No Rules Rules – Netflix and the Culture of Reinvention

No Rules Rules by Reed Hastings & Erin Meyer

Summary of No Rules Rules – Netflix and the Culture of Reinvention by Reed Hastings and Erin Meyer: this resoundingly successful co-authored book provides a practical approach to running your business like Reed Hastings, the boss of Netflix!

By Reed Hastings and Erin Meyer, 2020, 293 pages.

Review and Summary of No Rules Rules – Netflix and the Culture of Reinvention by Reed Hastings and Erin Meyer

The authors

Co-founder of Netflix in 1997, Reed Hastings has been the company’s Chairman and CEO since 1999. Coming from a software background (he founded Pure Software in 1991, which he bought in 1997), the CEO of the American giant still has a taste for flexible, adaptive systems. Reed Hastings is a graduate of Stanford and Bowdoin College. In addition to his business activities, he has a keen interest in education. Reed Hastings is also a member of Facebook’s Board of Directors.

Erin Meyer is a professor at one of Europe’s most renowned business schools: INSEAD (Institut Européen d’Administration des Affaires) based in Fontainebleau, Paris. She is the author of a handy little book on the best ways for “Breaking Through the Invisible Boundaries of Global Business” (that’s its subtitle), The Culture Map, released in 2014. She has been identified by the Thinkers50 Radar list as one of the world’s fifty most influential business thinkers.

Please note before reading this review

The book is made up of 4 parts, called sections, and 10 chapters. You’ll find a full summary at the end of this review, but here’s the outline of the four main sections:

  1. First Steps to a Culture of Freedom and Responsibility
  2. Next Steps
  3. Techniques to Reinforce a Culture of Freedom and Responsibility
  4. Going Global

Note: to simplify reading this review, I’ve changed most of the book’s subheadings. With the exception of the last headings of each chapter (which I’ve shortened and simply titled “Takeaway”), the subheadings you’ll find in this summary don’t correspond to those you’ll find in the original text.

Netflix logo No Rules Rules by Reed Hastings & Erin Meyer

Introduction

A corporate culture without rules!

While most companies tend to pile on the rules and processes as they grow, Netflix has gone in the opposite direction. As it has grown, the company has built a culture of fewer rules.

How did it achieve this? It used a 3-step process that was repeated, over and over again. That process looks like this (it’s also called “the Netflix cycle“):

  1. Build talent density
  2. Increase candor
  3. Remove controls

Incremental growth

During its development, Netflix went through several stages:

  • A small DVD rental business by mail
  • Streaming other people’s content over the Internet
  • The creation of its own content
  • A global company operating in 190 countries

Throughout its evolution, the company has fostered employee flexibility and innovation.

I can do whatever I want today No Rules Rules by Reed Hastings & Erin Meyer

Section 1 – First Steps to a Culture of Freedom and Responsibility

To create a corporate culture like Netflix’s, your initial actions should be:

  1. Create a great workplace for colleagues 
  2. Let people say what they think 
  3. Stop controlling vacations and expenses

Sound surprising? Let’s get down to the details.

Chapter 1 – A Great Workplace Is Stunning Colleagues

Layoffs caused by the dot-com bubble

Officially launched in 1997, Netflix soon suffered the consequences of the Internet bubble of 2001, during which many web entrepreneurs went bankrupt. To survive, the company was forced to lay off a third of its employees. This meant reducing its workforce from 120 to 80.

The day the layoffs were announced was terrible, but a few weeks later, something strange happened. In fact, according to Reed Hastings, the mood improved considerably. There was more [passion, energy, and ideas.] 

By early 2002, the DVD subscription-by-mail business was once again booming. Now, all this work could be done by a smaller number of people, who were both more motivated and more dynamic.

Reed Hastings drew a managerial lesson from this. In fact, the redundancies created a dramatic increase in “talent density.” Meaning:

  • The average amount of talent per employee was higher. 
  • Low-performing employees who were wasting their manager’s time and energy disappeared.
  • As those who remained were excellent at their jobs, this new standard of performance became contagious.

Result: fewer staff, but a more dynamic work environment

For Erin Meyer, the key takeaway from this is that:

[If you have a team made up entirely of high-performers, each of them pushes the others to excel.]

 (Erin Meyer, No Rules Rules, Chapter 1).

Creating a dynamic workplace is therefore the first evolutionary step to aim for. You should seek to surround your best employees (compared here to superstars) with people who are both talented and collaborative. A reciprocal learning process then begins. Employees start to learn from each other. Better still, they motivate each other without needing direct input from the management team.

As a leader, your first priority should be to create such a working environment. Of course, this means separating yourself from the lazy, pessimistic people who stand in the way of this virtuous dynamic.

