Learning from Netflix: How to Build a Culture of Freedom and Responsibility
PART I
Patty McCord, former chief talent officer at Netflix, talks
about her new book, 'Powerful,' and what she has learned about building a
strong corporate culture.
Companies operate in uncertain environments.
In order to confront unexpected challenges and seize emerging opportunities,
they need to have a culture that balances freedom with responsibility. That is
a lesson that Netflix learned as it developed rapidly as an organization where
employees know how exactly they create value for customers and for the company.
In doing so, it built an innovative culture – as described in the
well-known Netflix
Culture Deck — with practices that went
beyond conventional notions of employee retention, annual performance reviews
and bonuses, says Patty McCord, former chief talent officer at Netflix, in her
book Powerful: Building a Culture of Freedom and Responsibility.
In her later role as a consultant, McCord
found that startups have a better chance of building the right teams and
behaviors than older and larger organizations where, typically, unwanted rules
and time-worn processes constrain innovation. She shared those and other
insights into talent management with Knowledge@Wharton in a recent interview.
An edited transcript of the conversation
follows.
Knowledge@Wharton: Before
we talk about Netflix, I was just wondering if you could talk about what defines
a company’s culture.
Patty McCord: I’m
very much a cultural anthropologist, if you will. It’s the stories people tell.
It’s the way people operate when no one’s looking. It’s the values that you
hold dear, that you know your colleagues do [as well]. It’s the expectations of
how people are going to behave, and what gets punished and what gets rewarded.
Every company has a somewhat unique culture. In retail, for
example, you can look at data on what your customers are doing all over the
world, in real time. Connectivity changes the way we think about work and
customers. That affects culture, too. There’s an immediacy to what we’re doing
that didn’t exist before.
Knowledge@Wharton: Talking
now about Netflix, what do you think made the Netflix culture so different?
McCord: Honestly I don’t
know if it was so different. Here’s the most important thing we did: We just
wrote it down. So Reed [Hastings, Netflix’s CEO] and I [worked at] another
company together that had a very different culture. It evolved into that
generic company culture that we all seem to have. We had all the same rules and
processes, and we did things the way everybody has always done them. And then
we called them “best practices,” which is what happens when we copy each other.
[At Netflix], we decided to write it down and to experiment a
little. We just decided to pay attention to it.
Knowledge@Wharton: Speaking
of “writing it down,” what I have found most interesting about your book and
your work in general is, of course, the role you played in the Netflix culture
deck. Could you talk us through a little bit about how that came to be, how it
evolved, and what role it played in shaping Netflix’s culture?
McCord: We did it for a
couple of reasons. First of all, Reed and I didn’t write it. It was a
collaborative document that we did with whoever was in management at the time.
It was also a PowerPoint presentation, so it wasn’t carved in the lobby, and we
didn’t publish it in hard copy. If an employee would say, “You know, I think we
could say this better on slide 17,” then we’d change slide 17.
Every chapter is built on the chapter before it. The first part
of it was, “Let’s write down the behaviors that we value in our teammates.” I
wanted to write down “behaviors” and not “values.” It’s an important
distinction, because values are aspirational. Behaviors are what you actually
do. So if we value honesty, and you keep secrets, then something in the system
should either punish that behavior or help reward the behavior of teaching you
how to say something honestly.
The next chapter was around high performance, and we wrote that
after we had a big layoff. We had ended up with very few people in the company,
but were focused. We realized that when we had the right people, the right
focus and the right deadlines, people operated pretty independently. It was
about adults. It was about them knowing what they were doing. It’s about having
people who are passionate about the work that you need to get done.
The actual infrastructure for making that happen – having
high-performance people in every job – probably took me and HR about four
years. I had to get rid of performance improvement plans, because that’s a dumb
thing to do when you’re performing. I [needed] managers that were clear about
the work that’s going to get done – not how you performed last year. Then I had
to rethink whether or not to have an annual performance review.
