What Rules Your Culture?

Organizational Transformation

Treating adults like adults doesn’t sound particularly revolutionary. Yet, the companies most often cited for innovative management approaches are basically doing exactly that. Netflix takes their turn in the spotlight in No Rules Rules written by founder and CEO Reed Hastings and business professor Erin Meyers. The company’s desire to limit or eliminate policies and processes that restrict individual decisions, rather than promote innovation, motivated their leadership to do away with strict guidelines on items like vacation time and business travel expenses. Hastings learned from his previous startup experience that scaling produces greater controls, resulting in less innovation. He wanted to find a better way to grow a company and not lose the best parts in the process.


But the secret sauce to Netflix’s success is not just about building a trust culture. Like most things in life, with greater freedom comes greater responsibility, or in Netflix’s case, great expectations. The company created quite a stir when they shared their philosophy that “adequate performance gets you a generous severance package.” Essentially if just getting your job done is your goal, you will not enjoy a long-term experience at Netflix. Managers are encouraged to apply the “Keeper Test” or “would you try to persuade a team member to stay if they told you they were planning to leave?” If you would be indifferent to the person leaving, then you should take the initiative and arrange for the severance package.


In some environments this would create quite a bit of anxiety whenever your manager asked to speak with you. However, everyone who signs on to work at Netflix knows the rules and realities from the beginning. Perhaps more importantly, Netflix recruits very selectively and follows the principle of “talent density” or having a high ratio of great talent to adequate talent. The company believes that performance and innovation are enhanced by a smaller team of superstars rather than a larger staff of average players. Not surprisingly, Netflix rewards their staff with above average pay. They cite studies showing elite performers often contribute five or ten times what average ones do. With that level of increase in productivity, paying your superstars twice as much as industry norms yields a very nice return.


Netflix’s bargain with their staff is that in exchange for very high expectations they will be given challenging work to be performed with “A” players in an environment of great freedom and receive lucrative compensation. The clarity of the offer makes it much easier for Netflix to attract and identify individuals who want to pursue big opportunities and take risks.


Another key element in Netflix’s cultural formula is a high degree of candor. If your culture values high performance, it is natural that feedback will be frequent and direct. This also relates to treating people like adults. As a mature professional, I not only desire to receive constructive feedback but to give constructive feedback with the needed emotional intelligence. However, this can create challenges because of human nature and cultural differences. The stresses of the workplace, our struggles with pride and fear, and personality differences can make candor a two-edged sword. Netflix also discovered as they expanded internationally, direct feedback, especially between different management levels of the organization, can conflict with cultural norms.


One best practice that has enabled candid feedback is the “360 degree dinner.” Netflix teams meet for dinner and each team member receives direct feedback on their performance. According to Meyer’s interviews with Netflix staff, this has been a very positive experience allowing them to feel affirmed and challenged. It highlights that freedom and candor require high levels of trust.


Interestingly, Netflix does not promote the deepest level of community building in crafting their culture. They explicitly state, “we are not a family, we are a team.” Many organizations believe trust is best created when they emphasize deep relationships where team members are encouraged to “do life together.” It is uncertain if Netflix employees have less deep relationships with colleagues than other organizations, but their high-performance orientation raises the question if a desire to be more like family makes it more or less difficult to recruit top talent, offer greater freedoms, and provide more candor. Fortunately, the answer seems to allow for high performance to occur in different types of organizational cultures.


Jim Collins’ research for Built to Last found that great companies don’t all have the same culture but they all have a strong culture. When organizations are clear about what they value most, it is easy for people to determine if they are a good fit or not. But leaders must do more than talk about their organizational values, they must embody them.


Perhaps the most important thing adults value is honesty and consistency of action. When our leaders are honest with us, we feel respected and take responsibility for our actions. Netflix recognizes that if you are going to tell people upfront that results matter more than all else, you can’t at the same time tell them we treat everyone like family. Families value more than just results and do everything they can to prevent separation. Relationships guide decision-making.


The Netflix culture seems to be working for them because their leaders have aligned their values with actions and policies. Clearly their culture is not for everyone. For organizations that desire to create cultures where deep levels of caring produce both a competitive advantage and a desirable work environment, they need to find aligning mechanisms that value both results and relationships.