The culture of “freedom and responsibility” (referred to by employees as “F&R”) is one in which you can afford to reduce controls. Why? Because talented, dynamic people want to be treated as adults and demonstrate that they can do the right thing. In this context, you don’t need to set binding rules, but simply act with candor.

Takeaway

  • [Your number 1 role as a business leader is to develop a work environment consisting exclusively of stunning colleagues.
  • Stunning colleagues get more done and are exceptionally creative and passionate.
  • Idiots, slackers, meek people who don’t perform, or pessimists who are kept on the team will bring down everyone’s performance.] (No Rules Rules)

Chapter 2 – Say What You Really Think (with Positive Intent)

[Only say about someone what you would say to their face]

At Netflix, people are encouraged to speak their minds. Reed Hastings has really gone out of his way to encourage people to express themselves. Frank, transparent, and constructive comments are always positively received. Honesty, rather than shenanigans and the unspoken, is faster and therefore more effective. The reason is simple: information is available more quickly and at lower cost.

This is what the expression, [say only what you would say to someone’s face], is all about.

In other words, it means systematically telling others what you think, in a constructive way (this last point is obviously essential). Constructive feedback is encouraged both up and down the hierarchy and across the company. Let’s take a look at how.

4A guidelines: feedback that boosts productivity

When everyone expresses themselves frankly, the group learns more. Frequent feedback increases speed and efficiency.

To achieve this result, Netflix devised the “4A guidelines.” The first measure may seem counter-intuitive, such as it is highly unusual in the corporate world: employees were actively encouraged to give honest feedback to their bosses.

During each individual meeting, such feedback is encouraged. Managers, for their part, are required to let employees know that they will not be punished for giving honest feedback. Here’s what the 4As mean.

  • A1: Aim to assist. Feedback should be given with positive intent, rather than as a venting of frustrations.
  • A1: Make it actionable. Feedback should focus on what the person can do differently. It must be specific and action-oriented.
  • A3: Show appreciation. The person receiving the feedback must acknowledge that he or she is listening attentively and with an open mind.
  • A4: Accept or discard. The person receiving the feedback must show that they have listened but can either apply or ignore the advice.

Managers must learn to give and receive such 4A feedback. In fact, it lifts the mood. Thanks to this culture of transparency and openness, people talk to each other as soon as they see problems, rather than sitting around doing nothing.

Reed Hastings sees this as a feedback loop. In effect, it’s feedback (learning) that enables us to operate more efficiently, because we now know how to do things better. This feedback creates a sense of mutual responsibility and reduces the need for hierarchy and strict standards.

Being attentive

Constructive feedback only works if people listen to each other. That’s why, here again, you have to dare to get rid of people who are incapable of listening to other people’s opinions and taking them into account. No matter how brilliant they are, anyone who rolls their eyes when someone else expresses themselves with difficulty or insults those less powerful than them will poison the group culture. As a leader, you need to get rid of these “jerks.”

In fact, as Reed Hastings puts it, a franchise culture [requires everyone to think carefully about the 4 As guidelines. It requires thought and sometimes preparation before giving feedback, as well as follow-up and coaching from those in charge.] (Reed Hastings, No Rules Rules, Chapter 2)

Takeaway

  • [With candor, top performers become sensational performers. Frequent, honest feedback exponentially increases the speed and effectiveness of your team or workforce.
  • Set the stage for candor by creating feedback moments in your regular meetings.
  • Coach your employees to give and receive feedback effectively, following the 4A guidelines.
  • As a leader, solicit feedback frequently and respond with cues {i.e., words that reinforce the sense of belonging to the group} when you receive them.
  • Get rid of the jerks when instilling a culture of candor.] (No Rules Rules)

Chapter 3a – Remove Vacation Policy

Trust

Once talent density is high and candor reigns, you can start to relax some controls and offer more freedom in the workplace. The best place to start is by removing controls on vacations and expenses. This freedom will give people more control over their lives, and signal that you trust your employees to get the job done.

What’s more, this self-confidence will improve their sense of belonging to the company, which is a great thing.

Unlimited vacation

Most companies require employees to submit vacation requests. The number of vacation days allowed each year is controlled: management seeks to ensure that you don’t take more time than you’re entitled to.

At Netflix, you can take as much time off as you like. No approval is required, and no one controls how much time you take each year. According to Reed Hastings, this policy has several advantages:

  • Attracting top talent, especially Gen Z and millennials, who don’t really like to clock in and out.
  • Eliminating the bureaucracy and administrative costs associated with monitoring vacation policy. 
  • Increasing levels of trust and accountability.

Managers themselves need to take long vacations to set an example! Reed Hastings usually takes six weeks off a year and talks a lot about his vacations.

