Are Algorithms Hurting Netflix?

This week, Netflix announced substantial layoffs. Moreover, content chief Bela Bajaria and film head Dan Lin have been pushed out this week too. What's wrong at Netflix? According to the Wall Street Journal, "Co-Chief Executive Ted Sarandos had complained internally for months that Americans were spending less time watching Netflix and that the service was short on new hit shows, people familiar with the matter said. He also has told colleagues that he wants the company, which has experimented with everything from videogames to podcasts, to strengthen its core TV and movie offerings."  

Netflix continues to have the lowest churn rate of any streaming service.   However, the Wall Street Journal reports that Netflix leaders are worried about audience engagement, and in particular, the tendency for young people choosing to watch videos on YouTube and TikTok rather than shows and movies on the streaming service.  

The key questions: Has Netflix's algorithm-driven approach to content creation harmed creativity?  The data may help the company reduce the failure rate of new shows, but does it also reduce the likelihood of finding that next big breakout hit?  Do the algorithms create "comfort" shows that are formulaic in nature?  Netflix has been somewhat vague about the extent to which the algorithms drive content creation, as well as the extent to which humans intervene to override the algorithms at times.  Still, the questions deserve to be asked.  Finding the right balance between data analytics and human creativity is a tricky task.  The same challenge applies to many businesses today.  

Obsessed with Sequels? Stuck with Incremental Innovation?

In the movie business, sequels and remakes have proliferated.  How many reboots of Spiderman, Superman, or Batman have been produced?   How many sequels of The Fast and the Furious?  Of course, some of these franchises have been enormously successful.  Pursuing sequels and reboots may be the profit-maximizing move in the short run. However, we might ask the question: Is the "safer" pursuit of sequels and reboots limiting breakthrough innovation?  The same type of question might be asked about other types of businesses.  

In a new study, Wesley Cohen and his co-authors examined the R&D and product launch strategies at pharmaceutical companies.  They studied roughly 60 companies over a 12-year period. They found evidence that companies can get "stuck" pursuing incremental innovation.  A Duke Fuqua insights feature story explains:

“If a company pursues clinical studies or trials for a drug in the same narrowly defined therapeutic class as their blockbuster drug, this may signal the company is strategically pursuing the same customer segment with a sequel of the blockbuster drug,” Cohen said. They found a significant blockbuster effect: one billion dollars of additional sales of individual products are associated, on average, with 17% more drug development projects in the same narrowly defined therapeutic class as the original drug. Moreover, one billion dollars of additional sales are associated with 30-80% more drug development projects that employ similar technology as the original drug.

The decision to pursue "sequels" in the pharmaceutical industry may be very logical, much as it may be in the movie business. The question, though, is whether there may be a harmful impact on breakthrough innovation in the long run. Cohen's co-author, Yoko Shibuya says, “In the short term, the optimal strategy might be to focus on your guaranteed customers. But this may mean investing less in new R&D with greater potential upside. Someday, you may regret not having invested in other product lines.”

Remote Job Postings Require More Skills

Do managers expect more when they advertise for remote jobs? Do remote job postings list more required skills and capabilities? Yes! In a new study, Shinan Wang and her co-authors studied more than 50 million job postings in Europe. Their analysis suggests that the remote work postings featured 25% more skill requirements than the non-remote job listings.

Why do managers want more skilled employees when advertising for remote work positions? The authors offer several reasons. For instance, remote positions attract a much larger number of candidates. Thus, firms need tougher screening criteria. Moreover, managers may find it more difficult to train remote employees. Thus, they need employees who can hit the ground running much more quickly.

In addition, I wonder if managers worry about the productivity of these remote employees. Applying tougher screening criteria may be one strategy for trying to insure that they have self-motivated and self-disciplined workers who will be highly productive in a remote work environment.

The authors offer a word of caution for young employees looking for work. Co-author Letian Zhang explains, “This may hurt the entry-level workers who need training. Those are the workers who might be left out because organizations, after becoming remote, may have a stronger preference for more-experienced workers.” Put another way, younger employees may be able to increase their odds of landing a job if they apply for non-remote work opportunities. Beyond that, I would argue that younger workers should be focusing on non-remote work because it offers better opportunities to receive on-the-job training, learn from mentors, build relationships, and extend their professional networks.

Kelly Johnson & Lockheed Martin's Skunkworks

 

I'm reading a terrific book by Josh Dean.  The title is The Impossible Factory: The Remarkable True Story of Kelly Johnson and the Lockheed Skunk Works, America's Innovation Machine.   The book chronicles the history of this famous highly secretive research and development organization at Lockheed.  Moreover, it explores the principles of organization and leadership that Kelly Johnson developed to manage the Skunk Works.  I found one particular passage about Kelly Johnson illuminating, since it highlighted how a powerful, often intimidating leader could accept bad news and change his mind.  The story focuses on a young engineer, Dick Heppe, challenging Johnson's view on the design of a plane's tail.  

