Hardcover | 320 pp. | Penguin Press | 08/09/2020 | 1st
No Rules Rules: Netflix and the Culture of Reinvention is a book that many awaited. Since when, in 2009, Reed Hastings released the Netflix Culture Deck to the public, the distinct features of Netflix culture have been out for everybody to see. Many have since looked at some with suspect, if not a denial of their effectiveness. But the results of this company are out to show that something is working correctly.
This book is the result of a strong collaboration between Netflix’s CEO and Erin Meyer, an Insead professor that is also the author of the famous book The Culture Map. And here comes the first essential element: this book does not add anything majorly disruptive versus the famous Culture Deck, except a chapter dedicated to the globalisation process of Netflix, and how its unique culture got adapted to the specific country cultures. Here, Hastings followed the concepts outlined in Meyer’s book and derives a fascinating case study on how Corporate Cultures can live in international contexts, provided there is a strong awareness of some cultural differences.
Meyer’s role in the book is precious. She approached the connection with Netflix culture somewhat critically. Still, through a consistent number of interviews, she has been able to translate those cultural principles into valid cases, explaining why they work at Netflix, and how they have been able to support the company’s success.
Overall, the Netflix Culture Deck struck me as hypermasculine, excessively confrontational, and downright aggressive—perhaps a reflection of the kind of company you might expect to be constructed by an engineer with a somewhat mechanistic, rationalist view of human nature.Erin Meyer, No Rules Rules, Page XVI
Connecting the Dots
No Rules Rules is structured on nine main chapters, each one pointing on one of the “dots” that Hastings considers as part of the culture of Netflix. Connecting the dots becomes, therefore, the activity for the reader, well guided by the authors in a very structured way. Chapter 10, as mentioned, discusses the application of these principles as part of the international expansion of Netflix, and shows how necessary it is to be fully aware of cultural differences when internationalising a business.
In the introduction of the book, Reed Hastings shortly accounts too his experience before Netflix, and the errors he played. He especially looks at how merely accepting the status quo in organisation, our the application of traditional models without challenging these, is often the source of the problem.
With my next company, Netflix, I hoped to promote flexibility, employee freedom, and innovation, instead of error prevention and rule adherence. At the same time, I understood that as a company grows, if you don’t manage it with policies or control processes, the organization is likely to descend into chaos.Reed Hastings, No Rules Rules, Page XVIII
No Rules Rules shows clearly how the Netflix Culture consolidated through gradual evolution, with many errors, often celebrated. At the end of the day, what Reeds suggest is to build a thriving culture by increasing two factors: Talent Density and Candor in the organisation. These make it possible to reduce controls, which is what helps to frame the culture of Freedom and Responsibility that Netflix possesses.
On this, it is then possible to build the “extraordinary” success for the company, as illustrated in the figure on the side.
One of the interesting advice in the book is that you “need to encourage people to question how the dots are connected”. People tend to connect the dots always the same way, until somehow “comes along and connects the dots in a different way, which leads to an entirely different understanding of the world”.
What’s more interesting is the fact that Reed’s plan was not to design a company with a unique ecosystem. He wanted to create more flexibility in his previous experience. Then a few things happened that led him to connect the dots of corporate culture differently. As these elements came together, he was able, “in hindsight only” to understand what it was about the culture that helped drive Netflix’s success.
So the dots are presented in the chronological order that they have been “discovered” at Netflix. Today they offer a genuinely consistent framework, but it was not always like that. This was the result of a journey, which is a prime example of the connection between Emergent and Intentional design.
Building a Culture of Freedom and Responsibility
The first section of No Rules Rules (which consists of chapter 1-3) is about the first building blocks, already mentioned. The most exciting concept is about creating talent density, and I believe it is one of the “dots” that many miss in the building of organisations. For many years we have theorised concepts around forced ranking of individuals, trying to identify “high potentials”, or the “best few”. Hastings demonstrate that the idea works because, in the creative role, a high performing individual sometimes outperformed an adequate performing one by a magnitude of ten. There is, however, significant learning in this: to make it work, you need to have flexible roles and autonomy for the people. The concept of “command and control” applies to the adequate quality people, and disincentives the best few.
We learned that a company with really dense talent is a company everyone wants to work for. High performers especially thrive in environments where the overall talent density is high.Reed Hastings, No Rules Rules, Page 6
To achieve this, you need to unbuild the traditional office politics and make sure that candour becomes your points of strength. An element that we have seen already playing a significant role at Pixar. An important aspect is that Netflix doesn’t just promote candid feedback, but also frequent feedback. Erin Meyer accounts of her first interactions with the company’s employees are very significant from this point of view because she tells of many cases where she got feedback almost as the first interaction, something we’re typically not used to. The key to making this work is by leading by example. Bosses are the one who demands more feedback, and as the culture is one that doesn’t punish errors, this creates a feedback loop culture that is truly powerful. But one of the significant learning is that there needs to be much energy to accept candid feedback. Which is why a simple framework to receive and give feedback, based on 4As, was created.
4A FEEDBACK GUIDELINES
- AIM TO ASSIST: Feedback must be given with positive intent. Giving feedback in order to get frustration off your chest, intentionally hurting the other person, or furthering your political agenda is not tolerated. Clearly explain how a specific behaviour change will help the individual or the company, not how it will help you. “The way you pick your teeth in meetings with external partners is irritating” is wrong feedback. Right feedback would be, “If you stop picking your teeth in external partner meetings, the partners are more likely to see you as professional, and we’re more likely to build a strong relationship.”