Feeling freer

This attitude is linked to another fashionable tenet of the entertainment industry: [lead with context, not by control.] In this way, everyone knows that it’s good to be at their post at such and such a time, but that they can be free at another. The result? People are more satisfied. It gives employees back control over their lives.

Chapter 3b – Remove Travel and Expense Approvals

[Act in Netflix’s best interest]

The other control that can be removed once you’ve established an atmosphere of candor concerns travel and expense approvals. It is amazing how many hours of management are devoted to these issues.

First, Netflix presents a spending guideline with this wording:

  • [Spend company money as if it were your own.] The problem is that there’s too much variability. That’s why Netflix has moved to another formula.
  • [Act in Netflix’s best interest.]

Of course, reckless spending must be eliminated. That’s why, at the end of each month, the finance team sends managers a link listing all receipts by employee. Managers review their team members’ expense claims and talk to those who are overspending. They talk about the context and inform their employees of what is appropriate and what is not.

Visibly punish abuse

If these managers or the finance team discover that people are spending inappropriately, these employees are fired openly and bluntly, so that others understand the consequences.

This is the quid pro quo for accountability. In fact, as Reed Hastings asserts, responsible employees will look out for each other to ensure that their teammates’ actions are consistent with the good of the company.

Takeaway

  • [When jettisoning travel and expense policies, encourage your managers to establish, up front, the context for how money should be spent and, on the back end, encourage them to check receipts. If people are overspending, set more context.
  • Without spending controls, you’ll need a finance department to audit the receipts accumulated annually.
  • When you find people abusing the system, fire them and talk about the abuse openly – even if they are “star performers.” This is necessary so that others understand the consequences of irresponsible behavior.
  • Some expenses may increase with freedom. But the costs of overspending are not as high as the gains freedom will bring.
  • With freedom to spend, employees will be able to make quick financial decisions that help the business.
  • Without the time and administrative costs associated with purchase orders and procurement processes, you’ll waste fewer resources.
  • Many employees will respond to this new freedom by spending less than if they were in a system with rules. When you tell people that you trust them, they show that they are trustworthy.] (No Rules Rules)
Do something great No Rules Rules by Reed Hastings & Erin Meyer

Section 2 – Next Steps to a Culture of Freedom and Responsibility

If you want to go even further, you should, again and again:

  1. Make sure you pay your best employees very well. 
  2. Open your books (especially your accounts).
  3. Make sure no approvals are required.

Chapter 4 – Pay Top of Personal Market

Rock stars

Reed Hastings comes from the software industry, where the “rock star principle” is well known. This is the idea that top talent outperforms average talent by a factor of 20 or more.

At Netflix, he divided the workforce into two categories:

  • operational roles, which receive an average salary.
  • creative roles, which are paid at the most competitive rates on the market.

Netflix prefers to pay one exceptional employee very highly, rather than hiring a dozen average performers. This approach boosts innovation within the company.

A guaranteed high salary

Netflix refuses to use pay-for-performance bonuses. Instead, talented employees receive a guaranteed high base salary, and these salaries are adjusted annually to reflect how the market values those specific skills.

Compensation is therefore guaranteed from the outset. That said, there is no limit to salary increases from one year to the next. If a highly innovative employee can provide data showing that he or she would get more at a competitor, Netflix will match or even exceed that offer.

As a general rule, if you’re approached by a headhunter, you keep this information confidential. You don’t like to divulge it to your boss. Netflix, however, goes in the opposite direction!

Show the offer to get a raise. In doing so, Netflix is committed to retaining its top performers and paying them real market value.

Hire less, but hire better

[To strengthen the talent density of your staff, for all creative roles, hire one exceptional employee instead of ten or more mid-level ones. Hire this exceptional person at the upper end of the range he or she is worth on the market. Adjust their salary at least once a year so that you can continue to offer them more than their competitors. If you can’t afford to pay your best people at the top of the market, let some of the less fabulous people go so you can. That way, the talent pool will become even denser.] (Reed Hastings, No Rules Rules, Chapter 4)

Takeaway

  • [The methods most companies use to compensate employees are not ideal for a creative, talent-dense workforce.
  • Divide your workforce between creative and operational workers. Pay creative workers at the highest market level. This means hiring one exceptional individual rather than ten or more suitable people.
  • Don’t pay based on performance-related bonuses. Instead, put these resources directly into salaries.
  • Teach employees to develop their networks and invest time, on a regular basis, in considering their own value and that of their teams. This may involve taking calls from recruiters or even going out to interview at other companies. Adjust salaries accordingly.] (No Rules Rules)

Chapter 5 – Open the Books

[The sun rises]: transparency is the name of the game

Most companies talk about transparency, but then lock up their secrets and share them only when necessary. Netflix does the opposite. This policy has a name: “sunshining.”

