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This	is	an	archive	of	prior	version	
New	version	is	at:	
jobs.ne6lix.com/culture	
1
Ne6lix	Culture:	
Freedom	&	Responsibility		
	
2
We	Seek	Excellence	
Our	culture	focuses	on	helping	us	
achieve	excellence	
3
Seven	Aspects	of	our	Culture	
•  Values	are	what	we	Value	
•  High	Performance		
•  Freedom	&	Responsibility	
•  Context,	...
Many	companies	have	nice	
sounding	value	statements	
displayed	in	the	lobby,	such	as:	
	
5	
Integrity	
Communica/on	
Respe...
Enron,	whose	leaders	went	to	jail,		
and	which	went	bankrupt	from	fraud,		
had	these	values	displayed	in	their	lobby:	
Int...
The	actual	company	values,		
as	opposed	to	the		
nice-sounding	values,		
are	shown	by	who	gets		
rewarded,	promoted,	or	le...
Actual	company	values	are	the	
behaviors	and	skills	
that	are	valued		
in	fellow	employees	
8
At	Ne6lix,	we	parRcularly	value	the	
following	nine	behaviors	and	skills		
in	our	colleagues…	
…meaning	we	hire	and	promot...
You	make	wise	decisions	
(people,	technical,	business,	and	
creaRve)	despite	ambiguity		
	
You	idenRfy	root	causes,	and	ge...
11	
CommunicaRon	
You	listen	well,	instead	of	
reacRng	fast,	so	you	can	be`er	
understand		
	
You	are	concise	and	arRculat...
12	
Impact	
You	accomplish	amazing	
amounts	of	important	work		
	
You	demonstrate	consistently	
strong	performance	so	
col...
13	
Curiosity	
You	learn	rapidly	and	eagerly		
	
You	seek	to	understand	our	
strategy,	market,	customers,	
and	suppliers		...
14	
InnovaRon	
You	re-conceptualize	issues	to	
discover	pracRcal	soluRons	to	
hard	problems		
	
You	challenge	prevailing	
...
15	
Courage	
You	say	what	you	think	even	if	it	
is	controversial		
	
You	make	tough	decisions	
without	agonizing		
	
You	t...
16	
Passion	
You	inspire	others	with	your	
thirst	for	excellence		
	
You	care	intensely	about	
Ne6lix‘s	success		
	
You	ce...
17	
Honesty	
You	are	known	for	candor	and	
directness		
	
You	are	non-poliRcal	when	you	
disagree	with	others		
	
You	only...
18	
Selflessness	
You	seek	what	is	best	for	Ne6lix,	
rather	than	best	for	yourself	or	
your	group		
	
You	are	ego-less	when...
Seven	Aspects	of	our	Culture	
•  Values	are	what	we	Value	
•  High	Performance		
•  Freedom	&	Responsibility	
•  Context,	...
Imagine	if	every	person	at	Ne6lix		
is	someone	you		
respect	and	learn	from…	
20
Great	Workplace	is		
Stunning	Colleagues	
Great	workplace	is	not	espresso,	lush	benefits,	
sushi	lunches,	grand	parRes,	or	...
Like	every	company,		
we	try	to	hire	well	
22
Unlike	many	companies,		
we	pracRce:		
	
adequate	performance	gets	a	
generous	severance	package	
23
We’re	a	team,	not	a	family	
	
We’re	like	a	pro	sports	team,		
not	a	kid’s	recreaRonal	team	
	
Ne6lix	leaders	
hire,	develo...
The	Keeper	Test	Managers	Use:	
Which	of	my	people,		
if	they	told	me	they	were	leaving,	
for	a	similar	job	at	a	peer	compa...
The	Keeper	Test	Managers	Use:	
Which	of	my	people,		
if	they	told	me	they	were	leaving,	
for	a	similar	job	at	a	peer	compa...
Honesty	Always	
As	a	leader,	no	one	in	your	group	
should	be	materially	surprised	of	
your	views	
27
Honesty	Always	
Candor	is	not	just	a	leader’s	responsibility,	
and	you	should	periodically	ask	your	
manager:	“If	I	told	y...
All	of	Us	are	Responsible		
for	Ensuring	We	Live	our	Values	
“You	quesRon	acRons	inconsistent	with	our	
values”	is	part	of...
Pro	Sports	Team	Metaphor	is	
Good,	but	Imperfect	
AthleRc	teams	have	a	fixed	number	of	
posiRons,	so	team	members	are	alway...
Corporate	Team	
The	more	talent	we	have,		
the	more	we	can	accomplish,		
so	our	people	assist	each	other	all	the	Rme	
	
