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Erin Meyer Session kickoff (00:00-01:14)
It’s very nice to be here with you today or to not be with you, but be with you in spirit. So, I really enjoyed hearing Karthik. Thank you very much. And it’s a pleasure to be here with your audience. as Karthik said, my name is Erin. I’m a professor at a business school called INSEAD, which is outside of Paris.
I studied culture in the workplace. My first book, the culture map was all about national cultural differences. But, we’re not going to be talking about that today. We are going to be talking about how to create an organizational culture or a team culture that will breed innovation and flexibility.
Starting the session (01:14-01:45)
I want to try to do something interactive with you. And throughout this session, several times, I’m going to stop and ask every one of you to all of you on the line to chat something into the chat box. Okay.
So please do open up your chatbox. Be ready to be interactive. I’m hoping that I will hear from all of you very soon there. Okay. Now I’m going to go ahead and, and share my screen here with you. Okay. All right. So, this book, as Cardi said, I just released a book that I wrote with Reed Hastings about a very strange and interesting topic.
Culture at Netflix (01:43-03:43)
Yeah. Culture at Netflix. And I was specifically interested in this culture because I mean, many of, you know, Netflix as consumers, but I was particularly interested in this company because Netflix has been able to do something that is extremely rare. So, what they’ve been able to do is to reinvent themselves again and again, in a rather short period of time, they’ve reinvented themselves multiple times in the last 15 years.
And I think this is relevant to you because in these, these strange days of COVID, I know many organizations are trying to think about how to reinvent themselves. So if we think about Netflix, When they started out, as you may know, if you’re in the US as a DVD by mail company, right? So they had warehouses around the US and they were putting these DVDs into the post office, into the post, and sending them out to their clients.
Then of course, the environment shifted, and they were required to reinvent themselves as a streaming company, right. As a streaming company- streaming their products all over. All over the world. I’m sorry. I just have to do a reshare here. I realize I’m having a little problem.
Everything will be fine. Okay. So they reinvented themselves as a streaming company, restraining, an old TV show and movie. Right. But then the environment shifted and they found out that they had to reinvent themselves again, this time as a media company, opening their own studio, competing with Disney, hiring their own actors and their own directors.
Right. And this level of flexibility is incredibly rare in a company. Right? This ability to kind of like innovate continually as the environment shifts. So, um, it was because of that, that I got interested in Netflix. And I ended up doing this research project on Netflix. I interviewed a couple of hundred people in the company.
Collaborating with Reed Hastings on the corporate culture (03:45-05:50)
And then I wrote this book that just came out a few weeks ago, uh, with Reed Hastings about their corporate culture there. So I wanted to talk with you today about some of the learnings that I had working with that company that I thought might be relevant to you in your organization. And in order to get this.
I started, let me say that, I know that many of you probably have already heard about Netflix corporate culture because in some ways it’s been quite famous for its strangeness. It had, you know, some of you are aware of it because you came across perhaps the infamous, uh, Netflix culture deck, which is a set of 125 slides.
This was released onto the internet several years ago, those slides have been downloaded over 20 million at times. So they got a lot of interest. And if you have seen those slides, then you are aware that they start out something like this, right? So, the first slide starts by saying many companies have nice sounding value statements displayed in their lobby, such as integrity.
Communication respect and excellence, right? Maybe you even know some companies who have those very words as their corporate values. Then the second slide goes on to say, of course, Enron whose leaders went to jail, which went bankrupt from fraud. Had these exact values displayed in their lobbies.
Now that brings me to the first point I wanted to make, as we start our journey of exploration of how to create an innovative organizational culture. And that is that when you are working on defining your corporate culture, right? You’re trying to think about how you can articulate an organizational culture that actually takes root in the organization?
