Netflix's Organizational Innovation and Creativity: A Report

This report examines Netflix's incorporation of organizational creativity and performance to achieve success. It begins by highlighting the importance of innovation and creativity in business, noting that Netflix has adapted these since its inception. The report analyzes Netflix's innovative business model, demonstrating how creativity is embedded in its organizational development, with a focus on the role of Reed Hastings. It further explores how Netflix outcompeted rivals through innovative strategies, including its adaptation of innovative technologies. The report covers the company's initial business strategies, motivation for change, identification of market deficits, and the evolution from a DVD rental service to a global internet broadcasting channel. It also discusses the innovator's dilemma, creative business models, and the application of technology, including proprietary software and user interface upgrades. The report emphasizes the importance of timescale, investment, and measuring progress in the execution of innovative strategies, culminating in an assessment of the factors contributing to Netflix's success.

Running head: INNOVATION AND CREATIVITY
Innovation and Creativity in Organizational Improvement: Netflix
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INNOVATION AND CREATIVITY
Abstract
This report explores how Netflix has incorporated organizational creativity and performance in
order to develop successful organizational performance. In the initial part the report investigates
how creativity and innovation is an essential requirement for any organization to succeed. As a
global successful organization, Netflix has been adapting creativity and innovation since its
inception. The innovative business model of Netflix demonstrates how the innovation and
creativity is embedded at every step of the organizational development. The report also
highlights that the founder and CEO Reed Hastings played the most significant role in the
implementation of those creative innovations in the organizational culture. The report also
demonstrates how Netflix won over its competitors by applying some innovative strategies.
Finally the report highlights that the adaptation of innovative technologies in the most creative
way made the company such a successful one.
Keywords: Netflix, Creativity, Innovation, Organization, Technology, Online service.

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Table of Contents
Introduction......................................................................................................................................4
Importance of innovation and creativity in business.......................................................................4
Netflix, Inc. – the Company............................................................................................................5
Initial Innovative Business Strategies of Netflix that established the ground are:..........................5
Motivation For change.....................................................................................................................5
Identification of the requirement of deficit by the leadership.........................................................6
The Identification and plans of action.............................................................................................6
Accepting and adapting...............................................................................................................6
Outcompeting Rivals through innovative strategies....................................................................7
Blockbuster..................................................................................................................................8
Innovator’s Dilemma...................................................................................................................8
Creative Business Model.............................................................................................................8
ICE Model of business strategy...................................................................................................9
Netflix – A highly innovative company..........................................................................................9
Bingening.....................................................................................................................................9
User Interface Upgrading..........................................................................................................11
Experience Based APIs..............................................................................................................12
Download and Go......................................................................................................................12
The Technology of Proprietary Software..................................................................................12
Time scale and resources in the execution....................................................................................13
Timescale...................................................................................................................................13
Investment..................................................................................................................................13
Measuring the progress..................................................................................................................13

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The Decision: From a DVD rental business to Global Internet Broadcasting Channel – It was
Worth.............................................................................................................................................16
Conclusion.....................................................................................................................................16
Reference.......................................................................................................................................17

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Introduction
Creativity and innovation are significant parts of organizational development. It is
considered as important pillar of innovation. Though creativity and innovation are often
misinterpreted as the same aspect of organizational culture but the difference is indispensable.
An effective organization is run by materializing certain ideas and creativity acts as the key
driver for innovative ideas. Through creativity effective ideas are generated and the application
of such ideas is referred as the innovation. In the global competitive market, for any
organization, the innovation and creativity become key factors for achieving the desired
successful performance. For any organization to be successful in the competitive market the
innovation and creativity should be embedded in the performance strategies. Netflix is a
successful global company that has been adapting the creativity and innovation as their
organizational policies. This resulted in great organizational success for the company. Therefore
the research on Netflix will explore the contribution of innovation and creativity in
organizational success.
Importance of innovation and creativity in business
In recent years the organizations have been treating innovation and creativity as effective
skills for their business. The problems and organizational strategies require more creative inputs
from the management in order to achieve the performance goals. Creativity is the key force
behind the innovation that leads the management to look at the operations from different
perspectives (Goodman and Dingli 2017). It is undeniable that for any organizational success the
implementation of creativity and innovation is an effective path. The creativity leads the
organization to delve into new business and market territories. If it is managed well, it results in
increased organizational productivity. The management leadership plays significant role in the
process as he invests money to provide the company with resources so that it can explore new
areas or incorporate innovative ideas (Černe, Jaklič and Škerlavaj 2013). The problem solving is
largely improved by creativity. The company develops innovative ideas that place the company
ahead of the competition.

