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The Netflix framework for growth

I have been a bit late in getting round to read a book by Matthew Syed called Black Box Thinking. It's been on the market for five years and is a Sunday Times bestseller. During some Covid isolation time I picked up the book and was enthralled.

Syed's theme in the book is that we should not be afraid of making mistakes because this is the way we learn. The title of his book "Black Box Thinking" is taken from the requirement of aerospace operators to have a black box in aircraft which records exactly what happens second by second and which is especially useful in the event of an aircraft disaster. The black box provides a recording of the plane's performance and the conversations of the crew for all to listen to and learn from after a catastrophe. There aren't any black boxes in operating theatres to record what goes wrong there – as it so frequently does. Cover-ups, denials, and many failures to report medical errors mean that the same mistakes get made again and again. Indeed, even though people may be guilty of mistakes, they often won't admit it. The perpetrators have big egos or simply a belief in systems that deny their liability. This is cognitive dissonance.

Improvements, innovation and growth come from encouraging flexibility of thought. The ability to accept mistakes and learn from them is central to this theme. People with fixed views find it hard to learn and adapt to new ideas.

All this was an excellent briefing for an article I read in a recent edition of the Economist. It explores the phenomenal growth of Netflix. This year Netflix briefly overcame Disney to become the world's most valuable entertainment company. Credit for this growth must be given to Reed Hastings who has managed the company over the last two decades. How has he done it and what can we learn that can help us apply his lessons? We are helped by Hastings very generously sharing his philosophy in a 125 PowerPoint slides which have been viewed 20 million times since first posted 11 years ago. They are well worth looking at. See https://www.slideshare.net/reed2001/culture-1798664

Let me summarise the treatise. Netflix has got where it is through its culture. And its culture has been determined by Hastings. We know the importance of culture and discuss it often in this blog. The culture that Hastings fostered is almost the exact opposite of that created by Jack Welch of GE. Welch was fond of rules; one of his famous ones being to yank out the bottom performing 10% of staff every year. We can imagine the trepidation this created. Hastings on the other hand believes in his staff to the point where he gives them almost free rein to do what they think is best. He encourages candour and honesty. This involves challenging ideas, and not being afraid to own up to mistakes. He, like Syed, believes this is the way you learn.

As with all models and frameworks we must take from them what we can. The Netflix model worked for it because it has proved to be the right thing to do in the right industry at the right time. Its culture helped but they also showed incredible foresight to bet on streaming in the late 2000s and were fortunate that Hollywood competitors, including Blockbuster, failed to chase them. Success is about finding the right framework but it is also heavily dependent on a good deal of luck. Netflix has had its fair share of that.

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