Reinventing Talent Management: How Netflix forged success with a unique talent management strategy
Monday, August 29, 2016 5:29:59 PM

Netflix, a global provider of streaming TV series and movies, started its voyage in 1998 as a US-based DVD-by-mail service. In 2007, it ventured into the streaming business. In 2010, it expanded this business in Canada and now, it has presence in more than 190 countries. House of Cards was the first original series advertised by the company widely. Headquartered in Los Gatos, California, Netflix reported more than 81 million subscribers across the world, with over 46 million only in the US, as of April, 2016. Apart from its outstanding streaming service, the company has gained recognition for its unique approach to talent management. This is one of its success factors because of which, its stock gained more than three-fold jump in 2013 alone. Not to be missed, the company has already been honored with Emmy Awards, Golden Globe Awards, and Peabody Awards in 2013.

Now, the question is how Netflix’s unique talent management strategy has scripted its growth story? Let’s have a look at them.

Netflix’s talent management strategy revolves around some tenets. These are as follows:

Recruit, honor, and accept only matured adults: Over the years, the company realized that if it asked people to depend on logic and common sense and not on any formal policies, it would yield better results most of time and that, too, at a lower cost. Patty McCord, the former chief talent officer at Netflix, therefore, revealed, “If you’re careful to hire people who will put the company’s interests first, who understand and support the desire for a high-performance workplace, 97% of your employees will do the right thing.”

However, mostly it has been found that companies, across the world, sweat over drafting and implementing HR policies and taking care of the problems that only a handful of people create. Given this, Patty revealed, “We tried really hard to not hire those people and we let them go if it turned out we’d made a hiring mistake.”

The company always underscores adult-like behavior, which signifies direct conversations with managers, colleagues, and subordinates about various issues. This behavior also signifies that employees should have a clear understanding that managers and their reports will mainly decide what works best for individual cases, eclipsing all written talent management policies.

This adult-like behavior also reflects on its expense policy, which says, “Act in Netflix’s best interest.” Since there is no formal policy and expense account, frontline managers are held responsible for all expenses. It also lessens costs.

Unlike many companies who usually opt for travel agents, Netflix allows its employees to book their tickets online, which helps save money. As per Patty, “But overall we found that expense accounts are another area where if you create a clear expectation of responsible behavior, most employees will comply.”

Be truthful when it comes to performance: Most of the companies tend to devise policies on performance review. Generally, the fear for litigation forces companies to come up with formal corporate performance reviews. At times, “Performance Improvement Plans (PIPs)” are used to improve performance. But Patty is very against it. The reason? She said, “I detest PIPs. I think they’re fundamentally dishonest: They never accomplish what their name implies.”

Therefore, at Netflix, 360-degree reviews are followed instead of any formal performance reviews. As Patty reveals, “People were asked to identify things that colleagues should stop, start, or continue. In the beginning, we used an anonymous software system, but over time, we shifted to signed feedback and many teams held their 360s face-to-face.” But will it work instead of any annual review program in a company like Netflix? She believes, “If you talk simply and honestly about performance on a regular basis, you can get good results—probably better ones than a company that grades everyone on a five-point scale.”

Managers should be responsible for creating world-class teams: In a fast-changing business environment, finding mismatches in a team is quite natural. Therefore, it is utmost important to hire people with appropriate skills set. Netflix’s compensation philosophy is helpful in this case. At the core of this philosophy lies, “Be Honest and Treat People like Adults.”

Elaborating this point, Patty said, “During my tenure Netflix didn’t pay performance bonuses, because we believed that they’re unnecessary if you hire the right people. If your employees are fully formed adults who put the company first, an annual bonus won’t make them work harder or smarter. We also believed in market-based pay and would tell employees that it was smart to interview with competitors when they had the chance, in order to get a good sense of the market rate for their talent.”

Unlike many other companies, equity compensation is different at Netflix. There is no scope to include stock options, along with a competitive salary. Instead, employees are asked to decide the amount of their salary they want in the form of equity. So, she said, “If employees wanted stock options, we reduced their salaries accordingly. We continually told managers that building a great team was their most important task. Great teams accomplish great work and recruiting the right team was the top priority.”

 In an interview, Reed Hastings, Netflix’s founder and CEO, said, “Adequate performance gets a generous severance package. It’s a pretty blunt statement of our hunger for excellence.” Echoing the same, Patty also said, “At Netflix I worked with colleagues who were changing the way people consume filmed entertainment, which is an incredibly innovative pursuit—yet when I started there, the expectation was that I would default to mimicking other companies’ best practices (many of them antiquated), which is how almost everyone seems to approach HR. I rejected those constraints. There’s no reason the HR team can’t be innovative too.”

So, it is quite apt to say that innovation in talent management can inspire any company to reach a new height of success. Netflix is a living example of it.