1. What performance appraisal method would you recommend to make sure that only the “best” are kept on the Netflix team?

2. What are the limitations and risks of Hastings’ human resource management practices?

3. How do Netflix' compensation policies encourage high performance?

4. Further research—Check up on Hastings and Netflix. How is the firm doing right now? How has it changed since the case information was prepared? Are the human resource management practices described here still active at the firm? What else is Netflix doing to create human capital for sustained competitive advantage?

How can the most successful video-delivery company beat its already unbelievable one-day turnaround time? By making a growing portion of its immense catalog available for instant download. Netfl ix leverages emerging technologies, superior customer service, and an ever-growing subscriber base to transform the traditional video-rental model into a 21st-century ondemand concept.

The Open Secret of Success What’s the most exciting piece of mail you’ve received lately? Ask more than twenty million customers in the United States and Canada, and they’ll probably reply that it’s a little red-and-white envelope from Netfl ix. More than 1.5 million DVDs are in transit on any given day, requiring the company to stock more than 55 million DVDs to keep up with customer demand.

What accounts for Netflix’s success? CEO Reed Hastings believes the key to the sustained growth of the Los Gatos, California, company is no secret at all—it thrives because of its renowned customer service. Though Netflix took second place this year, it’s annually beat out such heavies as Amazon, Apple, and Target in eight straight e-commerce customer satisfaction surveys conducted by ForeSee Results.

According to Netfl ix spokesman Steve Swasey, the company keeps its top place by continuously improving operations—both title selection and customer convenience. Th ese qualities make Netfl ix absolutely magnetic to new subscribers—the company added more customers its most recent quarter than the entire prior year.

Netfl ix customers have posted more than three billion movie reviews on its Web site to date; an average customer has posted about two hundred. In return, Netfl ix recommends movies to customers based on their renting habits. About 60% of its members choose new rentals based on these recommendations. To improve the tool used to generate these recommendations, Netfl ix organized a contest to gather its members’ ideas. Th e prize: one million dollars.

Netfl ix claims that its members rent twice as many movies as they did before joining the service. Given their recent sales fi gures, it comes as little surprise. At the end of the most recent fi scal year, Netfl ix earned $2.1 billion in revenue despite spending 1/3 less on marketing than the prior year. Netfl ix’s Instant Viewing, which streams any of 17,000 movies and television shows to customers’ computers, is widely thought to represent the company’s future. Within thirty seconds of beginning a download, customers can roll the opening credits. Unlike in Apple’s iTunes Store, Netfl ix customers can wait as long as they want before fi nishing a streamed movie. Since opening up the service, Netfl ix has quadrupled its inventory of streaming content. …………………….