The Netflix Inc. guide to culture (Analysis)

Making the rounds this week is this slidedeck apparently put together by Netflix upper management about their culture. There is no reference or name, so can’t be sure it’s real, but I doubt someone would go through the trouble to create a 128 slide fake Netflix deck.

There’s plenty of good, some bad, and some downright weird. Of course I have no idea what someone might say over these slides, or how much of this is actually practiced, but here goes.

The most important thing, as you’ll see, is Netflix has ~~414 employees~~ 2000+ employees. Some of the philosophies they advocate are not uncommon for highly successful tech start-up companies. When Microsoft or Google had 500 or 1000 employees some of these principles were at work – perhaps not by executive decree, but they do happen and are workable, perhaps preferable when you’re still a small corporation.

The goal of “few big products vs. many small ones” (Slide 25) is natural when you are a small company, with one or two profit streams that haven’t maxed out their growth potential. Things change when growth slows. But that is not Netflix’s problem yet.

Many of these concepts are much harder to apply at 1000, 5000 or 10,000 people. But that’s not Netflix’s problem. At least not now.

The good:

They makes fun of similiar corp culture slide-decks (Slides 5 to 8). Many corporations have manuals and slidedecks like this one, but they serve the purpose of codifying the fantasy view of the company the HR department and executives want to pretend is real – Netflix makes fun of this by showing Enron’s value statements. Platitudes are cheap. But I have to ding them as their list of core values is pretty close to what I’ve seen at a dozen or so different companies (Courage, passion, judgment, etc.)
You are your rewards. They rightfully point out that instead of of what you say, your culture is what you do. “the real company values… are shown by who gets rewarded, promoted, or let go.” Rock on.
Effectiveness matters more than Effort (Slide 33). This is gold, but hard in practice since effort (e.g. hours worked, who stays late) is much easierÂ to measure than effectiveness.
Increase freedom as we grow (Slides 39-52). This is the most interesting part of the deck, as they describe a variant of the innovator’s dilemma as it effects culture and how they intend to avoid the traps of growth and success. Their answer is to increase talent density faster than complexity, which is nice. The problem is, even if you sucessfully fire the less talented people, the talented people you keep, who often have egos to match their talents, protect their previous work as much as untalented people do. As years go by they defend their old ideas.
Good processes vs. Bad processes (Slide 61)- This is solid. They offer that any process or rule should help talented people work faster. Bad processes protect and limit people’s behavior to prevent things from happening, often things that have low recovery costs (Approval chains, forms, endless interview loops, etc.).
No vacation or expense tracking (Slides 65 to 72). When I worked at Microsoft most of my managers practiced vague vacation tracking. They didn’t care what I put into the HR tool, as long as all my work kicked ass, and I negotiated time off with them. It worked perfectly and I practiced the same thing myself as a manager. Netflix apparently doesn’t bother with the pretense of the tool. It’s 100% up to your manager. The risk becomes, like at Microsoft, people who don’t take enough of their vacation to life healthy, happy, long lives.
They practice the Lefferts law (If you manage, it’s your fault). They believe managers set context, and if a talented employee failed the manager failed to set the right context. People who can set the right context for plans, situations and decisions are more valuable than people who can only work (Slides 77-84).

The interesting or weird:

They pay top of market for all full time employees (Slides 93-107). Since they depend on high talent density, they expect to pay above market rates for employees. They assume this will retain talent as leaving the company guarantees a pay decrease. They also focus on salary and not other benefits, believing their employees should choose how to use their “income”. No bonuses. No granted stock options. And they do not believe in tying pay to company performance. I’ve honestly never heard of this before. I can’t see why you wouldn’t tie company performance in some way to rewards, especially for a small company, but I need to think more about this.
Highly aligned / Loosely coupled org. (Slides 85-91). This is the weakest part of the slide deck – very heavy in management consulting jargon (ad-hoc, cross-functional, blah blah). They seem to say you set the right strategy and get buy in and don’t worry much about the rest. They run with the motto “Big and Fast and Flexible” which doesn’t mean very much. I’ve yet to see a company say they’re trying to be “Big and slow and rigid”, but many are.

