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No Rules Rules - Notes

Netflix culture is focused on achieving top performance with talent density and leading with context rather than control.

Netflix culture is famous / infamous particularly from when a culture deck of 127 slides was made public by CEO Reed Hastings and widely shared on the internet in 2009.

Erin Meyer an Insead Professor was very sceptical because they seemed to violate every principle around psychological safety (See Amy Edmonson Harvard Business School 'The Fearless Organization').

The deck struck Erin as hyper masculine, excessively confrontational and downright aggressive.

 

But you cant escape the fact Netflix has been remarkably successful its stock price has gone from $1 to well north of $500 in 2020 and it is loved by its consumers with a string of original content winners, with hundreds of Emmy nominations and multiple academy awards.  Employees also love Netflix in 2018 a survey conduced by Hired (a dot com market for tech talent) rated Netflix as the No1 company they would most like to work for.  Netflix has also successfully navigated a series of massive transitions in the business environment; from DVD by mail to streaming, streaming old content to producing new content, from licensing others content to building in house studios and from a USA only company to a global company now in 190 countries.

Reed Hastings previously founded and ran a company called Pure Software and many of the lessons of that company informed the growth and culture of Netflix. Pure Software failed to innovate quickly it became increasingly efficient but decreasingly creative. A shift in the software market from C++ to Java eventually ended up with Pure Software being sold to its largest competitor.  With Netflix Hastings wanted to promote flexibility, employee freedom and innovation instead of error prevention and rule adherence.

Over time the ingredients of doing this successfully emerged and 2 critical things in particular that allow that level of freedom

Talent density.  Must have the highest performers

Increased candour. In other words feedback is critical to learning, growth and accountability.

Netflix is able to assume that its employees have amazing judgement, which is the solution for almost every ambiguous problem. Not process.

Erin was invited to come and study the culture of Netflix because Reed had read a book of hers and they had both spent time in the Peace Corps. She saw it as a great opportunity to understand a culture that was seemingly in opposition to everything we thought we knew about psychology business and human behaviour.

You have to connect the dots differently.

'You can’t connect the dots looking forward, you can only connect them looking backwards' Steve Jobs.

A-B-C-D Always be connecting the dots (Sir Richard Branson).

How we see the dots defines our perception of reality and the decisions and conclusions we make. But the dots don’t have to be joined in the same old way, the way its always been done.  Reed wanted organizational flexibility so he connected the dots of corporate culture differently.

1st Build up Talent Density.

2001 dot.com bubble burst. Had to downsize in order to survive - they kept the 80 highest performers and let go 40 who were not in same quality category.  By early 02 the DVD by mail subscription service was growing rapidly again and the company was doing far more work with 30% fewer employees - plus spirits were sky high.

The lesson that was distilled from this experience was that talent density lay behind the improvements.  High performers especially thrive in environments where the talent density is high.

What was also learnt with hindsight is that a team with even one or two adequate performers brings down the performance of everyone on the team.

Adequate employees: sap managers energy so they have less time for top performers; reduce quality of team discussion and lower the team's collective IQ. Force others to finds ways to work around them reducing efficiency, drive staff who seek excellence to quit and look elsewhere and show the team that you will tolerate mediocrity.

For top performers a great workplace is about the 'joy of being surrounded by people who are both talented and collaborative. People who can help you get better.'

Good or bad performance is infectious. (Demonstrated in research by Prof Will Felps of the University of New South Wales - in dozens of trials conducted over month-long periods groups with one underperformer did worse than other teams by a massive 30-40 per cent!)

Hastings from that experience became obsessed with making sure that every position from the receptionist onwards was the highest performing and most collaborative on the market.  This is the foundation to Netflix culture because without this talent density none of the other principles is going to work.

Candour - say what you really think (with positive intent).

'When giving and receiving feedback is common, people learn faster and are more effective at work.'

HIGH PERFORMANCE + SELFLESS CANDOUR = EXTREMELY HIGH PERFORMANCE

In general as people we hate criticism and its even worse if in front of others. It triggers an immediate threat response from the brain because how you fit in the group is critical.

But research shows that instinctively we value the truth. In a 2014 study the consulting firm Zenger Folkman collected data on feedback from around 1000 people. By a 3:1 margin the belief was that corrective feedback did more to benefit performance. 72% felt their performance would improve if they had more corrective feedback and 92% agreed with the statement, 'negative feedback if delivered appropriately, improves performance.'

Feedback loops are critical to accelerating learning help create a climate of co-accountability and reduce the need for hierarchy and rules.

Focus 1st on getting employees to give candid feedback to the boss because have to model and exemplify the desired behaviour.  Set the expectation that feedback is required and have a positive behavioural response to show its valued.

Feedback is regularly put on the agenda to tell and show what is expected. As a key behaviour this is practiced, learning how to give and receive good quality feedback.

4A feedback guidelines.

 

  • Aim to assist - it must have positive intent
  • Actionable - what can the recipient do
  • Appreciate
  • Accept or discard

In a culture of candour you can't retain or tolerate 'brilliant jerks'. Their feedback is often not given with positive intent but more likely to wound. Candour does not mean speak your mind without thought to how it impacts others.

