CHANGE, GROWTH, DISRUPTION: find inspiration from the Netflix way

CHANGE, GROWTH & DISRUPTION
inspired by the famous NETFLIX’s Manifesto
“FREEDOM and RESPONSABILITY CULTURE”
Alessio Cuccu
Innovation consultant

REFERENCES
FACT SHEET
TIMELINE
VALUE CHAIN
LIFE CYCLES
SVOD
CULTURE

NETFLIX used OPEN
INNOVATION for sharing risk
of complex problems solving
2008 is the year when NETFLIX
built its own BLUE OCEAN by
adopting video streaming.
In the following years this Ocean
started to attract the first
competitor players
(Amazon Video, Hulu)
NETFLIX is a great player in doing
MVP, ReStartup and Pivoting
REFERENCES: BUSINESS
NETFLIX the only one from the
FAANG with no scandal issues

By adopting a digital based
platform NETFLIX is able to offer
a wide choice of films selling
and renting few time of
thousand titles (Long Tail) VS
selling and renting many times
less titles (Blockbuster)
In 2011 when the new brand
“QWICKSTER” was created
NETFLIX experienced dirtectly
losing about 1 milions of
subscribers what is called the
Innovator’s Dilemma. Streaming
video is the real good
technology to adopt because is
going to “Disrupt” every
businesses related to the old
VHS/CD/DVD rent
REFERENCES: BUSINESS

BOOKSTORES
(SALES)
BOOK
PUBLISHERS
LIBRARIES
(RENT)
INTERNET
DISTRIBUTION
(SALES)
(1994)
(1873)
BOOKS VALUE CHAIN in the ‘90s

Digital model
unlimited space
Selling/renting few times an
unlimeted number of titles
LONG TAIL
(Website)
Retail model
limited space
Selling/renting many times
a limited number of titles
(Videostore)
FILM VALUE CHAIN in the ‘90s
CINEMAS
FILM STUDIO
PRODUCERS
VIDEOSTORES
(SALE & RENT)
TELEVISION STREAMING
(INTERNET)
(1997)(b.1985-d. 2013) (2005)

COMPANY LIFE CYCLES: BLOCKBUSTER vs NETFLIX
BIRTH
(VHS rent)
Brick & Mortar
(1985)
TRADITIONAL RETAIL DVD rent
START-UP DVD ONLINE rent
RE-STURTUP (Streaming) & DISRUPTION
GROWTH
(VHS rent)
B&M
(‘90s)
MATURITY
(VHS & DVD rent B&M)
BIRTH
(online DVD rent)
(1997)
DECLINE
(VHS & DVD rent B&M)
GROWTH
(online DVD rent)
(2000- 2008)
MATURITY’
(online DVD rent)
BIRTH
(streaming film)
(2008)
DECLINE
(online DVD rent)
GROWTH
(streaming film)
(2008-2012)
START-UP
RE-START-UP
MATURITY’
(streaming film)
BIRTH
(NETFLIX original
production)
(2013)

FOUR EPISODES
START-UP
RE-START-UP
1. PROFIT MODEL CHANGE
from PAY per RENT to
MONTHLY SUBSCRIPTION
(1999)
2.BLOCKBUSTER refused to
acquire NETFLIX for 50 mil $
(2000)
3. QWIKSTER REJECTION
Failure to split the two businesses
DVD rent (Qwikster)
STREAMING (Netflix)
(2011)
1
32
4. BLOCKBUSTER’s
Bankruptcy
(2013)
4
Amazon Prime
Subscription model for
Books expedition
(2005)

After “2013
START-UP
RE-START-UP
1
32
4
1. PROFIT MODEL CHANGE
from PAY per RENT to
MONTHLY SUBSCRIPTION
(1999)
2.BLOCKBUSTER refused to
acquire NETFLIX for 50 mil $
(2000)
3. QWIKSTER REJECTION
Failure to split the two businesses
DVD rent (Qwikster)
STREAMING (Netflix)
(2011)
4. BLOCKBUSTER’s
Bankruptcy
(2013)
Amazon Prime
Subscription model for
Books expedition
(2005)
EXTEND
&
ADAPT

U.S.
CANADA+LATAM
EUROPE
WORLD
ADAPT: Market development strategy

EXTEND: Product development strategy

“We should’t consider the new film producers as
Netflix and Amazon – said Biennale Cinema
Director Alberto Barbera
“Today most of the cinema d’essay productions
are designed by them. It is not up to us to decide
whether the distribution policy of a private
entrepreneur is right or wrong ".
VENICE BIENNALE 2018 - AND THE WINNER IS … NETFLIX

