Community Post #3: Netflix and the Culture of High-Performance

Netflix has had its fair share of failures and successes to form the Culture which they have now. But it wasn't easy. It was both the application of past learnings of Reed Hastings - The CEO of Netflix and a lot of experimentation. If you ask anyone what Netflix is and does? The response you will get is it's an OTT platform where you can stream movies and web series. But what they don't understand is Netflix is equally a tech Company and a Content Creation Company where you can stream different movies and web series.

Netflix initially started off as a DVD rental company where you can rent DVDs online and it was also available on a subscription basis but soon they realized that they have to pivot and they started Streaming Content online wherewith the access to the Internet and Subscription of Netflix you can view million hours of Content in various regional languages.

For anyone who creates, who leads, or who strives to innovate, the Netflix Culture is something close to a holy grail. Starting off with what do we mean when we talk about a Company's Culture? A company's culture can be defined as a set of shared values, goals, attitudes, and practices that characterize an organization.

According to Reed Hastings, as written in his Book No Rules Rules “ if you give employees more freedom instead of developing processes to prevent them from exercising their own judgment, they will also make better decisions and it's easier to hold them accountable. This also makes for a happier, more motivated workforce as well as a nimble company. But to develop that foundation that enables this level of freedom you need to increase and decrease a few elements to your organization.


Build up talent Density

After the famous dot-com crash of 2002, Netflix also had to let go of a few of its employees. While taking the decision as to which employees the organization should let go he gave a preference to employees who were high performers and exceptional at what they do over others who were mediocre but made up for it by being good at other domains. It was one of the toughest decisions he had to make in the early stages of building Netflix. He expected that since the workforce reduced it would take them more time to complete all the tasks and with the same accuracy but to his surprise, the productivity of the organization increased and work was in fact getting done at a faster rate. He understood that he should now focus on Quality rather than Quantity. The quality would make up for the lack of quantity and he started focusing on creating a workforce of high performers.

At most companies, policies and control processes are put in place to deal with employees who exhibit sloppy, unprofessional, or irresponsible behavior. But if you avoid or move out of these people, you don't need the rules. If you build an organization made up of high performers, you can eliminate most of the controls, The denser the talent, the greater the freedom you can offer.

Strengthen talent density by paying top of the market

The methods used by most companies in the US to compensate employees are not ideal for a creative, high talent density workforce. Most of the companies follow Pay-per performance bonuses. Part of an employee's salary is guaranteed and part of it is linked to performance. According to Reed “ 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 a big fat paycheck, you are not in that open cognitive space where the best ideas and most innovative possibilities reside. You do worse. Even research has proved this thesis to be right.

According to Netflix ideology in order to fortify your talent density in your workforce, for all creative roles hire one exceptional employee instead of ten or more average ones. Hire this amazing person at the top of the market, adjust their salaries annually in order to continue to offer them more than what competitors would.

Max up talent density by implementing Keepers test

In order to encourage your managers to be tough on performance, teach them to use the Keepers test: “Which of my people, if they told me they were leaving for a similar job at another company, would I fight hard to keep?” the answer to this question will help you in making tough decisions as to which employees do you want to keep and which ones do you want to let go of.

When you realize you need to let someone go, instead of putting him on some type of PIP, which is humiliating and organizationally costly, take all the money and give it to employees in the form of a generous severance payment.

The downside to a high-performance culture is the fear employees may feel that their jobs are on the line. To reduce fear, encourage employees to use the Keeper Test prompt with their managers: “ how hard would you work to change my mind if I were thinking of leaving?” When an employee is let go, speak openly about what happened with your staff and answer questions candidly. This will diminish their fear of being next and increase their trust in the company and its managers.

All the procedures and policies are directed towards creating a Culture of high freedom and responsibility. These things also won't work if you don't implement other policies that Netflix has implemented while creating a high-performance workforce. Those are to increase candor and by eliminating most controls in the organization.

The most innovative cultures are rarely comfortable. Comfort is found in complacency. Pushing boundaries breeds discomfort. It may surprise detractors that some people willingly choose to sign up for such a bumpy ride.

But Netflix never promised comfort, it only guarantees adventure.

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