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Netflix, Inc. – the Company
Netflix, Inc. is an organization that has implemented various changes and strategies that
have helped the company to achieve great success. Without innovation and creativity it would
not have been possible for the company to survive in the digital era of rapid changes. In 1999
Reed Hastings, the founder-CEO of Netflix started this film rental services (Media.netflix.com
2017). Though it has gone through multiple modifications but the basic subscription based
business model is still continuing. The company originally provided ‘DVD by mail’ service but
in 2007 the company developed streaming services (Ani et al. 2016).
Initial Innovative Business Strategies of Netflix that established the ground are:
From the very first step Netflix has been applying certain business strategies that are
creative and supported by innovation. Reed Hastings aimed to provide the consumers with the
best movie rental services and for that he came up with the following business strategies.
1. The company provided wide number of DVD titles to the viewers.
2. The company always maintains great relationship with the entertainment providers
and industry experts that helped them to acquire new contents continually.
3. The customers are given the most priority as they could avail whatever services they
require (Chopra and Veeraiyan 2017). The designer team of the company used
technologies that were easy and user friendly.
4. It provided the customers with both the options of mailing and streaming.
5. Invested a lot of money in the marketing in order to maintain the brand awareness of
Netflix.
6. The company expanded rapidly in the international market.
Motivation For change
The leadership successfully communicated with the employees regarding how the money
is being made by the company and how they could contribute to continue the success. The
management and employees at Netflix were spending huge amount of money to buy DVDs,
developing distributing centers even before getting any money back from the new subscribers.
The leadership made the employees realizes that though revenue was growing but it was really

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important to manage the expenses. The leader at Netflix not only developed an effective culture
but also valued the subculture. The finance team of Netflix also planned to change the payment
system to ‘direct deposit paychecks’ (McCord 2014). However there were hourly workers who
did not have bank accounts so the management decided not to go with it. The leadership
identified the problems, the changes, and the need of time and planned to incorporate new
technologies and change in order to create a sustainable business for the future. The progress is
measured easily for Netflix, the subscription rates, progress compare data among its competitors
and recognitions are getting increased every year.
Identification of the requirement of deficit by the leadership
The CEO and cofounder of Netflix, Reed Hastings was driven by the desire to develop
new products and fresh initiatives. The strategic leader identified the upcoming trend and utilized
the full potential of digital revolution. He understood the movie watching experiencing of
American consumers was changing and the traditional business structure of cable television was
demanding a transformation (Snyder 2014). In order to watch a movie of their choice, the
American consumers had to visit a movie renting store, rent it and come back. Blockbuster was
ruling the movie rental market with 6000 stores. However Hastings identified the extra effort the
consumers had to put in order to collect a DVD or VHS. He realized that the disc could carry a
lot of data and the weight is very less. Therefore he implemented the idea of renting films
through mail which gained success fast. With the internet boom he saw another opportunity to
take the business to the next level.
The Identification and plans of action
Accepting and adapting
The biggest asset of Netflix is its adaptation power. In various stages the company has
proved that it can adapt necessary changes in order to enhance its business performance. They

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experienced the technological innovations and applied the necessary technologies in the business
services (Jackson et al. 2015). Reed Hastings invested a lot in the research and development
sector and a large segment of the annual profit was invested in the research for future plans.
However the biggest challenge was to dump all the DVDs that they had bought and collected for
so many years.
Figure1: The Subscriber Growth of Netflix
(Source: Roymorgan.com 2015)
Outcompeting Rivals through innovative strategies
Netflix engaged in an organizational culture that is value added services, production
selection and innovative styling. The company utilized all suitable technological advancement
that took place in the contemporary time. Only in 2012 there were more than 120000 video titles
available that were more than any other existing company at that time (Arthur and Thompson
2017). The management under the guidance of Hastings always focused on developing new
content to provide the subscribers. Netflix made contracts with many studios through profit
sharing to stream their content through Netflix.