THE NEW VALUE CHAIN today
CINEMAS VIDEOSTORES
(SALE & RENT)
(INTERNET)
FILM STUDIO
PRODUCERS
X

ARE CINEMAS THE NEXT DISRUPTION?
CINEMAS VIDEOSTORES
(SALE & RENT)
(INTERNET)
FILM STUDIO
PRODUCERS
X

VALUE
SUBSCRIPTION
CASH
USER
EXPERIENCE
CONTENT
DISTRIBUTION
CONTENT
SVOD (SUBSCRIPTION VIDEO ON DEMAND)

VALUE
SUBSCRIPTION
CASH
USER
EXPERIENCE
CONTENT
DISTRIBUTION
CONTENT
COSTS & REVENUES
REVENUES
COSTS

VALUE
SUBSCRIPTION
CASH
USER
EXPERIENCE
CONTENTS
DISTRIBUTION
CONTENTS
NETFLIX’s VALUE: FOUR PILLARS
4. EMPLOYEES
3. INVESTORS1. CUSTOMERS
2. SUPPLIERS
4 PILLARS
“We promise our customers stellar service, our suppliers a valuable
partner, our investors the prospects of sustained profitable growth,
and our employees the allure of huge impact.”
Reed Hasting – CEO & Founder Netflix

FOUR PILLARS CONTRIBUTES
VALUE
SUBSCRIPTION
CASH
USER
EXPERIENCE
CONTENTS
DISTRIBUTION
CONTENTS
EMPLOYEES
INVESTORSCUSTOMERS
SUPPLIERS

NETFLIX DATA
VALUE
SUBSCRIPTION
CASH
USER
EXPERIENCE
CONTENTS
DISTRIBUTION
CONTENTS GEO
EXPANSION
CUSTOMER
ACQUISITION
DATA
WEBSITE
SUPPLY
MRKT & SALES
ALGORITHM
PRODUCERS
LICENCE
NEW
PRODUCTIONS

NETFLIX DATA, RESOURCES and ACTIVITIES
VALUE
SUBSCRIPTION
CASH
USER
EXPERIENCE
CONTENTS
DISTRIBUTION
CONTENTS
EMPLOYEES
INVESTORSCUSTOMERS
SUPPLIERS
GEO ESPANSION
CUSTOMER
ACQUISITION
DATA
MRKT & SALES
SUPPLY
POSTAL
SERVICE
CLOUD
STREAMING
FREE TRIAL
FREE
UNSUBSCRIPTION
WEBSITE
DVD
CUSTOMIZATION

NETFLIX’s CULTURE in 7 POINTS
1. VALUES ARE WHAT WE VALUE
2. HIGH PERFORMANCE
3. FREEDOM & RESPONSABILITY
4. CONTEXT, not CONTROL
5. HIGHLY ALIGNED, LOOSELY COUPLED
6. PAY TOP OF MARKET
7. PROMOTIONS & DEVELOPMENT
This document has been published in 2009 on SLIDESHARE on the public
profile of REED HASTING, NETFLIX’s CEO, President and Co-Founder

COMPANY VALUES are not the statements displayed in the lobby
The COMPANY VALUES are not nice-sounding words to be shown
The actual COMPANY VALUES are shown by WHO gets
REWARDED
PROMOTED
or
LET GO
Actual COMPANY VALUES are
the BEHAVIOURS and the SKILLS
that are valued in fellow employees
1. VALUES

1. JUDGMENT
2. COMMUNICATION
3. CURIOSITY
4. COURAGE
5. PASSION
6. SELFLESSNESS
7. INNOVATION
8. INCLUSION
9. INTEGRITY
10. IMPACT
At NETFLIX we hire and promote people who
demonstrate these ten behaviors and skills
1. VALUES

WHY ARE WE SO INSISTENT
ON HIGH PERFORMANCE
In “procedural” work, the best are 2x better
than the averageella media
In “creative/inventive/innovative” work,
the best are 10x better than the average
2. HIGH PERFORMANCE

We are a PRO TEAM, NOT a FAMILY
LOYALTY is good, but unlimited loyalty to a shrinking firm
or to an ineffective employee, is not what we are about
HARD WORK is not RELEVANT
“BRILLIANT JERKS”
(SOME COMPANIES TOLERATE THEM)
for NETFLIX
Cost to effective TEAMWORK is too high
2. HIGH PERFORMANCE

