Netflix’s Winning Formula: Trust Employees and Set Them Free
Originally published August 5, 2015 on LinkedIn.com
Netflix dominates the news, because of its tremendous success as one of the most dominant disruptors of the media and entertainment industry, as well as its popular critically-acclaimed series such as “House of Cards” and “Orange is the New Black”. But, the company has also gained a reputation for its pioneering work culture. In 2009, CEO Reed Hastings and then Chief Talent Officer Patty McCord published a deck entitled “Netflix Culture: Freedom & Responsibility.”
Netflix’s “Emancipation Proclamation”
The deck outlines why Netflix values creativity over process and has given its employees full discretion over the amount of vacation time they take, instead of basing it on tenure or other subjective factors. The company has avoided the mistake that other high-growth, innovative firms have made, which is to reduce freedom over time as they become bigger and more bureaucratic. And just this week Netflix announced their “unlimited leave policy for new moms and dads that allows them to take off as much time as they want during the first year after a child’s birth or adoption.”
Freedom Attracts Talent
This level of employee freedom flies in the face of the management and human resource practices of the vast majority of companies over the history of the agricultural, industrial and post-industrial eras. It even outpaces many technology firms, which often attempt to substitute perks and pretty offices for genuine freedom and flexibility. The explanations (or excuses) that leaders make for policing the amount of time employees spend at their desks and for rationing out vacation days, are steeped in tradition and are a misguided belief that work hours spent in the office, under the watchful eyes of supervisors, equal higher performance and profitability.
In her book, Work Revolution: Freedom and Excellence for All, Julie Clow writes that Netflix does not concentrate on the amount of time spent on a task or project, but more importantly focuses on results. This culture is especially appealing for the high-performing employees that give the company its competitive advantage. She explains that top talent thrives on creativity and personal autonomy, and is more likely to leave if they lose either creative or autonomous freedom.
John Hagel III, et al, from Deloitte Center for the Edge, echoes Clow’s observations. In the whitepaper, “The Hero’s Journey Through the Landscape of the Future,” the authors predict that companies will increasingly have challenges retaining creative talent, because of their enhanced ability to pursue other ventures. As the safety nets that used to attract workers to large, established companies are diminishing, top talent will be looking for the intangible benefits of autonomy and creativity. “Star” performers may leave for smaller enterprises that can offer the freedom that they seek, or just start their own.
“Trust [people] and they will be true to you; treat them greatly, and they will show themselves great.” - Ralph Waldo Emerson
Trust Before Freedom
Trust is the precursor of freedom in any arrangement between employee and employer. The lack of the former in many institutions makes it virtually impossible to even consider implementing a fraction of a Netflix style culture. Trust in a professional and personal context can be defined as a psychological state consisting of a willingness to accept vulnerability based on positive expectations of another or others on various interpersonal levels, whether they are one-to-one, team, or organizational (Fulmer & Gelfand, 2012, p. 1174). Many companies say the estimated costs of such trust are too high and the risks of the freedom that could be leveraged from it are too numerous. For certain industries these concerns may be valid, but for knowledge and innovation driven enterprises this line of thinking is a liability. Consider this reality-check:
- Netflix is the largest Internet television network (and video-streaming service) in the world with over 62 million customers in 50 countries.
- It has been adding 5 million to 6 million net subscribers for the past several years and will continue to grow at that rate
- It’s total revenue in 2014 was 5.5 billion dollars and its gross income was almost 2 billion, and is currently exceeding financial projections for 2015
Conclusion
In business money talks first and foremost. Obviously, all organizations will not generate the numbers that Netflix does, but if they are struggling to attract and retain talent, grow their customer base, stimulate innovation and increase profitability, then they would be negligent if they did not conduct a serious inquiry into the level of trust within their organizations and at least consider the possibility of enhanced employee freedom. Those companies that are surviving in spite of unhealthy doses of organizational mistrust and restrictive cultures are still at a competitive disadvantage to more trusting and liberated enterprises. In the coming years of talent shortages due to the Boomer exodus from the workplace, employer’s should ask themselves, “Are we the ‘promised land’ that top talent wants to run to or the dungeon that they want to escape from?
Reference:
Fulmer, C.A., Gelfand, M.J. (2012). At What Level (and in Whom) We Trust: Trust Across Multiple Organizational Levels. Journal of Management. doi: 10.1177/0149206312439327.
