August 3, 2023

TPL Insights #182 – Understanding the Why Behind Netflix-Its Mission, Values, and Screaming Success Part 3

By Rob Andrews

By Rob Andrews with italicized content from Netflix

To avoid the rigidity of over-specialization and avoid the chaos of growth while retaining freedom, we work to have as simple a business as we can given our growth ambitions and to keep employee excellence rising. We work to have a company of self-disciplined people who discover and fix issues without being told to do so.

We are dedicated to increasing employee freedom to fight the python of process. Some examples of how we operate with unusual amounts of freedom are:

  1. We share documents internally broadly and systematically. 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. There are some leaks, but the value of highly-informed employees is well worth it.
  2. There are virtually no spending controls and few contract signing controls. Each employee is expected to seek advice and perspective as appropriate. “Use good judgment” is our core precept.
  3. Our policy for travel, entertainment, gifts, and other expenses is 5 words long: “act in Netflix’s best interest.”
  4. Our vacation policy is “take vacation.” We don’t have any rules or forms around how many weeks per year. Frankly, we intermix work and personal time quite a bit, doing email at odd hours, taking off a weekday afternoon, etc. Our leaders make sure they set good examples by taking vacations, often coming back with fresh ideas, and encourage the rest of the team to do the same.
  5. Our parental leave policy is: “take care of your baby and yourself.” New parents generally take 4-8 months.
  6. Each employee chooses each year how much of their compensation they want in salary versus stock options. You can choose all cash, all options, or whatever combination suits you. You choose how much risk and upside you want. These 10-year stock options are fully-vested, and you keep them even if you leave Netflix.
  7. There are no compensation handcuffs (vesting) requiring you to stay in order to get your money. People are free to leave at any time without loss of money, and yet they overwhelmingly choose to stay. We want managers to create conditions where people love being here for the great work and great pay.

You might think that such freedom would lead to chaos. But we also don’t have a clothing policy, yet no one has come to work naked. The lesson is you don’t need policies for everything. Most people understand the benefits of wearing clothes at work.

There are a few important exceptions to our anti-rules pro-freedom philosophy. We are strict about ethical issues and safety issues. Harassment of employees or trading on insider information are zero tolerance issues, for example. Some information security issues, such as keeping our members’ payment information safe, have strict controls around access. Transferring large amounts of cash from our company bank accounts has strict controls. But these are edge cases.

In general, freedom and rapid recovery is better than trying to prevent error. We are in a creative business, not a safety-critical business. Our big threat over time is lack of innovation, so we should be relatively error tolerant. Rapid recovery is possible if people have great judgment. The seduction is that error prevention just sounds so good, even if it is often ineffective. We are always on guard if too much error prevention hinders inventive, creative work.

On rare occasion, freedom is abused. We had one senior employee who organized kickbacks on IT contracts for example. But those are the exceptions, and we avoid over-correcting. Just because a few people abuse freedom doesn’t mean that our employees are not worthy of great trust.

Some processes are about increased productivity, rather than error avoidance, and we like process that helps us get more done. One such process we do well is effective scheduled meetings. We have a regular cadence of many types of meetings; we start and end on time and have well-prepared agendas. We use these meetings to learn from each other and get more done, rather than to prevent errors or approve decisions.

Informed Captains

For every significant decision there is a responsible captain of the ship who makes a judgment call after sharing and digesting others’ views. We avoid committees making decisions, because that would slow us down and diffuse responsibility and accountability. We farm for dissent; dissent is not natural or easy, which is why we make a concerted effort to stimulate it. Many times, groups will meet about topics and debate them, but then afterwards someone needs to make a decision and be that “captain”. Small decisions may be shared just by email, larger ones will merit a memo with discussion of the various positions, and why the captain made such a decision. The bigger a decision, the more extensive the dissent/assent gathering should be, usually in an open shared document. We are clear, however, that decisions are not made by a majority or committee vote. We don’t wait for consensus, nor do we drive to rapid, uninformed decision making. When the captain of any particular decision is reasonably confident of the right bet for us to take, they decide and we take that bet. Afterwards, as the impact becomes clearer, we reflect on the decision, and see if we could do even better in the future.