Company growth increases complexity
If Complexity is not managed by talents tends to become chaos.
Processes and procedures emerge to stop the chaos by reducing errors, minimizing thinking and
prioritizing action (follow the procedure), enhancing efficiency (in the today market)
Finally, efficiency has trumped flexibility
And when MARKET SHIFTS the company is unable to adapt quickly

THREE BAD OPTIONS
A. STAY CREATIVE by STAYING SMALL and with no impact
(the complexity is very low and easy manageable)
B. AVOID RULES and PROCESSES as you GROW
(and SUFFER CHAOS)
C. USE PROCESSES and PROCEDURES as you GROW
(drive efficient execution of current model, but cripple creativity, flexibility, and ability to thrive when your market
eventually changes)
FOURTH OPTION: the NETFLIX option
AVOIDING CHAOS as you GROW with ever more
HIGH PERFORMANCE PEOPLE and not with RULE

GOOD vs BAD process
GOOD PROCESS HELPS HIGH PERFORMANCE PEOPLE
GET MORE DONE
Letting others know when you are updating code
Regularly scheduled strategy and context meeting
BAD PROCESS TRIES TO PREVENT
RECOVERABLE MISTAKES
Multi-level approval process for projects
Permission needed to hang a poster on a wall
Get 10 people to interview each candidate

EXAMPLE
NETFLIX policy for expensing, entertainment, gifts & travels
“ACT in NETFLIX’s BEST INTEREST”

AS WE GROW, MINIMIZE RULES
__________________________________
INHIBIT CHAOS WITH EVER MORE
HIGH PERFORMANCE PEOPLE
_______________________________________
FLEXIBILITY is more IMPORTANT than EFFICIENCY
in the LONG TERM
__________________________________________

“CONTEXT, not CONTROL”: 3 TOPICS
1. When one of your talented people does something dumb,
DON’T BLAME THEM
Instead ask yourself what context you failed to set
2. When you are tempted to “CONTROL” your people, ask yourself
what context you could set instead
Are you articulate and inspiring enough about goals and strategies?
3. Why managing though CONTEXT?
Because HIGH PERFORMANCE PEOPLE
will do better work if they understand the context

EXCEPTIONS
WHEN CONTROL SHOULD BE USED
1. in EMERGENCY time:
no-time to take long-term capacity building view
2. during the LEARNING PATH:
control can be important when someone is still learning their area.
Takes time to pick up the necessary context
3. when THE WRONG PERSON occupies a role:
control is necessary but temporarily, no doubt

THREE MODELS OF CORPORATE TEAMWORK
1. TIGHTLY COUPLED MONOLITH
Senior management reviews nearly all tactics
Lots of x-development buy-in meetings
Mavericks get exhausted trying to innovate
Highly coordinated through centralization, but very slow,
and slowness increase with size
2. INDEPENDENT SILOS
Each group executes on their objectives with little coordination
E veryone does her own thing
Work that requires coordination suffers
Alienation and suspicion between departments
Only work well when areas are indipendent
3. HIGLY ALIGNED, LOOSELY COUPLED
NETFLIX CHOICE

HIGLY ALIGNED
- Strategy and goals are clear, specific and broadly understood
- Team interaction focus on strategy and goals, rather than tactics
- Requires large investment in management time to be
transparent and articulate and perceptive
LOOSELY COUPLED
- Minimal cross-functional meetings except to get aligned on goals and strategy
- Trust between groups on tacticts without previewing/approving each one
so group can move fast
- Leaders reaching out proactively for ad-hoc coordination
and perspective as appropriate
- Occasional post-mortem on tactics necessary to increase alignment

BIG SALARY
Is the most efficient form of compensation
- Most motivating for any given expense level
- No bonuses
- Instead, put all that expense in big salaries, and give people freedom to spend their salaries
as they think best
Employees are free to leave NETFLIX when they want with no fee,
but most of them choose to stay
People stay in NETFLIX because are passionate about their job and their salaries are good.
They don’t stay because they have to wait
for future bonuses or benefits

NO RANKING AGAINST OTHER EMPLOYEES
We avoid “TOP 30%” and “BOTTOM 10%” rankings amongst employees
We don’t want employees to feel competitive with each other
We want all our employees to be “TOP 10%”
relative to the pool of global candidates
We want employees to HELP EACH OTHER, and THEY DO

PROMOTIONS
3 NECESSARY CONDITIONS
1. JOB HAS TO BE BIG ENOUGH
If an incredible manager left,
we would replace with a manager, not with a director
2. PERSON HAS TO BE A SUPERSTAR IN CURRENT ROLE
3. PERSON IS AN EXTRAORDINARY ROLE MODEL OF OUR
CULTURE AND VALUES

