How Foursquare, Netflix & Spotify are developing agile organizations

15 Oct,2013

 

These three case studies – on Foursquare, Netflix and Spotify – give an indicator of some of the methods being deployed by digitally agile organizations to foster this culture of innovation (and growth). Reproduced with permission from Ernst & Young from the report Digital agility now published as part of the Digital Leadership Study Series from EY’s Global Technology Centre and Global Media & Entertainment Centre

 

Media and Entertainment (M&E) companies recognize that to achieve the culture of innovation they desire, they must structure their organizations for agility. M&E companies’ vision of meeting high-velocity, continuous change with a steady stream of innovative product, service, distribution, marketing and business model ideas can only be achieved through organizational agility. Research indicates that M&E companies expect to use technology to enable agility and a culture of innovation. Their goal is to break down organizational silos so the business can work synergistically – and rapidly – to deliver products and services that are highly integrated and meet customer expectations. For example, borrowing the phrase “loosely coupled” from software architecture, Netflix labels its own organizational approach “highly aligned, loosely coupled”. That means strategy and goals are clear, and management works hard to ensure they are well articulated and broadly understood. But tactics are executed with minimal cross-functional discussion or approvals, replaced by trust among groups, and leaders who reach out proactively for ad hoc coordination as appropriate. This attracts top-flight talent and affords significant power to solve problems without extensive chains of command that slow decision-making.

 

Foursquare’s start-up culture

More than 35 million people use Foursquare worldwide, the mobile location-sharing-and-discovery application, to learn about areas they are visiting, “check in” with friends or find deals from merchants or restaurants in their vicinity. Its CEO, Dennis Crowley, believes the company is perfectly positioned to become the location-data platform of choice for the internet.

 

The mobile world changes rapidly, however, and Crowley is determined to keep Foursquare’s start-up feel, even as the head count has grown from just a handful of employees to more than 160. His executive management committee consists of just five people.

 

“A lot of the work we do is consensus-driven,” he explains. “We’ll take the 10 smartest people on mobile and ask, ‘Should we do this or not?'” If a key decision requires a tie-breaker, then an in-person meeting takes place. “There is no CTO that is making the call,” Crowley says. “A lot of times these guys will duke it out, and if the argument goes on longer than a couple of days, then I’ll step in and make the decision.”

 

His company, he says, doesn’t have time for formal committee meetings. “Everyone is weighing in on these critical decisions all the time,” he says, “because we’re making 25 of them every single day.”

 

He also believes small, innovative companies like his need to rely on their own “gut instincts” in order to maintain their momentum. Building a technology infrastructure is the “easy part, and assembling the user base and getting something that people are passionate about and really feel strongly about, that’s the part that is really difficult.”

 

The shared goal is to make each individual customer experience a unique and personal one and to maintain a strong bond with each customer.

 

Netflix’s flexible approach

Netflix, the video streaming service, says its goal is to be “big, fast and flexible.” Indeed, in the first quarter of 2013, its viewership exceeded that of many conventional cable TV channels when subscribers streamed some 4 billion hours of content, a remarkable turnaround from a very public 2011 misstep when it quickly lost 800,000 customers after a poorly communicated attempt to separate video streaming from DVD rental services.

 

Most small companies inevitably become bureaucratic and hierarchical as they grow larger. Netflix, by contrast, aspires to grow fast without becoming complex or chaotic, according to company executives. In fact, the company’s recruitment materials note that it doesn’t want to hire “jerks” but high-performing individuals who don’t “wait to be told what to do,” and will also “pick up the trash lying on the floor.”

 

Instead of creating lots of rules and hierarchy, it believes in trusting its people to make their own decisions. “We have a very non-hierarchical approach that stresses freedom and responsibility,” explains Jonathan Friedland, Chief Communications Officer and a member of the Netflix executive committee. Executives spend a lot of time “making sure everybody has the right context to forge ahead with what they’re doing” by laying out specific strategic goals and timetables, but without micro-managing or asserting control. In essence, the company tells its staff that over the long run, flexibility is key.

 

What does that mean in practice? There are no limits on vacation or sick days at Netflix. No one tells workers when to come and go, or clocks when they do. But doing B-level work will likely earn you a severance package. (Indeed the annual attrition is a chilling 20%.) A-level work results in more money and responsibility.

 

The company calls this strategy “Highly Aligned, Loosely Coupled”. “Each of us is responsible for our own particular areas,” Friedland explained. “If we do a good job on it, we keep our jobs. If we don’t, we get fired.”

 

Spotify’s squads and tribes

“Think it, build it, ship it, tweak it.” That mantra, together with its agility-focused organizational structure, has helped build music-streaming service Spotify to more than 6 million subscribers in 20 countries.

 

Spotify rapidly releases software solutions it improves iteratively thereafter. Its focus on rapid-fire development influences not only how it designs and releases products, but also how it organizes its workforce. The basic work unit at Spotify is the “squad” – a self-organizing team whose members have autonomy to design, develop, test and release products. Members of a squad sit in the same office, and jointly decide how they will fulfill their specific mission. A squad doesn’t have a formally appointed leader. It does have a product owner who is responsible for prioritizing the work – but not how the work is done.

 

To help identify impediments and improve their development methods, squads also meet regularly with an “agility coach”. “Autonomy is one of our guiding principles,” explains Henrik Kniberg, an agility coach at Spotify. “We aim for independent squads that can build and release products on their own without having to be tightly coordinated.” Quarterly audits of its teams identify which squads are working well, and which might require additional support.

 

To coordinate within the company, squads are aligned into “tribes” that meet to share information and identify development roadblocks. The number of workers belonging to a tribe is held at about 100. In addition, Spotify organizes its employees into “guilds” and “chapters” to support cross-tribe knowledge sharing.

 

Squads are told to release products “early and often”. Rather than distribute “perfect” upgrades or new services, Spotify focuses instead on achieving simple results that can be subsequently perfected. Leaders establish a “minimum viable product” for each product or upgrade being released then gather customer feedback to iteratively improve it. By testing, tweaking and releasing constant upgrades, Spotify expects to remain agile and continuously improve the customer experience.

 

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