Transcription
I'm Michelle Martin, welcome readers. Today we are reading "No Rules Rules: Netflix and the Culture of Reinvention," authored by Reed Hastings and my guest today, Erin Mayer. The book has already made the shortlist for the 2020 Financial Times and McKinsey Business Book of the Year. Today, we're going to meet the academic and author whom Thinkers50 has singled out as one of the 50 most influential business thinkers in the world. She's Professor of Organizational Behavior at INSEAD and, of course, the woman behind the book that we've been reading for weeks in the run-up to this interview. Professor Erin Mayer, welcome to Reed.
Thank you. It's a pleasure to be here. Great to meet you.
So, you don't have to apply for leave. There are unlimited holidays, and approvals are not required for travel expenses. Just some of the examples of the unconventional corporate culture of Netflix. I'm wondering, Professor, in what fundamental ways is Netflix run differently from, say, any other Silicon Valley tech company that prides itself on being unconventional?
Yeah, so they have something at Netflix that they call "freedom and responsibility." And basically, the idea is that even though the company has grown to be rather large, that they try to have no policies or processes that control employees' behaviors. And the idea is, the more free that you, uh, let your employees be, the more innovative and creative they will be. And that's actually, actually paid out very well for that organization, very handsomely.
Now, for many, this book may give a first, really in-depth look inside of Netflix. But these principles that drive Netflix's corporate policy have actually been in plain sight for almost 10 years now. I learned from your book, initially, a series of slides, Netflix's corporate culture pinned down to a deck, was released for public consumption back in 2009. And it says things like, "Netflix vacation policy: There is no policy." Or tracking. There is also no clothing policy, but no one comes to work naked. Or unlike many companies, we practice adequate performance gets a generous severance package. So my question is, is this really a culture that values people over process, or is this a culture with a subtext that's quite threatening, that very much uses fear in a push towards excellence?
Yeah, well, I think that's a very interesting question. And I have to tell you, the first time that I came across Netflix, well, before I started doing research for this book, I also read that famous culture deck, which has been read, I think, 20 million times. And I have to tell you, I didn't like it very much when I read it. That adequate performance gets a generous severance, I thought that that was, I just didn't understand how it could work. Because at INSEAD, where I teach, we've been studying this whole idea that psychological safety in the workforce would lead to innovation. And here was a company that was saying, well, don't focus on making your employees feel secure, focus on hiring the best. And if they don't perform, you know, then they lose their jobs. And there's really this idea at Netflix, which is that, uh, we should stop thinking about our companies as families and start thinking about our companies as Olympic teams. So, of course, on an Olympic team, we have people who may, you know, it's not a job for life, right? You might take the job when you're the best person for it, and then when you're not anymore, you have to move over for the next, the next best athlete. So, in fact, it's, it's really a space for high performance, then.
So, do you still need psychological safety to perform well in such a space?
Well, I believe I've come to see psychological safety as having two aspects. So, one is job security. Like, am I going to be able to work here for the next 20 years? And I can tell you, at most companies, uh, in Silicon Valley today, but even more so in Netflix, they are not offering security. So if you are looking for a job where you, you are going to be there, you know, 15 years down the road, that's probably not the right place to go. But if you're looking for a job where you can speak up candidly about your viewpoints, where you have huge amounts, as you said, of freedom to create and, uh, and make things happen for, you know, a couple of years, a few years, and that's really the place for you.
I wonder if you can elaborate a little on this culture of candor you just mentioned. So, giving and receiving candid feedback, we know in most organizations is not easy. How does this culture of candor work at Netflix?
Yeah, but let me first start by taking a step back, so the, the listeners can kind of think about why this idea of high performance and candor is important. So, uh, Reed Hastings, the CEO of Netflix, before he started Netflix, he had another company which he called Pure Software. And that company, like most small entrepreneurial companies at the beginning, had very little rules, right? The people were just using their best judgment. They were running, let's say, fast and loose. But then as the company started to grow, complexity increased, of course. And as it did, some people took advantage of their freedom, and other people started to behave badly, right? And as that happened, the organization did what almost all companies do, which is they started to put in policies like, um, vacation policies and travel policies and processes like management by objective or KPIs, that were all intended to control the employees, of the employees' behavior, to minimize error and increase efficiency. And as the company grew, what happened? As these processes were put in place, the most creative, like, maverick employees, they started to leave the company because they wanted to work at places that they could run free. And as that happened, the company's innovation slowed down dramatically, and eventually, they had to sell the company. So, Reed's take was that after that was, "Rules kill innovation, and freedom breeds," uh, sorry, yes, Reed, "Rules kill innovation, and freedom breeds flexibility." So with his next organization, which was Netflix, he was focused on finding a way to make that happen. And his thought was, if we have top performers, they don't need a lot of rules. So we need to focus on that. And then if we have a lot of candor, or people giving one another feedback, that will create co-accountability. So again, we'll need less rules, and then we can give employees the freedom that really leads to this kind of successful work environment.