In other words, the company opens its books. People learn to read profit and loss accounts, and everyone gets all the financial data they want. Of course, this information remains strictly confidential: no employee can then go and divulge it to the outside world for the purpose of trading, for example.

In so doing, the company treats its employees as adults. It gives them the knowledge and opportunity to contribute to the company in a meaningful way. Netflix members also see, in this way, that there is no inner circle, no elite that holds high-level, hidden information. Once again, transparency builds trust.

Symbols of openness

The company uses many other symbols to reinforce this message. For example:

  • There are no closed spaces in Netflix’s offices.
  • Reed Hastings, Netflix’s CEO, has no problem walking to the office of someone he wants to meet, rather than summoning them to his office.
  • There are no personal assistants, who often act as gatekeepers.
  • No one has lockers because everyone is expected to have complete trust in each other.

This policy of transparency is a way for employees to feel a sense of ownership of the company, and thus to increase their motivation and responsibility for the company’s success.

However, Reed Hastings notes another positive consequence: it makes staff smarter. Why is that? Because they think like adults and make well-considered decisions for themselves, without needing the opinion of the hierarchy.

Disadvantages and limitations

One potential disadvantage of radical transparency is that people sometimes learn in advance that their jobs may disappear. Of course, this can cause stress, but it’s ultimately preferable to be able to prepare, rather than to learn the news abruptly.

Another sticking point: should transparency also apply to a person’s private life? Netflix’s approach is as follows:

  • If the information concerns an event at work, transparency is the order of the day.
  •  If the information concerns something else, people should be told that they don’t have to share it and that they can ask the person concerned.

It’s good to talk about your mistakes

This is another aspect of transparency. Reed Hastings, for example, talks openly and at length about the mistakes he’s made. In doing so, he makes himself accessible and also fosters creativity by making his teams understand that mistakes are acceptable if made openly and with good intentions.

[If you have the best employees in the market and have established a culture of open feedback, revealing company secrets increases staff’s sense of belonging and commitment. If you trust your staff to handle sensitive information appropriately, the trust you demonstrate will generate accountability, and your employees will show you how trustworthy they are.] (Reed Hastings and Erin Meyer, No Rules Rules, Chapter 5)

Takeaway

  • [To establish a culture of transparency, consider the symbolic messages you’re sending out. Get rid of closed offices, assistants who act as guards, and locked spaces.
  • Open up the books to your employees. Teach them how to read the P&L. Share sensitive financial and strategic information with everyone in the company.
  • When you’re making decisions that will impact employee well-being, such as reorganizations or layoffs, disclose the information early enough to your workforce before things are solidified. This will cause anxiety and distraction, but the trust you’ll build in this way outweighs these disadvantages.
  • When transparency comes into tension with an employee’s privacy, follow this guideline: if the information concerns something that happened at work, opt for transparency, and talk honestly about the incident. If the information concerns the employee’s personal life, tell people that this is not the place to share it, and say that they can speak directly to the person concerned if they wish.
  • As long as you prove yourself competent, speak openly and extensively about your own mistakes – and encourage all team leaders to do the same – it will increase trust, goodwill, and innovation within the organization.] (No Rules Rules)

Chapter 6 – No Decision-Making Approvals Needed

Encourage decision-making

Removing vacation limits and spending policies was a symbolic first step, but the next step is to generate a workplace where no decision-making approval is required. In such a setting, you’re expected to trust everyone to act in a way that benefits the company.

When a person is hired at Netflix, the following fundamental principle is taught: “Don’t try to please the boss. Do what’s right for the company.” New employees are also taught the following:

When they arrive, they are given a metaphorical pile of chips with which to make bets. Some of these bets will succeed, others will fail. Their performance will be judged by the size of this pile, not by the success or failure of a single bet. For Reed Hastings, this is the best way to encourage innovation and decision-making.

Netflix’s innovation cycle

Every time you have a new idea you’re passionate about, you need to do the following:

  1. Socialize
  2. Test
  3. Decide
  4. Celebrate

This is what Netflix calls the “innovation cycle.” Let’s break it down.

Socialize, i.e., get the word out about your idea and let your colleagues tell you whether they love it or hate it. In short, get constructive feedback.

If it’s a great idea, test it and analyze what the data shows. Find others who are already doing what you propose and try to learn from their experience. Give it a try and ask clients for feedback.

On this basis, bet on the assumption that you choose whether or not to go ahead, and that you alone are responsible for the outcome. No approval is required. If you like the project, go ahead.