In...
We	Help	Each	Other		
To	Be	Great	
32
Isn’t	Loyalty	Good?			
What	about	Hard	Workers?	
What	about	Brilliant	Jerks?			
33
Loyalty	is	Good	
•  Loyalty	is	good	as	a	stabilizer	
•  People	who	have	been	stars	for	us,	and	hit	a	bad	
patch,	get	a	nea...
Hard	Work	–	Not	Relevant	
•  We	don’t	measure	people	by	how	many	hours	
they	work	or	how	much	they	are	in	the	office	
•  We	...
Brilliant	Jerks	
•  Some	companies	tolerate	them	
•  For	us,	cost	to	effecRve	teamwork	is	too	high	
•  Diverse	styles	are	fi...
Why	are	we	so	insistent	on		
high	performance?	
In	procedural	work,	the	best	are	2x		
be`er	than	the	average.	
In	creaRve/...
Why	are	we	so	insistent	on		
high	performance?	
Great	Workplace	is		
Stunning	Colleagues	
38
Our	High	Performance	Culture		
Not	Right	for	Everyone	
•  Many	people	love	our	culture,	and	stay	a	long	Rme	
–  They	thriv...
Seven	Aspects	of	our	Culture	
•  Values	are	what	we	Value	
•  High	Performance		
•  Freedom	&	Responsibility	
•  Context,	...
The	Rare	Responsible	Person	
•  Self	moRvaRng	
•  Self	aware	
•  Self	disciplined	
•  Self	improving	
•  Acts	like	a	leade...
Responsible	People		
Thrive	on	Freedom,		
and	are	Worthy	of	Freedom	
42
Our	model	is	to	increase		
employee	freedom	as	we	grow,	
rather	than	limit	it,		
to	conRnue	to	a`ract	and	nourish	
innovaR...
Most	Companies		
	Curtail	Freedom	as	they	get	Bigger	
Bigger	
Employee	Freedom	
44
Why	Do	Most	Companies		
Curtail	Freedom		
and	Become	BureaucraRc		
as	they	Grow?	
45
Desire	for	Bigger	PosiRve	Impact		
Creates	Growth	
Growth	
46
Growth	Increases	Complexity	
Complexity	
47
Growth	Also	Osen	Shrinks	Talent	Density	
%	High	Performance	Employees	
Complexity	
48
Chaos	Emerges	
%	High	Performance	Employees	
Chaos	and	errors	spike	here	–	business	
has	become	too	complex	to	run	
inform...
Process	Emerges	to	Stop	the	Chaos	
Procedures	
No	one	loves	process,	but	
feels	good	compared	to	the	
pain	of	chaos	
	
“Ti...
Process-focus	Drives	More	Talent	Out	
%	High	Performance	Employees	
51
Process	Brings	SeducRvely	Strong		
Near-Term	Outcome	
•  A	highly-successful	process-driven	company	
–  With	leading	share...
Then	the	Market	Shiss…	
•  Market	shiss	due	to	new	technology	or	
compeRtors	or	business	models	
•  Company	is	unable	to	a...
Seems	Like	Three	Bad	OpRons	
1.  Stay	creaRve	by	staying	small,	but	therefore	
have	less	impact	
2.  Avoid	rules	as	you	gr...
A	Fourth	OpRon	
•  Avoid	Chaos	as	you	grow	with	Ever	More	High	
Performance	People	–	not	with	Rules	
– Then	you	can	conRnu...
The	Key:		Increase	Talent	Density	
faster	than	Complexity	Grows	
Business	Complexity	
56
Increase	Talent	Density	
•  Top	of	market	compensaRon	
•  A`ract	high-value	people	through	
freedom	to	make	big	impact	
• ...
Minimize	Complexity	Growth	
Business	Complexity	
•  Few	big	products	vs	many	small	ones	
•  Eliminate	distracRng	complexit...
With	the	Right	People,		
	
	Instead	of	a		
Culture	of	Process	Adherence,		
	
We	have	a	Culture	of		
CreaRvity	and	Self-Dis...
Is	Freedom	Absolute?	
Are	all	rules	&	processes	bad?	
60
Freedom	is	not	absolute	
	
Like	“free	speech”		
there	are	some	
limited	excepRons	to		
“freedom	at	work”	
61
Two	Types	of	Necessary	Rules	
1.  Prevent	irrevocable	disaster	
–  Financials	produced	are	wrong	
–  Hackers	steal	our	cus...
Mostly,	though,	Rapid	Recovery	is		
the	Right	Model	
•  Just	fix	problems	quickly	
– High	performers	make	very	few	errors	
...
“Good”	versus	“Bad”	Process	
•  “Good”	process	helps	talented	people	get	more	done	
–  Lerng	others	know	when	you	are	upda...
Rule	Creep	
•  “Bad”	processes	tend	to	creep	in	
– PrevenRng	errors	just	sounds	so	good	
•  We	try	to	get	rid	of	rules	whe...
Example:	Ne6lix	VacaRon	Policy		
and	Tracking	
UnRl	2004	we	had	the	standard	
model	of	N	days	per	year	
66
Meanwhile…	
We’re	all	working	online	some	nights	and	
weekends,	responding	to	emails	at	odd	
hours,	spending	some	asernoon...
An	employee	pointed	out…	
We	don’t	track	hours	worked	per	day	
or	per	week,	so	why	are	we	tracking	
days	of	vacaRon	per	ye...
We	realized…	
We	should	focus	on	what	people	get	done,	
not	on	how	many	days	worked			
	
Just	as	we	don’t	have	an	9am-5pm	...
Ne6lix	VacaRon	Policy		
and	Tracking	
“there	is	no	policy	or	tracking”	
70
Ne6lix	VacaRon	Policy		
and	Tracking	
“there	is	no	policy	or	tracking”	
	
There	is	also	no	clothing	policy	at	Ne6lix,		
bu...
No	VacaRon	Policy	Doesn’t	Mean		
No	VacaRon	
Ne6lix	leaders	set	good	examples	by	
taking	big	vacaRons	–	and	coming	
back	i...
Another	Example	of	Freedom	
and	Responsibility…	
73
Most	companies	have	complex	
policies	around	what	you	can	
expense,	how	you	travel,	what	giss	
you	can	accept,	etc.		
	
