Book Review
Building a High Performance Culture Based on the Book No Rules Rules: Netflix and the Culture of Reinvention

AV Ved Puriswar
Professor, IFHE, Hyderabad E-mail: ved@icfaiuniversity.in

Introduction

In their fascinating book, No Rules Rules:Netflix and the Culture of Reinvention, Netflix Co CEO Reed Hastings and Insead Professor Erin Meyer provide a detailed account of the Netflix culture. The company attracts and retains only good people, empowers employees to take decisions, shares information openly, encourages employees to be candid with each other, and avoids rules as far as possible.

Assemble the Best Talent
According to Hastings, the starting point in developing a great organization is to assemble the best talent and weed out the not-so-great performers. In a company full of excellent people, performance keeps improving as employees learn from and motivate one another. In contrast, the presence of merely adequate performers, drags down the performance of the entire organization. So, Netflix has put in place various mechanisms to ensure that it hires only the best people. At the same time, Netflix is quite willing to let go of people whose skills no longer fit, even if they have made valuable contributions in the past. To be fair to these employees and to minimize the pain, the company offers generous severance packages.

Encourage Candid Feedback
Netflix strongly believes that frequent, candid feedback amplifies the performance and output of the employees. Candid feedback not only helps people to improve but also creates a better environment by minimizing politics and backstabbing. A guiding principle at Netflix is: Only say about someone that you will say to them on their face.

Giving and receiving feedback is not easy. For the giver, there is always a worry that it can be interpreted as a personal attack. For the receiver, the initial stress created by feedback can be painful. But in Netflix, people quickly start on this journey, thanks to the role modeling by senior leaders. And once they start giving feedback and see positive results, the culture of feedback gets reinforced.

Co CEO Ted Sarandos once explained to a newly joined employee: "Brian, the day you find yourself sitting on your feedback because you are worried you will be unpopular, is the day you will need to leave Netflix."

Interestingly, when it comes to feedback, Netflix does not give too much importance to conventional notions like:

• Only give feedback when someone asks for it.
• Praise in public.
• Criticize in private.
• Give plenty of positive feedback and restrict the negative feedback to one or two points.

At Netflix, feedback is given proactively and in real time during meetings involving many people. The book mentions that in one meeting, a junior employee mentioned to Sarandos: "That approach won't work." Though Sarandos stuck to his position, the junior colleague persisted: "It won't work... You have got it wrong." After the meeting, Sarandos put his hands around the shoulders of the younger employee, smiled and said: "Great meeting, Thanks for your input today." There are four guiding principles in Netflix, two each for giving and receiving feedback.

While Giving Feedback
Aim to Assist: Give feedback with a positive intent, not to vent out frustration or hurt the other person or to push your political agenda. Actionable: Focus on how the recipient can change.

While Receiving Feedback
Appreciate: Do not get defensive. Show appreciation to the person giving feedback.

Accept or Discard: Listen and absorb all the feedback. But the decision to act is entirely up to you.

Remove Unnecessary Controls
Hastings believes in removing unnecessary controls and giving people more freedom. For example, employees can decide how many days of vacation they want to take. However, for this policy to work, leaders must set the context. This will help people to take vacations to recharge themselves while ensuring that the work does not suffer. Leaders too must take vacations. Otherwise, people below will hesitate. Hastings himself is a role model in this regard and takes regular vacations.

When it comes to doing away with travel and expense policies, context setting can help. For example, people must understand that travelling business class on short duration flights does not make sense. But flying business class during the night to attend a business meeting the next morning, is perfectly legitimate. While expense receipts are usually approved automatically, people must understand that a small percentage of expense receipts will be audited to check for misuse.

Some expenses may increase because of the freedom given to employees. But the additional costs will be small compared to the benefits the freedom provides. People will make quick decisions that help the business. Without bureaucratic processes, people will be more productive. And with greater freedom, people will become more responsible and spend less, behaving as frugally as they would, if it were their own money.

