Perhaps one of the best examples of Netflix’s unusual culture can be seen in its formal employee travel and expenses policy.
Netflix’s expense policy is summed up in just five words:
“Act in Netflix’s best interest”.
… and it still doesn’t have an expense policy in place.
Patty McCord, the former chief talent officer of Netflix and author of Powerful: Building a Culture of Freedom and Responsibility, rightly says.
“The elaborate, cumbersome systems for managing people that were developed over the course of the 20th century are just not up to the challenges companies face in the 21st. Netflix evolved a new way of working through incremental adaptation: trying new things, making mistakes, beginning again, and seeing good results. Most of the innovation around the culture at Netflix wasn’t to do anything radical and new but to stop doing stuff that didn’t matter anymore.”
And the whole crux of Netflix’s values can be summed up by the phrase “people over values”. Unlike other Silicon Valley greats, their version of an innovative workplace does not mean exotic sushi lunches, great gyms, fancy offices or frequent parties. Their version of a great workplace is creating and nurturing a “dream” team where everybody is extraordinary in what they do and are the most efficient collaborators.
And in order to create such a team of innovators and foster creativity, Netflix has found out ways to minimize the bad processes and instead focus on the good ones. It has realized that it was easy to build processes focused on ineffective staff — accountability measures, performance review systems, budget approvals — but if they wanted to hire and retain the most talented and innovative employees, they needed to minimize these types of “bad” processes and instead focus on the “good” processes that can help creative people get more done.
This concept is illustrated in slide 64 of Netflix’s Culture Deck, a slide presentation first published in 2009 that has been viewed more than 16 million times. The deck, described by Facebook’s COO Sheryl Sandberg as “the most important document ever to come out of the Valley.” has since then become a cultural manifesto for start-ups.
And rather than parroting the usual, normal, boring HR policy, it advocates the creation of a brand new culture based on uncertainty, creativity, and trust — a blinding contrast to the hierarchical culture that dominated much of the 20th-century workplace.
And here are some of its most telling principles that have made Netflix’s teams insanely creative.
Information Is Power — and it needs to be shared.
Netflix has an unusual meeting culture.
Rather than share minutes of a meeting after it’s over, Netflix asks anyone scheduling a meeting to write up the main takeaways and desired outcome before it even starts. The practice allows employees to get to the point faster and reduces the number of follow-on meetings. This also allows the meeting attendees to come prepared with their ideas and also skip meetings if it does not suit their purpose.
A relentless focus on information and data summarizes pretty much everything Netflix does, which has enabled it to create a culture of abandoning bad ideas early and latching on to good ones. It encourages employees to try new ideas and not to shy away from failure as the best ideas only surface after continuous experimentation. In fact, the very revolutionary idea of retrofitting its entire DVD delivery service into a video streaming service resulted from a myriad of failed ideas.
This fail-restart-fail philosophy is part of its famous “sun shining” culture — bringing failures out into the open so all employees can learn from them. Feedback is more than just commentary or filling up “root cause” analysis forms. The company culture relies on data and it ensures that employees know exactly what went wrong and what needs to be done to set it right again.
Extreme openness, uncomfortable feedback loops and radical transparency are what drives innovation in Netflix.
There is no family in the team.
Some entrepreneurs liken their team as a family. Not Netflix’s CEO, Reed Hastings.
“All happy families are all alike―I’ve read―each unhappy family is unhappy in its own way. You hope to land in a happy family, a family that doesn’t fire you. You hope to find comfort in your family. Netflix, though, is not your family.” He says.
The most innovative cultures are rarely comfortable. In fact, pushing people beyond their comfort zone breeds discomfort and Netflix never promises comfort, rather it promises adventure to strike out of your own. This is a hard way to look at things but it works in fuelling creativity.
And Hastings compares with his team with a sports team rather than a family.
“In team sports that really succeed, there often is a lot of warmth between the players,” he says. “It’s emphasizing those aspects and demonstrating that when people come in, everyone tries to help them.”
And one of the most controversial policies used by Netflix to ensure high performance is the “keeper” test. The Keeper Test asks managers, “If someone on my team told me he was leaving for a similar job at a peer company, would I fight hard to keep him here?” If the answer is no, then they should be given a nice severance package. In their research, they found that, in procedural work, the best are 2x better than the average. In creative/inventive work, the best are 10x.
This ensures everybody understands the importance of high performance and not to tolerate anything less.
Lastly, trust employees to manage their time.
If you are looking for people to take ownership, innovate, be smart and creative, you need to treat them like adults. And adults can very well handle freedom and responsibility. And ultimately, responsible adults thrive on freedom and are worthy of freedom. This is one of the core tenets of Netflix's “people” philosophy.
As Hastings aptly says.
“We don’t have a nine-to-five policy. People just work as they see appropriate.”
Probably one of the most dramatic moves Netflix made was to allow unlimited holidays. Rather than spend countless hours tracking and reporting on annual leave time, the company made a choice to remove all tracking altogether. Similarly, when it came to expenses, Netflix asked employees to “spend company money frugally, as if it were their own.”.
Performance reviews are also made a day-to-day part of the job rather than a yearly formality. Netflix also eliminated bonuses with the view that “if your employees are fully formed adults who put the company first, an annual bonus won’t make them work harder or smarter”.
The whole idea of managing time gives employees a lot of leeway, gives them the freedom to make mistakes, own mistakes and experiment all over again till they succeed. And when employees are given a high degree of freedom, they rarely make wrong decisions. It not only helps to build the trust but it also gives something for the employee to live up to, look forward to and blaze a trail on their own without any constraints or repercussions.
The principle is simple. Give them freedom and set a clear expectation for acting responsibly and most of them (read adult employees) will reward you by doing just that. In the end, it all boils down to trust. Trust and honesty breed creativity.
As Ernest Hemingway has rightly said.
“The best way to find out if you can trust somebody is to trust them.”