slideshare.net: Netflix Culture, Freedom & Responsibility

slideshare.net: Netflix Culture, Freedom & Responsibility

Netflix Culture:
Freedom & Responsibility

We Seek Excellence
Our culture focuses on helping us achieve excellence
Seven Aspects of our Culture
Values are what we Value
High Performance
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development
Many companies have nice sounding value statements displayed in the lobby, such as:

Integrity
Communication
Respect
Excellence

Enron, whose leaders went to jail,
and which went bankrupt from fraud,
had these values displayed in their lobby:
Integrity
Communication
Respect
Excellence

The actual company values,
as opposed to the
nice-sounding values,
are shown by who gets
rewarded, promoted, or let go
Actual company values are the
behaviors and skills
that are valued
in fellow employees

At Netflix, we particularly value the following nine behaviors and skills
in our colleagues…
…meaning we hire and promote people who demonstrate these nine

Seven Aspects of our Culture
Values are what we Value
High Performance
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development

Imagine if every person at Netflix
is someone you
respect and learn from…
Great Workplace is
Stunning Colleagues
Great workplace is not espresso, lush benefits, sushi lunches, grand parties, or nice offices

We do some of these things, but only if they are efficient at attracting and retaining
stunning colleagues
Like every company,
we try to hire well
Unlike many companies,
we practice:

adequate performance gets a generous severance package
We’re a team, not a family

We’re like a pro sports team,
not a kid’s recreational team

Netflix leaders
hire, develop and cut smartly,
so we have stars in every position
The Keeper Test Managers Use:
Which of my people,
if they told me they were leaving,
for a similar job at a peer company,
would I fight hard to keep at Netflix?
The Keeper Test Managers Use:
Which of my people,
if they told me they were leaving,
for a similar job at a peer company,
would I fight hard to keep at Netflix?
Honesty Always
As a leader, no one in your group should be materially surprised of your views
Honesty Always
Candor is not just a leader’s responsibility, and you should periodically ask your manager: “If I told you I were leaving, how hard would you work to change my mind?”
All of Us are Responsible
for Ensuring We Live our Values
“You question actions inconsistent with our values” is part of the Courage value

Akin to the honor code pledge:
“I will not lie, nor cheat, nor steal,
nor tolerate those who do”
Pro Sports Team Metaphor is Good, but Imperfect
Athletic teams have a fixed number of positions, so team members are always competing with each other for one of the precious slots
Corporate Team
The more talent we have,
the more we can accomplish,
so our people assist each other all the time

Internal “cutthroat” or “sink or swim”
behavior is rare and not tolerated
We Help Each Other
To Be Great
Isn’t Loyalty Good?
What about Hard Workers?
What about Brilliant Jerks?
Loyalty is Good
Loyalty is good as a stabilizer
People who have been stars for us, and hit a bad patch, get a near term pass because we think they are likely to become stars for us again
We want the same: if Netflix hits a temporary bad patch, we want people to stick with us
But unlimited loyalty to a shrinking firm, or to an ineffective employee, is not what we are about
Hard Work – Not Relevant
We don’t measure people by how many hours they work or how much they are in the office
We do care about accomplishing great work
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 great pay
Brilliant Jerks
Some companies tolerate them
For us, cost to effective teamwork is too high
Diverse styles are fine – as long as person embodies the 9 values
Why are we so insistent on
high performance?
In procedural work, the best are 2x
better than the average.
In creative/inventive work, the best are 10x
better than the average, so huge premium on creating effective teams of the best
Why are we so insistent on
high performance?
Great Workplace is
Stunning Colleagues
Our High Performance Culture
Not Right for Everyone
Many people love our culture, and stay a long time
They thrive on excellence and candor and change
They would be disappointed if given a severance package, but lots of mutual warmth and respect
Some people, however, value job security and stability over performance, and don’t like our culture
They feel fearful at Netflix
They are sometimes bitter if let go, and feel that we are political place to work
We’re getting better at attracting only the former, and helping the latter realize we are not right for them

Seven Aspects of our Culture
Values are what we Value
High Performance
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development

The Rare Responsible Person
Self motivating
Self aware
Self disciplined
Self improving
Acts like a leader
Doesn’t wait to be told what to do
Picks up the trash lying on the floor