If your bet turns out to be a winner, celebrate it. However, do the same if it fails! Bring it to light so that everyone can learn from it. Netflix doesn’t expect every bet to succeed: the company wants people to share what they learn.

[We shouldn’t be afraid of our failures. We should embrace them. And give even more sunshine to mistakes!]

(Reed Hastings, No Rules Rules, Chapter 6)

Takeaway

  • [In a fast-paced, innovative company, ownership of critical and important decisions should be dispersed across the workforce at different levels, not allocated to a certain type of hierarchical status.
  • For this to work, the team leader must teach his group the Netflix principle: “Don’t seek to please your boss.”
  • When new employees join the company, tell them they have a bag full of metaphorical chips they can use to make bets. Some will succeed, some won’t. A worker’s performance will be judged on the overall outcome of his or her bets, not on the results of a single ‘wager.’
  • To help your workforce make good bets, encourage them to cultivate dissent, socialize their ideas, and test out their big bets.
  • Teach your employees that when a bet fails, they should sunshine it openly.] (No Rules Rules)
Netflix in mobile No Rules Rules by Reed Hastings & Erin Meyer

Section 3 – Techniques to Reinforce a Culture of Freedom and Responsibility

Now you want to strengthen your culture of freedom and responsibility. But how? Follow this path:

  1. Live by the ‘Keeper Test.’
  2. Maximize candor by using a circle of feedback. 
  3. Lead with context, not control.

Chapter 7 – The Keeper Test

The sports team metaphor

In 2008, Netflix was growing fast. Dozens of new employees were joining the company every week. To structure this growth, the management team began to use the metaphor of a professional sports team.

Questions to ask

To reinforce the ethics and spirit of the sports team, managers are invited to apply the “keeper test.” In practice, this means that each manager must regularly ask him or herself whether he or she has the best person dedicated to each position. Team leaders should therefore ask themselves:

[If a member of your team were to resign tomorrow, would you try to change their mind? Or would you be relieved to see him/her go? If it’s the latter, you should pay him/her a severance package now and look for a star, someone you’d fight for.] (No Rules Rules, Chapter 7)

Netflix tries to apply this test to the whole company. It’s not about creating systems of ranking and competition, which undermine the culture of collaboration, freedom, and responsibility, but about reinforcing honesty.

Employees themselves are encouraged to go to their bosses at any time and ask: [If I were considering leaving, how far would you go to change my mind?] This approach goes a long way toward easing tension and anxiety.

Transparency, even when it comes to dismissals

Netflix also does something interesting when people are laid off. The team gets together and starts by noting the main strengths of the dismissed employee. The manager then explains why he or she felt the employee was no longer the best choice for the job.

Team members can then question the manager on what has been done to help this person, and so on. All team members can understand what’s going on by putting everything on the table.

Netflix also offers a generous severance package to any employee laid off. Many former Netflix employees have used these packages to kick-start their next projects. The severance package usually includes several months’ salary to support themselves and their families, while ex-employees seek new employment.

Each year, Netflix records an average voluntary turnover rate of 3-4% and an involuntary turnover rate (people laid off) of around 8%.

Takeaway

  • [In order to encourage your team leaders to focus on performance, teach them to use the keeper test.
  • Avoid ranking systems that create Internet competition and discourage collaboration.
  • For a performance-oriented culture, the sports team metaphor is better than the family metaphor. Encourage your managers to develop commitment, cohesion, and camaraderie, while ensuring that each player is in the right place.
  • When you realize you have to let someone go, instead of putting them on some kind of PIP (performance improvement plan), which is humiliating and organizationally costly, take all that money and give it to the employee in the form of a generous severance package.
  • The downside of a high-performance culture is that employees may feel their jobs are on the line. To reduce this fear, encourage them to use the Keeper Test with their managers.
  •  When an employee leaves, talk about it openly with the team and answer their questions frankly. This will reduce their fear of being next and increase trust in the company and management.] (No Rules Rules)

Chapter 8 – A Circle of Feedback

[Candor is like going to the dentist]

New people who join Netflix are often amazed at how integral candor is to the company’s culture. For these people who come from command-and-control companies, it’s not easy to suddenly start pointing out to your boss what he’s doing right or wrong!

But as Reed Hastings puts it:

[Candor is like going to the dentist. Even if you encourage everyone to brush their teeth every day, some won’t. Those who do may still miss the tricky spots. I can’t guarantee that the candor we encourage will happen every day.]

(Reed Hastings, No Rules Rules, Chapter 8)

In many companies, the annual performance review is the mechanism for giving feedback to employees, but it only goes in one direction and only comes from one person. Netflix has chosen to use a different mechanism: written and live 360-degree feedback.

