No Rules Rules: Netflix and the Culture of Reinvention
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Read between March 19 - March 26, 2022
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For many centuries, almost all businesses were run by families, so it’s no surprise that today the most common metaphor CEOs use for their companies is the family. The family represents belonging, comfort, and commitment to helping one another over the long term.
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On a high-performing team, collaboration and trust work well because all the members are exceptionally skilled both at what they do and at working well with others. For an individual to be deemed excellent she can’t just be amazing at the game; she has to be selfless and put the team before her own ego.
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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 SHOULD GIVE THEM A SEVERANCE PACKAGE NOW, AND LOOK FOR A STAR, SOMEONE YOU WOULD FIGHT TO KEEP.
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During your next one-to-one with your boss ask the following question: “IF I WERE THINKING OF LEAVING, HOW HARD WOULD YOU WORK TO CHANGE MY MIND?”
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The second technique that we use to abate the fear of job loss is the “post-exit Q and A.” POST-EXIT Q &
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It costs money to find and train new people, so the traditional wisdom goes that it’s cheaper to hold on to your current team members than to find new ones. But Reed doesn’t pay much attention to turnover rate, believing that replacement costs are not as important as ensuring the right person is in every position.
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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?” Avoid stack-ranking systems, as they create internal competition and discourage collaboration.
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When you realize you need to let someone go, instead of putting him on some type of PIP, which is humiliating and organizationally costly, take all that money and give it to the employee in the form of a generous severance payment.
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“Only say about someone what you will say to their face.” The less we talk about people behind their backs, the more we eliminate the gossip that creates inefficiency and bad feelings—and the more we can wash our hands of the unpleasantness generally referred to as “office politics.”
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The third issue is that companies usually base performance reviews on annual goals. But employees and their managers don’t set annual goals or KPIs (Key Performance Indicators) at Netflix. Likewise, many companies use performance reviews to determine pay raises, but at Netflix we base salaries on the market, not performance.
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The goal is to help everyone get better, not to categorize them into boxes. The other big improvement is that each person can now give feedback to as many colleagues as they choose at any level in the organization—not just direct reports, line managers, or a few teammates who have invited input.
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That’s exactly why you as the leader need to share your 360 evaluations with your teams, especially the really candid stuff about all the things you do poorly. It shows everyone that giving and receiving clear, actionable feedback isn’t so scary.
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As a talkative person myself, I wasn’t even aware that some experienced Patty as hogging the airspace. I wouldn’t have known to give her this feedback, because it doesn’t characterize the interactions I have with her. This demonstrated why it’s so important employees receive feedback, not just from their boss but also from teammates.
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Length and location: A live 360 will take several hours. Do it over dinner (or at least include a meal) and keep the group small. We sometimes have sessions with ten or twelve people, but eight or fewer is more manageable. For a group of eight you’ll need about three hours. A group of twelve could run to five hours.
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All feedback should be provided and received as an actionable gift following the 4A feedback
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Positive actionable feedback (continue to . . .) is fine, but keep it in check. A good mix is 25 percent positive and 75 percent developmental (start doing . . . and stop doing . . .). Any nonactionable fluff (“I think you’re a great colleague” or “I love working with you”) should be discouraged and stamped out.
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Candor is like going to the dentist. Even if you encourage everyone to brush daily, some won’t do it. Those who do may still miss the uncomfortable spots. A thorough session every six to twelve months ensures clean teeth and clear feedback.
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Performance reviews are not the best mechanism for a candid work environment, primarily because the feedback usually goes only one way (down) and comes from only one person (the boss). A 360 written report is a good mechanism for annual feedback. But avoid anonymity and numeric ratings, don’t link results to raises or promotions, and open up comments to
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But that’s not what leadership looks like at Netflix. As Adam explained: “Ted wasn’t about to make that decision for me, but he set broad context to help align my thinking with the company’s strategy. That context he set laid the foundation for my decision.”
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When considering whether to lead with context or control, the second key question to ask is whether your goal is error prevention or innovation.
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your focus is on eliminating mistakes, then control is best. ExxonMobil is in a safety-critical market.
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that brings me to the third necessary condition you need to have in place in order for leading with context to work. In addition to high talent density (that’s the first condition) and a goal of innovation rather than error prevention (that’s the second), you also need to work (here comes the third) in a system that is “loosely coupled.”
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Loose coupling works only if there is a clear, shared context between the boss and the team. That alignment of context drives employees to make decisions that support the mission and strategy of the overall organization.
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HIGHLY ALIGNED, LOOSELY COUPLED
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I have one thirty-minute meeting with each director once a year. That makes about 250 hours of meetings with people who are three to five levels below me in the org chart. In addition, I meet with each vice president (two to three levels below me) for one hour every quarter. This results in another 500 hours of meetings annually. When Netflix was smaller, I met with each person more frequently, but I still spend about 25 percent of my annual time on all these meetings.