Pay Top Compensation
Hastings believes that it makes sense to hire one exceptional employee and pay the top rate rather than recruit 10 average ones. Netflix also adjusts the salary at least once in a year so that it remains competitive. When the time comes to revise the salary, Netflix looks at what the employee is worth in the market. Netflix realizes that it costs a lot more to lose people and recruit replacements than to overpay a little in the first place. So, Netflix encourages employees to speak to recruiters and ascertain their market value so that corrective action can be taken in time.

Netflix does not believe in bonuses. Instead of trying to beat a target, to earn their bonus, Netflix wants employees to do their best for the company. The company believes that high performers are not driven by bonuses and instead offers higher base salaries.

Share Information Freely
Netflix believes that with free access to information, employees feel like owners and take greater ownership. They work faster, without having to ask for information from their bosses. They start taking better decisions.

There is always the risk of leakage of information. But if one employee violates the trust, Hastings feels it is better to deal with that employee separately and continue to be transparent with the others.

Netflix shares sensitive financial and non-financial information with the top 700 managers before the quarterly results are finalized. For example, the number of subscribers is the most important parameter in the streaming business. This number can be used to predict company performance and do insider trading. But Netflix shares this information with a large number of employees without being worried about leaks. Despite apprehensions, no information leakage has ever taken place.

The company's website mentions: "Nearly every document is fully open for anyone to read and comment on, and everything is cross-linked. Memos on each title's performance, on every strategy decision, on every competitor, and on every product feature test are open for all employees to read."

No Decision-Making Approvals
Hastings believes that it is a myth that the boss knows more and can take the right decision. In fact, people want control over their decisions. The more control they have, the more the ownership and motivation.

As Hastings puts it, "We want all employees taking bets they believe in and trying new things even the boss or others think the ideas are dumb." While approvals are not needed, Netflix encourages a solid grasp of the context, feedback from people with different perspectives and awareness of all the options. A shared memo or spreadsheet where people can provide their comments is one of the popular tools used by Netflix to facilitate this. But this should not be equated with consensus-based decision making. Ultimately, one individual is responsible for the decision.

360-Degree Feedback
In a typical performance review, the boss gives the feedback to the direct report. Why depend on only one person for feedback? In many companies, the performance review becomes the basis for compensation hikes. In case of Netflix, compensation is market linked.

For these reasons, Netflix does not do formal performance reviews, and has instituted informal 360-degree reviews. In these reviews, people identify things that colleagues should stop, start, or continue. In the beginning, the company used a system that kept the feedback anonymous. But over time, as employees became more comfortable with giving feedback, the anonymity went away. Later, as the process evolved, many teams held their 360s face-to-face. In these live sessions, each person presents a short synthesis of the feedback received. These sessions are typically held over dinner in small groups of preferably less than 8. For a group of 8, the exercise can take 3 h and for a group of 12, it can take 5 h. The feedback is given using the 4A framework described earlier. The first feedback interactions will set the tone. So, it is important to choose someone who is prepared to give tough feedback and someone who can receive it with openness, grace and appreciation. A general guideline in these live sessions is to have 25% positive and 75% developmental feedback.

The Keeper Test
Netflix is less about a family and more about a professional sports team. A family is about unconditional love and loyalty. On a high performing team, members are exceptionally good at what they do and equally adept at working well with others. They know how to draw on each other's expertise and recognize that the only way to win is to win together by doing well.

Netflix has no bell curves or rankings that lead to forced exits in some companies. The company believes such practices undermine collaboration. The company depends on the managers' judgment. The key question which managers must answer is: If someone is thinking of leaving, will I try hard to keep him/her from leaving? Those who do not pass this test get a generous severance package and are replaced by someone better.

