2018
19. “Netflix Founder Reed Hastings: Make as Few Decisions as Possible.” Stanford
Graduate School of Business, www.gsb.stanford.edu/insights/netflix-founder-reed-
hastings-make-few-decisions-possible. Date Accessed: 14 October 2017
20. “Netflix: Annual Revenue 2017 | Statistic.” Statista,
www.statista.com/statistics/272545/annual-revenue-of-netflix/. Date Accessed: 25
July 2018
21. Netflix Brand Site, partner.netflix.com/en/assets/brand-logo/. Date Accessed: 24 July
2018
22. Netflix Brand Site, partner.netflix.com/en/assets/brand-symbol/. Date Accessed: 24
July 2018
23. “Netflix's Expense Policy Is The Exception-Not the Rule: This Week in the Back
Office.” PEX, 17 June 2016, www.pexcard.com/blog/netflix-s-expense-policy-is-the-
exception%E2%80%94not-the. Date Accessed: 4 August 2018
24. “Netflix's History: From DVD Rentals to Streaming Success - BBC Newsbeat.” BBC,
BBC, 23 Jan. 2018, www.bbc.co.uk/newsbeat/article/42787047/netflixs-history-from-
dvd-rentals-to-streaming-success. Date Accessed: 18 July 2018
25. “Netflix's Value Just Hit $100 Billion Thanks to Big Subscriber Gains.” Fortune,
Fortune, fortune.com/2018/01/22/netflix-earnings-subscriber-growth-100-billion/.
26. “Number of Netflix Subscribers, Users 2018.” Statista,
www.statista.com/statistics/250934/quarterly-number-of-netflix-streaming-
subscribers-worldwide/. Date Accessed: 25 July 2018
27. Parr, Alissa. “7 Aspects of Netflix's Company Culture That You'll Want to
Copy.” Client Study: General Electric Hiring Large Volumes with Application
System and Pre-Employment Tests, www.selectinternational.com/blog/7-aspects-of-
netflixs- company-culture-that-youll-want-to-copy. Date Accessed: 19 October 2017
28. Pink, Daniel H. “Netflix Lets Its Staff Take as Much Holiday as They Want,
Whenever They Want - and It Works.” The Telegraph, Telegraph Media Group, 14
Aug. 2010,
www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/7945719/N
etflix-lets-its-staff-take-as-much-holiday-as-they-want-whenever-they-want-and-it-
works.html. Date Accessed: 25 September 2017
29. Quito, Anne. “Netflix's CEO Says There Are Months When He Doesn't Have to Make
a Single Decision.” Quartz at Work, Quartz, 19 Apr. 2018,

work.qz.com/1254183/netflix-ceo-reed-hastings-expounds-on-the-netflix-culture-
deck-at-ted-2018/. Date Accessed: 24 July 2018
30. Roettgers, Janko. “How Netflix Ticks: Five Key Insights From the Company's New
Corporate Culture Manifesto.” Variety, Variety, 21 June 2017,
variety.com/2017/digital/news/netflix-company-culture-document-1202474529/. Date
31. Schneider, Laura. “Netflix Careers and Opportunities.” The Balance Careers, The
Balance Careers, www.thebalancecareers.com/netflix-careers-and-opportunities-
2071317. Date Accessed: 4 August 2018
32. Stenovec, Timothy. “One Huge Reason For Netflix's Success.” The Huffington Post,
TheHuffingtonPost.com, 7 Dec. 2017, www.huffingtonpost.com/2015/02/27/netflix-
culture-deck-success_n_6763716.html. Date Accessed: 30 July 2018
33. “Success | Definition of Success in English by Oxford Dictionaries.”
Oxford Dictionaries | English, Oxford Dictionaries,
en.oxforddictionaries.com/definition/success. Date Accessed: 30 July 2018
34. Swanner, Nate. “Netflix Shows Perks Matter as Much as Pay.” Dice Insights, Dice,
14 Nov. 2017, insights.dice.com/2017/11/08/netflix-perks-pay-packages/. Date
35. Tanner, Robert. “Motivation – Applying Maslow's Hierarchy of Needs Theory.”
15 Influential Events That Shape Baby Boomers, 30 July 2018,
managementisajourney.com/motivation-applying-maslows-hierarchy-of-needs-
theory/. Date Accessed: 19 July 2018
36. “The Blake Mouton Managerial GridLeading People and Producing Results.”
From MindTools.com, Mind Tools,
www.mindtools.com/pages/article/newLDR_73.htm. Date Accessed: 2 August
2018
37. “The Netflix 'Keeper Test'... And the Courage to Take It.” Lornerubis.com,
www.lornerubis.com/2015/08/the-netflix-keeper-test-and-the-courage-to-take-it/.
38. Tiwari, Aditya. “Netflix Employees Are The Happier Than Google, Facebook, And
Microsoft Employees.” Fossbytes, Fossbytes, 2 Nov. 2017, fossbytes.com/netflix-
employees-happiest-google-facebook-microsoft/. Date Accessed: 19 July 2018
39. Venkatraman, Rohini. “Why Netflix CEO Reed Hastings Takes Pride in Every
Decision He Doesn't Make.” Inc.com, Inc., 25 Apr. 2018, www.inc.com/rohini-
venkatraman/why-netflix-ceo-reed-hastings-takes-pride-in-every-decision-he-doesnt-
make.html. Date Accessed: 19 July 2018
40. “What Is Adam's Equity Theory? Definition and Meaning.” Business Jargons, 13
June 2016, businessjargons.com/adams-equity-theory.html. Date Accessed: 20 July
2018
41. “What Is the Importance of Leadership in Any Organisation?” Your Article Library,
16 Dec. 2013, www.yourarticlelibrary.com/leadership/what-is-the-importance-of-
leadership-in-any-organisation/1014. Date Accessed: 24 July 2018
42. “What Motivates Us?” Harvard Business Review, 16 July 2015,
hbr.org/2010/02/what-motivates-us.html. Date Accessed: 16 July 2018

