Netflix HR Reinvention: Magnificent Policies or Monster Movie Madness?
DID NETFLIX REALLY DISRUPT THE SYSTEM WITH ITS CULTURE DECK?
Netflix gorged itself on human resource inspiration leader Patty McCord.
That’s what big companies do.
They burn you out, eat you up and spit you out.
So why the Netflix culture is considered an inspiration to startups, venture capitalists, and human resource management professionals?
Let’s not kid ourselves.
The Netflix culture wouldn’t be getting as much attention if Netflix wasn’t Netflix. Netflix is admired by onlookers because of its growth and revenue.
The 2018 New Year was met with a record-breaking $11 billion in revenue, 6.36 million NEW international memberships, and $217 million in contribution profits. The company just happened to put out a very bland-looking slideshow that went viral.
If the culture deck was just a little slideshow uploaded by a mom and pop business, it would not have gotten attention from anyone except presentation gurus preaching the importance of graphical representation.
When you’re a small company and decide to do away with expense account limitations while granting employees unlimited vacation time, people will just think you’re crazy.
What do you know?
You’re just a small company.
But when a billion-dollar company starts talking crazy, people listen. (Just ask Richard Branson and Elon Musk.) People are listening to Patty McCord.
PATTY MCCORD – HR MASTERMIND
Would we dissect the human resource policies of a company if it wasn’t a gazillion-dollar company?
HR Departments rarely get a glance unless something disruptive, illegal, or significantly profitable is stemming from the department.
Yet, HR Departments define and shape the most valuable resources any company could have—the people.
Reed Hastings, CEO and Co-Founder of Netflix, tells audiences people must see the culture when they walk in the door.
Patty McCord, Talent Officer at Netflix from 1998-2012, was the lead talent recruiter and culture innovator that helped build the Netflix culture that spits her out. Was it Karma? She had hired and fired hundreds of people during her fourteen-year stint.
She fired kindly. She peppered in “Life is a journey” and “it will be easy to get a job” sentiments with cheery compliments, a pat on the back, and a walk out the door. “Go be from Netflix!” she would say. Be proud of who you are. Netflix provided a generous severance package.
Then it was her turn.
A Clip of Patty’s Netflix Timeline
Patty walked into the startup Netflix door early, invited by Reed Hastings from Pure Software. Reed was excited about this new DVD shipping company idea Marc Randolph was working on.
In a middle-of-the-night phone call, Reed told Patty he wanted her to be the VP of HR.
She was not impressed, but Reed talked her into joining his venture.
Fast forward 14 years, Reed was the one to tell Patty it was time to go. She was devasted. Netflix was her life. But she understood. Netflix hires for an objective, her job was done. She received a generous severance package. (Generous severance packages include stock options.)
Patty had told countless employees it was time to “move on,” and now she had to convince herself.
Patty had helped the Netflix team through the agonizing DVD startup years stuffing DVDs into envelopes, and she was a key player during the streaming startup excitement and Apple’s introduction of the iPad featuring the Netflix app.
She worked closely with executives, computer geeks, and innovators. She loved the continuous startup vibe. That was her thing. She once told Reed she got bored with a company after five years, yet she lasted with Netflix for fourteen years.
Interesting challenges retain employees.
At the time of Patty’s departure, Netflix was embarking on international strategy journeys and making a foray into original movie productions. New skillsets were needed.
Patty’s experience was in startups and hiring skilled computer programmers—she was a Silicon Valley HR expert, not a Hollywood film recruiter.
Now, Netflix was focused on talents from the entertainment industry and experience in international markets.
Patty McCord had completed her job. Netflix was no longer a struggling startup. The Netflix tech was built. The Netflix culture was built. A system was in place.
Her talents were to be packaged and set off on a new journey.
Patty is now “being from Netflix.” She coaches million-dollar companies, is a respected author and has speaking engagements around the world.
She went from helping startups to being a startup. She’s fired up to reinvent HR practices around the world.
