The Future of Netflix: Why Critics Were Looking in the Wrong Places

Netflix made headlines recently for their unexpected decline in new subscription growth and drop in subscriptions in the US, which pushed their stock price down. Critics are asking if Netflix’s business model is relevant in the changing competitive environment, when Disney and other content owners have started pulling back their content from streaming services like Netflix in order to build their own.

But that is the wrong question.

Tactical vs. adaptive performance

Neel Doshi and Lindsay McGregor, authors of the book Primed to Perform, describe in their excellent piece of research that there are two distinct types of performance: tactical and adaptive.

Having great tactical performance means being able to execute a plan effectively. Adaptive performance means being able to adjust your plan when circumstances change. Tactical performance means executing a business model relevant to the market. Adaptive means being able to adjust your model when the market changes.

Netflix’s ability to adapt

Most critical analysis of Netflix right now is focused on their tactical performance. It’s unfair to expect critics to do otherwise as much of the strategic theory in which they were steeped in business school was based on a stable world in which companies won by executing the right strategy (tactical performance). The fundamental question from the traditional mindset is: are we executing a strategy that will enable us to reach our strategic goals?

I made this mistake myself five years ago when in my last book, Outthink the Competition, I suggested that Netflix would soon go away because their business model was becoming irrelevant. I was right that their business model at the time would be undermined.

But what I grossly underestimated was Netflix’s ability to adapt. In other words, I was predicting their future based on tactical performance, not adaptive.

3 levers to pull for adaptive performance

The kinds of levers that work for tactical performances are different than ones that work for adaptive. In slow-moving industries and eras, when tactical performance was enough, organizations could manage their people and operations using levers like social pressure, financial pressure, and asking people to just keep doing what they are doing.

But, drawing again from the work of Doshi and McGregor, such levers enable tactical performance at the cost of adaptive. Organizations led by these levers may execute their plan well but are too slow to change the plan when needed.

Instead, in fast-moving environments like the one that many of us are competing in today, to succeed, to build adaptive performance, you need to pull three different performance levers:

  • Play (do your people enjoy the work?)
  • Purpose (do your people feel uniquely capable of achieving the outcomes?)
  • Potential (are we collectively driving toward something that is meaningful?)

Asking the right questions

Now, I have my learned my lesson, and will not attempt here to predict Netflix’s future. But I can tell you, if you were asking the typical strategic questions about whether they have the right business model or the right strategy today, then you are asking the wrong questions.

The success of any company, Netflix’s or yours, depends on the ability to adapt. A good place to look if you want to predict future viability or secure it for yourself, is to assess whether you are pulling the three levers that increase adaptive performance: play, purpose, and potential.