Culture is the sum total of the behavior of people within a given social structure. The type of behavior that gets rewarded gets repeated and the type of behavior that gets punished gets removed. Culture is that one thing that when done right, turn a small group of people into a great organization and burn down and when done wrong, burn an empire to the ashes.
In 1998, Reed Hastings and his chief Talent officer put together a document about how they wanted to manage their talent. The document was a detailed compendia of principles and policies which would govern how Netflix expects their employees to operate within their organization.
The document was shared on the internet for public access and since then it has gone viral, being viewed and downloaded over 5 million times. This manifesto for how Netflix envisioned their culture would cross borders to reach other companies and go on to become an aspirational standard of organizational culture for rest of the tech industry.
In fact Sheryl Sandberg, the COO of Facebook later called it one of the most influential documents to ever come out of Silicon Valley.
Netflix’s core philosophy revolves around five tenets:
1. Hire, Reward, and Tolerate only fully formed adults
This may seem self-explanatory but when you hire smart people who can make logical decisions based on the best interest of the company, things will eventually turn out great.
Unfortunately, there will always be that one guy who will mess things up or exploit the company benefits to further their own interests even at the peril of the company. Most companies build their policies to shield themselves against these few idiots and end up creating complex policies that undermine the intelligence of the remaining 97%.
Netflix wanted to avoid this trap. Instead of building policies as a shield against a few bad players, they focused their energy on one policies where it mattered the most—Hiring. They realized that if they worked extra hard to not hire those few bad players, it would make life easier for everyone else.
One example of this is Netflix’s vacation policy. Netflix got rid of their formal vacation policy of 10 vacation days, 10 holidays and few sick days. Instead, they left that choice up to the employees. Salaried employees were asked to take time off whenever they felt was appropriate.
In Hastings’ words,
"Today, in the information age, what matters is what you achieve, not how many hours you clock," writes Hastings. "I have never paid attention to how many hours people are working. When it comes to how we judge performance at Netflix, hard work is irrelevant.... So, why should I care if an employee works 50 weeks a year or 48 weeks a year?”
The basic rule was that they had to work the timing with with their managers. After all, it is the employees who really know when they need time away from work, not the employer.
Another example was the way travel and expenses were handled. “Netflix’s expense policy is five words long, “Act in Netflix’s best interests”. In talking that through with employees, we said we expected them to spend company money frugally, as if it were their own. Eliminating a formal policy and forgoing expense account police shifted responsibility to frontline managers, where it belongs”, says Patty McCord, Netflix’s Ex- Chief Talent Officer.
2. Agile performance feedbacks.
Netflix doesn’t have official performance reviews. Instead they started asking managers and employees to have ongoing conversations throughout the year which would prove to be even better as the feedback is more relevant and timely. They also instituted a 360 degree peer review program where colleagues could give feedback to each other on things that they should start, stop or continue.
Once again, the history of performance feedback could be traced backed to the legal requirement to have a paper trail which documents a trend low performance before you can fire someone. Unfortunately this lead to situation where in order to protect the company against the tail risk created by a few low performers, you ended up creating policies that cripple the growth of the high performers.
3. Managers as team builders.
In his legendary book, “High Output Management“, Andy Grove, the founder of Intel said, “The single most important task of a manager is to elicit peak performance from his subordinates.” Netflix has taken this advice and baked it into their DNA. At Netflix, the manager’s primary responsibility to build great teams and make them greater.
A lot of effort goes into making sure that they get the best talent in the industry, give them relevant work for their skills and pay them really well so that they stay with the company. In an unusual practice, Netflix is open to their employees having discussions with recruiters about competing opportunities and pay scales. It’s never too expensive to pay for great talent.
And, once again, in true anti-red tape fashion, the managers were not rated based on some complicated paperwork to show that they did great coaching. If the manager’s did their job of building a great culture, it would show in the the form of great work. It was simple as that.
4. Leaders as architects of culture.
This kind of emphasis on viewing the job of leaders and managers as company builders rather than product builders is what makes Netflix stands out. Netflix asks their leader to focus on the process that results in great products.
And, the culture of the company is the foundational structure that drives great results. In reality, both the engineers and manager are expected to build great products, except in the case of managers, the products are the processes that allow the engineers to do their best.
5. Think like engineers, not HR people.
Netflix is not a big fan of viewing HR as a group of people who come up with gimmicky ideas such as free t-shirt giveaways and throw fancy parties. Instead, they are focused on creating frameworks for finding and developing talent. People can figure out where they stand on the spectrum of talent and performance and know exactly what they need to do to get to the next level.
In most companies, promotions and bonuses are more mysterious and complex than quantum mechanics. Everyone knows it’s something very important to their existence, yet no one seems to understand how it really works.
Patty McCord has a simple test to see if workers truly understand what high performance is. She says, “If your company has a performance bonus plan, go up to a random employee and ask, “Do you know specifically what you should be doing right now to increase your bonus?” If he or she can’t answer, the HR team isn’t making things as clear as they need to be.”
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