Pl...
Ne6lix	Policies		
for	Expensing,	Entertainment,		
Giss	&	Travel:	
“Act	in	NeHlix’s	Best	Interest”	
	
(5	words	long)	
75
“Act	in	Ne6lix’s	Best	Interest”		
Generally	Means…	
1.  Expense	only	what	you	would	otherwise	not	
spend,	and	is	worthwhil...
Freedom	and	Responsibility	
•  Many	people	say	one	can’t	do	it	at	scale	
•  But	since	going	public	in	2002,	which	is	
trad...
Summary	of		
Freedom	&	Responsibility:	
	
As	We	Grow,	Minimize	Rules	
		
Inhibit	Chaos	with	Ever	More		
High	Performance	P...
Seven	Aspects	of	our	Culture	
•  Values	are	what	we	Value	
•  High	Performance		
•  Freedom	&	Responsibility	
•  Context,	...
If	you	want	to	build	a	ship,		
don't	drum	up	the	people		
to	gather	wood,	divide	the		
work,	and	give	orders.			
Instead,	...
The	best	managers	figure	out	how	
to	get	great	outcomes	by	serng	the	
appropriate	context,	rather	than	by	
trying	to	contro...
Context,	not	Control	
Context	(embrace)	
•  Strategy	
•  Metrics	
•  AssumpRons	
•  ObjecRves	
•  Clearly-defined	roles		
•...
Good	Context	
•  Link	to	company/funcRonal	goals	
•  RelaRve	priority	(how	important/how	Rme	sensiRve)	
–  CriRcal	(needs	...
Managers:	When	one	of	your	
talented	people	
does	something	dumb,	
don’t	blame	them	
	
Instead,		
ask	yourself	what	contex...
Managers:	When	you	are	tempted	
to	“control”	your	people,	ask	
yourself	what	context	you	could	set	
instead		
Are	you	arRc...
Why	Managing	Through	
Context?	
High	performance	people	will	do	
be`er	work	if	they	understand	the	
context	
86
InvesRng	in	Context	
This	is	why	we	do	new	employee	
college,	frequent	department	meeRngs,	
and	why	we	are	so	open	interna...
ExcepRons	to	“Context,	not	Control”	
•  Control	can	be	important	in	emergency		
– No	Rme	to	take	long-term	capacity-buildi...
Seven	Aspects	of	our	Culture	
•  Values	are	what	we	Value	
•  High	Performance		
•  Freedom	&	Responsibility	
•  Context,	...
Three	Models	of	Corporate	Teamwork	
1.  Tightly	Coupled	Monolith	
2.  Independent	Silos	
3.  Highly	Aligned,	Loosely	Coupl...
Tightly	Coupled	Monolith	
•  Senior	management	reviews	nearly	all	tacRcs	
– e.g.,	CEO	reviews	all	job	offers	or	adverRsing	...
Independent	Silos	
•  Each	group	executes	on	their	objecRves	with	
li`le	coordinaRon	
– Everyone	does	their	own	thing	
•  ...
#3	is	the	Ne6lix	Choice	
1.  Tightly	Coupled	Monolith	
2.  Independent	Silos	
3.  Highly	Aligned,	Loosely	Coupled	
93
Highly	Aligned,	Loosely	Coupled	
•  Highly	Aligned	
–  Strategy	and	goals	are	clear,	specific,	broadly	understood	
–  Team	...
Highly	Aligned,	Loosely	Coupled	
teamwork	effecRveness		
depends	on		
high	performance	people		
and	good	context	
	