Her learnings and how to set up your corporate culture (05:51-07:25)
The first thing that I learned working with Netflix is don’t speak in absolute positives when you define your corporate culture. Right? And when I meet my bad is like, if you look at this word, integrity, Right. Okay. So, I mean, what would be the go-to option to integrity? There’s no good option, right? I mean, like the option two integrity is we could have integrity or maybe we could value integrity, or maybe we can value corruption.
Right. And I don’t think anyone would say any organization would say we value corruption. So, in speaking in that absolute value, it doesn’t guide our employees. Right. What I saw was that the reason that Netflix had been able to articulate a corporate culture that then took root and grew in the organization was that instead of speaking and let’s say positive dreams, they looked at the difficult dilemmas that their employees were facing on a daily basis.
And they told their employees when you come across a dilemma like this attention like this goes this direction, not this direction. Okay. Now I’m going to give you some examples, and this is where we’re going to start the interactive piece of this session. So could you all, please, all of you, every one of you, could you please open up your chat box and put your fingers on your keyboards, because you’re going to have to vote.
Getting started on the dilemmas (07:25-10:46)
I’m going to have your vote in your answer to what you would do based on this situation. Okay. So here’s, here’s the dilemma. Okay, we’re going to do several dilemmas today. Okay. Here’s the first dilemma. The first dilemma is that you are the director of manufacturing in your organization. And as the director of manufacturing, you oversee a number of manufacturing plants.
Let’s say you oversee three manufacturing, plants, and things are going well in all of those plans, but recently in the last week, you have been in discussions with your boss about a possible organizational structure, a possible organizational restructuring. And if this takes place, it will mean that you need to merge two of your manufacturing plants, which will create a huge amount of change right now.
If this happens, it will happen in about five months. Okay. And if it happens, it’s going to impact your employees a lot. Now you have a dilemma. Okay. Your dilemma is, are you going to tell the six managers in the plant? Who would be impacted by this restructuring? So your dilemma is, and I need everyone please to type in either A or B.
Okay. Don’t be shy. Go ahead and type in an answer. I can go there. Okay. So the question is
A) would you tell them because you feel it would be important to be transparent with them, in order to build their sense of trust?
Or B, would you feel that maybe you should wait and tell them when things are a little bit more certain because geez, there’s only a 50% chance you could, that this change is going to happen.
And if it doesn’t happen, people might leave the company they might get, you know, a lot of panic of anxiety in the organization. What are you going to do? Okay. Now I see it already. It’s very interesting because as I started explaining, Hey, you were all saying, Hey, but then when I started explaining, a lot of you started putting him to be too right.
And the reason that we have a lot of A’s and also now a lot of BS is that this is a real dilemma, right? Of course, you all want to be transparent with your teams. What didn’t want organizational transparency? Of course, you all want to. Workplace stability who would want to upset their workforce for nothing.
Right. So here we go. We’ve got a lot of A’s and B’s and we have, um, at least one who was coming in with an A. Okay. We always have new demands. Thank you, Rachel. Okay. Um, but there we go. So, um, this is the point, the first point that I wanted to make is that these are the kind of organizational, the kind of dilemma that your manager’s experience on a day to day or at least weekly basis.
Transparency at the workplace (10:47-15:33)
Should I value transparency or should I keep them feeling comfortable? Should I value workplace stability? These critical dilemmas. If we identify for our employees, which way to turn now, we start to really mold the organizational culture of the group.
So you did great. Now, we’re going to do number two. Now I will tell you if you are familiar with Netflix, you know, Netflix chooses transparency. So they agreed with that big run of AEs that you started with it. They believe that even if it ups. Lots of people in the workforce, even as people end up leaving the company, it’s better to focus on being transparent in order to breed that sense of trust with their employees.
Okay. But I don’t want to make a point about that. Now, the only point I want to make now speaks in dilemmas, not in absolute positives. Okay. Now that brings me to a dilemma. Number two. All right. Just to keep us to keep the ball rolling here. Let’s see how we do on this one. Okay. Here’s the deal.
