No Rules Rules
No Rules Rules: Netflix and the Culture of Reinvention by Reed Hastings
🚀 The Book in 3 Sentences
Creating an innovative culture requires a different set of procedures and policies that we need to wake up to.
Giving employees more freedom and responsibility is pivotal in increasing their accountability, increasing creative ideas and becoming fast-paced.
There are a set of ideas and principles that can be followed to create this.
🎨 Impressions
Straight away from the moving opening few pages, you begin to realise just how transformational, innovative and forward-thinking Netflix has been, and how this stems from their culture.
This book, although useful for business owners who want to create an innovative culture, lacks depth and variety. It almost focuses too much on the idea of culture instead of giving a more broader view of Netflix as a company and some of their unique practices outside the specifics relating to their culture ideas.
The layout and design of the book is interesting. It takes a unique approach with bullet points, diagrams and gives instructions in how to create a similar culture in your own organisation.
How I Discovered It
Having read the Netflix book, That Will Never Work, followed the Netflix story including the renowned Netflix Deck, this seemed like a perfect book to read.
Who Should Read It?
If you run a company and want an innovative, forward-thinking culture. If you are interested in the what makes the Netflix culture special.
✍️ My Top 3 Quotes
In a fast and innovative company, ownership of critical, big-ticket decisions should be dispersed across the workforce at all different levels, not allocated according to hierarchical status.
A fast and innovative workplace is made up of what we call “stunning colleagues”—highly talented people, of diverse backgrounds and perspectives, who are exceptionally creative, accomplish significant amounts of important work, and collaborate effectively.
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.
📒 Summary + Notes
The Key Elements:
Build up talent density
At most companies, policies and control processes are put in place to deal with employees who exhibit sloppy, unprofessional, irresponsible behaviour. But if you avoid or move out these people, you don’t need the rules. If you build an organisation made up of high performers, you can eliminate most controls. The denser the talent, the greater the freedom you can offer.
Increase candor
Talented employees have an enormous amount to learn from one another, But normal polite protocols prevent employees from providing necessary feedback to take performance to the next level. When talented staff members get into the feedback habits, they all get better at what they do and become accountable to one another.
Reduce controls
Start ripping up the employee handbook. As talent becomes denser, feedback more frequent and candid, you can remove approval processes throughout the organisation. Teach managers ‘lead with context, not control’ and coaching employees with guidelines like ‘don’t seek to please your boss’
1. First Build Up Talent Density: A Great Workplace Is Stunning Colleagues
Your number one goal as a leader is to develop a work environment consisting exclusively of stunning colleagues.
Stunning colleagues accomplish significant amounts of important work and are exceptionally creative and passionate.
Jerks, slackers, sweet people with non-stellar performance, or pessimists left on the team will bring down the performance of everyone.
2. Then Increase Candor: Say What You Really Think (with Positive Intent)
With candor, high performers become outstanding performers. Frequent candid feedback exponentially magnifies the speed and effectiveness of your team or workforce.
Set the stage for candor by building feedback moments into your regular meetings.
Coach your employees to give and receive feedback effectively, following the 4A guidelines (aim to assist; actionable; appreciate; accept or discard)
As the leader, solicit feedback frequently and respond with belonging cues when you receive it.
Get rid of jerks as you instill a culture of candor. With talent density and candor in place, you are ready to begin releasing controls and offering more workplace freedom.
3b. Now Begin Removing Controls: Remove Travel and Expense Approvals
When removing your vacation policy, explain that there is no need to ask for prior approval and that neither the employees themselves nor their managers are expected to keep track of their days away from the office.
It is left to the employee alone to decide if and when he or she feels like taking a few hours, a day, a week, or a month off work.
When you remove the vacation policy, it will leave a hole. What fills the hole is the context the boss provides for the team.
Copious discussions must take place, setting the scene for how employees should approach vacation decisions. The practices modeled by the boss will be critical to guide employees as to the appropriate behavior. An office with no vacation policy but a boss who never vacations will result in an office that never vacations.
3b. Remove Travel and Expense Approvals
When removing travel and expense policies, encourage managers to set context about how to spend money up front and to check employee receipts at the back end.
If people overspend, set more context. With no expense controls, you’ll need your finance department to audit a portion of receipts annually.
When you find people abusing the system, fire them and speak about the abuse openly—even when they are star performers in other ways. This is necessary so that others understand the ramifications of behaving irresponsibly.
Some expenses may increase with freedom. But the costs from overspending are not nearly as high as the gains that freedom provides.
With expense freedom, employees will be able to make quick decisions to spend money in ways that help the business.
Without the time and administrative costs associated with purchase orders and procurement processes, you will waste fewer resources.
Many employees will respond to their new freedom by spending less than they would in a system with rules. When you tell people you trust them, they will show you how trustworthy they are.
4. Fortify Talent Density: Pay Top of Personal Market
The methods used by most companies to compensate employees are not ideal for a creative, high-talent-density workforce.
Divide your workforce into creative and operational employees. Pay the creative workers top of market.
This may mean hiring one exceptional individual instead of ten or more adequate people. Don’t pay performance-based bonuses.
Put these resources into salary instead. Teach employees to develop their networks and to invest time in getting to know their own—and their teams’—market value on an ongoing basis. This might mean taking calls from recruiters or even going to interviews at other companies. Adjust salaries accordingly.
5. Pump Up Candor: Open the Books
To instigate a culture of transparency, consider what symbolic messages you send. 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 making decisions that will impact your employees’ well-being, like reorganisations or layoffs, open up to the workforce early, before things are solidified. This will cause some anxiety and distraction, but the trust you build will outweigh the disadvantages.