Goal	is...
Seven	Aspects	of	our	Culture	
•  Values	are	what	we	Value	
•  High	Performance		
•  Freedom	&	Responsibility	
•  Context,	...
Pay	Top	of	Market		
is	Core	to	
High	Performance	Culture	
One	outstanding	employee	gets	more	done	
and	costs	less	than	two...
Three	Tests	for	Top	of	Market		
for	a	Person	
1.  What	could	person	get	elsewhere?	
2.  What	would	we	pay	for	replacement?...
Takes	Great	Judgment	
•  Goal	is	to	keep	each	employee	at	top	of	
market	for	that	person		
– Pay	them	more	than	anyone	els...
Titles	Not	Very	Helpful	
•  Lots	of	people	have	the	Rtle	“Major	League	
Pitcher”	but	they	are	not	all	equally	effecRve	
•  ...
Annual	Comp	Review	
•  At	many	firms,	when	employees	are	hired,	
market	compensaRon	applies	
•  But	at	comp	review	Rme,	it	...
No	Fixed	Budgets	
•  There	are	no	centrally	administered	“raise	
pools”	each	year	
•  Instead,	each	manager	aligns	their	p...
CompensaRon	Over	Time	
•  Some	people	will	move	up	in	comp	very	
quickly	because	their	value	in	the	marketplace	
is	moving...
CompensaRon	Not	Dependent		
on	Ne6lix	Success	
•  Whether	Ne6lix	is	prospering	or	floundering,	
we	pay	at	the	top	of	the	ma...
Bad	Comp	PracRces	
•  Manager	sets	pay	at	Nth	percenRle	of	Rtle-
linked	compensaRon	data	
– The	“Major	League	Pitcher”	pro...
When	Top	of	Market	Comp		
Done	Right...	
•  We	will	rarely	counter	with	higher	comp	when	
someone	is	voluntarily	leaving	b...
Versus	TradiRonal	Model	
•  TradiRonal	model	is	good	prior	year	earns	a	
raise,	independent	of	market	
– Problem	is	employ...
Employee	Success	
•  It’s	pre`y	ingrained	in	our	society	that	the	size	
of	one’s	raise	is	the	indicator	of	how	well	one	
d...
Good	For	Each	Employee	to	
Understand	Their	Market	Value	
•  It’s	a	healthy	idea,	not	a	traitorous	one,	to	
understand	wha...
Efficiency	
•  Big	salary	is	the	most	efficient	form	of	comp		
– Most	moRvaRng	for	any	given	expense	level	
– No	bonuses	
– In...
No	VesRng	or	Deferred	Comp	
•  We	don’t	want	managers	to	“own”	their	people	
with	vesRng	–	all	comp	is	fully	vested	
•  We...
No	Ranking	Against	Other	Employees	
•  We	avoid	“top	30%”	and	“bo`om	10%”	
rankings	amongst	employees	
•  We	don’t	want	em...
Seven	Aspects	of	our	Culture	
•  High	Performance		
•  Values	are	what	we	Value	
•  Freedom	&	Responsibility	
•  Context,	...
In	some	Rme	periods,	in	some	
groups,	there	will	be	lots	of	
opportunity	and	growth	at	Ne6lix	
Some	people,	through	both	l...
Baseball	Analogy:	Minors	to	Majors	
•  Very	talented	people	usually	get	to	move	up,	but	
only	true	for	the	very	talented	
...
Ne6lix	Doesn’t	Have	to	Be	for	Life	
•  In	some	Rmes,	in	some	groups,	there	may	not	
be	enough	growth	opportunity	for	every...
Three	Necessary	CondiRons		
for	PromoRon	
1.  Job	has	to	be	big	enough	
–  We	might	have	an	incredible	manager	of	somethin...
Timing	
•  If	a	manager	would	promote	to	prevent	an	
employee	from	leaving,	the	manager	should	
promote	now	instead	of	wai...
Development	
•  We	develop	people	by	giving	them	the	
opportunity	to	develop	themselves,	by	
surrounding	them	with	stunnin...
Career	“Planning”	Not	for	Us	
•  Formalized	development	is	rarely	effecRve,	
and	we	don’t	try	to	do	it	
– e.g.,	Mentor	assi...
We	Support	Self-Improvement	
•  High	performance	people	are	generally	self-
improving	through	experience,	observaRon,	
int...
We	want	people	to	manage		
their	own	career	growth,		
and	not	rely	on	a	corporaRon		
for	“planning”	their	careers	
122
Your	Economic	Security	is	based	
on	your	Skills	and	ReputaRon	
We	try	hard	to	consistently	provide	
opportunity	to	grow	bo...
Seven	Aspects	of	our	Culture	
•  Values	are	what	we	Value	
•  High	Performance		
•  Freedom	&	Responsibility	
•  Context,	...
We	keep	improving	
our	culture	as	we	grow	
	
We	try	to	get	be`er	
at	seeking	excellence	
125
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Netflix culture deck

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I often refer to The Netflix Culture Deck in presentations to companies when I speak about alignment and line of sight between departmental or branch goal with the overall wildly important strategic goals, mission, vision, and values.

Published in: Business
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Netflix culture deck

