No Rules Rules: Netflix and the Culture of Reinvention

by Reed Hastings

For many years, one of America’s biggest corporations proudly exhibited the following list of values in the lobby of its headquarters: “Integrity. Communication. Respect. Excellence.” The company? Enron.

hahaha

If you build an organization made up of high performers, you can eliminate most controls. The denser the talent, the greater the freedom you can offer.

Yeah makes sense, but going for true high performers takes serious commitment.

For top performers, a great workplace isn’t about a lavish office, a beautiful gym, or a free sushi lunch. It’s about the joy of being surrounded by people who are both talented and collaborative. People who can help you be better. When every member is excellent, performance spirals upward as employees learn from and motivate one another.

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

Yes, been saying this a lot in my consulting.

At Netflix, it is tantamount to being disloyal to the company if you fail to speak up when you disagree with a colleague or have feedback that could be helpful. After all, you could help the business—but you are choosing not to.

4A FEEDBACK GUIDELINES

Netflix has an interesting model in that they teach people how to receive feedback very specifically.

Even at Netflix, where we preach “No Brilliant Jerks,” we often have an employee who has difficulty finessing the boundaries.

During the 2003 leadership meeting, where we decided to launch the no-vacation-policy experiment, Patty insisted that in order for this to work we, the executive team, would have to take big vacations and talk about them a lot.

Leaders need to model behaviors, in other words.

Freedom is not the opposite of accountability, as I’d previously considered. Instead, it is a path toward it.

The best guy was twenty times faster at coding, twenty-five times faster at debugging, and ten times faster at program execution than the programmer with the lowest marks.

This is how netflix moved to hiring the best: if great engineers arw truly 20x better, hire fewer!

Research confirms Reed’s hunch. Contingent pay works for routine tasks but actually decreases performance for creative

The idea that Netflix gets rid of bonus pay and folds it in to base pay seems like a nice hack.

The rule at Netflix when recruiters call is: “Before you say, ‘No thanks!’ ask, ‘How much?’”

Amazing, employees are actually encouraged to take ownership of figuring out how much they should be paid and telling HR!

The methods used by most companies to compensate employees are not ideal for a creative, high-talent-density workforce. Divide your workforce into creative and operational employees. Pay the creative workers top of market. This may mean hiring one exceptional individual instead of ten or more adequate people. Don’t pay performance-based bonuses. Put these resources into salary instead. Teach employees to develop their networks and to invest time in getting to know their own—and their teams’—market value on an ongoing basis. This might mean taking calls from recruiters or even going to interviews at other companies. Adjust salaries accordingly.

DON’T SEEK TO PLEASE YOUR BOSS. SEEK TO DO WHAT IS BEST FOR THE COMPANY.

If someone uses the freedom Netflix gives them to make important decisions without soliciting others’ viewpoints, Netflix considers that a demonstration of poor judgment.

“Farm for dissent,” or “socialize” the idea. For a big idea, test it out. As the informed captain, make your bet. If it succeeds, celebrate. If it fails, sunshine it.

we realized family is not a good metaphor for a high-talent-density workforce.

Once you stop learning or stop excelling, that’s the moment for you to pass that spot onto someone who is better fitted for it and to move on to a better role for you.

In order to encourage your managers to be tough on performance, teach them to use the Keeper Test: “Which of my people, if they told me they were leaving for a similar job at another company, would I fight hard to keep?”

If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.

That alignment of context drives employees to make decisions that support the mission and strategy of the overall organization. This is why the mantra at Netflix is HIGHLY ALIGNED, LOOSELY COUPLED

WHEN ONE OF YOUR PEOPLE DOES SOMETHING DUMB DON’T BLAME THEM. INSTEAD ASK YOURSELF WHAT CONTEXT YOU FAILED TO SET.

Instead of seeking to minimize error through oversight or process, focus on setting clear context, building alignment of the North Star between boss and team, and giving the informed captain the freedom to decide.

Reed was explicit about not optimizing for efficiency

For example, in our São Paulo office, there is a weekly meeting to discuss the corporate culture for all employees who’d like to attend. Giving and receiving feedback is one of the most frequent topics on the agenda.

Weekly meetings on culture! Weekly!

catastrophe. In select instances like these, where error prevention is clearly more important than innovation, we have loads of checks, processes, and procedures to ensure we don’t screw anything up. In these moments, we want Netflix to be like a hospital where there are five people verifying the surgeon is operating on the correct knee. When a mistake would lead to a disaster, rules and process isn’t just nice to have, it’s a necessity.

Are you working in an industry where your employees’ or customers’ health or safety depends on everything going just right? If so, choose rules and process. If you make a mistake, will it end in disaster? Choose rules and process.