Australia and the World Past and Present

Recently I was watching a documentary on the growth of the tech industry in Silicon Valley and one of the talking heads started going on about an early Netflix HR document that apparently had a big influence in the way tech firms were run. I thought that I’d go and take a look. The document is called Netflix Culture: Freedom and Responsibility.

The authors of the document begin by saying that they seek excellence and high performance. Well, which organisation doesn’t? It begs the further questions- just how do they define excellence and how do they go about it?

They say that judgement is important as is making ‘wise decisions’. This is more interesting. Again, it doesn’t define what wise decisions are. I suppose there is acknowledgement that you can’t plan everything. Things change. Things move fast. Rather than being prescriptive in their approach, they are seeking to grant employees a degree of freedom. Sometimes it is hard to see whether a decision has been wise or not until a fair amount of time has passed. There are many examples in the history of business where people made decisions that seemed fine at the time, decisions that were based on the information available. They seemed well-balanced and justified according to certain evidence. But is still may have been the beginning of a downward trajectory.

They say that they want their workers to be impactful and that ‘you accomplish amazing amounts of important work’. Clearly the leadership at Netflix was signalling that they wanted people to focus on the big things and not get bogged down in the minutiae of bureaucracy and process.

They say explicitly that they prefer employees to focus on results over process.

On the topic of honesty, ‘You only say things about fellow employees you will say to their face’. Refreshing. This is pointing to an ideal. However from time immemorial people have been standing around the water cooler and passing judgement on all and sundry. I don’t know how successful the company was at changing this aspect of human nature.

Continuing on, ‘You seek what is best for Netflix rather than what is best for yourself or your group.’

This is standard within organisational values and practice. Another way of saying this would be that the group is more important than the individual. One thing that observers of Netflix have noted over time is that the very same people who brought these standards in were pushed out of the company on the basis of these rules. And some of these employees even admit that although the were not very keen to move on, they still believe that the rule was correct.

One of the most famous parts of the document is the ‘Keeper Test’. It says, ‘Which of my people if they told me they were leaving for a similar job as a peer company would I fight hard to keep at Netflix?’. Netflix was not the first company to come up with this idea. It is natural to want to hang on to your best people and let others go.

The authors of the document were thinking of a company that functioned like a professional sports team. Performance was front of mind. In sports, success means winning games, getting into the playoffs and winning the championship. Year after year. That is the goal. And sports teams are continually looking at how to optimise the chances that they will succeed. If a team loses a few games in a row, people start looking for the cause. What is wrong? Who’s at fault? Should we replace the coach?

Likewise at Nexflix, they were asking themselves ‘is this person still useful to us’? ‘Do we need new blood to reinvigorate the team?’ etc.

For Netflix, hard work didn’t matter. Working hard was not the issue. ‘Sustained B-level performance, despite “A for effort”, generates a generous severance package, with respect. Sustained A-level performance, despite minimal effort, is rewarded with more responsibility and greater pay.’

They also mention that this kind of company culture is not for everyone, and clearly it won’t be.

As companies get bigger, they can be expected to become more complex. Netflix calls for limiting their complexity growth as much as possible. This is a nice idea. Once again it is an ideal. Complexity is forced on companies to some extent. For example, at one time Netflix was operating only in the US. Obviously the company needed to understand the US market and US laws and regulations. Expanding into each new country requires the company to understand variations in culture and laws. More customers will bring complexity. New products or services will bring more complexity. Nevertheless, Netflix wanted to minimise ‘rule creep’, especially with internal rules and processes that were not absolutely essential.

They didn’t have 9am to 5pm work policy, nor a vacation policy, nor a clothing policy.

They endeavoured to pay at the top of the market and weren’t in favour of giving people fancy titles.

Netflix aimed to be ‘highly aligned, loosely coupled’ – everybody swimming in the same direction, but with all of its constituent parts granted the freedom to get on with their work and deliver.

Teams in companies are often said to be ‘working in silos’. At Netflix, they wanted their employees to be ‘highly aligned, loosely coupled’

Netflix did not rank employees against each other. They clearly believed that this was either unnecessary or possibly detrimental to the organisational culture of the company.

Unlike a lot of other large employers, they were not keen on the idea of management sitting down with employees and hashing out development plans together. A cynic might say that they probably saw it as a diversion of resources or a waste of time. Career development is probably more important to the employee than the employer. Netflix wanted employees to work out their own career development and believed that they could.

Netflix’s business culture resembled a professional sports team culture – by design. Netflix has focused on results over process. There wasn’t much that was novel about their approach. But the approach did work very well for the company, which has continued to grow and grow.