Recently, the effect of having the right culture on success of organization has brought a broad attention to the organizational culture concept (Ulrich and Brockbank, 2016b). 94% of executives and 88% of employees declared that organizational culture is an important factor in their success (Deloitte, 2012). On the other hand, PM is one of the long-lived concepts in the organizations (Chandler M.T, 2016) which is assumed to be one of the main factors in getting the job done (Pulakos, 2009). There are some findings stating that these two concepts are related and cannot be viewed separated in the organization (CIPD, 2019). This study is trying to analyze the effects of these two concepts on each other and how the optimum point could be achieved in the organization.
For this purpose, Netflix, one of the pioneer media providing and production companies (Fortune, 2018) would be analyzed as the case study. Netflix has reinvented its HR (Patty McCord, 2014) and this reinvention is analyzed in this essay to critically evaluate the PM and OC and their relationship in this organization.
1.1 Performance Management (PM)
Performance Management is considered as one of the hardest practices to implement in the organization (Pulakos and O’Leary, 2011), and it is also hard to define it precisely (Ashdown, 2014). PM is usually is perceived as a systematic process, which aligns and develops individual and team performance to reach the organizational goals (Armstrong, 2014). It is argued that line managers are the main people in the organization which use the PM to improve the efficiency of the organization (Armstrong, 2014)
1.2 Organizational Culture (OC)
While it is hard to define Organizational Culture clearly (Ulrich and Brockbank, 2016a), the typical definition addresses the organizational culture as a pattern of values, norms, beliefs, attitudes and assumptions (Armstrong, 2017). Modern views however, define the group culture as a set of living relationships with a mutual goal (Coyle, 2018).
1.3 Structure of Report
First, the story of HR reinvention in Netflix and its context is explained. Afterwards, critical evaluation of PM and OC based on the Netflix context is presented which tries to identify the impact points between PM and OC and how they can effect on each other. At the end, the impact points between OC and PM will be presented with focusing on the correlation of these findings from literature and the changes in the Netflix. Furthermore, the areas for development in Netflix would be addressed.
2. Story of HR Reinvention in Netflix
For analyzing a company, it is necessary to explore the ecosystem of which the company exists in (Ulrich, 2019). Netflix is pioneering in the field of media which is introduced the main place for the creativity and is listed among creative industries (Creative Industries Federation, 2019). Therefore, they tried to create a new HR system which ensures their path to success in that field (Netflix, 2019). Netflix is listed as one of the most pioneer companies in having the high performance culture which surveys show that Netflix employees were the happiest employees in 2019 in the US (Rodriguez, 2020). There are six cores in Netflix OC which are shaping the companies culture. Figure 1 briefly introduces the real values and key cores of the Netflix OC.
Figure 1- Key parts of Netflix OC deck (Netflix, 2019)
As mentioned above, the main factor in Netflix industry is creativity. In following sections, the cultural cores and their connection to performance management will be explored regarding the creativity as one of the most important drivers in this industry.
3. Critical Evaluation of Relationship between PM and OC in Netflix
In an article in 1956, Ridgway said that “What gets measured gets managed”. Despite digging deep to see whether this statement is true or not, it is obvious that the current management world is obsessed with measuring (McAfee and Brynjolfsson, 2012) which forgets to read the rest of the Ridgway sentence that “What gets measured gets managed – even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so” (Ridgway, 1956). The ultimate goal behind this obsession which produces more than 2.5 Exabyte data each day (McAfee and Brynjolfsson, 2012), is to reach to the best performance of the organization. However, it seems that there are many cases showing that the PM systems have failed to achieve what they have promised (Chandler M.T, 2016). Furthermore, the PM effects is not limited to the promises and in some cases wrong PM systems produced the culture of lying and cheating (Gray, Micheli and Pavlov, 2014).
These issues raise the question of how both OC and PM could work together in the organization for the greater success of the organization. Besides, it is also important to investigate that how OC and PM can change each other. Netflix believed that they have shaped a culture which drives performance (Netflix, 2019). This attitude which declares that performance can be motivated by culture shows the connection between PM and OC where one of them can produce the promised results of the other one.
For having a better analysis of relationship between PM and OC, it is necessary to have a clear vision of what an organization actually wants and how it defines its desired performance (Gray, Micheli and Pavlov, 2014).