When transparency is in tension with an individual’s privacy, follow this guideline: If the information is about something that happened at work, choose transparency and speak candidly about the incident. If the information is about an employee’s personal life, tell people it’s not your place to share and they can ask the person concerned directly if they choose.
As long as you’ve already shown yourself to be competent, talking openly and extensively about your own mistakes—and encouraging all your leaders to do the same—will increase trust, goodwill, and innovation throughout the organisation.
6. Now Release More Controls: No Decision-Making Approvals Needed
In a fast and innovative company, ownership of critical, big-ticket decisions should be dispersed across the workforce at all different levels, not allocated according to hierarchical status.
In order for this to work the leader must teach her staff the Netflix principle, “Don’t seek to please your boss.” When new employees join the company, tell them they have a handful of metaphorical chips that they can make bets with.
Some gambles will succeed, and some will fail. A worker’s performance will be judged on the collective outcome of his bets, not on the results from one single instance.
To help your workforce make good bets, encourage them to farm for dissent, socialise the idea, and for big bets, test it out.
Teach your employees that when a bet fails, they should sunshine it openly.
7. Max Up Talent Density: The Keeper Test
In order to encourage your managers to be tough on performance, teach them to use the Keeper 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?”
Avoid stack-ranking systems, as they create internal competition and discourage collaboration. For a high-performance culture, a professional sports team is a better metaphor than a family. Coach your managers to create strong feelings of commitment, cohesion, and camaraderie on the team, while continually making tough decisions to ensure the best player is manning each post.
When you realise you need to let someone go, instead of putting him on some type of PIP, which is humiliating and organisationally costly, take all that money and give it to the employee 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 managers.
8. Max Up Candor: A Circle of Feedback
Candor is like going to the dentist. Even if you encourage everyone to brush daily, some won’t do it. Those who do may still miss the uncomfortable spots. A thorough session every six to twelve months ensures clean teeth and clear feedback.
Performance reviews are not the best mechanism for a candid work environment, primarily because the feedback usually goes only one way (down) and comes from only one person (the boss).
A 360 written report is a good mechanism for annual feedback. But avoid anonymity and numeric ratings, don’t link results to raises or promotions, and open up comments to anyone who is ready to give them.
Live 360 dinners are another effective process. Set aside several hours away from the office. Give clear instructions, follow the 4A feedback guidelines, and use the Start, Stop, Continue method with roughly 25 percent positive, 75 percent developmental—all actionable and no fluff.
9. Eliminate Most Controls: Lead with Context, Not Control
In order to lead with context, you need to have high talent density, your goal needs to be innovation (not error prevention), and you need to be operating in a loosely coupled system.
Once these elements are in place, instead of telling people what to do, get in lockstep alignment by providing and debating all the context that will allow them to make good decisions.
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?
A loosely coupled organisation should resemble a tree rather than a pyramid. The boss is at the roots, holding up the trunk of senior managers who support the outer branches where decisions are made.
You know you’re successfully leading with context when your people are moving the team in the desired direction by using the information they’ve received from you and those around you to make great decisions themselves.
10. Going Global: Bring It All to the World!
Map out your corporate culture and compare it to the cultures of the countries you are expanding into. For a culture of F&R, candor will need extra attention.
In less direct countries, implement more formal feedback mechanisms and put feedback on the agenda more frequently, because informal exchanges will happen less often.
With more direct cultures, talk about the cultural differences openly so the feedback is understood as intended.
Make Adaptability the fifth A of your candor model. Discuss openly what candor means in different parts of the world. Work together to discover how both sides can adapt to bring this value to life.
Conclusion:
The Industrial Revolution has powered most of the world’s successful economies for the past three hundred years. So it’s only natural that the management paradigms from high-volume, low-error manufacturing have come to dominate business organisational practices.
In a manufacturing environment, you are trying to eliminate variation, and most management approaches have been designed with this in mind. It really is a sign of excellence when a company manages to produce a million doses of penicillin or ten thousand identical automobiles with no errors. Perhaps that’s why, during the industrial era, many of the best companies operated like symphonic orchestras, with synchronicity, precision, and perfect coordination as the goal. Instead of a musical score and a conductor, it was processes and policies that guided their work.
Even today, if you are running a factory, managing a safety-critical environment, or you want the same thing produced identically with great reliability, a rules-and-process symphony is the way to go. Even at Netflix we have pockets of the company where safety and error prevention are our primary goals and there we fence off an area to build a little symphony orchestra that plays pitch-perfect rules-and-process.
In today’s information age, in many companies and on many teams, the objective is no longer error prevention and replicability. On the contrary, it’s creativity, speed, and agility. In the industrial era, the goal was to minimise variation. But in creative companies today, maximising variation is more essential. In these situations, the biggest risk isn’t making a mistake or losing consistency; it’s failing to attract top talent, to invent new products, or to change direction quickly when the environment shifts.
Consistency and repeatability are more likely to squash fresh thinking than to bring your company profit. A lot of little mistakes, while sometimes painful, help the organisation learn quickly and are a critical part of the innovation cycle. In these situations, rules and process are no longer the best answer. A symphony isn’t what you’re going for. Leave the conductor and the sheet music behind. Build a jazz band instead.
Jazz emphasises individual spontaneity. The musicians know the overall structure of the song but have the freedom to improvise, riffing off one another other, creating incredible music.
Of course, you can’t just remove the rules and processes, tell your team to be a jazz band, and expect it to be so. Without the right conditions, chaos will ensue. But now, after reading this book, you have a map. Once you begin to hear the music, keep focused. Culture isn’t something you can build up and then ignore.
At Netflix, we are constantly debating our culture and expecting it will continually evolve. 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.