DEVELOPMENT
NO CAREER PLANNING
Formalized development is rarely effective, and we don’t try to do it
We develop people by giving them the opportunity to develop themselves, by
surrounding them with stunning colleagues and
giving them big challenges to work on
Mediocre colleagues or unchallenging works
is what kills the progress of a person’s skills
High performance people are generally self-improving through
experience, observation, introspection, reading, and discussion.
Working on BIG CHALLENGE
We all try HELP each other grow
We are VERY HONEST with each other

BEST PRACTICE NUMBER 1
GOVERNANCE by WALKING ABOUT
STAFF MEETING (R-STAFF)
Monthly meetings of the top seven leaders. One board member attends
EXECUTIVE STAFF MEETING (E-STAFF)
Quarterly meetings of the top 90 executives. One or two board members attend
BUSINESS REVIEW QUADRIMESTRALI (QBR)
Two-day gatherings of the top 500 employees. Between two and four board members attend
“an efficient way for the board to understand the company better”
Reed Hasting – CEO NETFLIX
BOARD MEETINGS BEST PRACTICES
SOURCE: https://hbr.org/2018/05/how-netflix-redesigned-board-meetings

BEST PRACTICE NUMBER 2
“BOARD MEMOS”
30-page online memos in narrative form that include
- links to supporting analysis
- open access to all data and information on the company’s internal shared systems
- the ability for directors to ask clarifying questions of the subject authors
This quarterly memo is written by and shared with the top 90 executives as well as the
board.
Meetings are only three to four hours in length (compared to all day or multiple days at
many large corporations).
Senior executives attend board meetings and answer questions if needed.
BOARD MEETINGS BEST PRACTICES

Netflix Culture emphasize:
- Individual initiative
- Sharing of information
- More focused on goals achievement than on processes
(FACT DRIVEN Company vs DATA DRIVEN Company)
“It’s hard to imagine we could have done it without the intimate knowledge of the
operations and the people”
“A lot of CEOs like the notion of transparency. The difference is that Reed has decided to
put mechanisms in place… that actually maket it happen”
NETFLIX CULTURE

BOOKS
1. POWERFUL: Building a Culture of Freedom and Responsibility – Patty McCord - 2018
2. EXPONENTIAL ORGANIZATION: Why new organizations are ten times better, faster, and cheaper … - Salim Ismail - 2015
3. LEAN STARTUP: How Constant Innovation Creates Radically Successful Businesses – Eric Ries - 2011
4. BLUE OCEAN STRATEGY - Chan Kim e Renée Mauborgne - 2005
5. THE LONG TAIL: Why the Future of Business Is Selling Less of More – Chris Anderson - 2006
6. THE INNOVATOR’s DILEMMA: When New Technologies Cause Great Firms to Fail - Clayton Christensen – 1995
MAGAZINES
The Economist – July 2018
SOURCES
WEBSITES
HISTORY
http://www.planetnews.info/netflix-an-exceptional-success-story/
https://it.wikipedia.org/wiki/Netflix
https://www.britannica.com/topic/Netflix-Inc
http://uk.businessinsider.com/reed-hastings-netflix-bio-2015-8
https://qz.com/1062888/netflix-was-founded-20-years-ago-today-because-reed-hastings-was-late-a-returning-video/
https://www.scribd.com/document/256769156/Netflix-History
HR ORGANIZATION
https://hbr.org/2018/05/how-netflix-redesigned-board-meetingsutm_medium=social&utm_source=twitter&utm_campaign=hbr
https://jobs.netflix.com/culture
https://www.thebalancesmb.com/tech-companies-mission-statements-4068549
https://netflixcompanyprofile.weebly.com/
QWIKSTER
https://www.huffingtonpost.co.uk/entry/qwikster-dead-netflix-kills_n_1003098?guccounter=1
https://www.forbes.com/sites/frederickallen/2012/07/13/how-netflix-almost-destroyed-itself/#f3f322fe479d
https://qz.com/1245107/as-netflix-turns-20-lets-revisit-its-biggest-blunder/
DISRUPTION (BLOCKBUSTER)
https://www.topaccountingdegrees.org/netflix-vs-blockbuster/
https://www.drift.com/blog/netflix-vs-blockbuster/
http://www.chiefinnovator.com/business-model-innovation-structure-methods/blockbuster-busted-part-2-business-model-analysis