3.1 Netflix Context and Desired Performance
Generally, the discussion about PM is more focused on systems or practices while the attention to performance itself, and what it really is, has been ignored or less processed (Gray, Micheli and Pavlov, 2014). The importance of this issue is better appreciated when one notes that 77% of HR executives believe that the real performance of employees is not presented accurately in the current performance review systems (Wilkie, 2015). Furthermore, the desired outcome itself can change the proper system or practice for PM to be implemented in the organization because there are many cases that the desired goal is A but the PM system is rewarding B (Gray, Micheli and Pavlov, 2014).
One of the main factors defining the desired performance is the customer perception of an organization and the way the organization is perceived in the eyes of customers (Ulrich and Brockbank, 2016a). If Netflix is considered to be pioneer in this creative industry, it definitely needs a PM system which allows people to be creative and free to produce novel products for its customers which is more than 160 million people around the world (Richter, 2020). Some studies explain that having SMART-based goals or rigid systems rewarding specified people has limited the creativity among the organizations (Prather, 2005). Therefore, when it is declared that Netflix almost has no defined or rigid measurement of success (Netflix, 2019), it may show that their leaders already are aware of how the desired performance should be defined and achieved as they have declared that “We are in a creative business, not a safety-critical business” (Netflix, 2019).
3.2 Conflicts between PM and OC for Achieving the Desired Performance
PM and OC both have a mutual goal which is organization success- or reaching the desired performance (Armstrong, 2017). But studies show that these two concepts have some conflicts in the organization (CIPD, 2019) and sometimes one of them can produce or destroy the other one (Gray, Micheli and Pavlov, 2014). This issue raises the discussion about the conflicts between PM and OC and how it effects on the organization success.
PM systems have a huge effect on behaviors (Gray, Micheli and Pavlov, 2014) which definitely impacts the culture. In the best scenario, the behaviors will change in the desired way, but it is argued that some of PM systems have caused Gaming and Cheating being implemented in the OC (Gray, Micheli and Pavlov, 2014).
Gaming is defined as a new pattern of behavior which is caused by the PM systems and takes advantage of the way the performance is measured and judged. In gaming the main purpose is ignored and is replaced by the specified targets or measurements (Gray, Micheli and Pavlov, 2014). People in gaming would play the system to earn more without caring about the main purpose behind the PM. Cheating is about producing or changing the data (Gray, Micheli and Pavlov, 2014). People give the organization what it wants to hear or see even if the data is flawed or changed.
Gaming and Cheating are just two examples of negative behaviors in the organization which are caused by the pressure of PM systems to people to perform better. In the Table 1 some of the cultural consequences of PM systems is articulated.
Table 1 – Negative effects of PM systems on OC (Gray, Micheli and Pavlov, 2014)
The negative consequences of PM systems for OC can put the organization in danger. However, OC also can limit or change the requirements of the deployed PM in the organization (Ahmad, 2012). People around the world have different cultures which for sure should be considered in designing any systems in those environments (Meyer, 2014). Despite the differences between cultures in large scale, organizations can have their own cultural differences too.
To illustrate more, Netflix is considered to have a culture which supports creativity (Netflix, 2019). It means that the company needs systems or policies which let people to be creative. Therefore, creativity would be one of the main factors which can have an impact on any policies or systems in the company. Among these systems, the PM should be a tool in the organization which empowers the desired culture. This issue would control the architecture of the PM to ensure that nothing goes wrong with the desired culture.
3.3 Netflix approach to PM and OC
After having a better vision on how PM and OC could be connected to each other, it can be discussed that how current Netflix OC and PM is designed and implemented. There are two cores in the Netflix OC which could be explored and analyzed to identify the relationship between PM and OC in this company. One of them is freedom which impacts the limitations imposed by PM systems, and the other one is context which lets people to make their own decisions (Netflix, 2019).
3.3.1 Freedom and Responsibility
Netflix does not like the idea of managing people and prefers to inspire people. It is believed there that with focusing on the rules and procedures the values-based system would change to rule-following system and the most important part is that creative people would stop questioning the status quo (Netflix, 2019).
Instead of measuring and controlling the performance of people they give people more freedom and power even if it leads to chaos (Netflix, 2019). It could be argued that chaos theories can be used instead of rational-based traditional managing systems (Öztürk and Kızılkaya, 2017). The old idea of managing people to prevent errors has changed in Netflix as it is stated “freedom and rapid recovery is better than trying to prevent error” (Netflix, 2019).