Continuous Success = Continuous growth in revenue, profits & reputation. – Original Netflix Culture Deck, 2009
REINVENTING THE FIRE IN HR
Long before Patty left Netflix, she had a personal disdain for the word “fire.” Being “fired” makes you think of ammunition and war and pain.
Being fired is perceived as a stain, but, it’s just a step into the future. It is a change for the company and the person. People change. Companies change.
As much as Patty hates the word fired, she knows it is necessary to let people go.
Success starts with letting the right people IN the door.
How you lead people TO the door affects future success.
Success is manufactured by letting the right people OUT the door.
Does your company fire like Netflix?
|Does your company follow Netflix firing practices?||Yes||No|
|All new hires are promptly told our dismissal policies:|
|We quickly dismiss dishonest employees:|
|We quickly dismiss employees that harass others:|
|We quickly dismiss jerks, even brilliant ones:|
|We asked the manager if they would fight hard to keep this employee:|
|We do not fire loyal employees because of an unusual negative performance:|
|We explain to employees clearly why they were let go:|
|Employees can see our company values based on who stays and who goes:|
|Our values are given reinforcement during the exit interview:|
|We give honest compliments to our employees when it is time for them to move on:|
|We avoid using the word fired:|
|We offer our employees a generous severance package when they are let go:|
If you’re a startup company, be proactive in designing a hiring and firing system that doesn’t fire up the desire for retaliation.
EVERYONE HATES PERFORMANCE REVIEWS
Lawyers want performance reviews and written policies and processes to protect companies. Netflix rewinds to human nature. People don’t sue if they are not angry and they are treated fairly.
Roy Rapoport, the former Netflix engineer at Netflix, aptly described Netflix HR as a department that “maximizes potential goodness” and traditional HR departments as risk mitigators.
Patty and Reed hate the word empowerment. They believe people come into the company with power, and bureaucracy strips away that power. If you strip away the bureaucracy, you give your people power.
Netflix has a yearly “360 Review.”
The review form is a blank text box. It is not used to determine compensation. It is not anonymous. It happens once a year. Everyone in the company is permitted to review anyone in the company, and the employees are adult enough to write constructive reviews to pertinent team members.
A former Netflix employee stated that most reviews contained a “Start doing X, Stop doing Y, and Continue doing Z” formula. Is your company form more complicated than a text box?
How much company time is wasted on crafting policies, handbooks, contracts, and processes for the small percentage of people that might sue your company?
How much time is spent on career development for adults that are capable of developing their own career?
High-performance people are generally self-improving. – Original Netflix Culture Deck, 2009
Could the time and money spent on policy papers and performance reviews be better spent hiring the right people and offering a generous severance package?
Netflix generally offers four months severance pay to provide “moving on” employees with ample support to continue their journey.
Excess policies aren’t needed when you hire mature adults capable of making logical decisions. Netflix does not have a clothing policy, and, as they claim in their 2009 culture deck, “no one comes to work naked.”
Netflix does not have vacation policies. It’s expected you’ll work when there’s work, and when you need a vacation to refresh, you’ll take that vacation with the company’s best interest in mind.
Reed got rid of vacation policies because of the legal requirements for reporting. How much time could you save? Do you trust your employees? Have you hired the right employees?
Examine your company. Do you have unnecessary policies?
Get a realistic view of policy paperwork:
Start with a rough spreadsheet.
- Create an itemized list of every handbook, policy paper, employee performance review paper, career development paperwork, employee contract, and employee form an employee or manager will have to handle for hiring, performance, and firing. Go through your filing cabinets and computers. Envision the steps and processes. Highlight the forms which are legally mandated by statute.
- Next, create two columns: one for non-management employees and one for managers.Put the number of times the employee or manager touches each form in a given year in the appropriate cell. (You can make this simple and combine employee and managers to get a rough idea. If you know you’re going to have to present your data, spend time on formulating accurate estimates and break down the analysis by the department.)
- Create a column for the time spent on each document, including retrieving, reading, discussing, copying, completing, signing, transferring, mailing and refiling.
- Create a column for the cost to PRODUCE each document, and a column for the cost to DUPLICATE each document.
