Creating a Culture of Reinvention By Removing Rules, Giving Freedom, & Hiring and Paying The Best People Well

Erin Meyer is the co-author of No Rules Rules: Netflix and the Culture of Reinvention, which she co-authored with Reed Hastings, the founder and CEO of Netflix. She is also the author of The Culture Map and a professor at INSEAD.

For the book, No Rules Rules, Erin spent a lot of time observing the corporate culture inside of Netflix, she interviewed employees, and got first hand stories of how the company values started from Reed himself. Netflix definitely has a unique culture and an interesting way to give employees freedom. While not every company can use their method of autonomy, there are lessons we can all learn from how they operate.

What led Erin to write No Rules Rules Erin's first book, The Culture Map, came out in 2014 and it dove into the topic of how people of different backgrounds and cultures can work together harmoniously and effectively. The book really took off over the next few years and in 2016 Erin received an email from a fellow Peace Corps volunteer who was interested in learning more about her book and how to implement the method in his own company. That person was Reed Hastings, the co-founder and co-CEO at Netflix.

So Erin went in to help Netflix get ready for their international expansion and while she was there she became fascinated with the company's culture because it was so strange and unique.

"I conducted a big research project, I interviewed about 200 employees at Netflix, and I spent a lot of time with Reed himself, trying to understand what it was about this organizational culture that was breeding so much innovation and flexibility in the company. And then what it was that other business leaders around the world or even just team leaders could learn from this company about how to be more innovative and flexible themselves. And that's what we wrote the book [No Rules Rules] about."

Why the culture at Netflix is so different When asked what her first impressions were of the Netflix culture when she first started, Erin admits she was a bit "startled" by it and there were some things that initially concerned her. One example of something that concerned her was one of the slides in the Netflix culture deck which said, "adequate performance gets a generous severance".

Erin says, "It concerned me because at INSEAD where I teach, there had been, there was so much talk, and still today, of course, about the idea of focusing exclusively on psychological safety in a workplace. I just didn't understand how an organization today could be running around, not make your employees feel safe, but tell your employees if they're not excellent, they're out."

But even though it initially concerned Erin, it also was intriguing and a bit refreshing to see a company be so blunt about what it was going to be like to work there. So many companies tell potential new hires wonderful stories about what it's like to work at the company, things they think people want to hear. It's a great work environment, you'll love everyone you work with, the work is exciting and engaging, and you won't ever get burned out. That's what they'll say when the person is interviewing for the job, but then once they start they find out that people are backstabbing each other, it's a toxic work environment, they are expected to work 60+ hours a week, and they are doing boring, monotonous tasks.

To see a company really be blunt and open about what the culture is actually like is extremely rare. So even though the wording may sound harsh, anyone who applies for Netflix knows up front it's going to be hard work and you will have to bring your best self every day, and that may not be for everyone.

"I was so tired, just so sick of looking at corporate cultures or people who worked at companies who said what their corporate cultures were and then say, Oh, it's about integrity and respect and excellence. You know, there's nothing wrong with saying that your organization values respect, it's just that there's no good credible option to respect right? No company would run around saying they value disrespect, or that they value corruption. And I think that was actually one of my really overarching learnings to this research, was that if you really want to articulate a corporate culture that means something, that takes a root and impacts the way your employees are behaving, that you really want to avoid speaking in absolute positives, like integrity or respect, that have no good opposite option. And instead, focus on the tensions or the dilemmas that your employees are facing on a day to day basis."

We are a team, not a family Another way Netflix goes against the grain is in the methodology behind their corporate culture. Their mindset is, we are a team, not a family. And we're not just a regular team, we are an Olympic team. We work together, we have cohesion and teamwork, but there's no job security. When you get hired for a certain position you are there for as long as you are the best person for that job, but when you are no longer the best person for the job you will be replaced by someone else who is.

As Erin shares, in the Industrial Era most of the time employment was for life, so you really were a family. But now, with the increasing pace of change and uncertainties that is no longer the case, we can't have teams where we can't easily move people on and off.

This may seem harsh, and it's definitely not for everyone, but employees who work for Netflix opt into that work environment. They know up front what it will be like and what is expected of them. And if they accept the job they know they will get paid well, they will get to work on some amazing projects, they will have exceptional co-workers, etc…

How Reed came up with the Netflix culture foundation There are three main pillars that make up the Netflix culture and allow the leaders there to give employees freedom. And these three things came from the experience Reed had at the first company he opened, Pure Software.

Because Pure Software was a small entrepreneurial startup they operated without formal processes and policies. Everyone was expected to use their best judgement and make good decisions for the company, which worked when they first started with a small team. People enjoyed working there, they had freedom, there was a lot of creativity and innovation. But then the company began to grow quite quickly.

And as the company grew--from a handful of people to 1,000--people started to do stupid things and took advantage of the freedom they were given. There was no policy against having dogs at work, so one woman started bringing her dog in every day and he would chew through the carpets. Another employee who had to travel for work decided because there wasn't a policy about travel he would start flying first class all the time.

Because this was still a fairly new company, they didn't have a lot of extra money, so these things people kept doing really hurt the company and frustrated Reed. So he sat down with HR and wrote an employee handbook to address all these issues. But as they implemented these rules and policies something else happened--the creative people started leaving and innovation slowed down. Erin says it got so bad Reed had to sell the company.

So when Reed opened up Netflix he went in with two guiding principles--employee freedom breeds innovation and process kills organizational flexibility. But he was also worried that if he didn't have some policies in place the organization would descend into chaos. So he had to figure out how to give freedom without processes and policies.

The three pillars of Netflix culture As Reed was figuring out what to do with the culture at Netflix he realized that in most organizations most of the procedures and policies are put into place to deal with medium to poor employees. So if you could get a culture that was made up of only top employees then you could give them a lot more freedom. And then you also have a culture with a lot of candid feedback so that employees could feel secure speaking up if and when someone did take advantage of the freedom.

So Reed came up with three pillars that are still used inside of Netflix to create a culture of freedom, creativity, and innovation. They are:

1. Talent Density--In order to give freedom without limits and policies you need a high performing team and you can't let middle performers hang around. Leaders perform regular "keeper test" exercises with employees. If that employee came to you today and said they were leaving, how hard would you fight to keep them? If you wouldn't fight or if you would feel a bit relieved, then they aren't the right person for the role.
2. Candor--The leaders inside Netflix encourage a lot of candid feedback. The key is having some guidelines to the feedback and Erin shared the four A's--Aim to assist, it has to be actionable, show appreciation, accept or decline. Everyone provides feedback--employees to leaders, leaders to employees, and employees to coworkers.
3. Freedom--Once you have talent density and candor, then you are in a position to give freedom. If you want to go on vacation--go, if you need to make a purchase--do it, if you need to make a decision--make it. You are expected to act like an adult and act in the best interest of the company. Instead of using a hierarchical pyramid, Netflix uses a decision making tree with the leaders at the bottom down in the dirt, watering the roots of the company.

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