Article by World Finance – Sep 02, 2018

Netflix’s success demonstrates the importance of strategic agility

At the TED2018 conference in Vancouver, Reed Hastings, Netflix’s co-founder and CEO, discussed the $8bn the company will spend on content development this year. The figure silenced the audience, prompting Hastings to quip: “It’s not as much as it sounds.”

For businesses to achieve strategic agility, leaders must accept responsibility for delivering their company’s strategy

Netflix is not the same start-up that disrupted Blockbuster almost two decades ago. It has transformed into a market-leading streaming service and has remained nimble and effective throughout, making it an excellent example of strategic agility. Netflix has consistently worked towards its strategic goals, while also adjusting in order to meet market trends and consumers’ needs. Today, Netflix has more than 120 million subscribers, and is quickly approaching a $150bn market cap.

Founded in 1997, Netflix began its streaming service in 2007, expanding to Canada in 2010. By 2011 it had spread to Latin America. In 2012, the company expanded to the UK, Ireland and Scandinavia; in 2013, the Netherlands; in 2014, Austria, Germany, France, Belgium, Luxembourg and Switzerland. By 2015, the company had made its mark in Australia, New Zealand, Japan, China, Italy, Portugal and Spain; and in 2016 it expanded into even more Asian countries. “You are witnessing the birth of a global TV network,” proclaimed Hastings as another 130 countries were added to the company’s reach, taking the global figure to nearly 200 countries, from Afghanistan to Zimbabwe.

A culture of trust

Strategic agility is probably one of the key topics discussed in boardrooms today. According to a recent Brightline Initiative global survey conducted by the Economist Intelligence Unit, insufficient agility is the third most common barrier to successful strategy implementation. Now more than ever, agility is essential to any organisation’s success.

$144bn

Netflix’s market cap (May 2018)

120m

Netflix’s paid subscribers

$8bn

The amount Netflix is set to spend on new content this year

191

The number of countries Netflix is available in

For businesses to achieve strategic agility, leaders must accept responsibility for delivering their company’s strategy. This is one of Brightline’s guiding principles. Only once leaders take on accountability can they cultivate an environment where employees feel they have the freedom to make the quick decisions that lead to strategic agility. A corporate culture in which employees feel that their judgement isn’t trusted can be a significant barrier that prevents companies from successfully implementing new strategies. This is corroborated by Brightline Initiative’s report, among other studies. As the famous management consultant Peter Drucker once said: “Culture eats strategy for breakfast.”

Hastings has described Netflix as being “anti-Apple”. By this, he means that Apple compartmentalises projects and products while Netflix grants its people the freedom and trust to make decisions. Furthermore, information is shared across the organisation so all employees are involved in each aspect of the company’s strategy. On this policy, Hastings commented: “I find out about big decisions made all the time that I had nothing to do with.”

In an online presentation available at SlideShare that has nearly 18 million views, Hastings explains his company’s unconventional culture. He describes Netflix’s famous ‘no vacation’ policy, which allows employees to choose when and how often they take time off work: “We realised we should focus on what people get done, not on how many days they worked. Just as we don’t have a 9am-5pm workday policy, we don’t need a vacation policy.” He added: “Most companies have complex policies around what you can expense, how you travel, what gifts you can accept, etc. Plus, they have whole departments to verify compliance with these policies.” At Netflix, however, “you seek what is best for Netflix”.

Context, not control

To explain why this uncommon policy works, Hastings proposed a ‘context, not control’ principle. Context is defined as something to embrace, and includes strategy, objectives, clearly defined roles, knowledge of the stakes and transparency around decision-making. This is opposed to control, meaning top-down decision-making, management approval, and valuing planning over results – all of which should be avoided, and are increasingly being shunned thanks to strategic decisions like flexible hours policies.

The company’s values include the expectation that employees will “keep [Netflix] nimble by minimising complexity and finding time to simplify”. By trusting employees in this way, Netflix benefits from a strategic agility that extends throughout the company’s structure.

The right approach

A great strategy is worthless if it’s not implemented correctly. Organisations with agile capabilities are more likely to succeed in implementing their strategic initiatives. Data from Brightline Initiative’s survey shows that leading companies are often faster and more effective at the following three tasks: reallocating funding in strategy implementation initiatives; reallocating personnel in implementation initiatives; and adjusting strategy when implementation reveals new risks or opportunities.

Organisations use many different projects and programmes to deliver their strategic goals. Therefore, adopting one single approach or set of practices to deal with diverse, complex and dynamic programmes will put the organisation at risk. The solution: consider a wide range of delivery approaches.

Take Volkswagen, for example. As part of its overarching goals for strategy, the company recognised that some aspects of its operations required agility, while in other areas there was a need for established processes. As such, different strategic approaches have been taken in each aspect of its operations. The key, according to the Brightline Initiative survey, is that “those in charge of strategy implementation keep everyone headed towards a common destination”.

The ideal solution relies on the organisation’s ability to effectively choose and use the right delivery approach for its strategy. It can be predictive, iterative, incremental, agile or hybrid. According to the Project Management Institute’s 2018 Pulse of the Profession report, Success in Disruptive Times: “Success starts with the right approach to support project delivery. Organisations will continue to use more than one project management approach and combine different techniques to cope with their own distinct challenges. Regardless of the approach used, organisations that use some type of formal project management approach are more successful in meeting their goals, within budget and on time.”

Structural ambidexterity

Organisational ambidexterity is the ability of an entity to successfully operate in the present, but also to anticipate what operational changes might be needed in the future. To achieve strategic agility in today’s business environment, organisations need to create different structures to adapt to various circumstances. Brightline Initiative’s principles focus on this adaptability and highlight the importance of “inspiring and assigning the right people to get the job done”. Given the diverse set of programmes organisations run simultaneously, they must assign the right people to each initiative and develop the structures to run the business day-to-day and change things when necessary.

Take Bosch, for example. In its 2017 annual report, the company stated that it would restructure departments to build “cross-functional purpose teams”. In practice, this means entire departments made up of small teams bringing together experts from completely different disciplines, such as engineering, marketing and logistics. Volkswagen, meanwhile, is adopting a ‘two-speed model’, where some facets of the business will focus on proven – and sometimes slower – processes that lead to reliable products. In other areas, where the organisation will require faster processes, the firm is adopting agile structures.

To truly achieve structural ambidexterity and successfully deliver strategies regardless of the environment in which the business operates, leaders need to constantly promote and nurture team engagement and cross-business cooperation. It’s critical to govern transparently to engender trust and enhance cooperation, as supported by Brightline’s principles.

Strategic agility does not exist in isolation. It must be thought of as a combination of a culture of trust, the right delivery capabilities, and an ambidextrous structure to help teams work faster and more effectively in varied conditions.


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