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What Netflix and ByteDance are doing to break away from organizational involution

Written by Qianyu Han Published on     6 mins read

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Involution, or neijuan in Chinese, the latest meme among Chinese white-collar workers, happens at both the societal level and organizational level.

Involution, a sociological concept introduced by American anthropologist Clifford Geertz, describes a process of agricultural development where population growth did not intrinsically generate productivity or advancement in business. It has become a viral meme in China, where its Chinese term, neijuan, literally “rolling inwards” in English, has taken on an entirely different meaning to describe the status of living in a society of incessant anxiety and cutthroat competition from which no one benefits.

Involution happens at the societal level, as well as the organizational level. Several corporate organizations, such as Netflix and ByteDance, have shed some light on how the vicious involution cycle could be broken with their practices.

Netflix’s talent density

Clayton M. Christensen, an American economist best known for developing the theory of “disruptive innovation,” was generous with his compliments for Netflix. According to him, “Netflix is one of the few companies that has truly realized disruptive innovation in both the technological and organizational grounds.”

On the organizational front, Netflix’s innovation is due to the talent density concept brought up by its co-founder and co-CEO Reed Hastings, which is a measure of the ratio of talent per employee.

It is not uncommon for well-established companies to value talent. As the late Steve Jobs pointed out: “Go after the cream of the cream. A small team of A+ players can run circles around a giant team of B and C players.”

To attract top talent, Netflix is willing to pay above the market salary. In Hastings’ view, no matter how high the market price for top talent is, always hire them at a higher price and give them a raise at least once a year to prevent poaching.

According to various media reports, Netflix paid its chief content officer Ted Sarandos USD 31.5 million in 2019. In 2020, that sum increased to USD 39.3 million.

While most companies use mechanisms like “raise pools” or “salary scales” to decide salary increases, Netflix chose to benchmark annual salaries against market value. He argues that in a high-performance working environment, paying the highest market wage is actually the most economical mechanism compared to raise pools or salary scales.

The media streaming company also has more than just money to attract top talents.

Excellent colleagues and challenging tasks are also big draws. Diego Avalos, vice president of Netflix’s international original content, left Yahoo to join Netflix in 2014, partly because he couldn’t call his own shots at his former company.

Netflix also gives its employees maximum freedom and responsibility so that each individual in the organization keeps their creativity sharp to not get trapped in “The Innovator’s Tailspin.”

After successfully increasing the concentration of talent at Netflix, the company leveraged its workforce to improve its productivity.

It adopted a decentralized decision-making mechanism and an extremely pared-down daily workflow for inter-organizational transparency and freedom, as well as the keeper test (for each Netflix employee: if one of the members of the team is thinking of leaving for another firm, whether the manager would try hard to keep them from leaving) to prevent any abuse of freedom.

The keeper test increases talent density but may also cause anxiety among employees, just like the anxiety an involution society would inflict on its citizens. Netflix manages to ensure its employees maintain good mental health through open communication and candid feedback.

Netflix’s corporate strategy has been developing and evolving over the years, and talent density has always been one of its most critical parts. Only with the right people can a company develop a winning strategy.

ByteDance’s information efficiency

Apart from Netflix, ByteDance also believes in talent density, but it takes a different approach. ByteDance’s Zhang Yiming chose to use tools—IT systems—to support his theory of “talent density > business growth” and build what he called a “pragmatic and romantic” geek organization.

Zhang believes that there are three critical components to a company, one of which is the IT system, in addition to culture and governance mechanism.

In Hastings’ theory of talent density, the more actively the managers advocate critiques and gather feedback, the better they will be at making decisions. For instance, someone at Netflix wanting to push through a plan would create and circulate a memo explaining the plan, along with an attached spreadsheet asking for a rating and a rationale for each rating.

Similarly, ByteDance has always attached great importance to the communication of information. Zhang believes that a company’s operational efficiency hinges on a transparent and swift information flow, and he acted on that belief.

In the third year of its establishment, the company assembled a team to develop an online collaboration system that later developed into Feishu (globally known as the Lark suite). It has managed to create a highly transparent organization that quickly reacts to emergencies by making good use of the collaboration tool.

Both Hastings and Zhang have managed to create efficient and creative organizations where high-performing employees from different backgrounds can better collaborate to drive business innovation.

Read more: Doing extraordinary things with an ordinary mind: Zhang Yiming’s speech for ByteDance’s 9th anniversary

The talent lure

Zhang Yiming takes recruitment very seriously. He managed to lure some of the best industry talents even before ByteDance became a household name. In retrospect, ByteDance has been on an accelerated trajectory only after it assembled its dream team in 2015.

According to ByteDance’s global recruitment head, to land A+ talents in new markets, it is not enough to go through traditional recruitment channels. A company should first find an alpha employee that could influence and lure local talents.

For example, the company’s global recruitment head spent almost six months wooing a senior candidate in the Japanese market. More and more local talents joined in succession following the senior candidate, whose appearance made them feel more assured about joining a Chinese company.

Similar to Netflix, ByteDance also used a “pay above market rates” mantra to call for talents.

According to a survey by Chinese online job recruiting platform Boss Zhipin, as early as 2017, before ByteDance’s Douyin (the Chinese version of TikTok) became a national sensation, Chinese computer science students ranked ByteDance over China’s tech trio BAT (Baidu, Alibaba, and Tencent) as their first choice.

In Zhang’s view, a company’s core competitiveness lies in its return on investment rather than cost. And a company’s ROI hinges on its employee’s ROI. Simply controlling human capital costs won’t help a company achieve higher ROI goals.

Reed Hastings echoed this practice in his book No Rules Rules, in which he said Netflix considers employee welfare from an ROI perspective.

Innovating disruptively

When most companies talk about their corporate culture, they use overwhelmingly positive terms—”we value integrity, honesty, work ethics, etc.” But, interestingly, Netflix and ByteDance put more emphasis on the dilemma element when describing their corporate cultures.

For example, Netflix’s website states: “A great workplace combines exceptional colleagues and hard problems.” While ByteDance’s recruitment portal says: “Do challenging things with the right people.”

When a company is successful, it’s easy to get lost in its glory of success and forget that any strategy has its own pros and cons. Since 2013, Netflix has spent billions of dollars a year on film and TV series licenses and original content creation and raised more than USD 15 billion in debt. There are growing concerns about Netflix’s growth and whether its revenue will outrun its expenses or if it will go bankrupt first.

On the other hand, ByteDance’s surge in recruitment in the past six months has led to a lot of discussion about whether it is walking into a state of involution, with increased corporate complexity but no business expansion.

That’s why it’s essential to understand the theory of talent density and the context in which the companies carry it out. According to Harvard Business School professor Clayton Christensen, top CEOs have a long-term responsibility to lead the development of a disruptive innovation engine through which businesses can make headway and grow over and over again. This keeps organizational strategy and talent development from dropping into Clifford Geertz’s involution trap, where there is no external expansion, just futile “fine-tuning” development within.

Talent density theory is only one part of this disruptive innovation engine, not the sole answer. Still, we can gain some insights into effective measures to solve the problem of organizational involution. When fine-tuning management is not enough to support development, information equality through open communication and an improved technical environment can still help liberate productivity.

 

This piece first appeared in CEIBS Business Review, and was written by Sun Mengyao.

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