360-degree written evaluations

A written 360 is a report to which anyone at Netflix can add their comments. It is prepared as part of an annual exercise.

On average, Netflix employees receive feedback on their performance from at least 10 of their peers. This feedback is signed by the person giving it. If you want more details, you can go and see them to discuss it.

What’s more, employees are asked to evaluate their bosses as part of these written 360-degree evaluations, which makes for lively discussions!

Live 360 degrees

In addition to written evaluations, Netflix organizes live evaluations.  As the name suggests, these are face-to-face feedback sessions during which latent tensions within the team can be identified and defused.

Here are a few characteristics of these Live 360 sessions:

  • They often take place over dinner.
  • A group of 10 to 12 employees is the optimum size.
  • It’s best to mandate a strong moderator who can intervene if the discussion strays off topic.
  • Participants are invited to give constructive feedback of the 4A type.
  • A balance of around 25% positive feedback and 75% developmental feedback (things to improve) is sought.

Here are some additional tips given by Reed Hastings:

[The first feedback interactions will set the tone for the evening. Choose a feedback receiver who will receive difficult feedback with openness and appreciation. Choose a feedback giver who will give difficult feedback, while respecting the 4 As guidelines. Often, the boss chooses to be the first to receive. Live 360s work because of our high talent density and ‘no stunning jerks’ policy. If your employees are immature, have a bad attitude, or lack the confidence to show their vulnerability in public, you may not be ready to host these events. And even if you’re perfectly ready, you’ll need a firm moderator who will make sure all comments fall within the 4 As and intervene if someone says something inappropriate.]

(Reed Hastings, No Rules Rules, Chapter 8)

Takeaway

  • [Candor is like going to the dentist. Even if you encourage everyone to brush daily, some won’t. And even those who do can still have worries. A thorough session every six to twelve months ensures clean teeth and a healthy feedback system.
  • Performance reviews are not the best mechanism for a candid work environment, mainly because feedback is usually only one way (downwards) and only comes from one person (the boss).
  • A written 360-degree report is a good mechanism for annual feedback. However, avoid anonymity and numerical scores, don’t tie results to raises or promotions, and open up feedback to anyone willing to give it.
  •  Live 360-degree dinners are another effective process. Take several hours away from the office. Give clear instructions, follow A4 feedback guidelines, and use the “Start, Stop, Continue” method, looking for about 25% positive, 75% development, all actionable, and no fluff.] (No Rules Rules)

Chapter 9 – Lead with Context, Not Control

Inform employees of the situation

Most organizations have leaders who control everything that happens. A boss approves initiatives to be undertaken and manages the time of his or her direct reports. A boss may check frequently to correct substandard work or empower employees to use their discretion within the controls in place.

Leading with context is much more difficult, as it gives employees much more freedom and discretion. As a manager or team leader, you provide enough information for employees to understand the situation, and then trust them to make good decisions and work unsupervised.

The main advantage of context-sensitive leadership is that everyone learns to make good decisions for themselves.

The three conditions at Netflix

Netflix has always followed the philosophy that it’s better to lead with context than to control. This has been made possible at Netflix thanks to these three conditions:

  1. The company has a high talent density. It’s full of people who are motivated and extremely talented. They don’t need to be told what to do hour by hour, day by day.
  2. The company’s goal is to be a creative force and to innovate, not to prevent a mistake in a production system that makes millions of products every year.
  3. Netflix’s CEO is a software engineer and understands that the company must be a loosely coupled system. In this type of system, components are designed in such a way that they can adapt without having to go back and modify the base. This makes Netflix flexible, with decentralized decision-making.

The company’s North Star

A few times a year, Reed Hastings brings together Netflix executives from around the world for a two-day meeting to make sure everyone understands the company’s “North Star” – the general direction Netflix is heading in.

Memos are then sent via Google Docs to every employee in the company to explain the context shared at these meetings. All company employees thus have the same access to this contextual information.

Then, between these big meetings, the management team organizes individual meetings with each employee, once a year. This enables them to understand the context in detail and also to highlight anything that isn’t working (overspending, for example).

The tree rather than the pyramid metaphor

Most organizations have an organizational chart that resembles a pyramid. Netflix, on the other hand, resembles a tree rather than a pyramid.

The CEO is at the root of the tree, nurturing it by providing context. He supports the senior managers, who in turn support the outer branches where decisions are made.

