No Rules Rules by Reed Hastings and Erin Meyer.

Reed and Erin do a great job of talking about an empowering culture, full of candor and authority. It’s unclear to me whether they don’t go a little bit too far in some areas — I’ll leave it up to you to judge! Enjoy my sampling of what I thought were key passages… ~Mark, 2021-Feb-16

Introduction

  • Netflix is different. We have a culture where No Rules Rules.
  • Blockbuster’s story is not an anomaly. The vast majority of firms fail when their industry shifts.
  • With my next company, Netflix, I hoped to promote flexibility, employee freedom, and innovation, instead of error prevention and rule adherence.
  • If you give employees more freedom instead of developing processes to prevent them from exercising their own judgment, they will make better decisions and it’s easier to hold them accountable.
  • If you build an organization made up of high performers, you can eliminate most controls. The denser the talent, the greater the freedom you can offer.
  • When talented staff members get into the feedback habit, they all get better at what they do while becoming implicitly accountable to one another, further reducing the need for traditional controls.
  • Start by ripping pages from the employee handbook. Travel policies, expense policies, vacation policies — these can all go. Later, as talent becomes increasingly denser and feedback more frequent and candid, you can remove approval processes throughout the organization.
  • Netflix assumes that you have amazing judgment… And judgment is the solution for almost every ambiguous problem. Not process.

Section One — First Steps to a Culture of Freedom and Responsibility

A Great Workplace Is Stunning Colleagues

  • 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.
  • For top performers, a great workplace isn’t about a lavish office, a beautiful gym, or a free sushi lunch. It’s about the joy of being surrounded by people who are both talented and collaborative. People who can help you be better. When every member is excellent, performance spirals upward as employees learn from and motivate one another.
  • If you have a group with a few merely adequate performers, that performance is likely to spread, bringing down the performance of the entire organization.
  • We would hire the very best employees and pay at the top of the market. We would coach our managers to have the courage and discipline to get rid of any employees who were displaying undesirable behaviors or weren’t performing at exemplary levels. I became laser-focused on making sure Netflix was staffed, from the receptionist to the top executive team, with the highest-performing, most collaborative employees on the market.

Say What You Really Think (with Positive Intent)

  • I saw that openly voicing opinions and feedback, instead of whispering behind one another’s backs, reduced the backstabbing and politics and allowed us to be faster. The more people heard what they could do better, the better everyone got at their jobs, the better we performed as a company.
  • At Netflix, it is tantamount to being disloyal to the company if you fail to speak up when you disagree with a colleague or have feedback that could be helpful. After all, you could help the business — but you are choosing not to.
  • Few people enjoy receiving criticism. Receiving bad news about your work triggers feelings of self-doubt, frustration, and vulnerability. Your brain responds to negative feedback with the same fight-or-flight reactions of a physical threat, releasing hormones into the bloodstream, quickening reaction time, and heightening emotions.
  • The first technique our managers use to get their employees to give them honest feedback is regularly putting feedback on the agenda of their one-on-one meetings with their staff. Don’t just ask for feedback but tell and show your employees it is expected. Put feedback as the first or last item on the agenda so that it’s set apart from your operational discussions. When the moment arrives, solicit and encourage the employee to give feedback to you (the boss) and then — if you like — you can reciprocate by giving feedback to them.
  • Your behavior while you’re getting the feedback is a critical factor. You must show the employee that it’s safe to give feedback by responding to all criticism with gratitude and, above all, by providing “belonging cues.”
  • Reed is another Netflix leader who frequently displays these two behaviors. And in return he receives more negative feedback than any other leader in the company. The proof is his 360-degree written assessment, which is open for everyone to contribute to, and where he consistently gets more feedback than any other employee does. Reed solicits feedback continually and religiously responds with belonging cues, sometimes even speaking publicly about how pleased he’s been to receive a piece of criticism.
  • A culture of candor does not mean that you can speak your mind without concern for how it will impact others.

