Learning from Netflix: How to Build a Culture of Freedom and Responsibility
PART II
Knowledge@Wharton: Is
the kind of culture that you’ve written about easier to implement in a startup
environment — and as a company grows in scale and complexity and size, would
that be hard to preserve? At what point do you need rules, regulations and
policies to manage that process – instead of just dispensing with them as you
advocate in the book?
McCord: If you’re in a
regulated environment like banking or loans or medical or safety, then there
are rules and regulations that are really critical.
The reason it’s easier in startups is because you feel more open
to experimentation, and you don’t have the rules yet. You [also] don’t have the
institutionalized behaviors that are associated with the rules. [Somebody might
say], “I know that’s a good idea, but you can’t do that, because you have to
ask for permission first.”
The problem for large institutions is that it’s not just that
the rules are there. It’s the institutional behavior attached to it.
I was consulting with a company the other day, and we were
talking about its complex bonus structure. Each person had their own goals.
Their goals were rolled out to team goals. Team goals were rolled out to department
goals, into division goals, and into corporate goals. Then there was a
quarterly review of whether or not the individuals, the teams, met their goals
– blah, blah, blah. Then we had to figure out the payout. They always paid 100%
of their bonus – every year to every employee that was still employed – and had
for years. It was called a “performance bonus.” When all was said and done,
what you got the bonus for was showing up to work.
I had them delve in and calculate the cost of administering this
process, in management time, in executive time, in administrative time, and in
software time. [I said to them], “All of that time – it’s not just money – is
time people aren’t working for your customer.” There is a real lack of ROI, or
whatever is not ROI – like non-return on investment – of this kind of activity.
Knowledge@Wharton: If
you had a magic wand that you could wave in dealing with this situation, what
would you advocate they do?
McCord: I’d advocate they
throw it away and see if there’s any difference. Put [the bonus] in pay. Stop
[awarding bonuses] for a year. And see if the world as you know it doesn’t come
to an end. I bet you it won’t. You’re going to … pay attention to the things
that [you] were going to pay attention to, to pay the bonus. “What’s our return
on investment? How’s our growth going?” You can still pay attention to those
things without making it a process. In large corporations, it’s the undoing
that’s hard.
Knowledge@Wharton: To
do what you are saying would require what you call the practice of “radical
honesty.” I wonder if you can talk a little bit about what that means and how
it worked at Netflix.
McCord: I learned it from
the engineers I work with. It’s a learned behavior. Here’s how engineers are
wired: Their world is good or bad, right or wrong, black or white, zero or one.
And anything in between is suspect. I learned through trial and error, when I
started speaking HR-speak to them, [such as]: “Well, the system is enabled to
provide you the empowerment so that you’re engaged in deliverables that will
create an environment of happiness and well-being.” And they’d just roll their
eyes back in their head. If I deconstruct that and write down that sentence and
look at it again, I didn’t actually say anything. I learned to speak their
speak. I learned to apply fact-based, data-driven behaviors.
Knowledge@Wharton: Can
focusing on the future help to build a culture of freedom and responsibility?
McCord: Absolutely. I told
a group of startup CEOs that the biggest smoke to notice in your company, or
the biggest potential for fire, is nostalgia – wanting it to be the way it used
to be, wanting the culture to stay the same, wanting to keep it the way it was.
You have to assume there’s going to be growth and change.
[You have to be] constantly thinking about where you’re going to
be, who your customer’s going to be, what you need to do differently, how
you’re going to scale, and how the world’s going to look. Even if we wanted our
companies to stay the same, our customers won’t. The world’s going to go on
without us, whether we like it or not.
Knowledge@Wharton: Looking
at the way in which HR departments are structured, which elements can you
identify as being outdated and things that you should get rid of, and what is
worth keeping?
McCord: One of my favorites
is the annual performance review. I don’t think it’s very effective anymore.
That one just needs a big rethink. The other one is bonus programs. There’s an
assumption that people work for money, and many studies say that’s intrinsically
not how people get satisfaction at work. In fact, it’s just delayed
gratification that usually makes people unhappy.
Some of [what] we do simply doesn’t work. [For example], the way
we recruit is pretty archaic. The idea of filling out a form with a list of
skills and experience, and checking all the boxes in the form, and hiring
somebody who checks all the boxes but doesn’t want to do it, is really broken,
right?
I advocate figuring out the problems you need to solve, then
hiring people who want to solve those problems and are capable of doing it.
That’s a different kind of matchmaking, rather than recruiting for skilled and
experienced people.
Almost everything that we do can use a refresh. I see the gamut
of [HR executives] saying, “It’s our job to make the rules and force people to
enforce them, because if not, they’ll sue us and misbehave and cheat and steal
and lie.” With those types of HR departments, I lead them out into the parking
lot or to the bus station or to the subway, and I say, “Really? All these
people who have cars in this parking lot came to cheat and lie and steal? Wow –
you didn’t do a very good job recruiting all these evil people.”
We’ve [also] got to dispel the myths about working that we keep
saying and we know aren’t true. Companies aren’t going to keep you for the rest
of your life and provide you with endless career progression.
Knowledge@Wharton: It
seems to me that loyalty isn’t much in evidence in the business world. And it
seems to me that there is some value to loyalty to one’s team and to people
whom you have tried hard to recruit. How do you decide it’s the right time to
let someone go? They may thrive somewhere else more than in the environment
that you’ve brought them into.
McCord: There are a couple
of logical ways to think about that. One of them is looking forward and knowing
the team that you need to build in the future, and having clarity about that
and what that team looks like, what they’re going to accomplish, what it’s
going to take to be able to do it, and what’s the timeframe?
Say you’re a public company, and you need a CFO. You’ve got
somebody in Accounting who wants to be a CFO someday, and they’re really smart
and really capable. It doesn’t mean that they won’t be a CFO someday, but
probably not next year. That’s a radically honest conversation you can have.
The second case is when the person is driven by an opportunity
or something that they desperately want to do, and they want to have that
opportunity in your company, and you just don’t have it. Keeping that person is
the wrong thing to do, even if they’re amazing. You don’t want an amazing
person who’s unhappy, because misery loves company.
When you have a team that’s clicking and the right people are on
it … you don’t need to talk about loyalty. You don’t even need to talk about
engagement. It’s called wanting to wake up and come to work and solve these
problems with these people.
That’s where the word “loyalty” starts taking on connotations of
family. Confusing those things has hurt us as employers and employees.
Employees expect too much from their employers to “take care of them,” and we
spend way too much time keeping people that we should just set free.
Knowledge@Wharton: You
referred some time ago to some stumbles at Netflix. What are some downsides to
the culture at Netflix? How did you manage those?
McCord: Oh, there are lots
of them. The freedom and responsibility culture isn’t for everybody. A lot of
people function much better with guardrails. Some people like a lot of
structure, and they like working within the structure – particularly early in
your career. So when you don’t know what the consequences are, and you don’t
know where the walls are, you jump off cliffs a lot, unintentionally. So that
was hard. Having very senior people come from other rigid companies into the
culture and deprogramming them was [also] hard.
One important thing about the Netflix culture deck is we wrote
it as an internal on-boarding document. We didn’t write a manifesto. We tried
some stuff. Some of it worked really well, and some of it didn’t work very
well. Some of it scaled, and some of it didn’t scale. But you won’t know if you
don’t try.
http://knowledge.wharton.upenn.edu/article/how-netflix-built-its-company-culture/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2018-05-29
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