Introduction

Netflix is the world's leading internet subscription service company. It offers TV series, documentaries, and feature films across a variety of genres and languages ("Netflix Inc.," 2020). In 2019, Netflix was ranked fifth in Fortune's list of 100 Fastest-Growing Companies ("100 Fastest-Growing Companies," n.d.). In June 2016, Netflix decided to expand its international workforce, which by then consisted of only 150 employees (Fairchild, 2016). The company was known for its unique human resource (HR) practices. There were no ping-pong tables on their campus in California, nor were there hordes of software engineers freshly graduated from college (Fairchild, 2016). The corporate culture of Netflix was one of a cutthroat mentality; it was believed to have worked only for the highest achievers (Fairchild, 2016). The company retained only high performers and let all others go at the earliest possible time with a considerable severance package (Fairchild, 2016). Despite this hire and fire policy, it was ranked No. 11 on LinkedIn's Top Attractors list in the U.S. in 2019 and was among one of the most sought-after places by job candidates (Fairchild, 2016). Although such a "hire and fire" culture was widely practised in the United States, it was unclear if these same practices that were generally accepted in the United States will work in other countries, such as those in Asia. Netflix decided to continue with its standard HR policies as it expanded into international markets (Fairchild, 2016). Tawni Nazario-Cranz, Chief Talent Officer at Netflix from 2010 to 2017, was responsible for applying the Netflix HR policies to international offices (Fairchild, 2016). As mentioned above, Netflix did not hire fresh college graduates or those who wanted to work from remote locations (Fairchild, 2016). According to Neil Hunt, product manager at Netflix until 2017, he wanted access to all employees working on his team within 90 seconds, and he believed that the company functioned better when the entire product management team worked from a centralized office in California (Fairchild, 2016). However, few employees criticized Netflix's policy of not permitting employees to work from remote locations, especially when Netflix was expanding into global markets (Fairchild, 2016). In 2018, Netflix also introduced a transparent pay policy according to which every employee could easily view compensation earned by other employees and even the top management. This left employees shocked SAGE Arpita Agnihotri and Saurabh Bhattacharya 2021 SAGE Business Cases Page 3 of 9 Netflix: The Firing Machine?after they determined how much more some of their peers were making than an average employee in the company (Hoffower, 2018). In 2019, Netflix further improved its HR policies by introducing weekly employee surveys rather than annual surveys (Zangs, 2019). Should Hastings continue these HR practices as Netflix expands into global markets? Should he accord more importance to Netflix corporate culture or to the national culture of a country where Netflix operates? What advantages can standardization of HR practices provide to Hastings? Background Netflix was established in 1997 in Scotts Valley, California, by co-founders Marc Randolph and Reed Hastings ("A Background and History," 2014). The idea of Netflix dawned on Hastings when he forgot to return a rental movie by its due date and had to pay a late fee of USD 40 ("A Background and History," 2014). By 2007, Netflix delivered its one billionth DVD, and in the same year, it introduced a new business of streaming video online on-demand ("A Background and History," 2014). By 2010, the company started offering its streaming services in international markets like Canada. In 2011, Netflix expanded to Latin America and the Caribbean and, in 2012, to European countries (Netflix, n.d.). In 2012, the company also partnered with internet service providers so that its video library can be updated quickly (Lawler, 2012). From 2013, Netflix began offering in-house produced series such as House of Cards, The Confession Killer, La Casa de Papel (Money Heist), and Tiger King: Murder, Mayhem and Madness. By 2018, the company had more than 1,000 original content titles worldwide. In the United States, in 2018, the company offered 4,010 movie titles and 1,569 TV shows (Watson, 2020). By 2019, Netflix global subscribers outnumbered U.S. subscribers (see Figure 1). Between 2016 and 2019, Netflix annual revenue increased by 128% (see Table 1). For Netflix, the average revenue per streaming customer increased from USD 21.8 in 2013 to USD 25.8 in 2017, while the average programming costs per streaming customer during the same period increased from USD 15 to USD 20.7 (Watson, 2020). Figure 1. Several Paid Netflix Subscribers Worldwide (Quarter 3, 2019) Source: Number of paid Netflix subscribers worldwide in the 3rd quarter of 2019, by region. (2019, December). Statista. https://www.statista.com/statistics/483112/netflix-subscribers/ Table 1. Netflix: Revenue and Employees (2015-2019) SAGE Arpita Agnihotri and Saurabh Bhattacharya 2021 SAGE Business Cases Page 4 of 9 Netflix: The Firing Machine?Year Revenue (USD billion) Number of full-time employees 2015 7 3,500 2016 9 4,500 2017 12 5,400 2018 16 7,100 2019 20 8,600 Source: Netflix annual revenue from 2002 to 2019. (2020, January). Statista. https://www.statista.com/ statistics/272545/annual-revenue-of-Netflix/; Number of Netflix employees from 2015 to 2019, by type. (2020, January). Statista. https://www.statista.com/statistics/587671/netflix-employees/ Recruitment and Termination Practices Netflix hired only experienced candidates and purposely did not hire newly graduated college students (Fairchild, 2016). As the company demanded high self-sufficiency from employees, it did not recruit fresh talent (Grossman, 2010). Netflix also did not focus on educational qualifications for experienced candidates. One of Netflix's employees stated, "I'm a college dropout. I haven't heard a single person discuss education or degrees. When you're working with people who have 5, 10, or even more years of experience education doesn't matter anymore. It's all about what problems you have the knowledge to solve" (Lynch & McAlone, 2018). Furthermore, Netflix focused on hiring only those employees who primarily fit their culture and secondarily possessed the requisite technical knowledge. One of the employees stated, "About 40-50% of the interview is about making sure your personality is compatible with our company culture. The rest is about making sure you're technically capable. They flew me out and interviewed me for eight hours. It seemed really easy at the time, but I now realize that a lot of the questions were checking that my personality was a fit for the company. No crazy technical questions that I hate" (Lynch & McAlone, 2018). Usually a panel of eight members consisting of an HR representative, senior management, and members of the core team for which the candidate was being considered interviewed a candidate (Lynch & McAlone, 2018). Although the final decision-making was in the hands of the core team, a "no" from any single recruitment team member implied the person would not be hired (Lynch & McAlone, 2018). The Netflix manual, which was referred to as the "culture deck," highlighted the details of its human resource policies and culture. The manual was published in 2009 (Fairchild, 2016). By 2016, the manual received 14.5 million page views, and Sheryl Sandberg, chief operating officer at Facebook, described it as "the most important document ever to come out of the Valley" (Fairchild, 2016). Hastings started the Netflix management leaked the document intentionally "to allow job candidates to self-select" (Grossman, 2010). Between February 2015 and February 2016, monthly job applications at Netflix rose by 217% (Fairchild, 2016). By 2019, Netflix had 8,600 full-time employees, compared with 3,500 in 2015 (see Table 1). With many new employees joining every year, Nazario-Cranz ensured company culture was effectively communicated by offering, in 2016, sessions on topics such as "leading at Netflix" (Fairchild, 2016). Work Benefit Policies SAGE Arpita Agnihotri and Saurabh Bhattacharya 2021 SAGE Business Cases Page 5 of 9 Netflix: The Firing Machine?At the time of the Netflix launch, it had a standard paid-time-off policy. Thus, employees got 10 vacation days, 10 holidays, and a few days of sick leave. Usually, employees kept track of the days they were off and informed their managers (McCord, 2014). However, after Netflix became public, in 2002, auditors mentioned that the Sarbanes-Oxley Act of 2002 (a "federal law that established sweeping auditing and financial regulations for public companies," May 2018) required formal accounting for time off taken by employees (McCord, 2014). Instead of instituting a formal tracking system, Hastings asked, "Are companies required to give time off?" (McCord, 2014). Netflix HR, after some research, found that at least in California, no law governed vacation time (McCord, 2014). Patty McCord, vice president of HR at Netflix from 2002 to 2016, commenting on the findings, stated that most HR managers implement rules because they believe that they are governed by law, even when that is not the case (McCord, 2014). When McCord asked her HR peers working with other Silicon Valley companies if the Family and Medical Leave Act or the Americans with Disabilities Act required companies to have a vacation policy, they said yes (Grossman, 2010). However, when she contacted lawyers, they informed her such a policy was not a legal requirement (Grossman, 2010). So, instead of formalizing the vacation system and then recording time off days, Netflix eliminated the formal time-off policy and asked employees to take off when they felt it was appropriate and in coordination with their supervisors (Grossman, 2010). McCord felt that employees were happy to follow informal policies and that implementation of the new time-off policies was successful as most of the employees were software engineers who had little tolerance for any bureaucracy (Grossman, 2010). She specifically stated, "When I come at them with esoteric 'HR speak,' they think I'm bull******g" (Grossman, 2010). Netflix HR believed that adults and high performers were not only worthy of being given autonomy but rather they thrived on it. Binding such employees with a myriad of rules create inhibitions for them in becoming their self-best (Kruse, 2016). Furthermore, some guidance about leave policies was provided by Netflix's HR. For instance, if an employee worked in accounting or finance, the granting of leave during the beginning or towards the end of a quarter was discouraged, because those times were busy for the finance department (McCord, 2014). Only when employees asked for a leave of 30 or more days were they required to consult with HR. The Netflix HR urged senior leaders to become role models for the policy (McCord, 2014). Though most employees were happy to comply, some of the employees were worried about