You just can’t make up a story like that. The movie is completely gripping.
Adam wanted desperately for Netflix to get that movie. News on the street was that Amazon, Hulu, and HBO all wanted it too. He’d bid $2.5 million for it that morning—a huge amount for a documentary—but had just learned the bid was too low. Should he bid $3.5 million? $4 million? No documentary had ever gone for that much. He and Rob were discussing the bid when Ted Sarandos entered the lobby from the adjoining breakfast room. They told him about the Icarus situation, and he asked what they were going to do. Adam remembers the conversation like this:
“Maybe we’ll go up to $3.75 or $4 million, but that’s a huge amount to offer for a doc. It would completely reset the market,” I said, watching for Ted’s reaction.
Ted looked me square in the eye and said, “Well, is it ‘THE ONE?’” He made quote marks with his fingers, like it meant something important. That made me nervous. It was my ONE. But was it his ONE? I asked him, “What do you think, Ted?”
Ted started moving toward the door. Clearly, he was not going to answer that question. “Listen,” he said. “It doesn’t matter what I think. You’re the doc guy, not me. We pay YOU to make these decisions. But ask yourself if it’s THE ONE. Is this going to be a massive hit? Is it going to be an Oscar nominee like Super Size Me or An Inconvenient Truth? If it’s not, that’s too much to pay. But if it’s THE ONE you should pay whatever it’s going to take: $4.5 million, $5 million. If it’s THE ONE, get the movie.”
Ten years before, in 2007, Leslie Kilgore had coined a phrase, which is now used across Netflix to describe exactly what Ted was doing as he walked out through the lobby of the hotel: “Lead with context, not control.” At just about any other company, with this much money on the table, the senior guy would get involved and control the negotiations. But that’s not what leadership looks like at Netflix. As Adam explained: “Ted wasn’t about to make that decision for me, but he set broad context to help align my thinking with the company’s strategy. That context he set laid the foundation for my decision.”
CONTROL VERSUS CONTEXT
Leadership with control is familiar to most. The boss approves and directs the initiatives, actions, and decisions of the team. Sometimes she may control employees’ decisions through direct oversight—telling them what to do, checking in frequently, and correcting any work that isn’t done as she desires. Other times she may seek to empower her employees more, avoiding direct oversight but putting control processes in place instead.
Many leaders frequently use control processes to give the employee some freedom to approach a task as he chooses, while still allowing the boss an opportunity to control what gets done and when. For example, the boss might put in place a process like Management by Objectives, when she works with the employee to set Key Performance Indicators (KPIs); then she monitors the progress at regular intervals, judging the individual’s final performance based on whether he achieves the predetermined goals on time and within budget. She might also seek to control the quality of her employees’ work by putting in place error-reduction processes, such as checking work before it goes to the client or approving purchases before orders are placed. These are all processes that allow a manager to give some freedom while still exerting a good deal of control.
Leading with context, on the other hand, is more difficult, but gives considerably more freedom to employees. You provide all of the information you can so that your team members make great decisions and accomplish their work without oversight or process controlling their actions. The benefit is that the person builds the decision-making muscle to make better independent decisions in the future.
Leading with context won’t work unless you have the right conditions in place. And the first prerequisite is high talent density. If you’ve ever managed anyone, even your own children or a contractor in your house, you’ll understand why.
Imagine, for instance, that you’re the parent of a sixteen-year-old boy. He loves to draw Japanese-style anime, solve complex sudoku problems, and play the saxophone. Lately he’s also started going to parties with older friends on Saturday nights. You’ve already told him you don’t want him to drink alcohol and drive, or get in the car with a driver who has been drinking, but every time he goes out you worry. There are two different ways you might approach this problem:
You decide which parties your son can go to (and not go to) and monitor his actions while at the party. If he wants to go out on Saturday night, there is a process. First he has to explain to you who will be there and what they will be doing. Then you need to speak to the parent who owns the house where the party will be held. During that conversation you verify if there will be an adult chaperone and if alcohol will be available. From this information you decide whether or not your son can go. When you give approval, you still put a tracker on your son’s phone to assure that this is indeed the only party he goes to. This would be leading with control.
The second would be to set context so that you and your son are aligned. You talk to your son about why teenagers drink and the dangers associated with drinking and driving. In the safety of your kitchen, you pour different types of alcohol into glasses and discuss how much of each you’d need to become tipsy, drunk, or blacked out and how that impacts your driving effectiveness (and overall health). You show him an educational film on YouTube about drinking and driving and all the ramifications. Once you see he clearly understands the severity of the dangers that come with drinking and driving, you let him go to whatever parties he likes without any process or oversight restricting his actions. This would be leading with context.
