5MR#6: No Rules Rules

The Netflix Cycle –

Most companies tend to get more rules and processes as they grow larger. Netflix has excelled by going in the opposite direction. As the company has grown, it has built a culture of having less rules, not more.

What's most impressive about this is Netflix has used that same cycle as it has navigated four major industry transitions to stay at the top. The company has evolved from being a small DVD rental by mail operation to streaming other people's content, to creating its own content, to becoming a global company entertaining people in 190 countries.

Netflix has achieved that by becoming a different type of workplace, which promotes flexibility, employee freedom, and innovation, rather than focusing on error prevention and rule adherence.

Culture of Reinvention

1.     First steps to building a culture of freedom & responsibility. To start building a Netflix style culture, your initial actions should be:

1.1)     A great workplace is stunning colleagues

“Once you have high talent density in the workplace and have eliminated less-than-great performers, you’re ready to introduce a culture of candor.” - Reed Hastings

The authors argue and highlight that the priority should be to build a team of stunning people. People who are creative, collaborative, passionate and productive. This team when formed is a dream team. This team performs effectively and everyone in the team feels valued and satisfied when they are on the team. The authors hence believe that and excellent place for Netflix is one where the team is pursuing ambitious common goals.

Developing a dream team is optimum and challenging which starts with recruitment, encouraging collaboration and discouraging politics within the workplace.

Feedback is seen as an important driver for success of the team at Netflix. You must not hold back information when you are offering feedback due to the fear of combat. Coach your employees to give and take feedback effectively.

 1.2)     Circle of Feedback

Every 6-12 months all employees take part in the Circle of Feedback. Sit your team in a circle and avoid the anonymity and numeric ratings. Make sure the floor is open to all members to comments on their teams state. The circle of feedback was inspired by Reeds personal experience while he was frequently away from home and busy in the initial days of Netflix. He learned the importance of being honest and accepting criticism.

 The Four As

 The authors recommend implementing the 4As to improve the feedback utilized by your team.

 Aim to Assist - Your feedback should always be driven by a positive purpose. You should never be giving feedback based on frustration or hate. You can always turn a traditionally negative comment into a positive one by being careful with your words.

 Actionable - Your feedback should always have a potential action. Feedback without an action that could be taken is useless.

 Appreciate - As well as effectively giving feedback, you must also learn how to accept feedback. Instead of looking for an excuse when giving feedback, try to relax, and appreciate that feedback is coming from a positive place.

 Accept or Discard - Although positive feedback should be accepted, you will also sometimes receive non-constructive feedback. Non-constructive feedback can be discarded.

 1.3)     Remove Controls

 One of the best controls you can remove is travel and expense approvals. Design your vacation policy in a way that there’s no need for prior. Neither the traveling employee nor their managers are supposed to keep track of their days on vacation. You will likely encounter expense increases after policy changes; you will make up for this through the gains associated with freedom.

“Many employees will respond to their new freedom by spending less than they would in a system with rules. When you tell people you trust them, they’ll show you how trustworthy they are.” – Reed Hastings

In my professional and personal experiences as well “Trust” has outplayed many outcomes and resulted into high performance and even scalable results in individual contributions to the team and overall teams’ performance too.

 2.     Next steps to a culture of freedom and responsibility. To then take things to a higher level, your next actions should be:

In most organizations, there are some great employees and some just okay ones. At Netflix, every one is a high performer – and you go into the meetings, it is like the talent and the brain power could generate the office electricity.

2.1    The Rockstar principle – research has it that the best programmer outperforms the average counterpart by a factor of two or three – the best guy twenty times faster in coding, twenty five times faster at debugging and ten times faster at program execution. The choice they had was to hire 10-15 average engineers or hire 1 Rockstar and pay significantly higher than what others are paid.

The employees are paid on top of market salaries at competitive peer firms. Netflix never reduces the employees pay if the company is going through financial difficulty. Instead of merely giving a standard raise, the authors suggest giving your employees raises in-line with the market.

2.2     Open the Books –

Netflix believes any locked area is symbolic of hidden things and signifies we don’t trust each other – they believe in “sunshining” the secret. With transparency being the key, they want employees not to feel like they are working for Netflix, but to feel like they are part of Netflix. The goal was to make employees feel like owners and in turn, to increase the amount of responsibility they took for the company’s success.

2.3     No Approvals Required –

Netflix strives to develop good decision-making muscles everywhere in the company – and they pride on the fact that senior management is involved in making only a few decisions.

Employees do not need boss’s approval to move forward.

If an employee comes up with a proposal, the boss asks himself/herself these four questions -   Is he/she a stunning employee?

-    Do you believe he/she has good judgement?

-    Do you think he/she can/could make a positive impact?

-     Is he/she good enough to be on your team?

The Netflix Innovation Cycle talks of four steps

- “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

 3. Techniques to reinforce a culture of freedom & responsibility. To reinforce and stoke a culture of freedom and responsibility:

3.1     The Keeper Test- Netflix did not want people to see their jobs as a lifetime arrangement. A job is something you do for that magical period when you the best person for the job and that job is the best position for you. Once you stop learning or stop excelling, that is the moment for you to pass on that spot to someone else who is better fitted for it and to move on to a better role for you

Netflix has the “Keeper Test” which is “If a person on your team were to quit tomorrow, would you try to change your 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 who you would fight to keep”.

With the Keeper test and the push for high talent density, employees often are apprehensive about keeping their jobs – to minimize this fear, employees are encouraged to ask their managers the “Keeper Test Prompt” – “If I were thinking of leaving, how hard would you work to change my mind”. When you get the answer, you know exactly where you stand. ??

3.2     Feedback Circle

There is one Netflix guideline that if practiced religiously would force everyone to be either radically candid or radically quiet – “Only say about someone what you will say on their face”. Candor is like going to the dentist. Even if you brush your teeth daily, you may still miss some uncomfortable spots. With the traditional feedback mechanisms failing or being ineffective as desired Reed came up with Live 360 feedback more like Speed feedback – each pair gave one another feedback using the “Start, Stop, Continue” method. Once all the members are covered, they have a group discussion on what they learnt during the feedback. They found the Live 360s useful because individuals became accountable for their behavior and actions to the team.

A Live 360 could take about 3 hours for a group of 8, may be 5-6 hours for a group of 12.

3.3     Lead with Context not controls

Leading with Context gives considerably more freedom to the employees. As a leader, you provide all the information you can so that your team members can make great decisions and accomplish their work without oversight or process controlling their actions. The benefit is that the person builds the decision-making muscle and makes better independent decisions. Unlike most organization where the boss decides and it percolates to the team much like a pyramid structure @Netflix the informed captain is the decision maker, not the boss. The boss’s job is to set the context that leads the team to make the best decisions in the organization. This type of decision making is more like the tree – with the CEO sitting at the roots and the informed captain at the top branches making the decisions.

Conclusion:

1. Performance inside a company is infectious. If you have adequate performers, everyone will tend to be adequate. If you have a team of only high performers, that's the way everyone will perform as well.
2. Great companies figure out ways to remove controls. That attracts top talent, who need less and less controls anyway. It's a self-reinforcing cycle.

Curious to know more about the culture @Netflix ?? Check it out - Netflix Culture

Antoine de Saint-Exupéry, the author of The Little Prince, shows us the way:

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.

Good Day! Thanks for your time. Stay Safe.