the inconsistency of the system; i.e., whereas some bosses allowed many days off, other supervisors were relatively stingy and strict (McCord, 2014). The Netflix HR policies were described with only five words: "Act in Netflix's best interests" (McCord, 2014). Netflix encouraged employees to rely on logic and common sense rather than any formal policies. Human Resources emphasized that employees should spend company money frugally, treating it as if it was their own (McCord, 2014). For example, no formal HR policy regarding travel expenditures existed. This policy again helped HR to reduce its costs, as Netflix no longer had to pay travel agents to book trips (McCord, 2014). On some occasions, HR asked employees to justify lavish lunches or asked the information technology department about expensive equipment. However, as there was a clear expectation of responsible behaviour, most employees complied with the norms (McCord, 2014). McCord explained that if one is careful in hiring people and select those who put the company's interests first, 97% of the time employees do the right and cost-effective things. To deal with the remaining 3% of people, Netflix ensured that either they were not hired or if there was a hiring mistake, they left the company soon (McCord, 2014). Centralization of Workplace The Netflix product development strategy was also different from other similar tech companies. Unlike most tech companies whose product teams were spread across the world, product manager Neil Hunt ensured that all employees working on Netflix products were located in California (Fairchild, 2016). Explaining his policy of insisting that employees work on-site, Hunt stated, "They are all right here in these two buildings. It's a very homogenous culture. The advantage is that it frees us up to practice alignment. What it costs us is that we can't tap into pools of talent that are not in commute distance of this facility. That is a trade-off that continues to get questioned" (Fairchild, 2016). Mat Schaffer, who joined Netflix in 2013 as a reliability engineer, had to move to Japan in 2015 for family reasons. Unfortunately, he had to leave Netflix within two years as the upper SAGE Arpita Agnihotri and Saurabh Bhattacharya 2021 SAGE Business Cases Page 6 of 9 Netflix: The Firing Machine? management was not comfortable with the idea of him working for Netflix from a distant location (Fairchild, 2016). He stated, "Keeping people colocated is great, but the industry is moving to more and more remote work. I think Netflix is being a bit shortsighted in that regard" (Fairchild, 2016). However, Hunt remained bullish on his policy (Fairchild, 2016). In 2016, when Hastings announced that Netflix was expanding its services abroad, Hunt gave a presentation to his product team, which had a simple message: "Aim low" (Fairchild, 2016). What he meant was to keep in mind that not everyone has an enormous, USD 1,000 flat-screen TV, but that millions of potential subscribers abroad usually streamed videos on devices such as a USD 8 Android (Fairchild, 2016). Soon after the presentation, the product engineers devised ideas of how to tweak their product development strategy to reflect the "Aim low" objective (Fairchild, 2016). Hunt believed this was possible only because the team was centralized. According to him, with a globally dispersed team and employees working from remote locations, such impact and responsiveness would have been difficult to achieve (Fairchild, 2016). Performance Management Netflix also eliminated formal reviews as they felt they were too ritualistic and too infrequent (McCord, 2014). Managers and employees conversed about performance as an organic and continuous part of their work (McCord, 2014). According to McCord, in traditional corporate performance reviews, low performers were usually placed on "Performance Improvement Plans (PIPs)" like providing the low performers training for other jobs (McCord, 2014). However, the Netflix HR detested PIPs. When a Netflix manager requested a PIP for a quality assurance engineer, HR did not approve it. HR believed that reskilling an employee for a different job would be difficult (McCord, 2014). Thus, Netflix gave her a very generous severance package, as her skills did not apply in a world with changing technology (McCord, 2014). Netflix HR believed that people can handle bad news if the true reason is discussed with them. As a part of a continuous performance review, Netflix adopted informal 360-degree reviews. Under this, employees identified tasks, actions, or approaches that their colleagues should stop, start, or continue doing (McCord, 2014). Netflix was equally clear on its policy of hiring and firing and stated it keeps only "highly effective people" ("Netflix Culture," 2017). Netflix Culture read: "Succeeding on a dream team is about being effective, not about working hard. Sustained 'B' performance, despite an 'A' for effort, gets a respectful generous severance package" ("Netflix Culture," 2017). Netflix did not take much time to weed out poor performers. Internally, Netflix employees equated working in the company with playing for a sports team, which implied that if ones' impact was not up to the mark, he would be replaced by a better player (Fairchild, 2016). Explaining this policy, Nazario-Cranz stated, "There is no shame in feeling like you've been cut by an Olympic team. The level of performance at Netflix has risen so dramatically in the last five years that when you come in you're great, and when you leave you're