The Netflix Cultural Revolution

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When Netflix posted a PowerPoint® presentation detailing its culture on the Internet, it raised significant chatter in the business blogosphere with its unvarnished approach to hiring only what it calls stunning colleagues, and with its zero tolerance for anything less by practicing this: Adequate performance gets a generous severance package.

Netflix is a DVD marketing and delivery organization and considers itself a creative company, so the value set is likely to be very different from what would be desired in a health care setting. The specificity and completeness of the document, however, makes this a terrific blueprint for building a corporate culture.

The Netflix Reference Guide on its Freedom & Responsibility Culture can be accessed at www.slideshare.net/reed2001/culture-1798664. The PowerPoint begins with a disclaimer stating that the company values described are applicable only to salaried, not hourly, employees. The document is divided into sections that describe the seven aspects of Netflix culture.

First, values are what we value: Nine values are listed and explained in the document. They are judgment, communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness.

Second, high performance: Netflix sets high performance standards and expects people to meet them, with slogans like, “We’re a team, not a family,” and, “We’re like a pro sports team, not a kid’s recreational team.” Netflix values effectiveness, which is not necessarily measured by the number of hours that employees spend at work or whether they work weekends. In explaining why Netflix values high performance, the document states, “In procedural work, the best are two times better than the average. In creative work, the best are 10 times better than the average, so [there is a] huge premium on creating effective teams of the best.”

Third, freedom and responsibility: This section of the document explains why Netflix aims to increase freedom as it grows, rather than decrease it (as most successful large companies do), based on the premise that rules designed to eliminate error force out high-performance employees and inhibit the company’s ability to adapt to changing market conditions. Therefore, Netflix aims to hire the right people, instead of adhering to a culture of process, and to operate, instead, in a culture of freedom, responsibility, innovation, and self-discipline, in the belief that flexibility is more important than efficiency in the long term.

Fourth, context, not control: In the Netflix culture, the best managers figure out how to get great outcomes by setting the appropriate context, rather than by trying to control people. Managers are encouraged to provide the insight and the understanding needed to enable employees to make sound decisions.

Fifth, highly aligned, but loosely coupled: Netflix identifies three models of corporate teamwork: tightly-coupled monoliths, independent silos, and highly aligned, loosely coupled entities. This last model is dependent on high-performance people and good context. The goal is to be big, fast, and flexible.

Sixth, pay top of market: Operating under the assumption that one outstanding employee gets more done and costs less than two adequate employees, Netflix endeavors only to have outstanding employees, so it is careful to pay each employee more than anyone else would be likely to, as much as a replacement would cost, and as much as it would pay to keep the employee there if he or she had another offer.

Seventh, promotions and development: There are two necessary conditions for determining who gets promoted. First, the job needs to be big enough for the person; second, the person has to be a superstar in his or her current role. It is not surprising that Netflix eschews formal development programs on the premise that high-performance people are generally self-improving, as long as they are surrounded by stunning colleagues.

In conclusion, Netflix explains that culture is crucial because it essentially consists of the practices that determine how a company operates. In the case of Netflix, it knew that it needed a culture that would support rapid innovation and excellent execution; that would support effective teamwork among high-performance people; and that would avoid the rigidity, politics, mediocrity, and complacency that infect most organizations as they grow. That culture is precisely what the document describes.