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Blockbuster
Before the dominance of the Netflix on the video rental business Blockbuster was the
biggest name in the market. Netflix was running the DVD rental business through mail which
was an expensive service. Reed Hastings approached Blockbuster to become partners and they
could by Netflix and they would be able to expand the business greatly as he believed that the
stores would be relevant in near future, as it actually happened in the reality. Blockbuster refused
to invest Netflix in the plan. Blockbuster was an old technology based services where basically
the customers had to go to the stores and rent the films or shows. The customers had to
experience that most of the top films are out of stock and they had to leave the stores unsatisfied.
On the other side Netflix was developing a business culture where the customers can get
whatever they want and whenever they want. Blockbuster did not extend their business online
and did not utilize their resources for the online business (Voigt, Buliga and Michl 2017). The
leadership failed to analyze the future market and did not spend any money in the expansion.
Innovator’s Dilemma
Blockbuster suffered from the “classic innovator’s dilemma” which the dilemma most
established organization suffer from at certain point of time. Blockbuster felt that they had
successful business with country wide video stores therefore they did not need to take the risk of
entering in the online business world.
Creative Business Model
1. Netflix started as a video rental service via mail where the customers could keep the
video as long s they wanted and then returned it before eth next purchase. But during
2005 the competition from Walmart made them redesign their services. Netflix
immediately engaged with Walmart in a partnership arrangement where all the customers
of DVD rental in Walmart were referred back to Netflix (Wells and Ellsworth 2016).
2. The Streaming video system was first creative business idea that paved its way of
success. The company started delivering movies directly to the customers’ private
computers as streaming videos but the users were not able to save them in the computers’
memory (Voigt, Buliga and Michl 2017). This helped the company to enter into the big
competitive market where giant corporations like Apple ad Amazon were already ruling.
There were already on demand service companies like CinemaNow and MovieLink that

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were the competitors as well (Brodersen et al. 2016). However Netflix managed to get
great support from the local cable companies that made their competitive position string.
3. Watch Now Service: In 2007 Netflix transformed its user streaming services with the
Watch Now services that eventually proved to be revolutionary for the company. The
next years the users significantly reduced renting DVDs and the Video on demand started
to become more popular. As the company brought fresh TV programs and films from TV
and film studios so the users did not mind pay for the on demand services.
4. Innovative Distribution Strategy:
1. The management of the company became partners with many influential electronics
retailer so that they could offer free video on demand coupons.
2. The regular subscribers were given free video on demand film passes.
3. In every month the viewers are offered free passes if they engage in bundle sign up.
4. One VOD film was offered free if the users were borrowing 5 of them.
5. Netflix organized video on demand session with its customers twice a month.
6. The regular customers were offered incentive programs and for students and young
professionals a price break was offered.
ICE Model of business strategy
The analysis of the business practice of Netflix highlights that the organization followed
the Innovation Creativity Execution model of business strategy. Business strategy of Reed
Hastings has always given high preference to innovation (Hisrich and Ramadani 2017).
Whenever a problem arose within the organization he created solutions and executed them. It is
evident that he was creative while developing the business model of Netflix
Netflix – A highly innovative company
Bingening
Netflix has developed a business strategy that could be called “Bingening”. This can be
defined as the process of replicating a book. Netflix offers a service where the spectator does not
have to wait for Stranger Things or House of Cards but they can watch it whenever they want.
The viewers do not have to watch any commercials and not one episode a day but as many

INNOVATION AND CREATIVITY
episodes as they want. The company offered the viewers as much as they wanted. Ken Auletta
compared this with the book as the reader can read as much chapter as he desires (YouTube
2014). The original contents have become the company’s most powerful asset in the sustainable
business.
Figure 2: Streaming Binge
(Source: Fritz 2015)

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Figure 3: Survey Result of Viewer Perception
(Source: Businessinsider.com 2016)
User Interface Upgrading
Netflix has implemented various innovative strategies in recent years User Interface
Upgrading is one of them. The user innovation interface team has developed a design that would
give the viewer almost television like feeling. The Vice President explained that once a
television is turned on, programs automatically starts happening and they wanted to present
similar feeling to the customers of Netflix. In 2016 December Netflix developed the User
Interface upgrading that replaced the poster images that are static with ‘custom created preview