Responsible People
Thrive on Freedom,
and are Worthy of Freedom
Our model is to increase
employee freedom as we grow,
rather than limit it,
to continue to attract and nourish innovative people,
so we have better chance of
sustained success
Most Companies
Curtail Freedom as they get Bigger
Why Do Most Companies
Curtail Freedom
and Become Bureaucratic
as they Grow?
Desire for Bigger Positive Impact
Creates Growth
Growth Increases Complexity
Growth Also Often Shrinks Talent Density
Chaos Emerges
Process Emerges to Stop the Chaos
Process-focus Drives More Talent Out
Process Brings Seductively Strong
Near-Term Outcome
A highly-successful process-driven company
With leading share in its market
Minimal thinking required
Few mistakes made – very efficient
Few curious innovator-mavericks remain
Very optimized processes for its existing market
Efficiency has trumped flexibility

Then the Market Shifts…
Market shifts due to new technology or competitors or business models
Company is unable to adapt quickly
because the employees are extremely good at following the existing processes, and process adherence is the value system
Company generally grinds painfully into irrelevance
Seems Like Three Bad Options
Stay creative by staying small, but therefore have less impact
Avoid rules as you grow, and suffer chaos
Use process as you grow to drive efficient execution of current model, but cripple creativity, flexibility, and ability to thrive when your market eventually changes
A Fourth Option
Avoid Chaos as you grow with Ever More High Performance People – not with Rules
Then you can continue to mostly run informally with self-discipline, and avoid chaos
The run informally part is what enables and attracts creativity

The Key: Increase Talent Density faster than Complexity Grows
Increase Talent Density
Top of market compensation
Attract high-value people through freedom to make big impact
Be demanding about high performance culture
Minimize Complexity Growth
Few big products vs many small ones
Eliminate distracting complexity (barnacles)
Be wary of efficiency optimizations that increase complexity and rigidity
With the Right People,

Instead of a
Culture of Process Adherence,

We have a Culture of
Creativity and Self-Discipline,
Freedom and Responsibility
Is Freedom Absolute?
Are all rules & processes bad?
Freedom is not absolute

Like “free speech”
there are some
limited exceptions to
“freedom at work”
Two Types of Necessary Rules
Prevent irrevocable disaster
Financials produced are wrong
Hackers steal our customers’ credit card info
Moral, ethical, legal issues
Dishonesty, harassment are intolerable

Mostly, though, Rapid Recovery is
the Right Model
Just fix problems quickly
High performers make very few errors
We’re in a creative-inventive market, not a safety-critical market like medicine or nuclear power
You may have heard preventing error is cheaper than fixing it
Yes, in manufacturing or medicine, but…
Not so in creative environments
“Good” versus “Bad” Process
“Good” process helps talented people get more done
Letting others know when you are updating code
Spend within budget each quarter so don’t have to coordinate every spending decision across departments
Regularly scheduled strategy and context meetings
“Bad” process tries to prevent recoverable mistakes
Get pre-approvals for $5k spending
3 people to sign off on banner ad creative
Permission needed to hang a poster on a wall
Multi-level approval process for projects
Get 10 people to interview each candidate

Rule Creep
“Bad” processes tend to creep in
Preventing errors just sounds so good
We try to get rid of rules when we can, to reinforce the point

Example: Netflix Vacation Policy
and Tracking
Until 2004 we had the standard model of N days per year
Meanwhile…
We’re all working online some nights and weekends, responding to emails at odd hours, spending some afternoons on personal time, and taking good vacations
An employee pointed out…
We don’t track hours worked per day or per week, so why are we tracking days of vacation per year?
We realized…
We should focus on what people get done, not on how many days worked

Just as we don’t have an 9am-5pm workday policy, we don’t need a vacation policy
Netflix Vacation Policy
and Tracking
“there is no policy or tracking”
Netflix Vacation Policy
and Tracking
“there is no policy or tracking”

There is also no clothing policy at Netflix,
but no one comes to work naked

Lesson: you don’t need policies for everything
No Vacation Policy Doesn’t Mean
No Vacation
Netflix leaders set good examples by taking big vacations – and coming back inspired to find big ideas
Another Example of Freedom and Responsibility…
Most companies have complex policies around what you can expense, how you travel, what gifts you can accept, etc.

Plus they have whole departments to verify compliance
with these policies
Netflix Policies
for Expensing, Entertainment,
Gifts & Travel:
“Act in Netflix’s Best Interest”

(5 words long)
“Act in Netflix’s Best Interest”
Generally Means…
Expense only what you would otherwise not spend, and is worthwhile for work
Travel as you would if it were your own money
Disclose non-trivial vendor gifts
Take from Netflix only when it is inefficient to not take, and inconsequential
“taking” means, for example, printing personal documents at work or making personal calls on work phone: inconsequential and inefficient to avoid
Freedom and Responsibility
Many people say one can’t do it at scale
But since going public in 2002, which is traditionally the end of freedom, we’ve substantially increased talent density and employee freedom

Summary of
Freedom & Responsibility:

As We Grow, Minimize Rules

Inhibit Chaos with Ever More
High Performance People

Flexibility is More Important
than Efficiency in the Long Term
Seven Aspects of our Culture
Values are what we Value
High Performance
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development

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.