Processes [also mattered]. You say, “I have a culture of freedom
and responsibility. Oh, by the way, you can’t do that without asking Finance
for permission.” That is a direct contradiction. So over the years, I just
learned to (a) question everything and (b) scrub the stuff that didn’t matter.
The collaborative part was, we would sit down with everybody whenever we’d
draft a new chapter and say, “What do you guys think of that? Do you think this
is really work? Can we really do this? What are the drawbacks? How do we think
about it?”
The whole document took 10 years to write, and we used it as an
on-boarding document internally. Reed and I would meet with every 10 employees
in their first couple of months of employment, and we would go over the deck
with them and talk about it.
Knowledge@Wharton: What
are the elements of a culture of freedom and responsibility? How would you
deconstruct that? What goes into creating such a culture?
McCord: We very much valued
freedom. We very much valued people who had good judgment and made the right
calls. We wanted people to be able to do the right thing with plenty of context
and make the right calls because they were smart people with good judgment. But
we realized that if we used just the word “freedom,” it implied [the freedom]
to do anything. We didn’t really mean to give people freedom to do anything. We
coupled freedom [with] responsibility. It [also] implies reliability and
deliverables.
Behavior vs. Values
Knowledge@Wharton: I
was also impressed by what you just said about the distinction between behavior
and values. There has been so much focus on the field of behavioral economics,
where you can nudge people into behaviors that matter and away from behaviors
that are less productive. Can you give me examples of what you may have done to
encourage behaviors that you valued and nudged people away from behaviors that
didn’t?
McCord: I’m not much of a
nudger. Subtlety is not my forte. For us, it was more about spending a lot of
time on clarity around what goodness looked like, and what deliverables were.
When you’re clear about what needs to get done, you’re clear about who you
serve by doing it. And you’re clear about when it needs to get done. That’s
usually the nudge.
At Netflix, we did lots and lots of testing. But there were
certain things that we wanted to get done and be improved by a certain date.
That timeframe drives behavior.
Knowledge@Wharton: I
was also very interested in what you said about talking to other companies that
would like to replicate Netflix’s culture, based on the principles you’ve
outlined in the deck. Is culture something that a company can create through
its own volition, as an act of choice? Or do you think it has to contend with
its historical legacy in the culture it inherits as part of its own history?
McCord: It’s definitely
both. The longer the legacy and the longer the history and the deeper the
habits, the harder it is to change. I’m called upon by very large corporations
that realize that they can’t innovate, and they’re not agile anymore, and
they’re not nimble – and so they want to learn how to do that now. One of the
hardest things about it is that at very large American corporations, in
particular, everything is a global corporate initiative. There’s this value
around consistency and sameness that I don’t think serves us very well. At
Netflix, we would A/B test [options] … and see which one behaves appropriately.
It’s not that large corporations don’t understand the need to
change, because they do. Let’s take banks. Fintech is disrupting many large
banks … but they want to transform the whole beast. The fintech companies are
taking little parts of the beast – “I’m going to be a better liver,” or “I’m
going to be a better hoof.” [Large banks] have a hard time separating those out
into smaller entities.
Knowledge@Wharton: How
do you create teams that can work cohesively but also feel empowered and
motivated – which is something that, as you say in your book, you did very
effectively at Netflix?
McCord: [We did that]
sometimes; it wasn’t always. When we stumbled at Netflix, when things were
hard, when we predicted and were sure about a particular direction that halfway
along the journey turned out to be the wrong direction – which happens in all
companies – you have to change gears. That’s a reality that occurs in every
organization. But the secret is clarity about that end-game – about what it is
that you’re trying to achieve and why.
I call it “context,” or the constant setting of context. I
[often tell] startup companies, “One of the most important people on your team
to communicate to the rest of the organization is your CFO.” If you can teach
everybody in the company how to read a profit and loss statement, then you have
a capability in your company that serves you and them for the rest of their
careers. They understand how it works and where they sit in the organization.
CONTINUES IN PART II
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