No Rules Rules

by Reed Hastings

  ▶ TAKEAWAYS FROM CHAPTER 10

  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

  Near my childhood home in Minneapolis is a three-mile-round lake called Bde Maka Ska. On hot summer Saturdays, hordes of city-dwellers flock to the lake’s running paths, docks, and beaches. Despite the mobs, it feels surprisingly peaceful because there are plenty of rules guiding everyone’s actions. Walkers are not allowed on the bike paths. Bikes move only clockwise. No smoking anywhere. No swimming beyond the marked buoys. Rollerblades and scooters go on the bike path, not the walking path. Joggers use the walking path only. These regulations are widely known and rigorously followed, creating a haven of organization and calm.

  If Netflix has a culture of freedom and responsibility, Bde Maka Ska has a culture of rules and process.

  Peaceful as this rules-and-process culture may be, there are also some disadvantages. If you need to bike somewhere a short counterclockwise ride away, you can’t. You have to go clockwise all the way around the lake. If you want to swim across the lake, you’ll be stopped by a lifeguard in a boat and brought back to shore. It doesn’t matter how well you swim; it’s not allowed. The culture was developed to deliver peace and safety to the greater group, not freedom to the individual.

  “Rules and process” is so familiar a paradigm for coordinating group behavior, it hardly needs any explanation at all. Starting in kindergarten when Mrs. Sanders sat all the other five-year-olds on the green rug and explained in detail what you were and weren’t allowed to do, you were already learning rules and process. Later, when you took that first job bussing dishes at that noodle place by the mall and you learned what color socks you could and couldn’t wear under your uniform and how much would be subtracted from your paycheck if you ate a biscuit during your shift, your apprenticeship in rules and process was progressing.

  The rules-and-process approach has been the primary way of coordinating group behavior for centuries. But it isn’t the only way, and it isn’t only Netflix using a different method. For the past nineteen years, I’ve lived a nine-minute drive from the Arc de Triomphe in Paris. A short trip to the top of the monument provides spectacular views of the famed Avenue des Champs-Elysées, the Eiffel Tower and the Sacré-Cœur Basilica, but most impressive is the massive traffic circle in orbit around the Arc, known as “l’Etoile,” or “the Star.” Reed sometimes refers to Freedom and Responsibility as operating on the edge of chaos. For that, there’s no clearer image than the traffic at l’Etoile.

  Every minute, hundreds of cars spill from the twelve multilane boulevards that all converge on the unmarked ten-lane roundabout. Motorcycles whip between double-decker buses. Taxis merge aggressively to drop off tourists at the center. Cars plunge, often without turn signals, toward their boulevard of choice. Despite the masses of vehicles and people, there is one basic principle guiding all the traffic: once you are on the roundabout, you give right of way to those entering from any of the twelve incoming streets. Beyond that, know where you want to go, focus on your goal, and use your best judgment. You’ll probably get there quickly and unharmed.

  The first time you go to the top of the Arc de Triomphe and witness the turmoil below, the advantages to operating with so few rules seems unclear. Why not put a dozen traffic lights around the circle to make cars wait their turn? Why not mark the lanes and provide rigorous restrictions about who can move where at what moment?

  According to my French husband, Eric, who has been driving around the Arc de Triomphe almost daily for decades, that would also slow everything down. “L’Etoile is incredibly efficient. There is no faster way for a skilled driver to get from point A to point B,” he claims. “Plus the system provides extreme flexibility. You might get onto the roundabout planning to exit at the Champs Elysées only to see a tourist bus blocking the street. No need to panic. You can change your route on the fly. You can exit on Avenue de Friedland or Avenue Hoche, or you can circle around Etoile a few more times until the bus has moved on. Almost no other traffic method allows you to change course mid-route so quickly.”

  Now that you’ve read this book you’ve seen that when you lead a team or manage a company, you have a clear choice. You can go the way of Bde Maka Ska, working to control the movements of your employees with rules and process. Or you can implement a culture of freedom and responsibility, choosing speed and flexibility, and offering more freedom to your employees. Each approach has its advantages. When you started this book you already knew how to coordinate a group of people through rules and process. Now you know how to do it through freedom and responsibility too.