The bad:

The keeper test (slide 28). They suggest managers ask “which of my people, if they told me they were leaving, would I fight hardest to keep at Netflix.” They suggest firing the rest with a nice severance package. Whoa. There’s a local factor involved here: your second best person might be much better than another manager’s best person. There’s also the all-star team effect, where you might need people with different talents, or a mix of talents, to make the team function. Zappos pay to quit approach makes more sense as it rewards unhappy people for leaving, regardless of talent.
My force powers sense a cuthroat vibe. It’s reading between thin lines, but there isn’t any real mention of teamwork, collaboration or even pride. My biggest gripe about my Microsoft years was how the reward system paid no respect to teams. No overt rewards for people who learned to work well together as a unit. And since everyone knew reviews were done on curves there was often negative competitive energy. You end up with the NY Yankees, rather than the Boston Red Sox. This deck is a masculine, tech, analytical view of culture and I suspect there are things in their culture that they want to keep that are not well reflected in this deck. Perhaps it’s just the sting of a CEO/VP being totally honest, with no HR filtering or fluff, but there was definitely something missing for me.

Have you seen any of above in practice before? Or would want to try if you were CEO?

Posted Wednesday, August 5th, 2009 at 10:56 am

in Innovation, Management | 16 Comments » |

Sean Harding - August 5, 2009 at 11:19 am

Netflix has to have way more than 414 employees. From their 2008 annual report:

“As of December 31, 2008, we had 1,644 full-time employees. We also utilize part-time and temporary
employees, primarily in our fulfillment operations, to respond to the fluctuating demand for DVD shipments. As of December 31, 2008, we had 1,626 part-time and temporary employees.”

James Reffell - August 5, 2009 at 12:09 pm

I got the same “cutthroat” vibe. Not always a bad thing, but also not for everyone.

Companies I’ve worked for would have done better to follow something like this than what they *did* follow, but there are other models out there I’d find a lot healthier.

Lynn Cherny - August 5, 2009 at 12:23 pm

I just saw that there are 4 posts about Netflix from employee perspectives on JobVent:
http://www.jobvent.com/companyBrowse.php?CompanyID=1295&searchType=company&searchText=netflix

Another interesting angle on the presentation. Good post, though.

Mark Mzyk - August 5, 2009 at 1:07 pm

Hey Scott,

A point to make is that your 414 number may not be that far off, in terms of the points you’re making.

The slide deck clearly states at the beginning that it is for salaried employees. See slide 2. It is noted that hourly employees, while important, have a different work structure. While Netflix might now have almost 2000 employees, that likely includes all employees, salaried and hourly.

peterme - August 5, 2009 at 1:26 pm

My guess is the 414 is the number of employees at headquarters. They also have a sizable cadre of folks in call centers and warehouses that I’m assuming are not counted here (and are probably in that 1,644 number).

peterme - August 5, 2009 at 1:31 pm

Reading the commentary over on jobvent highlighted something I thought when going through the deck… They are not at all interested in career paths, promotions, etc. And while I actually empathize with the philosophy Reed espouses, I’ve found (in my much smaller firm) that recognition, promotion, and a sense of path/purpose are crucial for many folks. Ignoring or neglecting that will be to Netflix’ ultimate detriment, I think.

Amanda - August 5, 2009 at 3:19 pm

I found the compensation slides particularly interesting (and weird in the sense of unusual — I haven’t heard anyone else with that philosophy articulated). The market-driven approach and salary focus make a lot of sense from an employee perspective, and make compensation a lot more transparent. That goes a long way I think at making comp seem more fair and potentially has a higher likelihood of employee satisfaction with their comp.

There are multiple components to this approach. One really striking one is focusing on the market price of an employee as an individual. I believe most comp structures are much more focused on the job than the person in the job. The philosophy here is to determine what the individual employee would be worth, what the company would pay to retain them, and what it would cost to replace them. It really is a different philosophy than looking at a job level, determining the worth of that job within the company and the market and the replacement cost and then comparing the employee to that standard. It has a lot of flexibility and transparency, putting a lot of power into the hands of whoever is making that determination.