  1. 1. This is an archive of prior version New version is at: jobs.ne6lix.com/culture 1
  2. 2. Ne6lix Culture: Freedom & Responsibility 2
  3. 3. We Seek Excellence Our culture focuses on helping us achieve excellence 3
  4. 4. Seven Aspects of our Culture •  Values are what we Value •  High Performance •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 4
  5. 5. Many companies have nice sounding value statements displayed in the lobby, such as: 5 Integrity Communica/on Respect Excellence
  6. 6. Enron, whose leaders went to jail, and which went bankrupt from fraud, had these values displayed in their lobby: Integrity Communica/on Respect Excellence 6 (These values were not, however, what was really valued at Enron)
  7. 7. The actual company values, as opposed to the nice-sounding values, are shown by who gets rewarded, promoted, or let go 7
  8. 8. Actual company values are the behaviors and skills that are valued in fellow employees 8
  9. 9. At Ne6lix, we parRcularly value the following nine behaviors and skills in our colleagues… …meaning we hire and promote people who demonstrate these nine 9
  10. 10. You make wise decisions (people, technical, business, and creaRve) despite ambiguity You idenRfy root causes, and get beyond treaRng symptoms You think strategically, and can arRculate what you are, and are not, trying to do You smartly separate what must be done well now, and what can be improved later 10 Judgment
  11. 11. 11 CommunicaRon You listen well, instead of reacRng fast, so you can be`er understand You are concise and arRculate in speech and wriRng You treat people with respect independent of their status or disagreement with you You maintain calm poise in stressful situaRons
  12. 12. 12 Impact You accomplish amazing amounts of important work You demonstrate consistently strong performance so colleagues can rely upon you You focus on great results rather than on process You exhibit bias-to-acRon, and avoid analysis-paralysis
  13. 13. 13 Curiosity You learn rapidly and eagerly You seek to understand our strategy, market, customers, and suppliers You are broadly knowledgeable about business, technology and entertainment You contribute effecRvely outside of your specialty
  14. 14. 14 InnovaRon You re-conceptualize issues to discover pracRcal soluRons to hard problems You challenge prevailing assumpRons when warranted, and suggest be`er approaches You create new ideas that prove useful You keep us nimble by minimizing complexity and finding Rme to simplify
  15. 15. 15 Courage You say what you think even if it is controversial You make tough decisions without agonizing You take smart risks You quesRon acRons inconsistent with our values
  16. 16. 16 Passion You inspire others with your thirst for excellence You care intensely about Ne6lix‘s success You celebrate wins You are tenacious
  17. 17. 17 Honesty You are known for candor and directness You are non-poliRcal when you disagree with others You only say things about fellow employees you will say to their face You are quick to admit mistakes
  18. 18. 18 Selflessness You seek what is best for Ne6lix, rather than best for yourself or your group You are ego-less when searching for the best ideas You make Rme to help colleagues You share informaRon openly and proacRvely
  19. 19. Seven Aspects of our Culture •  Values are what we Value •  High Performance •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 19
  20. 20. Imagine if every person at Ne6lix is someone you respect and learn from… 20
  21. 21. Great Workplace is Stunning Colleagues Great workplace is not espresso, lush benefits, sushi lunches, grand parRes, or nice offices We do some of these things, but only if they are efficient at a`racRng and retaining stunning colleagues 21
  22. 22. Like every company, we try to hire well 22
  23. 23. Unlike many companies, we pracRce: adequate performance gets a generous severance package 23
  24. 24. We’re a team, not a family We’re like a pro sports team, not a kid’s recreaRonal team Ne6lix leaders hire, develop and cut smartly, so we have stars in every posiRon 24
  25. 25. The Keeper Test Managers Use: Which of my people, if they told me they were leaving, for a similar job at a peer company, would I fight hard to keep at Ne6lix? 25
  26. 26. The Keeper Test Managers Use: Which of my people, if they told me they were leaving, for a similar job at a peer company, would I fight hard to keep at Ne6lix? 26 The other people should get a generous severance now, so we can open a slot to try to find a star for that role
  27. 27. Honesty Always As a leader, no one in your group should be materially surprised of your views 27
  28. 28. Honesty Always Candor is not just a leader’s responsibility, and you should periodically ask your manager: “If I told you I were leaving, how hard would you work to change my mind?” 28
  29. 29. All of Us are Responsible for Ensuring We Live our Values “You quesRon acRons inconsistent with our values” is part of the Courage value Akin to the honor code pledge: “I will not lie, nor cheat, nor steal, nor tolerate those who do” 29
  30. 30. Pro Sports Team Metaphor is Good, but Imperfect AthleRc teams have a fixed number of posiRons, so team members are always compeRng with each other for one of the precious slots 30
  31. 31. Corporate Team The more talent we have, the more we can accomplish, so our people assist each other all the Rme Internal “cu`hroat” or “sink or swim” behavior is rare and not tolerated 31
  32. 32. We Help Each Other To Be Great 32
  33. 33. Isn’t Loyalty Good? What about Hard Workers? What about Brilliant Jerks? 33
  34. 34. Loyalty is Good •  Loyalty is good as a stabilizer •  People who have been stars for us, and hit a bad patch, get a near term pass because we think they are likely to become stars for us again •  We want the same: if Ne6lix hits a temporary bad patch, we want people to sRck with us •  But unlimited loyalty to a shrinking firm, or to an ineffecRve employee, is not what we are about 34
  35. 35. Hard Work – Not Relevant •  We don’t measure people by how many hours they work or how much they are in the office •  We do care about accomplishing great work •  Sustained B-level performance, despite “A for effort”, generates a generous severance package, with respect •  Sustained A-level performance, despite minimal effort, is rewarded with more responsibility and great pay 35
  36. 36. Brilliant Jerks •  Some companies tolerate them •  For us, cost to effecRve teamwork is too high •  Diverse styles are fine – as long as person embodies the 9 values 36
  37. 37. Why are we so insistent on high performance? In procedural work, the best are 2x be`er than the average. In creaRve/invenRve work, the best are 10x be`er than the average, so huge premium on creaRng effecRve teams of the best 37