You are overseeing the e-commerce platform for your organization. Okay. And you have a group of e-commerce specialists that are working for you. Now one day, one of these specialists who is a woman named Sheila comes to your office and she is looking really excited. She comes into the office and she says to the boss, I got to tell you, I had this idea in the night.
About how to move our platform forward. I really think it’s gonna lead to big rewards right now. She tells you about the idea and she says, you know what, boss? I know it’s going to be expensive. Right. It’s going to cost a lot of money. I know that. And I know it’s going to take a lot of time and I’m going to have to drop some of the other projects that I’m working on to work on this, but I really think it’s going to be good for the company.
You know, what do you think right now? You love Sheila’s enthusiasm and you love that passion. The problem is that you feel pretty clear that that is not a good idea. I mean, from your perspective, this is clearly not going to work out. Right. So you say to Sheila, thank you for your enthusiasm, right?
You tell her, you know, I love you coming in with all of these ideas, but I have some concerns. And you tell her then what your concerns are? You know, please think about this for a week. I don’t think about it more either. Let’s come back together next week. So Sheila goes home and you go home next week.
You come back together and when Sheila comes back, she says to you, boss, I’ve thought about it. All week long, I can’t sleep. I’m so excited. She said I know you have some concerns. I thought about the concerns here were my thoughts, but you know, I really think this is going to work right now.
Again, the more she talks, the more you think it’s going to fail. So my question for you is what are you going to do? Right? Are you gonna let her abandon some of her other projects and invest this money in this project, even though you, as the boss really feels it’s not going to work out. So A orB yes.
You’re going to work on your, you want your, you wanted to work on it. You’re going to say, go ahead, because you want her to feel empowered, to invest in projects she believes in, or know why throw time and money into a project that you think will fail. Okay. I see we started out already with a little bit more of a dilemma at this time.
Okay. We started out with a couple of A’s and B’s okay. Rachel tells us neither. Thank you for HL. It’s always good to have a little bit of really thoughtful, thoughtful responses. Okay. A couple of it depends, but overall, we can see that we have, do you see it? Do you see what a dilemma we have? I mean, literally I think we have 50% of you, maybe 60% of you saying, Hey, you’d let her work on it.
And another 40% of you, or maybe now we’re going up to 70%, another 30% of you, who’s saying be no, why would I throw time and money into a project? I think we’ll fail. Okay. So here again is a real dilemma. And this is a dilemma that we need to think about in our companies, right? Because the dilemma is what do we value?
Innovation or error prevention: Million dollar question (15:34-18:25)
Do we value innovation or do we value error prevention or maybe in part of our organization, we value innovation. And in part of our, of our, our, uh, organization, we value error prevention, but you can’t value both at the same time because these two things are in contradiction to one another. And what I mean about that is that I think we all know that innovation comes.
From trying out a lot of different things. Right. And some of them failed and some of them worked out. Right. Okay. So here again, we need to think about, you know, what are the real tensions, what are the real dilemmas that our employees are facing? And tell them when you come across this dilemma, go this way.
Right. Okay. Um, now I think you, you probably are not surprised to hear that Netflix highly, uh, is focused on innovation over error prevention, but we will come back to that later. Okay. We’re going to come back to Sheila later on in the presentation for now. Please just remember. Uh, for now, please just keep in mind the first point, which is that when you talk about the types of organizational or team culture that you would like to have, please don’t say let’s value judgment.
Let’s value, respect. Because from, from my perspective, there’s, there’s no real good option. I mean, maybe you can think of something, but I couldn’t. Right. Like what would be good. The dilemma that judgment would be intentioned with what would be the opposite. All I could think of was lack of judgment and no organization would say, they valued lack of judgment, right?
Or what is respect? What’s the good option to respect when there’s no good option from what I can see, right. Oh, sorry. It’s disrespect, right? I mean, maybe you’ll come up with something, maybe you’re cleverer than I am, but I couldn’t think of anything. Right. In any case, if you can’t think if you can’t.