Another is the heavy salary focus (the most easily understood part of the total compensation for an employee), including pushing a large portion of the healthcare costs to the employees. These make the actual amounts that an employee is getting a lot more understandable and visible to an individual employee. Companies can calculate how much they value the benefits, bonuses, and stock options they provide, but that information is either not communicated or easily internalized (and so not very persuasive). A salary number is very quantifiable and comparable.

Also interesting is the conscious choice to pay above market, and for all employees. That could actually be independent of the other factors. They could still focus on the individual, prefer salary over other forms of comp, and target the 50th percentile in pay. Or, they could determine that some subsets of jobs/specializations/etc should be paid above market, due to the critical nature of that job to the company (e.g. those contributing directly to the bottom line, or software developers at a software company, etc) and others at market rate (e.g. IT support, finance ). There can also be a disconnect between the market at large & the importance of the employee to the success of the company. Perhaps that’s all in how the ‘market’ is determined.

Additionally:
-Titles not very helpful (slide 96) It is couched here in terms of effectiveness, but a title is not a very precise mechanism to identify what an individual contributes or does for a company.

-Rehiring each year for the purposes of comp (slide 97) I think this would help address the deep dissatisfaction in longer term employees at seeing new hires brought on above their existing salaries, because of raises/comp that has not kept pace with the market (assuming the longer-term employees would also have that market price).

-Employees choose whether to tie their compensation to the company’s performance (slide 100,107). Tying comp to peformance is there, just not by default.

I think a big component of the feeling of fairness in a compensation approach is the transparency. An employee can figure out their market worth and see clearly what their compensation from the company is. There is still a lot to argue about for compensation, and that might actually negatively impact pay for some. However, I think the perception of fairness goes a long way in satisfaction with compensation. Then perhaps it’s a lot easier to focus on the work.

Of course, this hinges a lot on the roles and the work being well enough defined to market price fairly and doesn’t really mean anything if it isn’t combined with other factors to make a place where people actually want to work.

Daily Linkage « billpetti - August 5, 2009 at 6:18 pm

[...] discs for the one factory=less than a quarter of a percent (hat tip Noah Brier); 2)Â Scott Berkun takes a look at the Netflix “culture deck” making the rounds.Â He provides his perspective on the good, the bad, and the weird.Â I am [...]

Green - August 6, 2009 at 8:06 am

i downloaded the file from slideshare. from the document properties, the author’s someone named “Reed Hastings” (netflix ceo) but then anyone could have easily drafted a ppt file and set that property.

Millarian | Building a Strong Company Culture - August 9, 2009 at 1:04 pm

[...] Interesting analysis of the Netflix guide by Scott Berkun. #arkayne { background: transparent; text-align: left; vertical-align: top; [...]

Steve Mencik - August 28, 2009 at 9:53 am

It seems to me that Netflix treats people like any other commodity. It will pay top dollar to get the best of that commodity. When that commodity is not as ripe anymore, throw it away and get a new one. I for one don’t want to work for a company like that and essentially be a slave to the company owners. Companies need to show a little loyalty to their people if they expect their people to show loyalty to the company.

The culture at Netflix | Pagerank Checker Tools - September 2, 2009 at 1:53 pm

[...] Scott Berkun has some good thoughts on the slide deck, including nice references to Zappos’ “pay to quit” idea and [...]

anonymous - September 2, 2009 at 9:23 pm

re: Steve Mencik’s comment. The company is up front in their hiring process that it operates more like a sports team than a family and has no qualms with handing a highly skilled employee a severance package if their skills don’t fit the current business needs. A potential hire has the information up front to decide whether they want to be associated with this type of culture. So far, so good. Unfortunately this philosophy becomes quickly marred when it is used more as a “smoke and mirrors” way of kicking someone out the door who doesn’t fit the current political climate, was a hiring mistake, or has the unfortunate luck of working for someone who would rather pass the buck than take responsibility for their actions. Enter morale, or lack thereof once the staff sees how things really operate. One of Netflix’s values is integrity – interesting, to say the least.