  WHEN TO CHOOSE RULES AND PROCESS?

  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 organizational 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.

  Take, for example, employee safety and sexual harassment. When it comes to protecting our employees from injury or harassment, we invest in error prevention (training) and hotlines; we have strong processes to make sure all claims are properly investigated; and we use process-improvement principles to drive the incident rates down to zero.

  Likewise, at other moments when making a mistake would lead to disaster, we choose rules and process. One example is the financial information we release to Wall Street every quarter. Imagine that we published our financials and then had to go back and say, “Wait, we were wrong. It’s less revenue than we said.” That would be a disaster. Another example is the privacy of our viewer data. What if someone hacked into our system, stole information about what our individual members were watching, and published it on the internet? That would be a catastrophe.

  In select instances like these, where error prevention is clearly more important than innovation, we have loads of checks, processes, and procedures to ensure we don’t screw anything up. In these moments, we want Netflix to be like a hospital where there are five people verifying the surgeon is operating on the correct knee. When a mistake would lead to a disaster, rules and process isn’t just nice to have, it’s a necessity.

  With this in mind, you can consider your objective carefully before deciding when to opt for freedom and responsibility and when rules with process would be a better choice. Here are a set of questions you can ask in order to select the right approach:

  Are
you working in an industry where your employees’ or customers’ health or safety depends on everything going just right? If so, choose rules and process.

  If you make a mistake, will it end in disaster? Choose rules and process.

  Are you running a manufacturing environment where you need to produce a consistently identical product? Choose rules and process.

  If you’re leading an emergency room, testing airplanes, managing a coal mine, or delivering just-in-time medication to senior citizens, rules with process is the way to go. This has been the go-to coordination model for the majority of organizations for centuries and, for some, will continue to be the best choice in coming years.

  But for those of you who are operating in the creative economy, where innovation, speed, and flexibility are the keys to success, consider throwing out the orchestra and focusing instead on making a different kind of music.

  IT’S JAZZ, NOT A SYMPHONY

  Even during the industrial era there were pockets of the economy, such as advertising agencies, where creative thinking drove success, and they managed on the edge of chaos. Such organizations accounted for just a small percent of the economy. But now, with the growth in importance of intellectual property and creative services, the percentage of the economy that is dependent on nurturing inventiveness and innovation is much higher and continually increasing. Yet most companies are still following the paradigms of the Industrial Revolution that have dominated wealth creation for the last three hundred years.

  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 minimize variation. But in creative companies today, maximizing 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 organization 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 emphasizes 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.

  ACKNOWLEDGMENTS

  Throughout this book we have explored the value of talent density and candor. The creation of this book was also founded on these two elements.

  Thank you to our fabulously talented dream team, beginning with literary agent Amanda “Binky” Urban, who saw promise in an early book outline and guided us in the creation of the book proposal and beyond. Thank you to our editor at Penguin, the legendary Ann Godoff, who believed steadfastly in this project and steered it along from first breath to completion.

  Thank you for editorial help to David Champion, who loved this manuscript as if it were his own and edited every chapter, often multiple times, with the greatest care until it met his extremely high standards. Thank you to Des Dearlove and Stuart Crainer, who dared to provide tough, candid feedback at a time when we were struggling. Their frankness may very well have saved this book. Thank you to Elin Williams, who provided input on the earliest versions of book chapters, before we were ready to share them with anyone else, and who later polished up the writing, clearing away unnecessary paragraphs and helping us to keep our messages sharp. A special thanks to Patty McCord, who was instrumental in the development of the Netflix corporate culture and spent dozens of hours with us, telling and retelling stories from the early Netflix days.

  A huge embossed thank you to the more than two hundred Netflix employees, past and present, who graciously shared their stories with us, which later became the foundation of this book. It is because of their generous, transparent, and colorful storytelling that this book has taken life. A special thanks to Netflix colleagues Richard Siklos, Bao Nguyen, and Tawni Argent, who have been an integral part of the project since the very early days.