Um, if you don’t recognize what value you are articulating and how it’s the intention with another value, then don’t speak in these, these absolute positive, save your breath, save your breath for those really critical dilemmas where it really it’s really important to say we should go this way or that way.
Okay. So, now that we have determined that – thank you for your excellent participation. Now that we’ve determined that the second question is if your goal is to create an organizational or team culture that breeds innovation and flexibility, what would be the key dilemmas or the key tensions that you would want to focus on articulating?
Reed’s first experience: Growing from there (18:26-20:24)
And in order to answer that question, I’m going to tell you a story. So the first time that I interviewed, Reed Hastings of Netflix. He told me a story about his first company, which was an organization called peer software. Here, you can see Reed in this photo. He’s a very young man. It’s in 1996 and he is in Silicon Valley.
Right? Okay. So when Reed started up a pure software, it was very entrepreneurial. Accompany at the beginning. And what I mean by that was they were just a small group of people working, let’s say, fast and loose. So they didn’t have any rules or policies or processes that were, that were controlling the way they worked.
They were all just using their best judgment to make the best decisions that they could for the good of the company. But then pure software started to grow. It grew, 200 people to a thousand people. As the company grew, some people did stupid stuff. And some people took advantage of the freedom that had been allotted to them.
For example, there was this guy named Jim who used to take an airplane every week from San Francisco to Los Angeles. Because there was no travel policy and there was no one watching or approving, needing to approve the way he traveled. He started buying first-class plane tickets every week. Right?
Why not? He was more comfortable. Now when Reed found out he was really frustrated. I mean, the company didn’t have much money, right? So he and Patty McCord, the head of human resources sat down, and together, they created it. Detailed travel policy, right? Telling people exactly how they could travel, you know, when they could travel, what way, what kind of hotels they could stay in the whole gamut.
Stopping innovation (20:25-23:11)
Right? Another example, there was a woman named Charlotte and she used to bring her dog to work every day. One day that dog chewed a big hole in the carpet root in the carpet of a conference room. Reed was really frustrated that the carpet had been. Expensive. And it was expensive to replace. So they created a policy, no pets at work right now as the company grew and more policies and processes started to take root.
Something else happened, which is that the company stopped. Innovating. And as that happened, they had to purchase other companies that were innovating, which created more complexity, which led to more rules and processes. Okay. Now I have a short video of Reed talking about this and I really have my fingers crossed that it’s going to work for you.
Okay. Now we also have it on, on a link. So if it doesn’t work for you, we can chat with you later, but let’s go ahead. I’m gonna just do my best here, and maybe, some of you can chat in if you could hear it. Okay. Here we go. It’s only a minute and 20 seconds and if the lips aren’t safe, don’t worry.
It doesn’t matter. You know, the great thing about being able to do two companies in my life is not making the same mistakes. So in the first company, as we grew and went public, we put in. Excuse me for a lot of the process because we had the idea. If we could just eliminate errors, think how good we can be.
And so every time something went wrong, we put in a new process and we were so proud that we dummy-proof the system. What we didn’t realize is if you dummy-proof, the system only dummies one to work it’s there. So then the market changed all of the kind of innovative, crazy thinkers had gone.
And everybody was still, there was really good about following the rules, but the market, it had shifted. This was the rise of Java and the internet. And we were unable as a company to adapt. And that’s when it hit for me. Short-term optimization about being efficient is the death of long-term success and innovation.
And that we should build a company in Netflix, the tolerated, some short term chaos. And we manage right on the edge of chaos and the value of that is keeping and stimulating the amazing thinkers. So when the market shifts like DVD to streaming or license to expand to original content, we have within Netflix, all kinds of original thinkers and that’s the long-term optimization, but all of us in organizations want.
