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No Rules Rules: Netflix and the Culture of Reinvention





Talent density

1. If you, as a manager, want to create an innovative atmosphere within your team, you need to develop a fearless atmosphere for your employees. They should not be afraid disagree with opinions of their bosses and colleagues. (best to avoid doubling up on negatives like “no” and “not”)


2. Reed Hastings argues that detailed procedures and standards could undermine innovation in the company, because employees would concentrate on compliance, but not on creativity. He mentions his experience in a software start up, where he decided to increase the complexity of business standards, including travel and business trips policies. It increased the financial efficiency of the company but hurt creativity and innovation. There is a tradeoff between efficiency and innovation.


3. Trying to reinvent their business, Netflix founders decided to lay off a third of their employees who were unable to work hard, were inflexible and had a negative attitude. After this massive layoff, the business continued to operate, and the remaining employees started to work better because the internal climate had remarkably improved. By making this hard decision, Netflix started to create its “talent density,” the cornerstone of its corporate culture.


4. If you create a team of excellent performers, they will motivate each other to work better, but if you include some mediocre professionals, they can remarkably decrease the motivation of the team and subvert its effectiveness and creativity.


5. The best performers and most collaborative employees are the main assets for a successful organization


6. Your main task as a leader is to create an environment where outstanding people would like to work

Feedback


7. Candid feedback is a next key element of Netflix’s corporate culture. Reed Hastings compares this principle with a main rule of his family life, where he is happy partly because of his open and fair dialogue with his wife.


8. Developed feedback culture works in three ways: from manager to reports, from reports to the manager, and between employees giving feedback to each other


9. The higher up the manager moves in organizational hierarchy, the less feedback he gets. This creates a major risk for the company, because when managers empowered to make important decisions have blind spots, it can create big losses for business


10. Answering all employees on their feedback, the manager shows that it is safe to provide feedback to boss. Reed Hastings provides an example of his communication with a Netflix employee who has dared to pay his attention on unpleasant tone of Reed on one of the last meetings. The employee wrote about it to Reed directly by email. Reed agreed with the critique and answered to the employee by copying his response to all their colleagues. It was demonstrated to the team that their feedback is welcomed


11. Candid feedback is a responsibility of Netflix employees because they are being hired for their opinions and ideas


12. Sometimes feedback is more effective being provided immediately


13. If somebody behaves like jerk, do not label him a jerk, but just propose that he be gentler.


14. One superstar is better than many average employees or some good ones


15. If you are not satisfied with an employee, be fair and open to him/her. It could help him not to make bad decisions in his personal life (for example, it is better to provide him with negative feedback and inform him about potential firing before he buys an expansive house with a high mortgage)


16. It is not loyal to Netflix to stay silent if you have an objection to some proposals. (Honesty is the best policy!)


17. Netflix has decided to stop anonymous feedback sessions and now asks its employees to reveal their names when they give feedback to each other or to their manager. As Netflix explains, when feedback is provided in an anonymous manner, people are afraid that they will actually be identified by the manager, while some employees abuse their right to provide feedback by leaving ambiguous comments which are not be useful for development.


18. Feedback is a gift; Netflix considers positive feedback to be useless and asks its employees to provide as more targeted feedback useful to development


19. Cultural differences dictate adjustments to feedback practices in various countries. For instance, Japan, China (and Russia?) are not the best cultures for direct feedback, which may be more effective in the US or Netherlands.


No formal rules

20. There is no sense in travel and vacation policy if you work with highly talented employees. You do not need to control how they spend their time. In contrast, you may judge their performance based on results and impact on the organization but not their time spent in office.


21. Some employees are more effective if they have holiday breaks and long vacations. Some of them can be amazingly effective even if they almost always work out of the office


22. Generation Z is extremely interested in flexible work schedule. Adjustable policy on business trips and vacations could increase attractiveness of the organization for them


23. Freedom signals employees that you trust them to do good things


24. Netflix employees have relatively long vacations, but they do not abuse their rights to spend a time out of the office. Being motivated by company’s policy “hire best talents and pay them more”, Netflix employees provides their best not to lose this job.


25. Usually people imitate actions of their leader. Thus, if he spends a lot of time on vacations, they will do the same. Therefore, although Netflix has no vacation policy, each manager in the company shall set basic principles of vacations and business trips. Netflix name it as “setting a context, not rules”


26. Unlimited vocations is considered by Netflix employees as third important perk after insurance and pension plans


27. During some period, there was just one travel and business expenses guideline in Netflix: “spent company money as your own”. But it did not work well. And they decided to replace it with “spent your money in the best interests of Netflix”. So, if you could explain why this expense is at the company’s interest – there is no questions to you. Finance department of Netflix reviews around 10 percent of all travel checks from this perspective and refuses to compensate expenses if they fail to meet this criterion.