Remove Travel and Expense Approvals

  • This is the nub of F&R (Freedom and Responsibility). If your people choose to abuse the freedom you give them, you need to fire them and fire them loudly, so others understand the ramifications. Without this, freedom doesn’t work.
  • When you offer freedom, even if you set context and clarify the ramifications of abuse, a small percentage of people will cheat the system. When this happens, don’t overreact and create more rules. Just deal with the individual situation and move forward.
  • But this is the most important message of this chapter: even if your employees spend a little more when you give them freedom, the cost is still less than having a workplace where they can’t fly. If you limit their choices by making them check boxes and ask for permission, you won’t just frustrate your people, you’ll lose out on the speed and flexibility that comes from a low-rule environment.
  • Processes provide management with a sense of control, but they slow everything way down.
  • The company was getting big, and it was increasingly difficult for our leaders to keep track of what everyone was up to. This would normally be the time to introduce more policies and control processes in order to deal with the complexity that comes with growth. But after the success of our vacation and expenses policy experiments, I began to wonder whether we could do the opposite. Were there other rules we could do without? Instead of increasing employee control as we grew, could we increase employee freedom?

Section Two — Next Steps to a Culture of Freedom and Responsibility

Pay Top of Personal Market

  • Beyond that, I don’t buy the idea that if you dangle cash in front of your high-performing employees, they try harder. High performers naturally want to succeed and will devote all resources toward doing so whether they have a bonus hanging in front of their nose or not. I love this quote from former chief executive of Deutsche Bank John Cryan: “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.” Any executive worth her paycheck would say the same.
  • This finding makes perfect sense. Creative work requires that your mind feel a level of freedom. If part of what you focus on is whether or not your performance will get you that big check, you are not in that open cognitive space where the best ideas and most innovative possibilities reside. You do worse.

Open the Books

  • My goal was to make employees feel like owners and, in turn, to increase the amount of responsibility they took for the company’s success. However, opening company secrets to employees had another outcome: it made our workforce smarter. When you give low-level employees access to information that is generally reserved for high-level executives, they get more done on their own. They work faster without stopping to ask for information and approval. They make better decisions without needing input from the top.
  • In most businesses, without even realizing it, senior managers stunt the abilities and intelligence of their own workforce by keeping financial and strategic information hidden. Although just about all companies talk about empowering staff, in the vast majority of organizations, real empowerment is a pipe dream because employees aren’t given enough information to take ownership of anything.
  • We are perhaps the only public company that shares financial results internally in the weeks before the quarter is closed. We announce these numbers at a quarterly business review meeting with our top seven hundred or so managers. The financial world sees this as reckless. But the information has never been leaked. When it does one day leak (I imagine it will), we won’t overreact. We’ll just deal with that one case and continue with transparency.
  • But when one employee abuses your trust, deal with the individual case and double your commitment to continue transparency with the others. Do not punish the majority for the poor behavior of a few.
  • Netflix treats employees like adults who can handle difficult information and I love that. This creates enormous feelings of commitment and buy-in from employees.
  • Spinning the truth is one of the most common ways leaders erode trust. I can’t say this clearly enough: don’t do this. Your people are not stupid. When you try to spin them, they see it, and it makes you look like a fraud. Speak plainly, without trying to make bad situations seem good, and your employees will learn you tell the truth.
  • Since then, every time I feel I’ve made a mistake, I talk about it fully, publicly, and frequently. I quickly came to see the biggest advantage of sunshining a leader’s errors is to encourage everyone to think of making mistakes as normal. This in turn encourages employees to take risks when success is uncertain… which leads to greater innovation across the company. Self-disclosure builds trust, seeking help boosts learning, admitting mistakes fosters forgiveness, and broadcasting failures encourages your people to act courageously.

No Decision-Making Approvals Needed

  • We emphasize that it’s fine to disagree with your manager and to implement an idea she dislikes. We don’t want people putting aside a great idea because the manager doesn’t see how great it is. That’s why we say at Netflix: DON’T SEEK TO PLEASE YOUR BOSS. SEEK TO DO WHAT IS BEST FOR THE COMPANY.
  • At Netflix, we strive to develop good decision-making muscles everywhere in our company — and we pride ourselves on how few decisions senior management makes.
  • If you hope for more innovation on your team, teach employees to seek ways to move the business forward, not ways to please their bosses. Coach your staff to challenge their managers.
  • We want all employees taking bets they believe in and trying new things, even when the boss or others think the ideas are dumb. When some of those bets don’t pay off, we just fix the problems that arise as quickly as possible and discuss what we’ve learned. In our creative business, rapid recovery is the best model.
  • If you are a Netflix employee with a proposal, you create a shared memo explaining the idea and inviting dozens of your colleagues for input. They will then leave comments electronically in the margin of your document, which everyone can view. Simply glancing through the comments can give you a feeling for a variety of dissenting and supporting viewpoints.
  • For smaller initiatives, you don’t need to farm for dissent, but you’d still be wise to let everyone know what you’re doing and to take the temperature of your initiative.

