Intentional Organisation in Action: Netflix

Written by

Sergio Caredda

Posted on

September 15, 2020

A Business Model that Evolves

The first interesting aspect of Netflix is that it is an organisation that has been consistently evolving, Not in terms of the organisational model, but rather at the foundational element itself. The company has responded to massive changes in its industries and has adapted its Business Model at least four times in just fifteen years.

From DVD by mail to streaming old TV series and movies over the internet.
From streaming old content to launching new original content (such as House of Cards) produced by external studios.
From licensing content provided by external studios to building their in-house studio that creates award-winning TV shows and movies (such as Stranger Things, La Casa De Papel, and The Ballad of Buster Scruggs).
From a USA-only company to a global company entertaining people in 190 countries.

This is a massive change rate, and it was possible only because the company is highly flexible, yet also very coherent internally. Most organisations would have failed a simple Business Model transition. How did Netflix build on four successful ones?

The Seed of Intentionality: Organisational Flexibility

When I write of Intentional Design, I’m not imagining a corporate architect sitting in a room and designing all aspects of an organisation at once. Instead, I see an organisation growing around one or more internal elements that represent the “seed” around which intentional decisions are taken than shape the organisation.

In the case of Netflix, Reed Hastings did not try to build the perfect culture from the start. What he wanted was to build organisational flexibility. He then connected the dots in a way that did not merely accept tested solutions but instead found its specific way of doing it.

Organisational Flexibility is the seed that allowed Netflix to take intentional and deliberate choices at each turn of its evolution.

The Elements of Tension

Through the book, it is straightforward to see the many elements of tensions that need to exist as crucial ingredients for an Intentional Organisation. Aiming for pure consistency might drive the organisation into a corner of over-engineering, which brings negative energy and fragility—leaving everything to Emergence, on the other side, risks of letting the organisation be magmatic, but without focus. Thus, four tension elements serve as a catalyser of the necessary organisational energies.

Obsession

It’s clear that at Netflix Talent Density and Candour are two elements of an obsession. How else would it be possible for a policy to announce openly to the world that adequate performance deserves a right severance package? As you flip through the book, you will also notice the importance that candour plays, and the constant focus on feedback across the organisation. Elements that systematically provide a sense to evaluate any other factor.

Coherence

Talent Density pushes choices across the entire organisation: from compensation to policies and practices, to the whole operating model of the firm. Everything needs to look coherent. A demonstration of this is the exceptions to the Lead by Context rules that are illustrated at the end of the book. Also here, recognising that one area of the company is business-critical and demands a more control-oriented system of reference, demonstrates the consistency in design.

Ambiguity

As you read the book, an apparent paradox emerges. If everybody is charged to make decisions, why is there still a hierarchy? But the contradiction is only apparent, as it merely testifies the existence of a fractal organisation, well illustrated by the Tree metaphor reported in the book. Netflix seems following a Servant Leadership model, without the paternalistic twist that many attributes to this model. Again an apparent ambiguity.

What is stunning is the system of reference that Hastings has created to deal with the constant ambiguity that exists in the Eco-system. This is perfectly illustrated by the guy that needs to buy a children series in India (local Action) but with potential for the entire world. This Local action, diffused decision making and Global Reach is the real ambiguity that nurtures the value chain of the organisation.

Truth

Many aspects emerge from Hastings words about not accepting external “truths”. Just two to mention:

Netflix compensation philosophy does not trust bonuses. What can seem an acquired truth across most organisations (despite the growing evidence that variable pay does not improve performance in many contexts) is challenged and redefined here.
Netflix is a Team. Not a Family. I believe that the concept of “family” is one of the most abused metaphors in organisations, particularly by leaders always adding a paternalistic twist to their role (you are the family, so I am the mother/father). Hastings is instead consistent with his idea of performance. You don’t change the members of a family. But you can change the members of a team if they are not performing.

Netflix’s Performance Profile

I have introduced the concept of the Performance Profile as a way to collate together the elements that compose the Organisation Evolution Framework. The idea is that for an organisation to be Intentional, all questions need to have an answer. Some answers might be less explicit because they derive from emergent phenomena rather than intentional design. The critical aspect is that they all collaborate to create a coherent system of reference.

The table below shows, in the last column, a high-level evaluation of each element, based on the level of Intentionality in its design. A 5 means that the critical factor is entirely intentional in its design, while a one means that is fully emergent. I will explain the ratings after the table.