-Antoine De Saint-Exupery, 
Author of The Little Prince
The best managers figure out how to get great outcomes by setting the appropriate context, rather than by trying to control their people
Context, not Control
Context (embrace)
Good Context
Link to company/functional goals
Relative priority (how important/how time sensitive)
Critical (needs to happen now), or…
Nice to have (when you can get to it)
Level of precision & refinement
No errors (credit cards handling, etc…), or…
Pretty good / can correct errors (website), or…
Rough (experimental)
Key stakeholders
Key metrics / definition of success
Managers: When one of your talented people
does something dumb,
don’t blame them

Instead,
ask yourself what context
you failed to set
Managers: When you are tempted to “control” your people, ask yourself what context you could set instead
Are you articulate and inspiring enough about goals and strategies?
Why Managing Through Context?
High performance people will do better work if they understand the context
Investing in Context
This is why we do new employee college, frequent department meetings, and why we are so open internally about strategies and results
Exceptions to “Context, not Control”
Control can be important in emergency
No time to take long-term capacity-building view
Control can be important when someone is still learning their area
Takes time to pick up the necessary context
Control can be important when you have the wrong person in a role
Temporarily, no doubt
Seven Aspects of our Culture
Values are what we Value
High Performance
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development

Three Models of Corporate Teamwork
Tightly Coupled Monolith
Independent Silos
Highly Aligned, Loosely Coupled

Tightly Coupled Monolith
Senior management reviews nearly all tactics
e.g., CEO reviews all job offers or advertising
Lots of x-departmental buy-in meetings
Keeping other internal groups happy has equal precedence with pleasing customers
Mavericks get exhausted trying to innovate
Highly coordinated through centralization, but very slow, and slowness increases with size
Independent Silos
Each group executes on their objectives with little coordination
Everyone does their own thing
Work that requires coordination suffers
Alienation and suspicion between departments
Only works well when areas are independent
e.g., aircraft engines and blenders for GE

#3 is the Netflix Choice
Tightly Coupled Monolith
Independent Silos
Highly Aligned, Loosely Coupled

Highly Aligned, Loosely Coupled
Highly Aligned
Strategy and goals are clear, specific, broadly understood
Team interactions focused on strategy and goals, rather than tactics
Requires large investment in management time to be transparent and articulate and perceptive
Loosely Coupled
Minimal cross-functional meetings except to get aligned on goals and strategy
Trust between groups on tactics without previewing/approving each one – so groups can move fast
Leaders reaching out proactively for ad-hoc coordination and perspective as appropriate
Occasional post-mortems on tactics necessary to increase alignment
Highly Aligned, Loosely Coupled teamwork effectiveness
depends on
high performance people
and good context

Goal is to be
Big and Fast and Flexible
Seven Aspects of our Culture
Values are what we Value
High Performance
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development

Pay Top of Market
is Core to
High Performance Culture
One outstanding employee gets more done and costs less than two adequate employees

We endeavor to have only
outstanding employees
Three Tests for Top of Market
for a Person
What could person get elsewhere?
What would we pay for replacement?
What would we pay to keep that person?
If they had a bigger offer elsewhere
Takes Great Judgment
Goal is to keep each employee at top of market for that person
Pay them more than anyone else likely would
Pay them as much as a replacement would cost
Pay them as much as we would pay to keep them if they had higher offer from elsewhere

Titles Not Very Helpful
Lots of people have the title “Major League Pitcher” but they are not all equally effective
Similarly, all people with the title “Senior Marketing Manager” or “Director of Engineering” are not equally effective
So the art of compensation is answering the Three Tests for each employee

Annual Comp Review
At many firms, when employees are hired, market compensation applies
But at comp review time, it no longer applies!
At Netflix, market comp always applies:
Essentially, top of market comp is re-established each year for high performing employees
At annual comp review, manager has to answer the Three Tests for the personal market for each of their employees

No Fixed Budgets
There are no centrally administered “raise pools” each year
Instead, each manager aligns their people to top of market each year – the market will be different in different areas

Compensation Over Time
Some people will move up in comp very quickly because their value in the marketplace is moving up quickly, driven by increasing skills and/or great demand for their area
Some people will stay flat because their value in the marketplace has done that
Depends in part on inflation and economy
Always top of market, though, for that person