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videos’ (Fastcompany.com 2017). So when a viewer opens a page and scrolls the videos start
playing automatically. This proved to be highly effective as the millions of Netflix customers to
discover what to watch rather than browsing the catalog to decide what is worth watching. The
upgrading process took three years to complete. The commitment of Netflix to provide its
customers with best opportunities not only helped then to earn the consumer efficiency but also it
stood out from its competitors.
Experience Based APIs
The team of software developers in Netflix develops software that enables the users to
play Netflix on diverse range of devices from iPad to smart TV. The chief developers develop
the APIs that help the organization to get all resources and data. The software helps the
developers to get user data, data related to the programs, their choice and recommendations.
Download and Go
Netflix has started Download and Go option that helps the customers to watch Netflix
programs offline (Media.netflix.com 2016). The existing users worldwide are now able to
download the shows of their choice without paying any extra fee. The management comes up
with this idea considering the customers cannot always the shows at home. In places like
airplanes and other places where internet is expensive or difficult to obtain, the viewers can now
click on the download button and watch it whenever the viewers without any internet connection.
Along with the online streaming the company is developing the ‘download and go’ option for
most of the programs. More number of programs will help the customers to watch them offline
more. Shows like Narcos, Orange is the New Black or The Crown s available under the
download and go option. All customer-plan supports this option and viewers can watch it on
tablets, phones on IOS and android. However to avail this download option, the consumers have
to update Netflix in the latest version.
The Technology of Proprietary Software
One of the most effective business strategies that Netflix adapted was the ‘proprietary
software technology’ that helped the users to preview the programs based on various filters
(Walker et al. 2017). The viewers also rated the programs they watched through this technology
and they also receive recommendations based on their previous ratings. The recommended
programs got huge success among the viewers.

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Time scale and resources in the execution
Timescale
Netflix changed its approach in human resource management and organizational culture
most significantly during 2013. The number of American subscribers grew to 29 million, it won
several Emmys. The main motivation was to sustain and expand the business. The digital
revolution and world trade centre attack changed the organizational culture it was in. Prior to
those incidents the company with its 120 employees was planning to develop an IPO but those
occurrences made the company to hold their plans and lay off many employees (McCord 2014).
However the DVD sales grew by 2002 and the company focused more on that. In 2010 the
company started giving subscription based online streaming service to other countries like
Canada and by 2011, citizens from 43 countries could avail this service. By 2012 Netflix had 23
million subscribers and they can avail more than 120,000 titles through online streaming.
Investment
Netflix has planned to produce 1000 hours of unique and original programs in 2017. The
company is always coming up with strategies in order to surpass their competitors in the market.
It is investing 6 billion to improve its library which is far ahead of their rivals like Amazon.
Measuring the progress
The company is leading the global market in online streaming services. Their main
competitors are Hulu and Amazon (Reuters 2014). Now the company is operating in 190
countries and there are 93 million subscribers. The success rate is so significant that the company
is determined to retain it and even expand the business more. The company creates and offers
programs like drama series, films, documentaries that are licensed by distribution partners.
However the business strategy of Netflix is different than traditional broadcasters who only try to
expand the consumer numbers. Netflix rather aims to serve maximum number of audiences with
the best quality film or show that they cannot ignore.
Figure 4: The ‘Originality’ behind the success of Netflix

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(Source: Cnbc.com 2016)

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Like most other companies, Netflix also analyzed their growth spurt. The company
utilized the transition of digital market and growing popularity of on demand services. Reed
Hastings invested a lot of money in researching online streaming business and in buying the film
and TV show rights. The streaming services allowed the customers to watch films directly on the
television. Hulu, one of its competitors was charging the customer for each film or shows but
Netflix was offering the viewers unlimited films and shows with monthly subscription. This
helped them to create another S-curve and soon its position was at the top.
Figure 5: Comparison of on demand services
(Source: Yougov.co.uk 2017)

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The Decision: From a DVD rental business to Global Internet Broadcasting Channel – It
was Worth.
Netflix leadership was highly criticized because of their fast adaption of sudden market
shifts but this proved to be extremely effective and they remain the market leader. The leadership
took aggressive decision of cannibalizing the DVD rental business and promoting online
streaming. In 2013 Netflix experienced valuation jump by 50%. In 2011-2012 the stock was
nearly 60 dollars/share which increased to 150 dollars/share in 2013 (Hartung 2013). Netflix
caught a very fast growing market of online streaming entertainment. This market of online
streaming has grown at high speed and continues to grow that creates most favorable business
condition for the company. Therefore for the stakeholders participating in the growth proves to
be highly profitable. The decision was not only worth but also encouraged the management to
get involved in newer business realms.
Conclusion
Reed Hastings has applied creativity and innovation that resulted in major success twice;
once when they started the business and when they changed the entire business model. Netflix is
expanding their business with a third innovative strategy for online streaming business. They are
creating their own films and shows and charging money to other exhibitors for the rights. So this
continuous expansion of business in diverse areas helps the company to stay at the top in the
competitive market. With the combination of innovation, creativity and effective leadership
guidance, the company will achieve more success. The creative innovation along with
appropriate execution can lead to business wonder and Netflix is such an example.

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