  38. 38. Why are we so insistent on high performance? Great Workplace is Stunning Colleagues 38
  39. 39. Our High Performance Culture Not Right for Everyone •  Many people love our culture, and stay a long Rme –  They thrive on excellence and candor and change –  They would be disappointed if given a severance package, but lots of mutual warmth and respect •  Some people, however, value job security and stability over performance, and don’t like our culture –  They feel fearful at Ne6lix –  They are someRmes bi`er if let go, and feel that we are poliRcal place to work •  We’re gerng be`er at a`racRng only the former, and helping the la`er realize we are not right for them 39
  40. 40. Seven Aspects of our Culture •  Values are what we Value •  High Performance •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 40
  41. 41. The Rare Responsible Person •  Self moRvaRng •  Self aware •  Self disciplined •  Self improving •  Acts like a leader •  Doesn’t wait to be told what to do •  Picks up the trash lying on the floor 41
  42. 42. Responsible People Thrive on Freedom, and are Worthy of Freedom 42
  43. 43. Our model is to increase employee freedom as we grow, rather than limit it, to conRnue to a`ract and nourish innovaRve people, so we have be`er chance of sustained success 43
  44. 44. Most Companies Curtail Freedom as they get Bigger Bigger Employee Freedom 44
  45. 45. Why Do Most Companies Curtail Freedom and Become BureaucraRc as they Grow? 45
  46. 46. Desire for Bigger PosiRve Impact Creates Growth Growth 46
  47. 47. Growth Increases Complexity Complexity 47
  48. 48. Growth Also Osen Shrinks Talent Density % High Performance Employees Complexity 48
  49. 49. Chaos Emerges % High Performance Employees Chaos and errors spike here – business has become too complex to run informally with this talent level Complexity 49
  50. 50. Process Emerges to Stop the Chaos Procedures No one loves process, but feels good compared to the pain of chaos “Time to grow up” becomes the professional management’s mantra 50
  51. 51. Process-focus Drives More Talent Out % High Performance Employees 51
  52. 52. Process Brings SeducRvely Strong Near-Term Outcome •  A highly-successful process-driven company –  With leading share in its market –  Minimal thinking required –  Few mistakes made – very efficient –  Few curious innovator-mavericks remain –  Very opRmized processes for its exisRng market –  Efficiency has trumped flexibility 52
  53. 53. Then the Market Shiss… •  Market shiss due to new technology or compeRtors or business models •  Company is unable to adapt quickly – because the employees are extremely good at following the exisRng processes, and process adherence is the value system •  Company generally grinds painfully into irrelevance 53
  54. 54. Seems Like Three Bad OpRons 1.  Stay creaRve by staying small, but therefore have less impact 2.  Avoid rules as you grow, and suffer chaos 3.  Use process as you grow to drive efficient execuRon of current model, but cripple creaRvity, flexibility, and ability to thrive when your market eventually changes 54
  55. 55. A Fourth OpRon •  Avoid Chaos as you grow with Ever More High Performance People – not with Rules – Then you can conRnue to mostly run informally with self-discipline, and avoid chaos – The run informally part is what enables and a`racts creaRvity 55
  56. 56. The Key: Increase Talent Density faster than Complexity Grows Business Complexity 56
  57. 57. Increase Talent Density •  Top of market compensaRon •  A`ract high-value people through freedom to make big impact •  Be demanding about high performance culture 57
  58. 58. Minimize Complexity Growth Business Complexity •  Few big products vs many small ones •  Eliminate distracRng complexity (barnacles) •  Be wary of efficiency opRmizaRons that increase complexity and rigidity 58 Note: someRmes long-term simplicity is achieved only through bursts of complexity to rework current systems
  59. 59. With the Right People, Instead of a Culture of Process Adherence, We have a Culture of CreaRvity and Self-Discipline, Freedom and Responsibility 59
  60. 60. Is Freedom Absolute? Are all rules & processes bad? 60
  61. 61. Freedom is not absolute Like “free speech” there are some limited excepRons to “freedom at work” 61
  62. 62. Two Types of Necessary Rules 1.  Prevent irrevocable disaster –  Financials produced are wrong –  Hackers steal our customers’ credit card info 2.  Moral, ethical, legal issues –  Dishonesty, harassment are intolerable 62
  63. 63. Mostly, though, Rapid Recovery is the Right Model •  Just fix problems quickly – High performers make very few errors •  We’re in a creaRve-invenRve market, not a safety-criRcal market like medicine or nuclear power •  You may have heard prevenRng error is cheaper than fixing it – Yes, in manufacturing or medicine, but… – Not so in crea/ve environments 63
  64. 64. “Good” versus “Bad” Process •  “Good” process helps talented people get more done –  Lerng others know when you are updaRng code –  Spend within budget each quarter so don’t have to coordinate every spending decision across departments –  Regularly scheduled strategy and context meeRngs •  “Bad” process tries to prevent recoverable mistakes –  Get pre-approvals for $5k spending –  3 people to sign off on banner ad creaRve –  Permission needed to hang a poster on a wall –  MulR-level approval process for projects –  Get 10 people to interview each candidate 64
  65. 65. Rule Creep •  “Bad” processes tend to creep in – PrevenRng errors just sounds so good •  We try to get rid of rules when we can, to reinforce the point 65
  66. 66. Example: Ne6lix VacaRon Policy and Tracking UnRl 2004 we had the standard model of N days per year 66
  67. 67. Meanwhile… We’re all working online some nights and weekends, responding to emails at odd hours, spending some asernoons on personal Rme, and taking good vacaRons 67
  68. 68. An employee pointed out… We don’t track hours worked per day or per week, so why are we tracking days of vacaRon per year? 68
  69. 69. We realized… We should focus on what people get done, not on how many days worked Just as we don’t have an 9am-5pm workday policy, we don’t need a vacaRon policy 69
  70. 70. Ne6lix VacaRon Policy and Tracking “there is no policy or tracking” 70
  71. 71. Ne6lix VacaRon Policy and Tracking “there is no policy or tracking” There is also no clothing policy at Ne6lix, but no one comes to work naked Lesson: you don’t need policies for everything 71
  72. 72. No VacaRon Policy Doesn’t Mean No VacaRon Ne6lix leaders set good examples by taking big vacaRons – and coming back inspired to find big ideas 72
  73. 73. Another Example of Freedom and Responsibility… 73
  74. 74. Most companies have complex policies around what you can expense, how you travel, what giss you can accept, etc. Plus they have whole departments to verify compliance with these policies 74