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WHEN ONE OF YOUR PEOPLE DOES SOMETHING DUMB DON’T BLAME THEM. INSTEAD ASK YOURSELF WHAT CONTEXT YOU FAILED TO SET. ARE YOU ARTICULATE AND INSPIRING ENOUGH IN EXPRESSING YOUR GOALS AND STRATEGY? HAVE YOU CLEARLY EXPLAINED ALL THE ASSUMPTIONS AND RISKS THAT WILL HELP YOUR TEAM TO MAKE GOOD DECISIONS? ARE YOU AND YOUR EMPLOYEES HIGHLY ALIGNED ON VISION AND OBJECTIVES?
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The pyramid decision-making structure Melissa experienced at her previous company is easily recognizable in the majority of organizations, regardless of industry or location. Either the boss makes the decision and pushes it down the pyramid for implementation, or those at lower levels make the smaller decisions but refer the bigger issues to the higher-ups.
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We don’t know if Saudi Arabians watch more or less TV during Ramadan. We don’t know if Italians prefer documentaries or comedies. We don’t know if Indonesians are more likely to watch movies alone in their bedrooms or around their family televisions. If we are going to succeed, we need to become an international learning machine.
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We should be ready to take bigger risks in high-growth-potential countries like India or Brazil so that we learn more about those markets. Let’s have some wins. But let’s also have some big messy losses where we learn how to succeed better the next time. We should always be asking, “If we purchase this show and it bombs, what will we learn from that?” If there is something big to learn, let’s go ahead and take the bet. Reed
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Reed made it clear that international expansion is our future and India is a key growth market. Mighty Little Bheem is a great show from a key Netflix growth market. Ted made it clear that when it comes to countries like India, we have so much to learn that we should take big risks, as long as the learning potential is evident. With Mighty Little Bheem what we would learn from the bet was very clear.
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When I interviewed him, Aram clarified the great advantage of dispersed decision-making when managers lead with context. I’m one of the best people at Netflix to decide what children’s content to purchase in India, as I know the Indian animation market and Indian family-viewing patterns like the back of my hand. But it’s only with organizational transparency, a ton of context, and high alignment between me and the leadership that I can make the best decisions to benefit our organization and Netflix viewers around the world.
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Ten days after the Icarus release, we had a team meeting where we went through the viewing data for new content and I was devastated by the poor numbers. My colleagues trust me to be able to predict the viewing of a movie, the public discussion that will result, and the yield at Oscars time. My reputation is built on that trust. I felt I had made a huge mistake that couldn’t help but damage my colleagues’ faith in me.
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In a loosely coupled organization, where talent density is high and innovation is the primary goal, a traditional, control-oriented approach is not the most effective choice. Instead of seeking to minimize
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policies and processes that most companies have but that we don’t have at Netflix. These include: Vacation Policies Decision-Making Approvals Expense Policies Performance Improvement Plans Approval Processes Raise Pools Key Performance Indicators Management by Objective Travel Policies Decision Making by Committee Contract Sign-Offs Salary Bands Pay Grades Pay-Per-Performance Bonuses
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These are all ways of controlling people rather than inspiring them. It’s not easy to avoid chaos and anarchy as you remove these controls, but if you develop every employee’s sense of self-discipline and responsibility, help them develop enough knowledge to make good decisions, and develop a feedback
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“This is totally unprofessional.” In contrast, more indirect cultures use more downgraders, when giving negative feedback. These are words that soften the criticism, such as “kind of,” “sort of,” “a little,” “a bit,” “maybe,” and “slightly”. Another type of downgrader is a deliberate understatement, such as, “We are not quite there yet,” when you really mean, “We are nowhere near our goal.”
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to give feedback to a colleague in a less direct culture should take heed. Be friendlier. Work harder to remove the blame. Be careful to frame the feedback as a suggestion, not an order.
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One of the best ways to get better at providing feedback to an international counterpart is to ask questions and show curiosity about the other person’s culture. If you need to give feedback to a counterpart in another country, ask another trusted colleague from that country first,
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Map out your corporate culture and compare it to the cultures of the countries you are expanding into. For a culture of F&R, candor will need extra attention. In less direct countries, implement more formal feedback mechanisms and put feedback on the agenda more frequently, because informal exchanges will happen less often.
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employee safety and sexual harassment. When it comes to protecting our employees from injury or harassment, we invest in error prevention (training) and hotlines; we have strong processes to make sure all claims are properly investigated; and we use process-improvement principles to drive the incident rates down to zero.
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