Section Three — Techniques to Reinforce a Culture of Freedom and Responsibility

The Keeper Test

  • Ideally, an organization could just pick carefully, and these well-chosen employees would flourish forever. The reality is tougher. No matter how careful you are, sometimes you will make hiring mistakes, sometimes people won’t grow as much as you had hoped, and sometimes your company’s needs change. To achieve the highest level of talent density you have to be prepared to make tough calls. If you’re serious about talent density, you have to get in the habit of doing something a lot harder: firing a good employee when you think you can get a great one.
  • We are a team, not a family. If we are going to be a championship team, then we want the best performer possible in every position. The old notion is that an employee has to do something wrong, or be inadequate, to lose their job. But in a pro, or Olympic, sports team, the players understand the coach’s role is to upgrade — if necessary — to move from good to great. Team members are playing to stay on the team with every game. For people who value job security over winning championships, Netflix is not the right choice, and we try to be clear and nonjudgmental about that. But for those who value being on winning teams, our culture provides a great opportunity. Like any team successfully competing at the highest level, we form deep relationships and care about each other.
  • PIPs are of course expensive. If you put someone on a four-month PIP, that’s four months you have to pay an underperformer and countless hours spent by the line manager and HR enforcing and documenting the process. Instead of pouring that capital into a prolonged PIP, give it to the employee in a nice, big, up-front severance package, tell him you’re sorry it didn’t work out, and wish him well in his next adventure.
  • If each manager considers carefully, on a regular basis, whether every employee on the team is indeed the best choice for that position and replaces anyone who isn’t, performance across the organization soars to new heights.

A Circle of Feedback

  • We now do the 360 written feedback every year, asking each person to sign their comments. We no longer have employees rate each other on a scale of 1 to 5, since we don’t link the process to raises, promotions, or firings. The goal is to help everyone get better, not to categorize them into boxes. The other big improvement is that each person can now give feedback to as many colleagues as they choose at any level in the organization — not just direct reports, line managers, or a few teammates who have invited input. Most people at Netflix provide feedback for at least ten colleagues, but thirty or forty is common. I received comments from seventy-one people on my 2018 report.

Lead with Context, Not Control

  • 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. For example, the boss might put in place a process like Management by Objectives, when she works with the employee to set Key Performance Indicators (KPIs); then she monitors the progress at regular intervals, judging the individual’s final performance based on whether he achieves the predetermined goals on time and within budget. She might also seek to control the quality of her employees’ work by putting in place error-reduction processes, such as checking work before it goes to the client or approving purchases before orders are placed. These are all processes that allow a manager to give some freedom while still exerting a good deal of control. Leading with context, on the other hand, is more difficult, but gives considerably more freedom to employees. You provide all of the information you can 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 in the future. Leading with context won’t work unless you have the right conditions in place. And the first prerequisite is high talent density.
  • If you are already part of a tightly coupled system, you may have to work with the top leaders in the company in order to change the entire organizational approach before trying to lead with context at a lower level. Even with high talent density, and innovation as your goal, if you don’t sort this out, leading with context may be impossible.
  • If loose coupling is to work effectively, with big decisions made at the individual level, then the boss and the employees must be in lockstep agreement on their destination. Loose coupling works only if there is a clear, shared context between the boss and the team. That alignment of context drives employees to make decisions that support the mission and strategy of the overall organization.
  • In a loosely coupled organization, where talent density is high and innovation is the primary goal, a traditional, control-oriented approach is not the most effective choice. Instead of seeking to minimize error through oversight or process, focus on setting clear context, building alignment of the North Star between boss and team, and giving the informed captain the freedom to decide.
  • When one of your people does something dumb, don’t blame that person. Instead, ask yourself what context you failed to set. Are you articulate and inspiring enough in expressing your goals and strategy? Have you clearly explained all the assumptions and risks that will help your team to make good decisions? Are you and your employees highly aligned on vision and objectives?
  • We’ve looked at over a dozen policies and processes that most companies have but that we don’t have at Netflix. These include: Vacation Policies, Decision-Making Approvals, Expense Policies, Performance Improvement Plans, Approval Processes, Raise Pools, Key Performance Indicators, Management by Objective, Travel Policies, Decision Making by Committee, Contract Sign-Offs, Salary Bands, Pay Grades, Pay-Per-Performance Bonuses.
  • Some of the items on the list above squash innovation. Vacation policies, travel policies, and expense policies can lead to the type of high-rule environment that discourages creative thinking and scare off the most innovative employees.