Employees freedom and flexibility (23:12-27:09)
Okay. Great. So it sounds like most of you were able to hear that now. What Reed’s main learning is, right? His key learning after this experience with peer software, he sold the company. Right. And his key learning was this key learning was okay. Employee freedom, breeds, innovation. Right. And the process kills flexibility.
So his hope with Netflix was that he could create an, when he started his next company, right. Netflix was that he could create an organization that as it grew avoided rules and processes, right. They continue to have that improve employee freedom so that people could, would continue to innovate and be flexible.
Now, that being said, He also had a big challenge that was in his mind, right? Like he understood that this was his goal to create an organization with employee freedom and flexibility. But he also recognized that as the company got bigger and as complexity increased, if he didn’t put rules, rules, and processes in place, the organization was likely to descend into mayhem.
Right. So, not to hover on the edge of chaos, but to fall into chaos. Right. So he thought a lot, about it. And he came up with what we will call the Netflix experiment so that his experiment, right. The Netflix experiment had three parts to it. And the first part was in most companies, most of the rules and processes are put in place to deal with the kind of not so amazing employees, right?
The most amazing employees. They don’t need a lot of rules or processes. They do fine without it. So what if with Netflix, we work to create an organization that was made up. Only have amazing employees. Right? What if we focused on just having the best employees so we could give them more freedom? Right, which would lead to more innovation and more flexibility.
Now that would be fine, but still, there are maybe some of these amazing employees that choose to take advantage of the freedom that is allotted to them. So what if in that case, we also create, uh, a culture. Uh, candor, we’re employees are getting one another, a lot of candid feedback, right? Just every day, we’re all giving one, another, a lot of feedback.
Now, if this happened, then when someone started to take advantage of the freedom allotted to them, others would say, Hey, you know, I don’t think that that’s a good idea. I don’t think that’s the right thing to do for the company. Right. And that candor would create. You know, a safety net and also all that feedback would push the performance up higher, which would then lead to more talent density, which would lead for me to be able to give more freedom.
Right. Okay. So the experiment, what if we had talent density and then we had candor and then we try to give our employees huge amounts of freedom, right? No rules or processes. That was the Netflix experiment. Now of course we can see it has worked out for them, but I would like to discuss in detail whether any of the crazy things they’re doing at Netflix might be interesting for you.
Okay. So what I want to do in the next half an hour or so goes through each of these three points one at a time. Okay.
First, we’ll talk about talent density, then we’ll talk about candor and then we’ll talk about removing controls. All right, now, before we get, in order to start that process, we have to go to dilemma number three.
Importance of talent density (27:10-35:19)
So here’s your next dilemma? I hope everyone’s still got their fingers, right? This, we’ll see. Let’s see what you’re like. So here’s the dilemma. The dilemma is that you are overseeing the production design department of your organization. And on your team, you have eight production designs or sorry, product designs.
You have eight product design specialists right now. You have been very focused on creating a high-performance work environment. You were very careful to hire. Only the best product designers. Right? And you paid them top of the market to get the very best. Now a year into it. Seven of your eight product designers are amazing.
I mean, those seven, if you went out onto the market and tried to find somebody better, you could they’re the best. Right. Then there’s Fritz. Now a Fritz, Fritz is a nice guy. He’s a great guy. Right? Um, but Fritz, he just is not amazing. Like your other employees it is fine. Okay. Fritz does his work. He’s fine.
Right now the issue is if Fritz were clearly a poor performer, you w you would have gotten rid of him, but he does his work. You know, it kind of meets our deliverables. Now, on the one hand, you knew, you know, that if you went out on the market, And look for a replacement for Fritz. Clearly, you could find somebody better, right?
And in addition, you have given Fritz a lot of candid feedback over many months, and it doesn’t seem like he’s going to be able to boost his performance up against any higher. Now, on the other hand, Fritz is a really nice guy and he works really hard. My question for you what are you going to do with Fritz?