  75. 75. Ne6lix Policies for Expensing, Entertainment, Giss & Travel: “Act in NeHlix’s Best Interest” (5 words long) 75
  76. 76. “Act in Ne6lix’s Best Interest” Generally Means… 1.  Expense only what you would otherwise not spend, and is worthwhile for work 2.  Travel as you would if it were your own money 3.  Disclose non-trivial vendor giss 4.  Take from Ne6lix only when it is inefficient to not take, and inconsequenRal –  “taking” means, for example, prinRng personal documents at work or making personal calls on work phone: inconsequenRal and inefficient to avoid 76
  77. 77. Freedom and Responsibility •  Many people say one can’t do it at scale •  But since going public in 2002, which is tradiRonally the end of freedom, we’ve substanRally increased talent density and employee freedom 77
  78. 78. Summary of Freedom & Responsibility: As We Grow, Minimize Rules Inhibit Chaos with Ever More High Performance People Flexibility is More Important than Efficiency in the Long Term 78
  79. 79. Seven Aspects of our Culture •  Values are what we Value •  High Performance •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 79
  80. 80. If you want to build a ship, don't drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea. -Antoine De Saint-Exupery, Author of The Li`le Prince 80
  81. 81. The best managers figure out how to get great outcomes by serng the appropriate context, rather than by trying to control their people 81
  82. 82. Context, not Control Context (embrace) •  Strategy •  Metrics •  AssumpRons •  ObjecRves •  Clearly-defined roles •  Knowledge of the stakes •  Transparency around decision-making Control (avoid) •  Top-down decision-making •  Management approval •  Commi`ees •  Planning and process valued more than results Provide the insight and understanding to enable sound decisions 82
  83. 83. Good Context •  Link to company/funcRonal goals •  RelaRve priority (how important/how Rme sensiRve) –  CriRcal (needs to happen now), or… –  Nice to have (when you can get to it) •  Level of precision & refinement –  No errors (credit cards handling, etc…), or… –  Pre`y good / can correct errors (website), or… –  Rough (experimental) •  Key stakeholders •  Key metrics / definiRon of success 83
  84. 84. Managers: When one of your talented people does something dumb, don’t blame them Instead, ask yourself what context you failed to set 84
  85. 85. Managers: When you are tempted to “control” your people, ask yourself what context you could set instead Are you arRculate and inspiring enough about goals and strategies? 85
  86. 86. Why Managing Through Context? High performance people will do be`er work if they understand the context 86
  87. 87. InvesRng in Context This is why we do new employee college, frequent department meeRngs, and why we are so open internally about strategies and results 87
  88. 88. ExcepRons to “Context, not Control” •  Control can be important in emergency – No Rme to take long-term capacity-building view •  Control can be important when someone is sRll learning their area – Takes Rme to pick up the necessary context •  Control can be important when you have the wrong person in a role – Temporarily, no doubt 88
  89. 89. Seven Aspects of our Culture •  Values are what we Value •  High Performance •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 89
  90. 90. Three Models of Corporate Teamwork 1.  Tightly Coupled Monolith 2.  Independent Silos 3.  Highly Aligned, Loosely Coupled 90
  91. 91. Tightly Coupled Monolith •  Senior management reviews nearly all tacRcs – e.g., CEO reviews all job offers or adverRsing •  Lots of x-departmental buy-in meeRngs •  Keeping other internal groups happy has equal precedence with pleasing customers •  Mavericks get exhausted trying to innovate •  Highly coordinated through centralizaRon, but very slow, and slowness increases with size 91
  92. 92. Independent Silos •  Each group executes on their objecRves with li`le coordinaRon – Everyone does their own thing •  Work that requires coordinaRon suffers •  AlienaRon and suspicion between departments •  Only works well when areas are independent – e.g., aircras engines and blenders for GE 92
  93. 93. #3 is the Ne6lix Choice 1.  Tightly Coupled Monolith 2.  Independent Silos 3.  Highly Aligned, Loosely Coupled 93
  94. 94. Highly Aligned, Loosely Coupled •  Highly Aligned –  Strategy and goals are clear, specific, broadly understood –  Team interacRons focused on strategy and goals, rather than tacRcs –  Requires large investment in management Rme to be transparent and arRculate and percepRve •  Loosely Coupled –  Minimal cross-funcRonal meeRngs except to get aligned on goals and strategy –  Trust between groups on tacRcs without previewing/approving each one – so groups can move fast –  Leaders reaching out proacRvely for ad-hoc coordinaRon and perspecRve as appropriate –  Occasional post-mortems on tacRcs necessary to increase alignment 94
  95. 95. Highly Aligned, Loosely Coupled teamwork effecRveness depends on high performance people and good context Goal is to be Big and Fast and Flexible 95
  96. 96. Seven Aspects of our Culture •  Values are what we Value •  High Performance •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 96
  97. 97. Pay Top of Market is Core to High Performance Culture One outstanding employee gets more done and costs less than two adequate employees We endeavor to have only outstanding employees 97
  98. 98. Three Tests for Top of Market for a Person 1.  What could person get elsewhere? 2.  What would we pay for replacement? 3.  What would we pay to keep that person? –  If they had a bigger offer elsewhere 98 ConfidenRal
  99. 99. Takes Great Judgment •  Goal is to keep each employee at top of market for that person – Pay them more than anyone else likely would – Pay them as much as a replacement would cost – Pay them as much as we would pay to keep them if they had higher offer from elsewhere 99
  100. 100. Titles Not Very Helpful •  Lots of people have the Rtle “Major League Pitcher” but they are not all equally effecRve •  Similarly, all people with the Rtle “Senior MarkeRng Manager” or “Director of Engineering” are not equally effecRve •  So the art of compensaRon is answering the Three Tests for each employee 100
  101. 101. Annual Comp Review •  At many firms, when employees are hired, market compensaRon applies •  But at comp review Rme, it no longer applies! •  At Ne6lix, market comp always applies: – EssenRally, top of market comp is re-established each year for high performing employees – At annual comp review, manager has to answer the Three Tests for the personal market for each of their employees 101 ConfidenRal
  102. 102. No Fixed Budgets •  There are no centrally administered “raise pools” each year •  Instead, each manager aligns their people to top of market each year – the market will be different in different areas 102