- Create a column for average labor hour for non-management and management employees.
|What is your total number of documents? ______|
How much does it cost to produce all those documents? ________
How much does it cost to duplicate all those documents?________
How often are those documents used by non-managerial employees? _________
How often are those documents used by management? __________
What is the average labor hour of a non-managerial employee multiplied by the number of hours spent on those documents plus the cost of duplication? _______________
What is the average labor hour of a managerial employee multiplied by the number of hours spent on those documents plus the cost of duplication? _______________
What is the average number of years an employee will stay employed at your company? _______
How much will you spend on policy puffery per employee during the average length of stay?
Can this be better spent on a severance package or improved recruiting Services?
The excellent companies… keep the corporate staff small. – “In Search of Excellence” by Thomas J. Peters and Roger H. Waterman, Jr.
THE ROLLING BEGINNINGS OF THE ORIGINAL NETFLIX CULTURE DECK
The famed viral culture deck was born out of a carpool conversation between Patty and Reed shortly after the company had to fire 1/3 of the staff. (This was back in the DVD delivery and dotcom bubble burst days.)
The two noticed that though work was more challenging, they were happier going to work with the barebones staff.
What made it fun?
They had to find out more.
The first Netflix culture deck was a result of the quest to discover and frame the Netflix culture. It was created as an employee reference and executive guide with 127 slides (sans graphics) back in 2009. The top value was to value values.
The Seven Aspects of Culture Playing on Netflix:
- Values are What We Value
- High Performance
- Freedom & Responsibility
- Context, Not Control
- Highly Aligned, Loosely Coupled
- Pay Top of the Market
- Promotions & Development
What values are valued? The only difference between 2009 and 2018 is the addition of the “inclusion” value, though Reed has no intentions of adding an inclusion rider.
The Ten Values of Netflix Culture 2018:
These ten values are the drivers of Netflix Excellence. Let them sink into your business brain.
When Patty and Reed were lightheartedly applying soft analytics to invent the Netflix culture, they found their joy and adrenaline came from working with an excellent team. Their epiphany demanded that excellence is built into the Netflix culture.
The search for excellence is nothing new. Tom Peters and Roger Waterman shared in-depth insight on excellence in their 1982 best-seller In Search for Excellence.
Peter Drucker talks about excellence in his 1966 version of The Effective Executive. Netflix did not invent excellence, but they do operate a billion-dollar company that demands excellence from employees.
WHAT IS AN EXCELLENT EMPLOYEE?
An employee that actively exhibits the ten values of Netflix is an excellent employee. The 2009 culture deck started with “We seek excellence.”
The “Real Values” of 2018 are the values Netflix looks for when hiring and retaining employees. They are the defining elements of excellence.
Do your employees exhibit the excellence of Netflix?
Would this paraphrased list of Netflix traits describe your employees?
Would these Netflix values describe you?
Judgment: You make strategic well-thought-out decisions using data and intuition.
Communication: You calmly listen to understand, speak and write with concise articulation, and adapt to ethnic diversity. Feedback to others is timely, candid, and constructive.
Curiosity: You seek global understanding and alternate perspectives, eagerly learning rapidly while making connections and contributing outside your specialty.
Courage: You search for truth, you question company inconsistencies with values, you don’t suffer from data paralysis, you speak your mind and take smart risks with a willingness to fail.
Passion: You inspire others with excellence, you care, and are humbly confident while being tenaciously optimistic.
Selflessness: You put the company first, seeking the best ideas while helping others and sharing openly.
Innovation: You thrive on change, challenge assumptions, create useful new ideas and solve hard problems by minimizing complexity.
Inclusion: You focus on talent and company values while collaborating with people of diverse cultures and backgrounds, embracing differing perspectives. You knowledgeable stand up for the marginalized.
Integrity: You admit mistakes, respect others, are authentic, transparent, and non-political. The only words you speak about co-workers are those you would say to their face.
Impact: Your coworkers rely on you and improve because of you. You focus on results over process and accomplish amazing amounts of important work.