  It is of course classic to thank one’s family members at the end of a book, but a couple of mine took a more active role than most. Thank you to my mother, Linda Burkett, who painstakingly combed through each draft of each chapter throughout the development of the manuscript, removing run-on sentences, finding lost commas, and generally making the passages more readable. Thanks to my children, Ethan and Logan, who during the whole book-writing process kept each day joyful. A huge thank you to my husband and business partner, Eric, who has not just provided ongoing love and support throughout the book-writing process, but has spent hundreds of hours reading, rereading, and re-rereading each section, providing suggestions and counsel throughout.

  Above all, thank you to the hundreds of Netflix leaders throughout the last twenty years, who have contributed to the development of Netflix culture. This book describes not something I discovered during deep quiet moments of thought, but something we all discovered together, through vigorous debate, endless exploration, and ongoing trial and error. It is due to your creativity, courage, and resourcefulness that Netflix culture is what it is today.

  SELECTED BIBLIOGRAPHY

  Introduction

  Edmondson, Amy C. The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth. Hoboken, NJ: Wiley, 2019.

  “Glassdoor Survey Finds Americans Forfeit Half of Their Earned Vacation/Paid Time Off.” Glassdoor, About Us, May 24, 2017, www.glassdoor.com/about-us/glassdoor-survey-finds-americans-forfeit-earned-vacationpaid-time/.

  “Netflix Ranks as #1 in the Reputation Institute 2019 US RepTrak 100.” Reputation Institute, 3 Apr., 2019, www.reputationinstitute.com/about-ri/press-release/netflix-ranks-1-reputation-institute-2019-us-reptrak-100 [inactive].

  Stenovec, Timothy. “One Huge Reason for Netflix’s Success.” HuffPost, Dec. 7, 2017, www.huffpost.com/entry/netflix-culture-deck-success_n_6763716.

  Chapter 1: A Great Workplace Is Stunning Colleagues

  Felps, Will, et al. “How, When, and Why Bad Apples Spoil the Barrel: Negative Group Members and Dysfunctional Groups.” Research in Organizational Behavior 27 (2006): 175–222.

  “370: Ruining It for the Rest of Us.” This American Life, December 14, 2017, www.thisamericanlife.org/370/transcript

  Chapter 2: Say What You Really Think (with Positive Intent)

  Coyle, Daniel. The Culture Code: The Secrets of Highly Successful Groups. New York: Bantam Books, 2018.

  Edwardes, Charlotte. “Meet Netflix’s Ted Sarandos, the Most Powerful Person in Hollywood.” Evening Standard. May 9, 2019. www.standard.co.uk/tech/netflix-ted-sarandos-interview-the-crown-a4138071.html.

  Goetz, Thomas. “Harnessing the Power of Feedback Loops.” Wired. June 19, 2011. www.wired.com/2011/06/ff_feedbackloop.

  Zenger, Jack, and Joseph Folkman. “Your Employees Want the Negative Feedback You Hate to Give.” Harvard Business Review. January 15,
2014. hbr.org/2014/01/your-employees-want-the-negative-feedback-you-hate-to-give.

  Chapter 3a: Remove Vacation Policy

  Bellis, Rich. “We Offered Unlimited Vacation for One Year: Here’s What We Learned.” Fast Company, November 6, 2015, www.fastcompany.com/3052926/we-offered-unlimited-vacation-for-one-year-heres-what-we-learned.

  Blitstein, Ryan. “At Netflix, Vacation Time Has No Limits.” The Mercury News. March 21, 2007. www.mercurynews.com/2007/03/21/at-netflix-vacation-time-has-no-limits.

  Branson, Richard. “Why We’re Letting Virgin Staff Take as Much Holiday as They Want.” Virgin. April 27, 2017. www.virgin.com/richard-branson/why-were-letting-virgin-staff-take-much-holiday-they-want.

  Haughton, Jermaine. “‘Unlimited Leave’: “How Do I Ensure Staff Holiday’s Don’t Get out of Control? June 16, 2015, www.managers.org.uk/insights/news/2015/june/unlimited-leave-how-do-i-ensure-staff-holidays-dont-get-out-of-control.

  Millet, Josh. “Is Unlimited Vacation a Perk or a Pain? Here’s How to Tell.” CNBC. September 26, 2017. www.cnbc.com/2017/09/25/is-unlimited-vacation-a-perk-or-a-pain-heres-how-to-tell.html.