Building Block	Critical Element	Performance Profile Question	Netflix Profile
1. Business Model	Value Proposition	What makes us Unique?	4
2. Strategy	Strategic Choices	What are our Priorities?	5
3. Operating Model	Value Delivery Chain	How do we create Value?	5
4. Organisation Model	Definition of Work	How do we get things done?	2
5. Leadership	Intentional Design	How do we stitch it all together?	4
6. Purpose	Definition of Value	What is our definition of Good?	2
7. Culture	Consistency	How do we make it work?	5
8. Ecosystem	Sustainability	How do we know it will last?	3

The Critical Elements in Detail

Value Proposition. The Business Model of Netflix is transparent and highlighted in many passages of the book. The company has intentionally modified its Business Models several times (as mentioned before), adapting as a consequence of its operations. A lot is however pulled on the “culture” in terms of making Netflix Unique, which is why I have marked this element as 4, as some elements of the model come out as emergent.
Strategic Choices. It is clear from the book that there is one fundamental strategic imperative: being flexible. This is then applied to all choices, sometimes ditching traditional paradigms (such as strategic planning) and opting for a concept of Strategic Learning. Definitely intentional.
Value Delivery Chain. It is clear from the book that many aspects of the Operating Model are clearly defined in terms of respect of the strategic choice and the cultural imperatives built. The examples of removing control policies are paramount of the Intentionality in reviewing each aspect of the business operations.
Definition of Work: Netflix adopts a traditional hierarchical organisation model, with this more or less adapting to the external context. Jobs exist and are defined, and this is partially a requirement of its compensation philosophy. At the same time, the organisation reflects an idea of work that is results-focused. My assessment would be of a 2, with a tendency of having some emergent aspects on a rather traditional set-up.
Intentional Design. Netflix adopts a Leadership style that is not uniquely defined, but where we can trace some elements of Servant leadership. If using Simon Western’s Discourses, we are in a Commercial Eco-leadership discourse with a few details still evolving. The diffused decision-making infuses a strong sense of autonomy, which would lead to a 4 in my initial assessment.
Definition of Value. Netflix has not established a Purpose in terms of sustainability and has a pretty financialised view of the Value it produces. However, as it is a market-creator, it has a strong influence on the concept of Value for its streaming services. Still on the Emerging side of the spectrum.
Consistency. I have rarely seen a company where culture has been built block after block in such an intentional way. Yes, hindsight makes it easier to grasp the whole, but it is an entirely deliberate design that goes along all aspects coherently.
Sustainability. Netflix is also at the origin of a large eco-system, which includes many different actors. These range from TV producers (which embed the app in their Smart TVs and on their remote) to connectivity providers, to content creators, to device creators and so on. Netflix is not entirely a platform yet , and many of these relationships have been developed tactically. Still, all contribute to the creation of an eco-system where sustainability, even if not fully defined, is a definitive must. I’d say a three as evaluation.

Here a quote from the book that summarises very well the level of internal visibility of most factors listed. It is attributed to Aram Yacoubian, then manager of content acquisition in India.

I’m one of the best people at Netflix to decide what children’s content to purchase in India, as I know the Indian animation market and Indian family-viewing patterns like the back of my hand. But it’s only with organizational transparency, a ton of context, and high alignment between me and the leadership that I can make the best decisions to benefit our organization and Netflix viewers around the world.
No Rules Rules, page 227

Strategy Alignment, Culture, Leadership Style, alignment with the Business Model, Operating Model assumptions. All these elements are clearly visible in the individual interpretations of this person’s role within the System of Netflix. This is the best evidence of a truly Intentional Organisation.

Final Evaluation

The table above works on the assumption that not all elements can be entirely intentionally designed. On the contrary, a full design would most probably create too much structure. The system needs flexibility, which is developed by blending Emergence and Intentionality.

The second element is the members of the organisation can answer how many of these questions? This is where the second aspect of Intentionality arises. The extent by which people in the organisation are aware of each of these components.

In Netflix, the culture of extreme transparency is probably off-scale compared to other organisations. Despite a pretty traditional hierarchical structure, critical decisions are shared across the entire organisation with candour. Not only most elements are intentionally designed, but there is a participation of the whole organisation in the process through coherent actions.

Conclusion

Netflix is definitely a great example of an organisation that is intentional. Reed Hastings has decided to plant an Intentional Seed and focus on culture as the leverage element to craft its organisational performance. No Rules Rules tells a story of trial and errors, and especially a process of development of these actions.

Intentional Action is significantly traceable in Netflix’s Culture. The 2009 Culture Deck provided a framework of reference, as well as the much-needed system of consistency with an aligned operating model and a leadership style that reflected the cultural choices.

The intentional maturity of the organisation is also visible in the awareness it had in pursuing the international expansion, questioning the way its strong cultural identity would have played with local cultures.

With this, let me give two final remarks. First: Netflix has followed an Intentional path from the beginning. This simplifies the process. But it doesn’t make it error-free. As mentioned above, Intentional Design is not about architecting perfection from the start, but by making choices that are intentional in the face of adversities, without only accepting out of the box solutions.

The second aspect is that Netflix also demonstrates that a Hierarchical non Bureaucratic model is possible. Going back to the idea of Gerard Fairtlough, Netflix does not implement a traditional hierarchy, but rather a Dispersed Responsible Autonomy system. Instead of a Pyramid, Netflix hierarchy resembles more that of a Fractal. This also leads to the consequence that consensus-based heterarchies are not the only plausible model for the future, as the case demonstrates how a company like Netflix does good in terms of performance and sustainability.

Notes

This case-study is built practically on the information collected through the book by Reed Hastings and Erin Meyer No Rules Rules plus some publicly available information such as Netflix Culture Deck and the Netflix Website. As such, it is an early draft. I aim to collect more information to validate and fact-check the assertions above. Any feedback is highly welcome.