  103. 103. CompensaRon Over Time •  Some people will move up in comp very quickly because their value in the marketplace is moving up quickly, driven by increasing skills and/or great demand for their area •  Some people will stay flat because their value in the marketplace has done that – Depends in part on inflaRon and economy – Always top of market, though, for that person 103
  104. 104. CompensaRon Not Dependent on Ne6lix Success •  Whether Ne6lix is prospering or floundering, we pay at the top of the market – Sports teams with losing records sRll pay talent the market rate, to get back to winning 104
  105. 105. Bad Comp PracRces •  Manager sets pay at Nth percenRle of Rtle- linked compensaRon data – The “Major League Pitcher” problem •  Manager cares about internal parity instead of external market value – Fairness in comp is being true to the market •  Manager gives everyone a 4% raise – Very unlikely to reflect the market 105
  106. 106. When Top of Market Comp Done Right... •  We will rarely counter with higher comp when someone is voluntarily leaving because we have already moved comp to our max for that person •  Employees will feel they are gerng paid well relaRve to their other opRons in the market 106
  107. 107. Versus TradiRonal Model •  TradiRonal model is good prior year earns a raise, independent of market – Problem is employees can get materially under- or over-paid relaRve to the market, over Rme – When materially under-paid, employees switch firms to take advantage of market-based pay on hiring – When materially over-paid, employees are trapped in current firm •  Consistent market-based pay is be`er model 107
  108. 108. Employee Success •  It’s pre`y ingrained in our society that the size of one’s raise is the indicator of how well one did the prior year – but for us the other factor is the outside market •  Employee success is sRll a big factor in comp because it influences market value – In parRcular, how much we would pay to keep the person 108
  109. 109. Good For Each Employee to Understand Their Market Value •  It’s a healthy idea, not a traitorous one, to understand what other firms would pay you, by interviewing and talking to peers at other companies – Talk with your manager about what you find in terms of comp – Stay mindful of company confidenRal informaRon 109
  110. 110. Efficiency •  Big salary is the most efficient form of comp – Most moRvaRng for any given expense level – No bonuses – Instead, put all that expense into big salaries, and give people freedom to spend their salaries as they think best – Employees can decide how much Ne6lix stock they want, versus cash 110
  111. 111. No VesRng or Deferred Comp •  We don’t want managers to “own” their people with vesRng – all comp is fully vested •  We want managers to be responsible for creaRng a great place to work, and paying at the top of market •  Employees are free to leave us anyRme, without penalty, but nearly everyone stays •  Employees stay because they are passionate about their work, and well paid, not because of a deferred compensaRon system 111
  112. 112. No Ranking Against Other Employees •  We avoid “top 30%” and “bo`om 10%” rankings amongst employees •  We don’t want employees to feel compeRRve with each other •  We want all of our employees to be “top 10%” relaRve to the pool of global candidates •  We want employees to help each other, and they do 112
  113. 113. Seven Aspects of our Culture •  High Performance •  Values are what we Value •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 113
  114. 114. In some Rme periods, in some groups, there will be lots of opportunity and growth at Ne6lix Some people, through both luck and talent, will have extraordinary career growth 114
  115. 115. Baseball Analogy: Minors to Majors •  Very talented people usually get to move up, but only true for the very talented •  Some luck in terms of what posiRons open up and what the compeRRon is •  Some people move to other teams to get the opportunity they want •  Great teams keep their best talent •  Some minor league players keep playing even though they don’t move up because they love the game 115
  116. 116. Ne6lix Doesn’t Have to Be for Life •  In some Rmes, in some groups, there may not be enough growth opportunity for everyone •  In which case we should celebrate someone leaving Ne6lix for a bigger job that we didn’t have available to offer them – If that is what the person prefers 116
  117. 117. Three Necessary CondiRons for PromoRon 1.  Job has to be big enough –  We might have an incredible manager of something, but we don’t need a director of it because job isn’t big enough •  If the incredible manager les, we would replace with a manager, not with a director 2.  Person has to be a superstar in current role –  Could get the next level job here if applying from outside and we knew their talents well –  Could get the next level job at peer firm that knew their talents well 3.  Person is an extraordinary role model of our culture and values 117
  118. 118. Timing •  If a manager would promote to prevent an employee from leaving, the manager should promote now instead of waiRng •  Three tests sRll have to be passed 1.  Job big enough 2.  Superstar in current role 3.  Person is an extraordinary role model of our culture and values 118
  119. 119. Development •  We develop people by giving them the opportunity to develop themselves, by surrounding them with stunning colleagues and giving them big challenges to work on – Mediocre colleagues or unchallenging work is what kills progress of a person’s skills 119
  120. 120. Career “Planning” Not for Us •  Formalized development is rarely effecRve, and we don’t try to do it – e.g., Mentor assignment, rotaRon around a firm, mulR-year career paths, etc. 120
  121. 121. We Support Self-Improvement •  High performance people are generally self- improving through experience, observaRon, introspecRon, reading, and discussion – As long as they have stunning colleagues and big challenges to work on – We all try to help each other grow – We are very honest with each other 121
  122. 122. We want people to manage their own career growth, and not rely on a corporaRon for “planning” their careers 122
  123. 123. Your Economic Security is based on your Skills and ReputaRon We try hard to consistently provide opportunity to grow both by surrounding you with great talent 123
  124. 124. Seven Aspects of our Culture •  Values are what we Value •  High Performance •  Freedom & Responsibility •  Context, not Control •  Highly Aligned, Loosely Coupled •  Pay Top of Market •  PromoRons & Development 124
  125. 125. We keep improving our culture as we grow We try to get be`er at seeking excellence 125

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