- ACTIONABLE: Your feedback must focus on what the recipient can do differently. Wrong feedback to me in Cuba would have been to stop at the comment, “Your presentation is undermining its own messages.” Right feedback was, “The way you ask the audience for input is resulting in only Americans participating.” Even better would have been: “If you can find a way to solicit contributions from other nationalities in the room your presentation will be more powerful.”
- APPRECIATE: Natural human inclination is to provide a defense or excuse when receiving criticism; we all reflexively seek to protect our egos and reputation. When you receive feedback, you need to fight this natural reaction and instead ask yourself, “How can I show appreciation for this feedback by listening carefully, considering the message with an open mind, and becoming neither defensive nor angry?” 4.
- ACCEPT OR DISCARD: You will receive lots of feedback from lots of people while at Netflix. You are required to listen and consider all feedback provided. You are not required to follow it. Say “thank you” with sincerity. But both you and the provider must understand that the decision to react to the feedback is entirely up to the recipient.
Reed Hastings, No Rules Rules, Page 30
Only based on the above two principles, it is possible to start removing controls. Removing the Vacation Policy and the Expense policy are the two examples that the book illustrates. Each of us has been struggling with both these policies in our working life, so it feels almost revolutionary to think of an environment without. Netflix experience shows that when there is no policy, most people will look around their department to understand the “soft limits” of what’s acceptable. This reduced the work to manage exceptions. And it leas to the concept fo “Lead with Context, not control“, which is a great way to enable autonomy truly. But it also requires a strong willingness to be severe when people abuse the system (at Netflix is immediate termination).
Reinforcing the Fundamentals
Section two covers the fascinating compensation philosophy that Netflix developed, which again shows how important it is to design all elements intentionally. To achieve the High Talent Density mentioned above, you need to be willing to pay top of the market. A big learning point that is well illustrated.
Netflix is also famous for giving full visibility on financial and strategic information even ahead of market deadlines, a behaviour that many considers risky as it creates the possibility for insider trading accusation. But again, you need to be deliberate in reinforcing cultural values such as candor.
The most exciting chapter is about the decision making process. Netflix has created a truly dispersed decision-making model, by each individual genuinely take responsibility for their actions and decisions. This works only because of the high talent density and the increased transparency but is a critical element of the capability of Netflix to attract and retain top talents. At Netflix, Bosses are not decision approvers; they give context and leave the decision to the person that has the skills to take it. A principle that seems easy to explain, but how many companies would have the courage to do so?
In recent years, the great debate of human-centric models of organisation, has tried to solve the conundrum of hierarchical decision-making by suggesting that more actors can share decisions. Many recent models advocate, therefore for consensus or democratic based models. Reed Hastings is firm, at Netflix decision are individual. And they use this principle of personal responsibility to push for innovation.
They also consider the fact that complete autonomy can lead to inconsistency. For this, they teach a model of socialisation and learning, that amplified shows how the right Strategy of Netflix is learning.
The Netflix Innovation Cycle
If you have an idea you’re passionate about, do the following:
- “Farm for dissent,” or “socialize” the idea.
- For a big idea, test it out.
- As the informed captain, make your bet.
- If it succeeds, celebrate. If it fails, sunshine it.
Reed Hastings, No Rules Rules, Page 140
Lead With Context, Not Control
Section three (chapter 7-9) illustrates the famous Keeper Test and the policy that Adequate Performance deserves a Good Severance. It also shows how feedback culture needs to be nurtured, and the experience with the Circle of Feedback, which is a “live” 360 model developed through internal learning. Finally, the concept of Lead with Context, not control is further explored.
I believe this to be the more precious concept of the book, with a clear explanation of what it means to Lead with Context. “Many leaders frequently use control processes to give the employee some freedom to approach a task as he chooses, while still allowing the boss an opportunity to control what gets done and when”. This is a traditional approach to Leading with Control. Autonomy doesn’t exist: what exists is delegation and empowerment, both given by somebody.
Leading with context is different. “You provide all of the information you can use so that your team members make great decisions and accomplish their work without oversight or process controlling their actions.” The benefit is that the person builds the decision-making muscle to make better independent decisions.
This model does not apply to all situations. Where safety comes first, or in cases where repeatability is necessary, a system of control might be more adequate. Hastings himself illustrates that there are some areas at Netflix (Health and Safety, Harassment, Data Protection, for example) where clear guidelines, policies, and control are in place.
Leadership with context requires two elements to be successful. The first is a continuous alignment on objectives. The second is a system that is “loosely coupled“. The concept is borrowed from software design and indicates a scenario where a change to a part does not have repercussions on the rest. Netflix has built a loosely coupled system thanks to its Informed Captainmodel. But it is also true that it acts in the industry and has a business model that allows this to happen.
No Rules Rules is a great read. Besides the success story, what is truly interesting about this book is precisely that it makes all perfect sense in hindsight, but that it also clarifies from the beginning the fact that building a thriving corporate culture is a long process, made up of many mistakes and lots of pain. The candour by which Hastings elaborates on his learnings, and the capability of Erin Meyer to connect the dots with the outside perspective, gives a tremendous spin on the value of this book, despite being based on concepts that were already out in the open.
I have so far left out a comment to the last chapter. As mentioned, it talks about the application of Netflix’s cultural principles in its global expansion, and also explain the reason for the collaboration with Erin Meyer. The Culture Map model is presented and used to show when local adaptation was needed. The significant learning here is in the awareness required to become a global company and the flexibility necessary when such an influential culture meets local habits, which confirms a significantly important aspect, again, of Intentional Design and its relations with awareness.
Another book that I will add to the Rebel’s list. In many ways, Netflix has done a particular path. There are no references in this book about an organisation model that is substantially different from a traditional hierarchy. Yet the success is out there to testify that building a culture of innovation pays off the moment that this is consistently and deliberately pursued.