The keeper test applies to executives at all levels of the company. Take the example of Leslie Kilgore who was incredibly successful as the head of marketing. But as Netflix evolved, deep Hollywood experience became important. So, Leslie moved out, accepted a board level responsibility and has been a great company director for Netflix for many years.

Hastings believes that if each manager considers carefully on a regular basis whether every employee on the team is the best person for that role and replaces that person if he/she is not, performance across the company will soar.

Lead with Context and Not Control
Leading with context is different from leading with control. Leaders explain the situation so that people can make great decisions and accomplish their work without oversight or other forms of control. Context setting needs a good understanding of the ground realities and getting into details. The intention is not to micromanage but to set the context more effectively.

Netflix wants employees to consult their manager only when they are not sure of what to do. Netflix does not want people to guess what their manager would want, and then do exactly that. As guidance, the company (on its website) mentions: "It's OK to disagree with your manager. It's never OK to hide anything. It's OK to say to your manager, 'I know you disagree, but I'm going to do X because I think it is a better solution. Let me know if you want to specifically override my decision.'"

A good example of leading with context is the Indian animation series Mighty Little Bheem, a character drawn from the Mahabharata. The investment was substantial and it was not clear whether the market was big and whether the show could go global. Moreover, the animation quality was not good. But Ted Sarandos explained to people on the ground that India was a growth market. It was ok to take risks and learn. The team purchased the show and gave money to local creatives to improve the animation. Within three weeks of its launch in April 2019, Mighty Little Bheem became one of the most watched animation series in the world.

Hastings admits that to lead with context, the organization should be full of high performers, the focus should be on innovation rather than error prevention and the organization should be loosely coupled (not too many dependencies among different parts, just like micro services for which Netflix is well known) rather than tightly integrated (Apple with its functional structure is an innovative company with great talent but a tightly integrated organization). Netflix meets all these criteria. But in an industry like oil, error prevention may be more important. So, controls are important.

Tolerance for Failure
Hastings believes that when a mistake is made, it is good to talk about it openly. This kind of an attitude enables people to act courageously. The guiding principle at Netflix is that when leaders succeed, they need not make a song and dance about it. But when they make a mistake, they must say it clearly and loudly so that everyone can learn from the error.

As Hastings mentions: "We encourage employees to write open memos explaining candidly what happened, followed by a description of the lessons learned... We should not be afraid of failures. We should embrace them."

Going Global
As Netflix has expanded internationally, it has realized that the US model cannot be replicated across the world though there are some commonalities across cultures. For example, people love autonomy and want to have control over their work. But feedback style varies across the world. Similarly, what is considered a generous severance package in the US may not be considered so in some European countries.

Dutch employees have no problem in overruling their bosses' suggestions, but those in Singapore are more reluctant to do so. The direct, corrective feedback given by German managers to their reportees might seem unnecessarily harsh in the US. At the same time, the tendency of Americans to give copious positive feedback may be seen as insincere by the Germans. In Japan, explicit negative feedback is rarely voiced and certainly not to someone senior. A great learning for Netflix was that in less direct cultures, more formal events and a structured agenda can help.

Hastings mention that asking more questions and showing curiosity is important while expanding globally. We must listen before speaking and learn before teaching.

Concluding Notes
Netflix is one of the astonishing successes of the digital era. The company's culture is unique. The HR practices are revolutionary. But can they be extended to other organizations? In highly innovative companies which attract the best talent, these polices may make sense.

In companies where the work is more predictable and templatized, Netflix-like policies may be difficult to practice. Here people must be taken along. Empathy and patience may be more important (The Netflix culture is somewhat low on empathy). However, even in such organizations, there will be pockets where cutting-edge work happens, and employees may be quite creative. Some, if not all, of Netflix's policies would certainly apply to them.

The message from Netflix is simple. Companies must attract good people and give them the freedom to do their work. As few rules as possible, a culture of giving feedback to each other and intense collaboration can help the employees to perform to their full potential. Is that not the dream of human resources management?