Compensation Not Dependent
on Netflix Success
Whether Netflix is prospering or floundering, we pay at the top of the market
Sports teams with losing records still pay talent the market rate, to get back to winning
Bad Comp Practices
Manager sets pay at Nth percentile of title-linked compensation data
The “Major League Pitcher” problem
Manager cares about internal parity instead of external market value
Fairness in comp is being true to the market
Manager gives everyone a 4% raise
Very unlikely to reflect the market
When Top of Market Comp
Done Right…
We will rarely counter with higher comp when someone is voluntarily leaving because we have already moved comp to our max for that person
Employees will feel they are getting paid well relative to their other options in the market
Versus Traditional Model
Traditional model is good prior year earns a raise, independent of market
Problem is employees can get materially under- or over-paid relative to the market, over time
When materially under-paid, employees switch firms to take advantage of market-based pay on hiring
When materially over-paid, employees are trapped in current firm
Consistent market-based pay is better model

Employee Success
It’s pretty ingrained in our society that the size of one’s raise is the indicator of how well one did the prior year
but for us the other factor is the outside market
Employee success is still a big factor in comp because it influences market value
In particular, how much we would pay to keep the person
Good For Each Employee to Understand Their Market Value
It’s a healthy idea, not a traitorous one, to understand what other firms would pay you, by interviewing and talking to peers at other companies
Talk with your manager about what you find in terms of comp
Stay mindful of company confidential information

Efficiency
Big salary is the most efficient form of comp
Most motivating for any given expense level
No bonuses, no philanthropic match
Instead, put all that expense into big salaries, and give people freedom to spend their salaries as they think best
Employees can decide how much Netflix stock they want, versus cash
No Vesting or Deferred Comp
We don’t want managers to “own” their people with vesting – all comp is fully vested
We want managers to be responsible for creating a great place to work, and paying at the top of market
Employees are free to leave us anytime, without penalty, but nearly everyone stays
Employees stay because they are passionate about their work, and well paid, not because of a deferred compensation system
No Ranking Against Other Employees
We avoid “top 30%” and “bottom 10%” rankings amongst employees
We don’t want employees to feel competitive with each other
We want all of our employees to be “top 10%” relative to the pool of global candidates
We want employees to help each other, and they do
Seven Aspects of our Culture
High Performance
Values are what we Value
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development

In some time periods, in some groups, there will be lots of opportunity and growth at Netflix
Some people, through both luck and talent, will have extraordinary career growth
Baseball Analogy: Minors to Majors
Very talented people usually get to move up, but only true for the very talented
Some luck in terms of what positions open up and what the competition is
Some people move to other teams to get the opportunity they want
Great teams keep their best talent
Some minor league players keep playing even though they don’t move up because they love the game
Netflix Doesn’t Have to Be for Life
In some times, in some groups, there may not be enough growth opportunity for everyone
In which case we should celebrate someone leaving Netflix for a bigger job that we didn’t have available to offer them
If that is what the person prefers
Three Necessary Conditions
for Promotion
Job has to be big enough
We might have an incredible manager of something, but we don’t need a director of it because job isn’t big enough
If the incredible manager left, we would replace with a manager, not with a director
Person has to be a superstar in current role
Could get the next level job here if applying from outside and we knew their talents well
Could get the next level job at peer firm that knew their talents well
Person is an extraordinary role model of our culture and values

Timing
If a manager would promote to prevent an employee from leaving, the manager should promote now instead of waiting
Three tests still have to be passed
Job big enough
Superstar in current role
Person is an extraordinary role model of our culture and values

Development
We develop people by giving them the opportunity to develop themselves, by surrounding them with stunning colleagues and giving them big challenges to work on
Mediocre colleagues or unchallenging work is what kills progress of a person’s skills
Career “Planning” Not for Us
Formalized development is rarely effective, and we don’t try to do it
e.g., Mentor assignment, rotation around a firm, multi-year career paths, etc.
We Support Self-Improvement
High performance people are generally self-improving through experience, observation, introspection, reading, and discussion
As long as they have stunning colleagues and big challenges to work on
We all try to help each other grow
We are very honest with each other

We want people to manage
their own career growth,
and not rely on a corporation
for “planning” their careers
Your Economic Security is based on your Skills and Reputation
We try hard to consistently provide opportunity to grow both by surrounding you with great talent
Seven Aspects of our Culture
Values are what we Value
High Performance
Freedom & Responsibility
Context, not Control
Highly Aligned, Loosely Coupled
Pay Top of Market
Promotions & Development

We keep improving
our culture as we grow

We try to get better
at seeking excellence

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