The choice you make will most likely depend on your son. If he’s shown poor judgment in the past and you don’t trust him, you might choose to parent with control. But if you know him to be sensible and dependable, you can set the context and count on him to behave safely. In doing so, you prepare him to make not just good decisions on Saturday nights but also responsible decisions in the myriad of seductive or peer-influenced situations he will face in the coming years.
If you have a responsible child, option 2 may sound like the obvious answer. Who wants to be an overbearing parent and why would you not want a teenager to assume responsibility for his own safety? But in many situations the choice is not so clear-cut. Consider this scenario:
You are the matriarch of a modern-day Downton Abbey (aristocratic family with snooty accents, loads of drama, and lots of money). Your adult children are coming to your house for a month of holidays and you have hired someone to cook dinner. Your family is complicated when it comes to food. One person is diabetic, another is a vegetarian, and a third is on a low-carbohydrate diet. You know how and what to cook for this crowd but how is this chef you’ve hired, who doesn’t know your family, going to manage? Once again, you have two choices:
You provide her with a cooking schedule and a set of recipes, specifying exactly what to cook each night. You outline how much to make of each dish and note when one ingredient should be replaced by another. You ask to taste each menu item before it is served to ensure she has the seasonings correct and that the dish is cooked to perfection. All she needs to do is follow your instructions. Of course, she is welcome to suggest her own recipe ideas too. She just needs to get your okay before cooking them. This would be leading with control.
You talk with her in detail about the various dietary requirements in your family. You explain the principles of a low-carb diet, and what a diabetic can and can’t eat. You show her recipes you’ve used successfully in the past, those that have flopped, and common substitutes you’ve tried. You explain that each meal should include some protein for everyone, a salad, and at least one vegetable. The two of you become highly aligned on what will make each meal a success. Then you ask her to find recipes and choose what to cook herself. This would be leading with context.
With option 1, you know what you’
re going to be served and you’re pretty sure your family will like it. You’ve squashed out most of the possibility for your cook to fail or really make any mistake at all. So if you have a cook with little experience, who seems uncomfortable taking initiative, doesn’t seem to be enterprising enough to find good recipes, and there aren’t any certifiably more talented people available, then option 1 will be the right choice for you. Option 2 is just too risky.
Option 2, however, becomes interesting if you trust the judgment and skill of the person you’ve hired. A high-performing chef will thrive on the freedom to select and try out recipes on her own. She’ll be able to offer more innovative meal choices than you could. If she does make mistakes, she’ll learn from them and at the end of the holiday your family will remember the fabulous banquets she provided.
Therefore, the first question you need to answer when choosing whether to lead with context or control is, “What is the level of talent density of my staff?” If your employees are struggling, you’ll need to monitor and check their work to ensure they are making the right decisions. If you’ve got a group of high performers, they’ll most likely crave freedom and thrive if you lead with context.
But deciding whether to lead with context or control isn’t just about talent density. You also have to consider your industry, and what you are trying to achieve.
SAFETY FIRST?
Take a look at these clippings about two companies that have had success in recent years. Consider which organization would be more likely to profit from leadership by control (with oversight and/or error-reduction processes) and—assuming high talent density—which would benefit from leadership through context.
Let’s begin with ExxonMobil. Here is a short extract from their website:
Since 2000, we have reduced our workforce lost-time incident rate by more than 80%. While this number is declining, safety incidents do occur. We deeply regret that two contract workers were fatally injured in separate incidents related to ExxonMobil operations in 2017. One incident occurred at an onshore drilling site and the other happened at a refinery during construction activities. We thoroughly investigated the causes and contributing factors associated with the incidents to prevent similar events in the future and to globally disseminate findings. We have also joined cross-industry working groups with representatives from the oil and gas and other industries, such as the Campbell Institute at the National Safety Council, to better understand the precursors to serious injuries and fatalities. We will continue to promote a safety-first mentality for ExxonMobil employees and contractors until we reach our goal of a workplace where Nobody Gets Hurt.
The second example is the American retail giant Target. In 2019, Fast Company ranked it the eleventh most innovative company in the world. The following excerpt is from the article:
The retail apocalypse hit many big box retailers hard: J.C. Penney, Sears, and Kmart have all faltered as e-commerce has grown, driving down foot traffic to brick-and-mortar stores. But in the face of these challenges, Target has nimbly adapted to the preferences of the modern consumer. The company has a network of more than 1,800 stores across the United States that come in different formats, from the extra-large SuperTarget to the smaller flexible format stores in urban centers, that cater to the specific needs of those shoppers. The brand has also invested in its online presence, with a robust website, same-day and two-day shipping that allows it to compete with Amazon, and the option to order items online that you can pick up in a day.