Disagree Openly

If you disagree on a material issue, it is your responsibility to explain why you disagree, ideally in both discussion and in writing. The back and forth of discussion can clarify the different views, and concise writing of the core issues helps people reflect on what is the wise course, as well as making it easy to share your views widely. The informed captain on that decision has the responsibility to welcome, understand, and consider your opinions, but may not agree. Once the captain makes a decision, we expect everyone to help make it as successful as possible. Later, if significant new information becomes available, it is fine to ask the captain to revisit the topic. Silent disagreement is unacceptable and unproductive.

Context Not Control

We want employees to be great independent decision makers, and to only consult their manager when they are unsure of the right decision. The leader’s job at every level is to set clear context so that others have the right information to make generally great decisions.

We don’t buy into the lore of CEOs, or other senior leaders, who are so involved in the details that their product or service becomes amazing. The legend of Steve Jobs was that his micromanagement made the iPhone a great product. Others take it to new extremes, proudly calling themselves nano-managers. The heads of major networks and studios sometimes make many decisions in the creative process of their content. We do not emulate these top-down models because we believe we are most effective and innovative when employees throughout the company make and own decisions.

We strive to develop good decision-making muscle everywhere in our company. We pride ourselves on how few, not how many, decisions senior management makes. We don’t want hands-off management, though. Each leader’s role is to teach, to set context, and to be highly informed of what is happening. The only way to figure out how the context setting needs to improve is to explore a sample of the details. But unlike the micro-manager, the goal of knowing those details is not to change certain small decisions, but to learn how to adjust context so more decisions are made well.

There are some minor exceptions to “context not control,” such as an urgent situation in which there is no time to think about proper context and principles, or when a new team member hasn’t yet absorbed enough context to be confident, or when it’s recognized that the wrong person is in a decision-making role (temporarily, no doubt).

We tell people not to seek to please their boss. Instead, seek to serve the business. 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.” What we don’t want is people guessing what their manager would do or want, and then executing on that guess.

Highly Aligned, Loosely Coupled

As companies grow, they often become highly centralized and inflexible. Symptoms include:

  1. Senior management is involved in many small decisions
  2. There are numerous cross-departmental buy-in meetings to socialize tactics
  3. Pleasing other internal groups takes precedence over pleasing customers
  4. The organization is highly coordinated and less prone to error, but slow and frustrating

We avoid this by being highly aligned and loosely coupled. We spend lots of time debating strategy together, and then trust each other to execute on tactics without prior approvals. Often, two groups working on the same goals won’t know of, or have approval over, their peer activities. If, later, the activities don’t seem right, we have a candid discussion. We may find that the strategy was too vague or the tactics were not aligned with the agreed strategy. And we discuss generally how we can do better in the future.

The success of a “Highly Aligned, Loosely Coupled” work environment is dependent upon the collaborative efforts of high performance individuals and effective context. Ultimately, the end goal is to grow the business for bigger impact while increasing flexibility and agility. We seek to be big, fast and nimble.

Seeking Excellence

New employees often comment in their first few months that they are surprised at how accurate this culture description is to the actual culture they experience. Around the world, we live and create our culture together. In fact, hundreds of our global employees contributed to this document.

We do not seek to preserve our culture — we seek to improve it. Every person who joins us helps to shape and evolve the culture further. We find new ways to accomplish more together. Every few years we can feel a real difference in how much more effectively we are operating than in the past. We are learning faster than ever because we have more dedicated people with diverse perspectives trying to find better ways for our talented team to work together more cohesively, nimbly, and effectively.

I hope Parts 1-3 of this material have been enlightening. Give us a call, and let’s talk about your organization’s rise to the top of its sector.

Warmest Regards,

Rob