great too" (Fairchild, 2016). One of the employees stated that employees rarely felt bad when asked to leave the organization. On the contrary, they thanked Netflix for letting them "play with the best of the best" (Fairchild, 2016). Employees also mentioned that the best part about working at Netflix was not lavish perks or amazing lunches but "stunning colleagues" (Fairchild, 2016). Clarifying how employees who are let go felt, Hunt further stated, "I have no control over what people who get let go say. What I would hope is that we treat them with dignity and respect so they say, 'OK, I didn't make it. I understand why and I agree with the decision'" (Fairchild, 2016). Rather, McCord, who herself was the product of this policy, left Netflix when it began its internationalization moves in 2018. Explaining the policy, she stated: "I am the ultimate product of the culture that I helped create" (Fairchild, 2016). Netflix Pay Practices Netflix also became very transparent about its payment policies. In 2017, Theodore A. Sarandos, Chief Content Officer at Netflix, implemented a practice where employees could determine if they were fairly compensated (Fairchild, 2016). Commenting on the policy, one of the employees stated, "Everyone is always looking. It's, 'Holy sh--, they got a $2 million raise last year? What happened?!'" (Fairchild, 2016). Yet another employee mentioned, "We were all like, 'F---, this is crazy'" (Fairchild, 2016). SAGE Arpita Agnihotri and Saurabh Bhattacharya 2021 SAGE Business Cases Page 7 of 9 Netflix: The Firing Machine?Netflix was one of the highest-paying employers in the industry, where managers, in 2016, earned between USD 150,000 to USD 400,000, directors earned between USD 400,000 to USD 800,000, and vice presidents received USD 1 million in addition to the salary (Fairchild, 2016). Hastings earned USD 29.4 million in 2018, while Sarandos earned USD 12 million. A Netflix employee mentioned, "It's not comparable to anywhere. It's like play money" (Fairchild, 2016). Growing Internationally Nazario-Cranz acknowledged challenges with international employees, such as those in Tokyo, who lived under a different culture than that experienced by Americans in the United States, making it difficult for Japanese employees to adapt to Netflix's American culture (Fairchild, 2016). For instance, in Japan, workers resisted and "weren't familiar" with Netflix's practice of expressing open feedbackboth good and badin front of large groups of employees (Fairchild, 2016). Although open criticism worked in the United States, Japanese employees did not respond well to this idea of hearing harsh words from colleagues and supervisors, unless it is a private setting (Fairchild, 2016). Commenting on Japanese work culture, Schaffer stated, "In Japan, you pick one company and you stay on until you retire. Even if you don't perform, that company does everything to try and keep you on. For a lot of people, it could be a breath of fresh air, but I can see people in Japan being shocked by Netflix's culture" (Fairchild, 2016). After providing support, mentoring, and modelling, Netflix realized that its cultural principles worked well in Japan. Schaffer stated, "They like the efficiency and effectiveness [our culture] breeds. They like the trust it builds" (Fairchild, 2016). To help its Japan-based employees with issues similar to the one described above, Netflix hired Erin Meyer, a professor at INSEAD and the author of "The Culture Map" (Fairchild, 2016). However, NazarioCranz maintained that Netflix will not change its hiring strategy abroad to adapt to other cultural norms (Fairchild, 2016). Netflix's values were not "American values" or "Silicon Valley values"but only Netflix values. Netflix believed that as the organization expanded successfully in international markets, so could its culture (Fairchild, 2016). However, commenting on the culture, Hunt stated, "The culture that we have celebrates candidness, honesty and being blunt. That is something that may work particularly well in the western U.S., but not elsewhere" (Fairchild, 2016). The Road Ahead Hunt stated, "We have gone through many transitions and there is always a new challenge, which has been exciting and interesting" (Fairchild, 2016). Despite the perception that Netflix was a firing machine, he mentioned that their turnover rate was about 15%, of which half was involuntary, and was a standard across the tech industry (Fairchild, 2016). Hunt emphasized that every tech company fired workers, and it was just that Netflix was more open and transparent about it (Fairchild, 2016). One of the senior executives compared their policies with Hewlett-Packard and stated in contrast to Hewlett-Packard, where "Everything was done by policy," Netflix had no formal policies for most HR issues (Grossman, 2010). Negating the commonly appreciated workplace culture, i.e., family-like treatment, McCord stated, "We're more like a professional sports team," implying if one does not perform, he or she leaves the team (Fairchild, 2016). Hastings did not hesitate to fire his best friend, Hunt, in 2017 when he could not succeed in the "Keeper Test" (Ramachandran & Flint, 2018). It is unknown if such policies would work in international markets.

. Does pay transparency work? Explain in the context of Netflix using the theories discussed in this course. Would pay transparency work in all organizations? Why or why not?

2. Analyze why Netflix did not implement a live-at-a-distance policy or a telework policy (remember this is pre-pandemic).