Yeah, I read in the book about, you know, this context for excellence. And, you know, it gives us some insight into how Netflix is able to retain talent, a lot of what you just mentioned. But I'm wondering, what is the reality on the ground? Do employees feel valued at Netflix? Again, one of the cards was, you know, that generous severance package if you're only an adequate performer. So, do you feel valued at Netflix?
Well, I think the real key to that is the fact that they publish their culture. So everybody who joins knows what they're, what they're getting into, right? And I think probably 50% of the population does not want to work at a place where they know if they don't perform well, that they're going to lose their jobs, even if they're offered a huge amount of freedom to do, you know, whatever they want with their, with their work. But I, I found, especially in the younger generations, I mean, I really think this is a culture for the younger generations. People want decision-making authority. They don't want to have to get approval from their bosses. They want to be able to decide their, their own career paths and make decisions for themselves. And they're willing to give up some, some level of security. So yes, overall, I found people, I mean, the first thing people talk about at Netflix is, "Oh my gosh, the freedom." And then, yeah, if you start questioning them, they say, "Oh, yeah, maybe sometimes I feel a little, a little insecure." Right? So those things definitely go together.
I thought you brought up a great point in your introduction about vacation leave, for example. So when people do not have mandated vacation leave, or that you don't have to apply for it, do you then take adequate vacation leave?
Well, that was my concern when I started doing the interview. Because at Netflix, they say, you know, "Our vacation policy is, there is no vacation policy." And I thought, well, certainly one of two things is going to be happening. Either no one's taking vacation at all because they all feel afraid to do so, or the second is that everyone is on vacation all the time. But actually, what I found was ironic, which is that people were taking about as much vacation as they were at other companies, uh, but this depended on the department and the leader of the department. Really had to be setting a good example. So basically, I found if the leader of the department took three weeks of vacation and encouraged other people to take vacation, that other people did what she did. And if the leader of the department took two days of vacation, then others would be afraid to take vacation. So that's where this idea at Netflix of what they say, "Lead with context, not control," comes in. Because you really have the necessity of the boss to set the context so the employees can make good decisions.
So interesting. So even though the boss sets the context for things like amount of vacation leave, there is stated for the culture of Netflix's line, right? You don't have to please the boss. So what does this allow for?
Yeah, so they do say at Netflix, you know, "Don't seek to please the boss, seek to do what's best for the company." And what that means, and I think this is where that organization is really unique, is that you have people at quite low levels in the company who are making big decisions without, without this, let's say, the support of the boss. Meaning that the idea is that you should go to your boss and tell him what your idea is, and you should listen to your boss's concerns, and you should also get feedback from a lot of people around you. That's the culture of candor. But after you've listened to everybody's feedback, including your boss, or maybe even your boss's boss, the decision is still yours. And because they don't focus much on error prevention, the idea is that some of your bets will fail, and some of your bets will succeed. But as long as you're showing good judgment over the years, you're seen as being an excellent employee. And that's where we can really see that high level of innovation, because of course, we all know that if we want to be an innovative company, we have to allow trial and error into the organization.
So interesting. So Netflix, Netflix itself has a phenomenal growth story. It's the company most other companies want to be. 192 million subscribers globally, almost 16 million people signed up for Netflix in the first three months of this year. But do you consider Netflix's corporate "no rules rules" culture as one that provides the context for replicable success?
Yeah, well, I think that that's actually a very interesting point, which is, it's not just that Netflix has been an extremely successful company. Of course, there's lots of other extremely successful companies out there. But what's fascinating about Netflix is that in about a period of about 15 years, they managed to reinvent the organization entirely, over and over again. So, I mean, I think maybe, uh, maybe many of your listeners don't know that, but it was not very long ago, 20, well, 10 years ago, less than 10 years ago, that Netflix was an entirely American company, and they were mailing DVDs in the mail to their users via the post office. So they had these factories around these, or they had these manufacturing sites around the US, and they were, you know, had thousands and thousands of DVDs. Then they shifted from a manufacturing company to a high-tech company, and suddenly they started streaming movies and TV shows over the internet. But they were using others' movies and TV shows. Then they moved from a Silicon Valley to LA. I mean, they're still in Silicon Valley, but they now have those two headquarters. They built their own studio, and they turned into a media company. So that ability to, let's say, morph yourself, to reinvent your, your organization, that's incredibly rare, and really what so many companies are trying to do today in this information age where things are changing so rapidly.
Absolutely. Everybody wants to be able to execute that, that quick pivot. And COVID accelerated the need for that pivot. So when you think about it, what do you think has best allowed Netflix to respond so successfully to transitions in, in the entertainment or business environment?