When considering whether to lead with context or control, the second key question to ask is whether your goal is error prevention or innovation.
If your focus is on eliminating mistakes, then control is best. ExxonMobil is in a safety-critical market. Its sites need hundreds of safety procedures to minimize the risk of people getting hurt. Control mechanisms are a necessity when you’re trying to run a dangerous operation profitably with as few accidents as possible.
Likewise, if you are running a hospital emergency room and give junior nurses the context to make decisions themselves with no oversight, people might die. If you are manufacturing airplanes and don’t have plenty of control processes ensuring every part is assembled perfectly, the possibility of deadly accidents increases. If you are washing windows on skyscrapers, you need regular safety inspections and daily checklists. Leading with control is great for error prevention.
But if, like Target, your goal is innovation, making a mistake is not the primary risk. The big risk is becoming irrelevant because your employees aren’t coming up with great ideas to reinvent the business. Although many brick-and-mortar retailers have gone out of business as increasing numbers of people shop online, Target has made a priority of imagining fresh ways to get customers into the stores.
There are many businesses that share Target’s priorities. Whether you’re in the business of inventing toys for children, selling cupcakes, designing sportswear, or running a restaurant with fusion cuisine, innovation is one of your primary goals. If you’ve got high-performing employees, leading with context is best. To encourage original thinking, don’t tell your employees what to do and make them check boxes. Give them the context to dream big, the inspiration to think differently, and the space to make mistakes along the way. In other words, lead with context.
Or as Antoine de Saint-Exupéry, the author of The Little Prince, put it rather more poetically:
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.
As much as I love this passage—we cite it at the end of our culture memo—I also realize that for some readers it may feel entirely impractical. And that brings me to the third necessary condition you need to have in place in order for leading with context to work. In addition to high talent density (that’s the first condition) and a goal of innovation rather than error prevention (that’s the second), you also need to work (here comes the third) in a system that is “loosely coupled.”
LOOSELY OR TIGHTLY COUPLED?
I’m a software engineer and software engineers speak about “tight coupling” and “loose coupling” to explain two different types of system design.
A tightly coupled system is one in which the various components are intricately intertwined. If you want to make a change to one area of the system, you have to go back and rework the foundation, which impacts not just the section you need to change, but the entire system.
By contrast, a loosely coupled design system has few interdependencies between the component parts. They are designed so that each can be adapted without going back and changing the foundation. That’s why software engineers like loose coupling; they can make a change to part of the system with no repercussions for the rest of it. The entire system is more flexible.
Organizations are constructed a bit like computer programs. When a company is tightly coupled, big decisions get made by the big boss and pushed down to the departments, often creating interdependencies between the various areas of the business. If a problem occurs at the departmental level, it has to go back to the boss who oversees all of the departments. Meanwhile, in a loosely coupled company, an individual manager or employee is free to make decisions or solve problems, safe in the knowledge that the consequences will not ricochet through other departments.
If the leaders up and down your company have traditionally led with control, a tightly coupled system may have come about naturally. If you are managing a department (or a team within a department) in a tightly coupled system and you decide you’d like to begin to lead your people with context, you may find that the tight coupling gets in your way. Since all the important decisions get made at the top, you might wish to give your employees decision-making power, but you can’t, because anything important has to be approved no
t just by you but by your boss and by her boss.
If you are already part of a tightly coupled system, you may have to work with the top leaders in the company in order to change the entire organizational approach before trying to lead with context at a lower level. Even with high talent density, and innovation as your goal, if you don’t sort this out, leading with context may be impossible.
It should be pretty clear by now that at Netflix, with our Informed Captain model, we have a loosely coupled system. Decision making is highly dispersed, and we have few centralized control processes, rules, or policies. This provides a high degree of freedom to individuals, gives each department greater flexibility, and speeds up decision making throughout the company.
If you’re starting up your own company and your goal is innovation and flexibility, try to keep decision-making decentralized, with few interdependencies between functions, in order to nurture loose coupling from the outset. It will be a whole lot trickier to introduce once your organization has settled into a tightly coupled structure.
All this said, tight coupling does have at least one important organizational benefit. In a tightly coupled system, strategic change is easily aligned throughout the organization. If the CEO wants all departments throughout the company to focus on sustainability and ethical sourcing, then she can control that through her centralized decision-making.
No Rules Rules Page 22