DISRUPTION new competitor (hulu, amazon)
https://www.theatlantic.com/technology/archive/2014/01/how-netflix-reverse-engineered-hollywood/
282679/
http://www.informediation.com/blog/2015/05/06/the-netflix-quantum-theory-explained/
https://www.theverge.com/2018/4/11/17225898/netflix-cannes-film-festival-competition-ban-
streaming-services
https://www.theguardian.com/film/2018/apr/21/netflix-vs-cannes-2018-culture-clash
https://www.digitaltrends.com/home-theater/best-on-demand-streaming-services/
https://media.netflix.com/en/press-releases/comcast-and-netflix-expand-partnership-following-
successful-xfinity-x1-integration
https://www.polygon.com/2018/2/7/16982030/disney-leaving-netflix-marvel-lucasfilm-pixar-
streaming-rights
http://www.dailymail.co.uk/tvshowbiz/article-6044125/Disney-start-purging-movies-Netflix-including-
Pixar-Marvel.html
STOCK PRICE
https://www.fool.com/investing/2018/06/08/these-3-stocks-are-up-over-500-in-the-last-5-years.aspx
https://ftalphaville.ft.com/2018/07/17/1531829447000/The-Netflix-dilemma/
https://blogs.wsj.com/moneybeat/2018/01/22/netflix-earnings-in-5-charts-2/
https://wolfstreet.com/2018/01/22/junk-rated-netflix-expects-tax-loss-will-burn-3-4-bn-in-2018-after-
burning-2-bn-in-2017-debt-piles-up/
https://www.marketwatch.com/story/15-years-after-ipo-netflix-has-changed-drasticallyand-is-worth-
nearly-22000-more-2017-05-23
ROUNDS
https://www.ncrypted.net/blog/netflix-business-model-everything-you-need-to-know-about-how-
netflix-works-revenue-analysis/
FLYWHEEL
https://www.jimcollins.com/concepts/the-flywheel.html
https://ftalphaville.ft.com/2018/07/17/1531829447000/The-Netflix-dilemma/
https://medium.com/@jessholbrook/why-flywheels-are-better-than-everything-else-you-are-
supposed-to-need-87b2f07554c4
https://medium.com/@easystreetfinance/business-model-101-netflix-their-content-advantage-
251a4729aa7e
STREAMING TRAFFIC
https://forums.appleinsider.com/discussion/157517/netflix-accounts-for-1-3-of-nightly-home-internet-
traffic-apples-itunes-takes-2
https://www.statista.com/chart/9799/netflix-vs-cable-pay-tv-subscribers/
BUSINESS MODEL E STRATEGY CANVAS
https://www.slideshare.net/RemusToma86/business-models-14982050
https://www.slideshare.net/JoostVerbakel/netflix-12852806
http://robertdaigle.com/wp-content/uploads/2014/01/
BowenDaigleDionValentine_NetflixCaseStudy.pdf
https://www.business2community.com/business-innovation/breaking-netflix-business-
model-history-future-vod-giant-01582436
https://www-feedough-com.cdn.ampproject.org/v/s/www.feedough.com/how-does-
netflix-make-money/amp/?amp_js_v=0.1&usqp=mq331AQGCAEoATgA#origin=https
%3A%2F
%2Fwww.google.it&prerenderSize=1&visibilityState=prerender&paddingTop=54&p2r
=0&horizontalScrolling=0&csi=1&aoh=15341603696121&viewerUrl=https%3A%2F
%2Fwww.google.it%2Famp%2Fs%2Fwww.feedough.com%2Fhow-does-netflix-make-
money%2Famp%2F&history=1&storage=1&cid=1&cap=swipe%2CnavigateTo%2Ccid
%2Cfragment%2CreplaceUrl
https://www.feedough.com/how-does-netflix-make-money/
GEOEXPANSION
http://cineguru.screenweek.it/2016/01/netflixeverywhere-vr-e-tutte-le-tecnologie-che-
influenzeranno-il-mondo-del-cinema-14048/
https://www.statista.com/chart/8995/netflix-international-streaming-profit/
https://mashable.com/2007/05/30/youtube-bans/?europe=true#szaSe9WVVkqa
https://en.wikipedia.org/wiki/International_expansion_of_Netflix
DVD RENTAL e STREAMING
https://www.cnbc.com/2018/01/23/netflix-dvd-business-still-alive-what-is-it-like-to-
work-there.html
DATA - CUSTOMERS SURVEY/USER EXPERIENCE
https://www.hallofseries.com/netflix/netflix-serie-tv-piattaforma/
https://www.tecnoandroid.it/2018/07/10/perche-netflix-sta-vietando-agli-utenti-di-
inserire-recensioni-376622
https://altadefinizione.hdblog.it/2018/07/06/netflix-rimuove-recensioni-online-
agosto/
SOURCES

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