"Heppe was in awe of Kelly, who was already, by this point, 'a legend' to young engineers like him.  And suddenly he had to sit in front of the man himself and tell him that he needed to make his plane's tail much larger. 'I was, frankly, trembling in my boots,' Heppe recalled.  Kelly did not dismiss the young engineer or get angry at him for bearing bad news.  He listened, asked questions - prodding for mistakes - and then accepted Heppe's conclusion.  

'It's a bitter pill,' Kelly said, 'but you're right.' 

He assigned an engineer, on the spot, to go redesign the tail. 'So that taught me the first lesson about Kelly,' Heppe recalled, 'which was that, if you knew what you were doing and you can satisfy his probing to a reasonable degree, he would trust you.' 

This trait - that a confident, intimidating, often intractable genius could accept bad news, even from underlings - instilled great confidence in his workers. Which only made them want to work more, and harder. 

The story speaks for itself.  Johnson did not dismiss Heppe.  He listened, asked questions, and remained open-minded despite his strong convictions.  He let the evidence speak.   Most of all, he demonstrated the type of curiosity that great leaders must exhibit.  

Costco Case Study

My newest case study is now available through the Harvard Business Publishing catalog. The case is titled Costco Wholesale Club: The Gas Station Strategy. The case examines the company's competitive strategy, and then it dives deeply into the rationale behind this year's grand opening of the first Costco standalone gas station.

Fumbling Customer Service Handoffs

Source: NY Times

In healthcare, practitioners have been paying attention to "handoffs" for quite some time in an effort to improve patient safety.  An handoff is when a patient is transferred from one clinical team to another, or when critical information about a patient is transferred from clinician to clinician.  Fumbling a handoff can lead to a serious medical error.

Now, KPMG's Scott Lieberman argues that similar fumbled handoffs lead to many customer service problems at companies.  In Fast Company, Lieberman writes:

Ask your department heads how things are going, and you’ll hear good news. Leads and engagement are up, sales hit quota, and customer service is chipping away at response time. Every dashboard is green.

But ask your customer, the one that’s been passed along three times in five minutes between chatbots and agents and intervention specialists, and you’ll get a different report. Because she’s explaining her story for a fourth time: This company knows my birthday, my shopping history, and my shoe size. But they can’t remember the conversation they had with me 60 seconds ago.

And yet both things are true. Your dashboard is green, and your customer is on a hamster wheel. That’s the trap. Companies grade their performance one department at a time. But your customer is grading based on her experience of one company, start to finish, and the whole operation’s getting a D-plus.

The gap between those two scorecards lives in the handoffs—the moments a customer passes from one team to another—and that’s precisely where most companies are struggling.

Lieberman's description rings true for those of us who have called a customer service center recently.  The process can be maddening, particularly when you are transferred from one department to another.  Understanding how customers live through an entire process is critical.  How often must they be transferred? For what reasons?  How often do they get frustrated and hang up?  What information must be constantly repeated because it is not transferred effectively?   Solving these pain points requires understanding the ENTIRE customer journey, and that often can be very complicated.  

Too Many Meetings? But Are They The "Broccoli of Work?"

Source: Getty Images

Day after day, I read articles in which employees complain about too many meetings and writers offer advice for eliminating the unnecessary meetings that clog our schedules.  Yet, a new study offers strong empirical evidence of the value of meetings.  David Deming and his colleagues have authored a National Bureau of Economic Research working paper that describes meetings as "the broccoli of work – widely disliked, but probably good for us anyway."  

Deming and his colleagues used a unique Norwegian dataset to study the value of meetings.  They collected data from administrative registers compiled by Statistics Norway.  This dataset contained information about employee careers, mobility, and wage growth from 2022-2024.  They also compiled survey data from approximately 10,000 individuals.  

The study finds that meetings do account for a substantial chunk of worker time.   Meetings most often involve planning, coordination, problem solving, and project updates.  While meetings are time consuming and come with opportunity costs, they provide critical value.  The scholars find that, 

"Meeting frequency and intensity are positively related to worker wage growth. Workers in meeting-intensive firms report greater on-the-job learning, and interactions with more senior colleagues are associated with stronger wage growth, suggesting that knowledge transmission within firms is an important mechanism."

Thus, the scholars conclude that meetings are similar to eating broccoli.  We may not enjoy them, but perhaps they are quite good for us.  Why?  They are critical sources of organizational and personal learning.  The human connection matters.  We learn when we interact with others, ask questions, listen to them, and share our ideas.  We cannot replace that source of learning with brief exchanges via technological platforms such as email, text, Slack, etc.   Therefore, perhaps we should complain less about how many meetings we must attend, and focus more on how to make them more productive.