Netflix, like other successful companies, don’t use “average” as a benchmark. They use “excellence” as a benchmark. They find people that are already excellent, and then they challenge them.
The Netflix way of thinking asks: Why waste company time pushing an average person when you can push an excellent person?
To hire excellence, you must have the means to attract excellence. A difficult task for a startup. Netflix pays top market wages to its salaried employees. There are many studies on pay as a motivator, but when two job offers have identical benefits, except that one pays more than the other, guess which job an excellent employee will choose?
In her Harvard Business Review article, How Netflix Reinvented HR, Patty advises managers and HR professionals to keep abreast of market rates and encourages employees to talk to recruiters so the company can keep the data on hand.
The Netflix values for excellence stems from the core belief that people come before the process. But Netflix wants to take those people to create a “dream team,” just like a pro sports team.
People come before the process, but the business comes first.
THE GEEKS AT THE NETFLIX SUPERBOWL
Netflixers are made aware the company is operated like a professional sports team and not a family. Netflix wants the highly skilled players, the team players, the people that live and breathe for Netflix but know they may get cut.
Slide 24 in the original Netflix culture deck:
In slide 30 the ominous feeling of getting cut is carried on with mentions of a “fixed number of positions” and “precious slots.”Slide 24 of the culture deck builds up the ego (you are a pro sports player!) and plays nice with the word “fire” (an obsession of Patty’s) by retagging “fire” as “cut smartly.”
Netflix attempts to downplay the competitive nature of the company in a later slide that states cutthroat behavior is rare and not tolerated. They hire based on an applicant’s ability to collaborate with others. But, some online reviews state otherwise.
Despite the threat of being cut from Netflix, applications keep rolling in. The benefits are extraordinary. Take a vacation whenever you want! Take as much as you want for parental leave! No expense account restraints! Top market pay!
The company comes first in every decision you make. The company does not exist for the employees, it exists for the customers.
Does your company exist for you, your employees, or your customers?
Not everyone is happy at Netflix. This isn’t the only review on Glassdoor alluding to the high turnover and expected perfectionism. Chances are slim this software engineer lasted another year. This review is not an anomaly.
A disgruntled employee?
There are plenty of other similar reviews and declarations of frequent firings.
It’s worth noting that Netflix does not apply its culture of freedom for salaried employees to hourly employees and a slide states hourly employees have a more structured environment.
Hourly employee cultures are subtly referred to as subcultures in Netspeak. If you skim through Glassdoor reviews, you’ll see a number of call center employees complaining about the environment at Netflix.
Glassdoor is a friend to Netflix. The CEO of Glassdoor, Robert Hohman, considers Patty McCord an inspiration and mentor.
Culture defines companies. It directs employee behavior. It must be put into action to work.
The Netflix culture is for adults.
The original culture deck makes this clear.
The current workplace of Netflix has adults innovating across the world. Adults have freedom at Netflix, and with freedom comes responsibility. Netflix trusts the adults they hire to make good decisions.
This trust, which comes with hiring only excellent employees, allows Netflix to reduce bureaucracy. It allows employees to be independent.
Is this new? Employees managing themselves? Is this a reinvention of human resources? It is not a new idea. Peter Drucker in his 1978 book Adventures of a Bystander talks about the self-governing plant community.
Here’s an excerpt from Adventures of a Bystander, 1999, by Peter Drucker, describing workplace self-government in a manufacturing environment:
[A self-governing plant community is]” …the assumption of managerial responsibility by the individual employee, the work team, and the employee group alike for the structure of the individual job, for the performance of major tasks, and for the management of such community affairs as shift schedules, vacation schedules, overtime assignments, industrial safety, and, above all, employee benefit.”
“Of all my work on management and “the anatomy of industrial order,”I consider my ideas for the self-governing plant community and for the responsible worker to be the most important and most original. But management has tended to reject these ideas as “encroachment” on their prerogatives.”
-Peter Drucker, Adventures of a Bystander
The Netflix culture of adult employees taking responsibility for their vacation time and project management is bringing Peter Drucker’s dream alive.