Section Four — Going Global

Bring It All to the World!

  • I thought a lot about whether the organizational culture would also need to adapt to be successful around the world. By that time our management methods had developed so fully and were producing such good results that I was reluctant to make a significant change. But I felt uncertain if our candid feedback, low-rule ethos, and Keeper Test techniques would be effective in other countries.
  • To my great relief, the freedom our employees thrive on in the US showed early signs that it would, without question, be successful everywhere. Some cultures had a little more difficulty getting in the swing of making decisions without checking a rule book or asking for approval, but once they get the hang of it, they love the autonomy and lack of rules as much as Californians do. It’s not only Americans who love to be in control of their own lives and work. Nothing cultural about that.
  • At about that time, a manager in our HR department lent me Erin’s book, The Culture Map. The book outlines a system for comparing one national culture to another on a set of behavioral scales. It looks at issues like how much employees defer to the boss in different countries, how decisions are made in different parts of the world, how we build trust differently in different cultures, and most important for us at Netflix, how candid versus diplomatic people tend to be with critical feedback around the globe.
  • More direct cultures tend to use what linguists call upgraders, words preceding or following negative feedback that make it feel stronger, such as “absolutely,” “totally,” or “strongly”: “This is absolutely inappropriate” or “This is totally unprofessional.” In contrast, more indirect cultures use more downgraders, when giving negative feedback. These are words that soften the criticism, such as “kind of,” “sort of,” “a little,” “a bit,” “maybe,” and “slightly”. Another type of downgrader is a deliberate understatement, such as, “We are not quite there yet,” when you really mean, “We are nowhere near our goal.”
  • What we learned from this experience, and later found to be true not just in Japan but in most cultures where direct negative feedback is less comfortable and less common, was that asking employees to give ad hoc feedback to peers and superiors at informal moments doesn’t usually work well. But if you run more formal events, putting feedback on the agenda, providing preparation instructions, and giving a clear structure to follow, you can get all the useful feedback out there just as effectively.
  • The overarching lesson we’ve learned is that — no matter where you come from — when it comes to working across cultural differences, talk, talk, talk. One of the best ways to get better at providing feedback to an international counterpart is to ask questions and show curiosity about the other person’s culture. If you need to give feedback to a counterpart in another country, ask another trusted colleague from that country first, “Does my message sound aggressive?” “What’s the best approach in your culture?” The more questions we ask and the more curiosity we show, the better we all become at giving and receiving feedback around the world.
  • The 4As (plus one): Aim to assist, Actionable, Appreciate, Accept or decline. Plus one makes 5: Adapt — your delivery and your reaction to the culture you’re working with to get the results that you need.

Conclusion

  • Or you can implement a culture of freedom and responsibility, choosing speed and flexibility, and offering more freedom to your employees. Each approach has its advantages. When you started this book you already knew how to coordinate a group of people through rules and process. Now you know how to do it through freedom and responsibility too.
  • Even during the industrial era there were pockets of the economy, such as advertising agencies, where creative thinking drove success, and they managed on the edge of chaos. Such organizations accounted for just a small percent of the economy. But now, with the growth in importance of intellectual property and creative services, the percentage of the economy that is dependent on nurturing inventiveness and innovation is much higher and continually increasing. Yet most companies are still following the paradigms of the Industrial Revolution that have dominated wealth creation for the last three hundred years.
  • To build a team that is innovative, fast, and flexible, keep things a little bit loose. Welcome constant change. Operate a little closer toward the edge of chaos. Don’t provide a musical score and build a symphonic orchestra. Work on creating those jazz conditions and hire the type of employees who long to be part of an improvisational band. When it all comes together, the music is beautiful.