APPENDICES
Appendix A:
Netflix’s Consolidated Income Statement 66
66 “Financial Statements.” Netflix - IR Overview - Long-Term View,

31
Appendix B:
Netflix’s Consolidated Balance Sheet67
67 “Financial Statements.” Netflix - IR Overview - Long-Term View,

32

Sample A Business Management Ee

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sample A Business Management Ee

Uploaded by

Copyright:

Available Formats

IB Diploma Programme 2017-2018

Netflix’s Corporate Culture and Leadership Style

To what extent can Netflix attribute their success to

their corporate culture and leadership style?

SESSION: NOVEMBER 2018

IB SUBJECT OF ESSAY: BUSINESS AND MANAGEMENT

WORD COUNT: 3992 WORDS

NETFLIX’S CORPORATE CULTURE........................................................................................9

NETFLIX’S LEADERSHIP STYLE...........................................................................................16

About the Company

Figure 1, Netflix’s logo 4

About the Research Question

To a large extent, I find this RQ to be important as it helps to analyze this multinational

through the aforementioned research question.

and discussion of Maslow’s and Pink’s motivational theories.

Success refers to the accomplishment of an aim or purpose.11A company can choose to

A business’s success can be measured in terms of the following. 14

1) Financial Success Revenue, Profitability and Liquidity

2) Customer satisfaction Customer complaints and reviews

5) Stay current on the market Innovations and advancements

6) Owners expectation Expectation vs outcome

Netflix’s Financial Data and Ratio Analysis15

analyze Netflix’s financial success over the last 3 years.

Summarized Financial Information of Netflix

(in thousands) 2015 ($) 2016 ($) 2017 ($)

Sales Revenue 6,779,511 8,830,669 11,692,713

Gross Profit 2,188,035 2,800,768 4,033,047

General and Administrative Expenses 407,329 577,799 863,568

Operating Profit 305,826 379,793 838,679

Net Profit 122,641 186,678 558,929

Capital Employed 6,673,247 8,999,953 13,546,430

Cash and Cash Equivalent 1,809,330 1,467,576 2,822,795

2015 (%) 2016 (%) 2017 (%)

Gross Profit Margin 32.27 31.72 34.49

Net Profit Margin 4.51 4.3 7.17

Return on Capital Employed 4.58 4.22 6.19

adding value to Netflix’s brand.

reduced bureaucracy and contributed to its success. 18

NETFLIX’S CORPORATE CULTURE

and collaboration. The leader himself emphasizes the importance of this.

The focus of Netflix's culture centers around

1. Independent decision making by employees

2. Employees sharing information with each other

3. Retaining the most talented and extraordinary people

4. Avoiding strict rules and regulations 19

appeases Netflix’s concern for results so as to keep their customers satisfied. 21

and customers are kept satisfied.

the diagram below.22

Figure 2, Maslow’s Hierarchy of Needs23

extrinsic motivation, leading to better performance and contributing towards Netflix’s

People not processes

out low performers. 28

attract more talented employees.

they have met their work-related goals and targets. 33

responsibility so that they do not overspend.35

of employees who might not be of use to the company. 38

Netflix’s culture is further emphasized by encouraging an honest relationship between

NETFLIX’S LEADERSHIP STYLE

$11.69 billion worth of revenue in 2017.45

About Netflix’s Leadership style

in certain cases, the leadership style is of democratic in nature while in others, it is of a

laissez-faire leadership style.