Hastings. The value of creative work should not be measured by time - when we judge performance hard work is irrelevant because of this. Don’t care how hard you work only how effectively.

Moved toward having a no vacation policy. Its signals trust that employees will do the right thing but there were a lot of concerns around the policy.  Leaders have to model big vacation-taking - they have to take the breaks and then talk about them a lot.

The gap at Netflix between ideals and practice can be large - leadership is critical to preventing that.

In 2007 Leslie Kilgore coined the expression, 'Lead with context not control'.

It works at Netflix because of the talent - employees are conscientious and responsible. With candour if the system is abused or goes wrong it self corrects quickly.

Freedom and responsibility - you need both and one leads the other

Next got rid of travel and expense approvals. Guidelines form leaders are to imagine before you spend any money you will have to stand up and explain to your boss and peers why you chose to make a particular purchase choice. Aim is always to give context at the front end - examples of how to think about purchasing and what is considered acceptable or unacceptable. Some will cheat but the gains far outweigh the loss.  Lack of process speeds everything up employees can make quick decisions that help the business. No purchase orders no receipts.

Talent density. Takes more time and effort to manage anyone who is mediocre, by staying small and lean we focus on top quality and pay top of market. Don’t pay bonuses, people are most creative when money is taken off the table, don’t have to think about it or if there will be an addition through bonus.

Netflix and employees are encouraged to know and research their value in the market place - speak to rivals and to head-hunters. If your worth is going up Netflix will raise salary.

Increased candour by opening up the books - ie all financial company data despite being a publicly listed company.  Putting information out there, Netflix refers to as sunshining. It makes the work force smarter by really empowering them. Most workforces are not really empowered because they don't have enough information to take ownership of anything. (The average employee has no idea how their business works).  The trust is reciprocated with a lot of buy-in and commitment from employees.

Hastings ' I don't want my employees to feel like they're working for Netflix; I want them to feel they are a part of Netflix.'

Reed Hastings does not have an office or any dedicated space he meets others mostly in their space, or walking around.  Don’t like locked spaces as symbolic of hidden things and secrets.

'Spinning the truth is one of the most common ways leaders erode trust. I can't say this clearly enough: don't do this.'

'Whisper wins and shout mistakes'

Reed early in his career - too insecure to talk openly about mistakes with my staff.  When I got to break this habit I felt more relief and built trust with the team but the team became more transparent about mistakes and stopped sweeping them under the rug.

The biggest advance of sunshining leaders errors is that encourages everyone to think that mistakes are normal and it's ok to take risks and come up short.

Caveat to the value of vulnerability is a necessary pre-condition for this to elicit greater trust and confidence in the individual is that they are already perceived as highly competent / credible.

Pratfall effect.

The standard decision making pyramid has significant drawbacks, the boss acts to approve or block decisions - it limits innovation and slows everything down - information has to travel to authority.

Netflix model reverses this and pushes context and authority downward to the information empowering everyone to make decisions, so long as they have solicited input and comment from others on the idea. Hastings view of this highly dispersed model it that only a CEO who is not busy is really doing his job.

Runs the obvious risk that decisions do go wrong sometimes but rapid recovery and learning is preferable to command and control. Would not be appropriate in every business or organization but where creativity is important than safety compliance for example then its far more powerful.

Netflix innovation cycle:

 

  • Farm for dissent and socialize the idea
  • For a big idea, test it out
  • As the informed Captain, make your bet
  • If it succeeds celebrate it, if it fails sunshine it.

Hierarchy of picking effect. If you pick the best people and they pick the best people and so on down the organization talent density goes up.

But the harder flip side is letting go of a good employee when you think you can get a great one.

High talent density does not allow for the family metaphor of being in the business. It more analogous to a professional sports team, you need to earn your spot every day. You demand excellence, train to win and effort is not enough.  Excellence is also about selflessness putting the team first (no brilliant jerks).

In most organizations you have to do something wrong or be inadequate to lose your job. In a sports team the coach and managers role is always to pick and play the best team possible. So Netflix applies a Keeper test.

If a person on your team were to quit tomorrow would you try to change their mind? Or would you accept their resignation perhaps with a little relief? If the latter you give them a severance package now and look for a star, someone who you would fight to keep.

Most HR performance management systems are invidious. Eg stack ranking which destroys collaboration. Want to compete against Netflix's competitors not against our peers.

Keeper test can increase anxiety but encouraged to seek feedback - would you keep me? What do I need to learn, do develop etc. (Netflix average annual turnover is actually in line with their industry average at around 11%)

360 evaluations every year which leaders share with their teams so are accountable for your actions to the team.

Lead with context not control. Organization at Netflix is loosely coupled so context is critical to aligning action. (Mission command in a different context). Highly aligned loosely coupled

When someone does something dumb you need to check yourself to ask what context you failed to set?

It’s a tree not a pyramid with the boss at the bottom as the roots holding up the trunk of senior managers who support the branches where decisions are actually made.

Final section on global cultural challenges and differences. To make your culture succeed around the world you need to be humble and curios, you have to listen before you speak and learn before you teach.

Netflix is constantly debating its culture and expects it to evolve because it is at the core of how they operate.