So, my most interesting learning from the research that I did was to consider, to realize that most of the elements that we have in our corporate cultures and most companies were built for the industrial era. So a focus on error prevention, replicability, consistency, what we needed when we were running factories. And of course, if you're trying to produce a thousand doses of penicillin, you need all of those to be perfect, and you need them to all be exactly the same. So because of that, in most companies, we have all of these processes and procedures that we've built to prevent the error and to increase the consistency and efficiency. But in today's creative era, in today's information age, in many organizations, it's no longer about error prevention. It's about thinking differently, about being creative and innovative and able to adapt. And in this environment, we, we don't need a lot, we don't want a lot of process, because those processes and procedures, they, they tie us down to one way of working. So that when the environment changes, we're not quick to shift. And I think that's where all, at all companies can really start rethinking, do we need to put in place these processes, or maybe we should allow our employees to operate a little bit closer, as they say at Netflix, closer to the edge of chaos. Because when we have that kind of almost chaos, that fertility breeds creativity.
Oh, gosh. Take us to the mind that constructed all this. In your introduction again, you write about your sense of the Netflix culture deck. Can you say so brilliantly, the deck struck you as hyper-masculine, excessively confrontational, downright aggressive, perhaps the kind of company you might expect to be constructed by an engineer with a somewhat mechanistic, rationalist view of human nature. But you work with Netflix Chairman and CEO Reed Hastings so closely for this book. What is your sense of how he views humanity or human nature?
Well, that's very interesting, because of course, Reed is a software engineer. And I think that he does, I mean, a number of the things in the organization are linked to his engineer background. I mean, one of those is that how they pay employees at Netflix. So there's something that's been known in the software industry for, you know, decades, since the '60s, but I wasn't aware of something that they call the rockstar principle. And the rockstar principle came from a study with software engineers where they gave eight engineers a short task to complete, a 45-minute hour task to complete, and they gave them a financial reward based on how fast they completed that reward, that task. And what they found in that study was that the best of those, those software engineers performed 10 to 25 times better than just the adequate or mediocre one. And what they know then in the software world, although it's highly debated, is that you can take one top engineer and pay him 10 to 25 times more than you would if you were going to hire, let's say, one average one. So Reed took that principle as an engineer and he applied it to all creative work, saying, you know, this isn't just about engineers, you know, this is also about a marketing person. You want to, if you can hire the best marketing person, that one, that person can deliver, you know, 25, at least times beyond the mediocre one. So therefore, we hire a lot less people, and then we pay them like rock stars. And that's the rockstar principle that they believe in at Netflix.
Brilliant. Really interesting insight there. What do you think is going to be key to Netflix's future success? Do you think this "no rules rules" culture is going to be a key pillar, or will that have to evolve as well?
Well, I do think that's interesting, because as the company gets bigger, I think that the idea would be that you can't continue to work with this level of no, of of low rules and high candor. Uh, but what I've seen at Netflix is that the bigger they get, the more rules they get rid of. So I actually think that at least for the time being, we've got that. And you asked earlier, Michelle, about whether this was replicable, whether repeatable for other companies. And I do think that, I mean, this book, "No Rules Rules," I wrote it with the intention, we wrote it with the intention of helping entrepreneurs in all sorts of industries or team leaders in all sorts of companies. I don't think that another organization will be able to do exactly what Netflix has done with all of the pieces to it, but there are certainly, you know, hundreds of lessons and that we can pick and choose to think about how to tweak the environment in our own team or in our own organization in order to get that kind of innovation and flexibility. So I really want to, I really want to emphasize, this book is not about Netflix, it's about you.
Fascinating. Professor Mayer, what was the one insight that stood out for you in the research for this book?
Well, we didn't talk about candor, but I can tell you, one of the things they do at Netflix is what they call 360 dinners. So they get together in the evenings, and they go, well, once a year, not every night, once a year, and they, as a team, they go around and they give one another feedback in front of the team. And when I heard that, I thought that sounded horrible. You know, having my kind of dinner, I want to be part of, exactly, how about a glass of wine, right? Um, but what I found, you know, was that that is actually a fantastic developmental opportunity. You know, Netflix people would tell me, you know, "That was the best developmental opportunity in my life." And I actually started doing it with my own team. So I highly recommend it. You have to follow a few, a few guidelines outlined in the book.
That's great. You have to share with us the guideline on on public shaming, because no one likes to feel humiliated in front of everybody else. So again, is it about constructive criticism?
Well, yeah, so there are a lot of guidelines, like when you give the feedback, you need to focus on what you can do to really help the person. And if what you're going to say is not going to be helpful to them, then you shouldn't say it. So what can you do to help them is what you're telling them actionable? And then you also have to show appreciation when you receive the feedback yourself. And when you receive feedback, you don't have to take it. So you receive a lot of feedback, and that's, I think, really like the secret, the secret sauce, right? Because that moves, uh, import performance up to a level that we see almost at no other companies. But it's true, you definitely have to have a tough skin and you definitely have to get used to it.
Absolutely fascinating. Professor Mayer, thank you so much for joining us on Reed.
It's a pleasure to be here with you, Michelle. We're reading today, "No Rules Rules." You just heard Professor Erin Mayer. She's also Professor of Organizational Behavior at INSEAD, besides being co-author of the book that's already made the shortlist for the 2020 Financial Times and McKinsey Business Book of the Year, and the book that I know so many of you are talking about. Thanks for joining me.
Thanks, Michelle.
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