Netflix Overlooks the Evidence: Three Administration Lessons

[1] MisstepsThe CEO of Netflix, Reed Hastings, was riding high nearly four weeks previously. Every thing was going right, but the experienced chief, who co-founded Netflix in 1998, was concerned with substantial changes underway in the movie rental business. The DVD-by-mail business wasn't only costly to support... Stock, managing and postage charges were high... but buyers were articulating a growing desire for movie streaming.In a reaction to these dangers, Hastings made an announcement on September 19, 2011 that captured many off-guard. DVD dues would be raised by 60 percent and yet another organization, Quickster, would be intended to focus only on the DVD-by-mail company. Customers who needed both would have to contend with an increase in cost and the trouble of working with two companies.Then got the big surprise: an unparalleled customer response. Not just were subscribers cancelled but their brand needed an actual beating.Hastings later confessed, that Netflix should have taken more hours to describe that the company had little option but to improve rates to protect higher fees for video and streaming rights. Nevertheless the approval arrived too late. Defections continued and the reactions on Wall Street and Main street were devastating.Management LessonPerhaps Hastings had no choice in an intensely competitive market under pressure from changing consumer tastes and film business requirements. So it may possibly not be that what he did was so wrong as much as it was how he did some extent to it.To he was right, he needs to have taken more time. But his actual misstep was that he took action with little inclination of the possible response from his subscribers.What would have to be done, when we follow the guidance of Professors Pfeffer and Sutton, composing in a Harvard Business Review article, was something that many companies routinely neglect to do: gather data first and then work. Hastings needed seriously to check his strategy utilizing a target group or even to have sent an easy e-questionnaire to a little group of members. There's, needless to say, the possibility that he'd have discovered little opposition to his program, but provided the magnitude of the response an outcome like that would have been extremely unlikely.But wasn't he warned? Indeed in a Brand New York Times article it was mentioned that a friend had told him to be very careful about taking such action. But he obviously did not take the warning.Hastings made three classic mistakes in decision making.Evidence. Main decisions or changes in technique demand hard data. Maybe not evidence from those around us.... where discussions could devolve into team think... but evidence from those that issue, our stakeholders or our customers.Overconfidence. Hastings had been extraordinarily effective and one danger of success is falling prey to overconfidence and hubris. A strong company and reliable client loyalty would boost anyone's confidence, but here it crossed the border and went too far. In fact, when important strategic changes are thought, it is far better to have more questions than answers.Confirmation Bias. When you're unlikely to think about new information in framing an issue, you can fell victim to a different trap that Russo and Shoemaker, inside their book Winning Decisions, call confirmation bias. This is actually the tendency to benefit evidence supporting one's present beliefs and neglecting evidence that is unlike these beliefs. Not hearing those in a position to offer good advice can be perilous.All three are common mistakes. And they are traditional because we see them happen over and over again. They happen if the stakes are little and, as Netflix has advised us, when the stakes are high. Therefore, telling ourselves what they are and being vigilant in preventing them from taking their toll on our selection processes will us make better decisions.A