Netflix: Strategic Dysfunction or 21st-Century Strategic Transparency fueled by citizen regulators?

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Netflix: Strategic Dysfunction or 21st-Century Strategic Transparency fueled by citizen regulators?

The tale has been told about Netflix and its surprise announcement of rate hikes (see Brian Stelter’s summary, Netflix, in Reversal, Will Keep Its Services Together, from his Media Decode blog at The New York Times), its equally unexpected move to disconnect the Netflix streaming business from its DVD-by-mail business and today, its quick move to assure customers and investors that it would be keeping its services connected through a single account.

All of these machinations would seem to put Netflix CEO Reed Hastings in the hot seat, but does he really deserve that? Most strategy happens behind the scenes, in rooms where customers are not allowed. Hell, most employees aren’t allowed either. Executives take data, combine it with vision, and, after appropriate outside facilitation, argument and rumination, they assert strategy. Outside of those rooms, strategy is usually not up for negotiation. Regular employees get charged with execution, and customers get left with staying with a company or moving on.

But this Netflix episode, and I use that term to invoke television drama, is very different. Strategic decisions were asserted, but they clearly, based on behavior, open to negotiation. Perhaps the failing with Hasting and his staff were more about communications and expectations than they were about strategy. If Hastings, instead of couching his statements as pronouncements, asked his customers to engage the company in strategic dialog, perhaps the company would look brilliant, innovative and modern. I’m not sure they intended to backpedal on their decisions, but that they did, means two things. First, they weren’t really set on direction. Second, they failed quickly, learned, and changed direction. For a public company, that kind of swift decision-making deserves recognition if not full on accolades.

When I suggest that this is a post-modernist event, I do so because none of the pressure put on Netflix came from regulatory bodies or industry groups. The entire dialog with Netflix originated from social media-facilitated, customer-driven pressure. I would suggest that Netflix think about this model going forward and the value it may bring them in negotiating streaming deals with studios. Imagine if Netflix can turn its stalwart customers from reluctant strategic advisors into active Netflix advocates. Rather than negotiating deals between two companies in the no-longer-smoked-filled rooms of Hollywood studios, they would invoke the Netflix citizenry to lead their charge for reasonably priced access to the entertainment they love. Bowing to this new customer-as-partner model would go a long way toward helping Netflix rationalize its recent strategic waffling—and the studios would ingratiate themselves to the customers who turn their multimillion-dollar investments and entertainment franchises into profits.

There is a high likelihood that we are on the verge of a massive movement toward more direct customer involvement in the affairs of corporations. Thousands of people are now gathered on Wall Street and other targeted areas where wealth disparity engines chug along. If customers are so important, as nearly all customer-facing companies suggest, perhaps it is time for them to engage their customers more directly in strategy and eliminate the proclivity to see them as nameless and faceless consumers. Netflix may have accidently stumbled upon the customer engagement model for the 21st Century. Only time will tell. If they continue to apply their lessons from this episode, Netflix may emerge as the poster child for the post-modernist, customer-centric enterprise. And if anyone else is watching and willing to learn from the Netflix experience, we may be witnessing the start of an economic revolution. The people gathered on Wall Street and those gathered around their keyboards writing blogs, are certainly watching. We’ll let you know what we think as the future unfolds.