There are some points in Netflix culture which no supervision or performance review is applied. For example, for travels, no financial supervision is in place and all the rule is to “Act in Netflix’s Best Interest”. For taking vocation there is no need for approvals, there is just a sentence as a rule: “Take Vocation” (Netflix, 2019). These examples show that the idea of managing people is so weakened in this company.
3.3.2 Context not Control
Typical PM systems and, especially, SMART goal-based PM systems believe that having clear goals and a time-bound step by step process for achieving goals can help you increase efficiency in your organization (Ogbeiwi, 2017). However, when it comes to creativity it seems that the game will change. In typical PM systems, the whole idea is to move people and their performance from A to B, but in a creative environment it changes from A to unknown (Coyle, 2018). There is no SMART approach to have a clear vision of the desired performance or outcome when the organization wants to go to unknown states.
Therefore, some studies argue that for having the desired performance it is better to have a culture or a trend towards it rather than having SMART-based approach to success and managing people rigidly on targets and goals (Sinek, 2019). Accordingly, Netflix clearly rejects top-down models in managing performance and people. In Netflix culture, it is accepted to reject the senior manager decision and make your own (Netflix, 2019). The main duty of leaders and managers is to provide all the information for others to empower them to make their own decisions on different projects rather than managing them to go from A to B (Netflix, 2019). Netflix tries to put people in the right context and let them bring their best to the game.
Generally, it could be concluded that OC and PM have major impacts on each other. When the desired culture and performance are defined, the PM would be limited and impacted by those definitions. On the other hand, PM practices can hugely impact the OC and turn it into something completely different as what has been intended. The main results of this study could be listed as follows:
· With the rise of importance of OC (Ulrich and Brockbank, 2016b), the effectiveness of PM systems goes under serious questions and several studies show that companies and executives are redesigning their performance management systems (Sloan et al., 2019).
· In designing the PM and OC it is really important to have a clear vision on what the desired performance is (Gray, Micheli and Pavlov, 2014) and how it would be applied to the context of the organization (Ulrich, 2019)
· Current world is obsessed with measuring and producing data (McAfee and Brynjolfsson, 2012) without having this in mind that how and why measuring is happening (Gray, Micheli and Pavlov, 2014).
· Managing people through SMART or rigid approaches are not as effective as promised (Prather, 2005) and top-down standard performance management models are being replaced with other systems (Sloan et al., 2019).
· Typical PM systems have some negative consequences for OC and organization which could lead to failure (Gray, Micheli and Pavlov, 2014; Chandler M.T, 2016).
· PM systems should consider different practices in different cultures (Mendonca and Kanungo, 1996; Ehtesham, Muhammad and Muhammad, 2011).
· There are new views on measuring like chaos and complexity theories which could change the way we approach to data in management (Öztürk and Kızılkaya, 2017)
4.1 Correlation between Literature and Netflix
According to the main findings of this study, Netflix is one of the pioneer companies which has applied most of the findings of literature to the company. Their approach to PM and OC shows that they have put culture first and are dedicated to save that culture (Netflix, 2019). Netflix believes that they can have the desired performance without using PM tools for managing people and performance (Netflix, 2019). Main findings of this case study are listed as below:
· OC can produce the desired performance without having typical PM systems in place (Netflix, 2019).
· This approach to performance and OC has made Netflix people the happiest employees in the US (Rodriguez, 2020) and has made the company one of the most pioneer companies (Fortune, 2018) in the world.
· Netflix uses 360-degree performance review for everyone to help people grow through the given feedback (Denning, 2018).
· Through extreme freedom it gives to people, Netflix tries to let people be themselves and also as creative as they can (Netflix, 2019).
· Through extreme openness and transparency, Netflix empowers people to make their own decisions in Netflix’s best interest (Denning, 2018; Netflix, 2019).
· The idea of managing people and their performance is almost disappeared in Netflix which has raised some questions about the application of this culture in other companies (Putter, 2018)
4.2 Areas for Development
It is hard to find an area for development for a company which is in the frontier of development in OC and PM, but it seems that there are some places to improve in modeling the organizational behavior by using the chaos-complexity theory to predict the outcome of the people performance (Öztürk and Kızılkaya, 2017). It seems that the focus on rigidity and certainty – like typical PM systems – could be replaced by modern models which focus on uncertainty (Gray, Micheli and Pavlov, 2014) and tries to model social behaviors in the organizations to predict some unexpected challenges.
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