BOOK REVIEW: How behaviour changes made Netflix a great company


Powerful: Building a Culture of Freedom and Responsibility, by Patty McCord

NETFLIX is one of the world’s greatest companies. It didn’t become a great company because it has a great strategy. Let’s be clear about this: strategy never made any company great. Netflix is a great company because it has a sound strategy AND a superb people management system.

This book is a description of that system by the human resources executive, Patty McCord, who to helped create it.

McCord writes: “…we found that inculcating a core set of behaviours in people, then giving them the latitude to practice those behaviours – well, actually, demanding that they practice them – makes teams astonishingly energized and proactive.”

To transform a culture in a team or the whole company isn’t achieved by formulating a set of values and principles. It is only achieved when the behaviours you desire become consistent practice.

This book describes the eight practices below:

1. The greatest motivation is contributing to success;
2. Every single employee should understand the business;
3. Practise radical honesty;
4. Debate vigorously;
5. Build the company now that you want to be in the future;
6. Have the right person in every single position;
7.  Pay people what they are worth to you; and
8.  Perfect parting well with non-performing staff or staff who are no longer required, and be a great reference company to have worked at.

I will touch on only three.

The first principle is that motivation flows from being a contributor to success, not from incentives and perks. Talented people who are adult in their behaviour want nothing more than to be challenged. This requires that you employ talented people and then explain to them, clearly and continuously, what exactly you expect from them.

The common alternative is to create policies and procedures as a substitute for explaining clearly and continuously. The weakness of this approach is that the manual cannot anticipate the ongoing changes that are inevitably required.

Netflix was changing too fast to be able to follow a policies and procedures manual. The company had to have a flat management which allows for speed in execution. This became clear when they had to retrench, and many middle managers were included. The result of removing a layer of management was a quickening of response times Netflix had not anticipated.

As the fortunes of the company improved and it grew, the challenge became how to sustain the creative spirit and extraordinary level of performance the teams had been demonstrating. This stimulated McCord to ask: “What if people in marketing and finance and my own group, human resources, were allowed to unleash their full powers?”

Netflix began by trusting people to be responsible with their time, got rid of their expense and travel policy, and in place simply demanded that employees use good judgement about how they spend the company’s money.

Treat people like adults

The company lawyers warned it would be a disaster, but what emerged was that people didn’t abuse the freedom. “We saw that we could treat people like adults,” and that the staff wanted this. Netflix then experimented with every possible way to liberate teams from unnecessary rules and approvals.

This approach required management to appreciate that their most important job is to focus on building superb teams. The best achieving teams were those where all members understood the ultimate goal of their work and were freed to creatively solve the problem of how to get there.

Netflix was able to prove to itself that operating with the leanest possible set of policies, procedures, rules, and approvals releases speed and agility.

This led to the second principle that every single employee should understand the business.

What is required in the absence of rules, processes, approvals, bureaucracy, and permissions, is clear, continuous communication about the context of the work to be done. It is an ongoing discussion about where we are, and what we’re trying to accomplish.

In Netflix’s case they were changing from a system where you paid per rental of a movie which was mailed to you, to a subscription model where you paid in advance for future benefits. This change had profound operational implications.

Too many companies when faced with new and difficult challenges “invested so much in training programs of all sorts and spent so much time and effort to incentivize and measure performance, but they’ve failed to actually explain to all of their employees how their business runs,” McCord observes.

Ask yourself these questions: Do your staff appreciate the most pressing issues facing the business? How much do you think they know about how their work contributes to the bottom line?

If your instinctive response is that if you tried to explain, they would not understand, McCord advises: “The rule I would give them was this: explain it as though you’re explaining to your mother.” After all, if your staff aren’t informed by you, there is a good chance they’ll be misinformed by others.

Communication between management and employees should flow in both directions. The more you actively encourage questions and suggestions, the more your people, at all levels, will offer ideas and insights that will amaze you.

And the job of communicating is never done.

The right person for the right position

To achieve all of the issues above, you have to have a focus on principle 6 – the right person in every single position.

Netflix relied on the talent-management philosophy that “the responsibility for hiring great people, and for determining whether someone should move on, rested primarily with managers,” not on HR. HR is only an assistant in this process.

They also required the deceptively difficult task of hiring a person who would be a great fit for the position (at whatever level,) and not just adequate. Building a great team is the managers’ most important job.

“True and abiding happiness in work comes from being deeply engaged in solving a problem with talented people you know are also deeply engaged in solving it, and from knowing that the customer loves the product or service you all have worked so hard to make,” McCord explains. Money alone doesn’t buy love.  

This book is an accessible, very practical guide to managing staff at every level, based on insights from only one unique company – Netflix.

However, it provides a valuable source of thought provoking ideas that you can easily adapt to your own circumstances.

Readability:     Light -+— Serious
Insights:          High –+– Low
Practical:         High +—- Low

  • Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Executive Update. Views expressed are his own.

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