For example:

  • In October 2017, Reed Hastings told the company’s top executives that international growth was Netflix’s top priority and its biggest revenue driver.
  • Ted Sarandos, Netflix’s chief content officer, decided that, as a result, Netflix needed to “take big risks and learn a lot” in these international markets. He told his staff that Netflix needed to become an international learning machine.
  • Melissa Cobb, who reports to Ted Sarandos, decided that the only way to achieve this was for Netflix to provide quality material from around the world. For her, it’s a matter of [ bringing ice huts and mud huts to Bangkok.]
  • Dominique Bazay, who reports to Melissa Cobb, shared her thoughts on global content and decided to aim high for any preschool animation content she develops.
  • Aram Yacoubian, reporting to Dominique Bazay, was responsible for content acquisition in India.  He considered this idea when presented with a locally-produced program called Mighty Little Bheem. Aram bought the show for Netflix but also gave money to local creators to improve the animation. The show launched in April 2019, and within three weeks had become one of Netflix’s most-watched animated series. It now boasts 27 million views.

[Aram’s decision to buy Mighty Little Bheem is a clear example of how Netflix leads with context. Each leader, from myself at the root of the tree to Dominique at the middle branch, establishes a context that informs Aram’s decision. But it’s Aram himself, as an informed captain, who decides which shows to buy. At Netflix, there are many stories of lower-level employees making multi-million dollar financial decisions without the boss’s approval. Outsiders are often puzzled as to how this can work in a financially responsible organization. The answer is simple: it’s because of the alignment.] (Reed Hastings, No Rules Rules, Chapter 9)

Takeaway

  • [In order to lead with context, you need to have a high talent density, your goal needs to be innovation (not error prevention), and you need to operate in a loosely coupled system.
  • Once these elements are in place, instead of telling people what to do, line up in lockstep by providing and debating all the context that will enable them to make good decisions.
  • When one of your own does something stupid, don’t blame that person. Instead, ask yourself what context you failed to define. del Are you sufficiently coherent and inspiring when expressing your objectives and strategy? Have you clearly explained all the assumptions and risks that will help your team make the right decisions? Are you aligned with your employees on vision and objectives?
  • A loosely coupled organization should resemble a tree rather than a pyramid.  The boss is at the root, supporting the trunk of senior managers who support the outer branches where decisions are made.
  • You know you’re leading successfully with context when your employees move the team in the desired direction by using the information they’ve received from you and those around you to make excellent decisions themselves.] (No Rules Rules)
No Rules Rules by Reed Hastings & Erin Meyer

Section 4 – Going Global

Chapter 10 – Bring It All to the World!

Can a company with “no rules” expand internationally with ease?

Between 2011 and 2015, Netflix expanded by setting up shop in several countries at once. In 2016, the company made the decision to launch in 130 countries in one day! The big question was whether Netflix’s “no rules” corporate culture would work worldwide.

To accommodate international growth, Netflix drew up a corporate culture map based on seven dimensions and behaviors. This methodology was based on Erin Meyer’s book, The Culture Map.

Once Netflix had identified its own corporate culture, the company was able to compare it with the cultures of the countries in which it operated. This comparative map was then used as a guide to adapt Netflix’s corporate culture to local preferences.

For example, in some countries, employees are naturally predisposed to consulting guidelines or asking permission when making decisions, rather than using their own judgment. The cultural map highlighted this, which is why Netflix made sure to train local employees on how to proceed.

Once they got the hang of it, these employees generally liked the freedom it gave them, even if it went against their habits. These cultural maps helped Netflix anticipate and manage local adaptation issues as the company went global.

Challenges for the future

This is the first challenge: learning to adapt the culture of freedom and responsibility in other countries while taking cultural differences into account. Here’s Netflix CEO Reed Hastings’ conclusion.

[In the information age, in many companies, and within many teams, the goal is no longer error prevention and reproducibility. Instead, it’s creativity, speed, and agility. In the industrial age, the aim was to minimize variation. But today, in creative businesses, maximizing variation is more essential. In these situations, the greatest risk is not making a mistake or losing consistency; it’s failing to attract the best talent, invent new products, or change direction quickly when the environment changes. Consistency and repetitiveness are more likely to stifle new ideas than to bring benefits to your business.

Many small mistakes, though sometimes painful, help the organization to learn quickly and are an essential part of the innovation cycle. In these situations, rules and processes are no longer the best answer. A symphony is not what you’re looking for. Leave the conductor and sheet music behind. Create a jazz band instead. Jazz emphasizes individual spontaneity. When it all comes together, the music is beautiful.] (Reed Hastings and Erin Meyer, No Rules Rules, Chapter 10)

A symphony is not what you're looking for No Rules Rules by Reed Hastings & Erin Meyer

Conclusion to No Rules Rules – Netflix and the Culture of Reinvention byReed Hastings and Erin Meyer

A book that reveals Netflix’s corporate culture and recommends that you apply it to your own organization.