Would Netflix’s policies work in an auto manufacturing industry driven by government regulations?
Peter Drucker seems to think so.
General Motors has been around for 109 years, Ford has been around for 114 years, Toyota for 80 and Honda for 69. Driverless cars are on the road. Netflix is a baby and Patty McCord is just getting started. Organizations are changing.
Netflix is adopting intuition engineering and chaos engineering. Spotify organizes teams in “squads” which are core units. Companies are striving for team fluidity to spark innovation.
Should you copy Netflix’s culture? Of course not.
Your combined characteristics are unique. There are problems with Netflix’s culture.
NETFLIX NEEDS A FIX
The fear of not performing well enough is real. The fear of getting fired is real. Google has a fix.
- Make employees feel safe.
- Focus on Emotional Intelligence.
Google started Project Aristotle back in 2012 to study hundreds of Google teams to find out what made the perfect “dream team.” Google, the masters of search algorithms and patterns, could not detect a pattern. Abeer Dubey and Julia Rozovsky worked on the project.
The researched fifty years of academic research. They intricately examined all variables. Many groups with sharply differentiating attributes were successful.
Then the researchers discovered a 1999 study on psychological safety by Amy C. Edmonson, a Harvard Professor. Julia immediately felt the connection between psychological safety and her discomforting teamwork at Yale. The Google Aristotle team found psychological safety to be a norm.
What creates psychological safety?
- Communication skills
Netflix puts a heavy emphasis on communication skills during the hiring process, and like many companies, they have increased collaboration efforts. A 2016 Harvard Business Report, Collaborative Overload, by Rob Cross, Reb Rebele, and Adam Grant, reports manager-employee collaborative events have increased by 50%.
The study also reported that 3%-5% of the employees are responsible for a third of value-added collaborations. The study also found these high collaborators had low career satisfaction. Collaboration often steals valuable time from coveted projects, and a sense of non-accomplishment dims the spirit of contentment and joy.
Does Netflix put enough emphasis on empathy? Does any company?
In Project Aristotle, an experienced team leader had a team that didn’t share much. One day, he opened up about his cancer. Every team member voluntarily shared a story.
Not every personal problem can be left at home. A cancer diagnosis, a breakup, or financial troubles can linger in the minds of employees even when they’re productive.
Netflix declares they look for selflessness, but the self is really Netflix, and Netflix is selfish in a matter-of-fact way in wanting “what’s best for Netflix.”
As an employee, you must think about what’s best for you. Is it best for you to put the company first? With the benefits that Netflix offers, it may be.
Netflix isn’t a family, it’s not a professional sports team, it’s a business. Businesses, families, and professional sports teams have one thing in common. People.
What makes your team great? ___________________________
What makes your people great? _________________________
Is your company a psychologically safe place to collaborate?
Create your own culture deck.
Reed Hastings and Patty McCord started with the ‘Why.” Why did they enjoy going to work? Excellence fired them up. Productivity fired them up. Seeing great things happen fired them up. Firing people fired them up.
It is a fallacy to think that business must be defined as a sports team or a family. A company does not have to be one or the other. Happy mediums exist. Outliers exist. Somewhere out there someone is creating a new culture deck.
How to Reinvent HR Netflix-Style in 7 Steps
- Ask yourself why you enjoy work then create a culture deck.
- Define your communication policies.
- Make hiring difficult.
- Make firing easy.
- Build Excellence.
- Build Challenges.
- Make your team lean.
Polly McCord is a reasonable rebel. After all, a policy of having no policy is still a policy. Her ideas that seem rebellious are seen in the classics of forwarding business thinking.
Netflix may not have reinvented HR, but they have certainly taken the heads of HR teams and business executives and spun them around. It’s now HR’s job to build a new corporate culture and spin the heads of managers and executives.
Patty McCord has marvelous advice on HR innovation.
Netflix has some magnificent policies and a little monster madness.
But doesn’t every business?
Don’t limit your innovation to products and services, innovate HR. It’s the action needed to reel your company into an amazing success.
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