28. There is strong corporate policy: If the employee chooses to abuse the freedom (including the freedom of expenses), Netflix fires him. But just small percentage of the employees abuse. Therefore, they do not need to establish strict and detailed rules to restrict “a good majority”.


29. The limit on contract amount is your judgment. If you are responsible for business, you will be able to sign any contract related to this operation, even if this contract is very material.


30. While the biggest risk for Netflix is a lack of innovation, the biggest risk for chemical company, nuclear power station or medicine company is another thing. You need to be more risk averse in chemical business than in entertainment company


31. Even in Netflix there are strong standards, including rules about financial reporting, compliance, personal data protection

Salary policy


32. Netflix hires excellent employees and pays them “Rockstar salary”. Because 1 excellent employee is better than 10 average ones.


33. Reed agrees that this approach works only with creative professions. If you need to hire somebody who is not expected to invent something, or make decisions on material issues, who is involved in routine job (operational professions) – the “Rockstar salary” principle makes no sense.


34. Netflix does not pay bonuses. They are skeptical about KPIs. They think that it is a risk that employee will think about these numbers instead of working in best interests of the company.


35. Another problem with KPIs is that they could hinder adaptability of the business and make it hard to change the company. For instance, Netflix considers 5 years plan as absurd for their business


36. However, in case of operational jobs bonuses can work. The bigger the bonus – the better the work. But if we are talking about creative jobs, Netflix experience shows that bonus could not increase performance of these specialists


37. Netflix keeps eye on salaries proposed by market for specialists they work with. If particular employee is valuable for business and some other company tries to hunt him, Netflix asks his employees to let its management know about any offer got on the market, to be able to match it and propose a counteroffer with higher salary. They understand that it is better to keep the “rockstar” than to grow new or hunt other brilliant expert from other firm.


38. It is better to Increase salary of highly potential employee before he came with counteroffer


39. Executives at the director level and above—some 500 people—can see the salaries of every employee.

Information policy

40. There are no separate rooms for managers. Full transparency.


41. Share even confidential information with employees. It makes them smarter. Otherwise, they are like baseball players which do not know rules of the game


42. If there is a leak of confidential information on the market – they work with this case and continue apply transparency policy. They do not punish majority for minority

In case of failure and mistakes


43. First – ask, which learning has come from the project, second - don’t make a big deal about the failure or mistake, third - let’s failure sunshine, speaking openly about it.


44. If you blame for failures and mistakes – you will motivate your employees to act in risk prevention manner but not innovate.


45. Netflix asks its employees to write a memo about their failure projects.


About career ladder and job security

46. As soon as you stop to learn on the job, you shall think where to move further and let another person shine on this position


47. Those employees who cares about their job security, boing risk averse, are not Netflix employees


Keepers test

48. Keeper test: would you keep an employee if he came and say to you that he got a counteroffer and thinks to leave the company? If you would try to keep him – think how to keep him before he came with a counteroffer. If you would not – immediately tell him and start to think about his replacement.


49. To ensure that employees are not afraid of sudden firing, they ask their managers upfront as to whether they will do their best to keep him in the company should he got a counteroffer


50. Netflix fires “average” employees trying to keep only brilliant ones. As a rule, they propose 4 to 9-month salaries as a severance package for employees


51. For Netflix, replacement costs are not so important as additional value potentially created by brilliant new employee who came to the company


52. Netflix prefers not to lose time with formal feedback sessions and moves fast with firing if they think that it is reasonable for their business


53. At the same time, there is no firing quotas in Netflix


54. It is understood that the keepers test creates talent density but also increases stress. In 2018 WSJ publicized a review of Netflix corporate culture with a heading “At Netflix, Radical Transparency and Blunt Firings Unsettle the Ranks” (https://www.wsj.com/articles/at-netflix-radical-transparency-and-blunt-firings-unsettle-the-ranks-1540497174?mod=e2tw). The article argued that Netflix had created a “culture of fear”


55. There is a principle in Netflix about transparency of all layoffs. If some employee has been fired from the job, its manager must make the situation transparent for all the team and to explain the reasons why the company had decided to fire him

Leading with context

56. Leading with context means that manager do not directs actions of the employees but set common context and goals. In contrast, leading with control means micromanagement direction of employees in details.


57. Leading with context is more appropriate for creative professions, like software developers, designers, lawyers. Leading with control - for operational staff


58. To lead with context effectively, at least two conditions shall be satisfied: 1) talent density, 2) true alignment of goals and values between management and employees.


59. Alignment of goals and values might be nurtured on management sessions and regular communications between employees


60. If some of your employees did something damn, ask yourself about context you set for them. It might be your mistake as a manager

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