[Netflix is different. We have a culture where no rules prevail.] (Reed Hastings, No Rules Rules, Introduction)

This book will be of interest to all entrepreneurs looking for new management methods. The book’s presupposition is simple: it is by treating employees as adults, both free and responsible, that a company will reach new heights and constantly reinvent itself.

In other words, it’s all about communication, and doing everything possible to ensure that employees are aware of the company’s challenges. If they’re talented and intelligent, they’ll be keen to drive your business forward and encourage others to do the same.

What to take away from Reed Hastings and Erin Meyer’s No Rules Rules – Netflix and the Reinvention Culture of Reinvention

Here’s your plan of action, if you ever want to follow in Netflix’s footsteps and create a culture of freedom and responsibility for your own company.

First (Section 1):

  • Create an incubator of talent among your employees (Chapter 1).
  • Develop candor (Chapter 2).
  • Remove controls (vacations, travel, expenses – Chapters 3 a and b).

Don’t stop! Keep on doing exactly that (Section 2):

  • Constantly improve the level of talent in your teams (Chapter 4).
  • Maximize candor/sincerity (Chapter 5).
  • Eliminate remaining controls and introduce autonomy in decision-making (Chapter 6).

Go even further in this direction. Here are a few tools (Section 3):

  • The Keeper Test will help you achieve record levels of excellence Chapter 7).
  • 360-degree constructive feedback guarantees maximum candor/honesty (Chapter 8).
  • Contextual explanation, rather than control, will help you manage your teams (Chapter 9).

Feeling your wings grow? Step it up a gear and go global (Section 4):

  • By exporting your model, while taking into account the cultural differences of the countries in which you operate (Chapter 10).

Strengths and Weaknesses of No Rules Rules – Netflix and the Culture of Reinvention

 Strong points:

  • A well-written and distinctive book.
  • A behind-the-scenes look at the streaming service giant.
  • Advice on how to grow like Netflix and transform your corporate culture.

Weak point:

  • The book’s format, in which the two authors engage in dialogue, offering one quote after another, may come as a surprise at first. However, once you get used to it, it’s quite enjoyable.

My rating : Permanent Record by Edward Snowden Permanent Record by Edward Snowden Permanent Record by Edward SnowdenPermanent Record by Edward SnowdenPermanent Record by Edward SnowdenPermanent Record by Edward SnowdenPermanent Record by Edward SnowdenPermanent Record by Edward SnowdenPermanent Record by Edward Snowden

Have you read “No Rules Rules”? How do you rate it?

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Frequently Asked Questions (FAQs) concerning No Rules Rules

1. How has the general public received No Rules Rules?                 

Published on March 4, 2021, by Buchet Chastel, No Rules Rules has been widely acclaimed, with hundreds of thousands of copies sold worldwide

2. What has been the impact of No Rules Rules?                               

This book has had a huge impact on business leaders, enabling them to take inspiration from the Netflix boss to better manage their respective companies in order to achieve their goals.

3. Who is the target audience of No Rules Rules?

This highly practical and quirky book is aimed at business leaders, entrepreneurs, and anyone with plans to launch a new business.

4. What is the ‘Netflix cycle’ that is mentioned by the authors in this book?

  • Build talent density
  • Increase candor 
  • Remove controls
  • What do the authors say you should do if you want to take your business further?

According to Reed Hastings and Erin Meyer if you want to go further, you should again and again:

1. Make sure you pay your best employees very well.

2. Open up your books (especially your accounts).

3. Make sure no approvals are required.

Some tips for being an effective business leader vs Tips for being an ineffective business leader

Tips for being an effective business leaderTips for being an ineffective business leader
Create a dynamic workplaceCreate a stale workplace
Surround yourself with the best, most talented, and collaborative employeesSurround yourself with the worst, laziest, and most pessimistic employees.
Separate from lazy and pessimistic peopleSeparate from talented people
Set the stage for candor by creating feedback moments in regular meetingsDo not be sincere

Who is Reed Hastings?

Reed Hastings

Reed Hastings was born in Boston on October 8, 1960, and is co-founder and CEO of Netflix. Reed studied mathematics at Browdoin College. In October 1991, he founded Pure Software, a firm dedicated to making the operating system easier to use. He created Netflix in 1997 with the help of Marc Randolph.

Who is Erin Meyer?

Erin Meyer

An American national, Erin Meyer was born on August 22, 1971, and she grew up in Minnesota. Having spent most of her life between Europe and Africa, she has done exceptional work on intercultural management and global teamwork.

An internationally acclaimed author, she has written numerous books and taught intercultural management at the European Institute of Business Administration. Apart from the book No Rules Rules – Netflix and the Culture of Reinvention,” which she co-wrote with Reed Hastings, she is also the author of “The Culture Map.”

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