Are you going to fire him or are you going to keep him on the team, Rachel? No, it depends. Let me see what you’re like. Oh my gosh. You are so tough. Look at these A’s coming in. Okay. There we go. A couple of BS. Thank you, Ryan. I was getting worried about the cutthroat nature of our team.
Okay. All right. So we have a lot of A’s and we also have a lot of beeps. Right. Probably we have more A’s and B’s, but maybe two-thirds one-third now. David would like to put in a little bit of it depends. He wants to make sure that we’ve given Fritz, you know, really the best, the best help he can have and Mohan is unsure.
Okay. But thanks for voting any counts. Okay, great. So as we can see. Actually, I think more than the last two, this is really a dilemma, right? I mean, we can really see that you guys have different opinions about this, and this is the kind of thing that really in our companies, it would be good to help our employees, our managers think about, what should they do when they get to this kind of dilemma?
Because I bet that most of you have at some times or another come across this type of situation. Right. What I want to tell you what I want to tell the bees, um, all these lovely bees. I want to tell you that Reed agreed with you when he started Netflix. So on the one hand, he wanted to create a high performance work environment.
That was his main goal. But on the other hand, he believed. And in poor performers, he would fire them. Right. But he believed that accompanists should be like a family. Right. And as a family, he should, you know, protect and mentor and take care of his medium employees and in doing so, he then received loyalty from those in the organization.
He also believed that, um, the, those. He also, I forgot what else he believes. He also believed that if he started firing medium employees, that it might really upset the excellent employees. Right. Okay. So, move forward. Oh, that was the other thing he believed. He believed that in every work environment, you always have some medium employees and some excellent ones.
That was just the way business worked. Right. Okay. Now, um, that, uh, Netflix started in 1997 and that it was like that up in 2000 until September of 2001. Then in the fall of 2001, uh, Netflix had grown to 120 employees. And as many of you know, I mean, obviously, then there was this financial crisis right now.
In the fall of 2001, Netflix was doing fine. They were doing, just fine. Okay. The atmosphere around the office was okay. Right. Those 120 employees, they were all busy, but then Reed found out because of the financial crisis that he was going to have to lay off. A bunch of employees.
In fact, he was going to have to lay off one-third of the workforce, right? Uh, 40 of those 120 employees, he was going to have to lay off. And he was very concerned. He was concerned about what was going to happen at the company after the layoffs, those 120 people were already so busy after he laid off 40 of their colleagues, they were going to be bitter and they were going to be exhausted was his assumption, but he didn’t have a choice.
He did the layoffs, right? And the day of the layoffs, it was as expected. He cried and screamed and slammed doors, right. Just as expected. But within a couple of weeks, something very strange and surprising started to happen, which was that those 120 employees started to accomplish as much as the 80 employees had been accomplishing before them.
And within three months, something that shocked readers happened, which was those 80 employees were accomplishing more than the 120 employees had been accomplishing before them. But better than that, the atmosphere in the office had improved dramatically. Right. So suddenly the company, Netflix, seemed to be full of employees who were madly in love with their work and these people, it seemed like they just were passionate and excited and they were getting so much done.
So he and Patty McCord, the head of HR, tried to figure out what had happened here and the conclusion that they came up with. Was that this had happened because they had fired the people they had laid off were the 40, less desirable employees in the workforce. Right. And those who were left where they’re really top players and their conclusion was for really high performing employees, the best.
The best work environment is not about having, you know, beautiful offices or fancy gyms or nice lunches. It’s about being surrounded by other stunning employees, right? So that’s when they started to say a great workplace is stunning colleagues. Now I want to tell you that this is not just a lesson from Netflix.
There is a huge amount of research that proves Reed’s point. Performance is contagious. Okay. So in order to get us thinking about that, I’m going to tell you about, um, a piece of research that was conducted by another organizational behavior professor, a colleague of mine at another business school.
Performance is contagious (35:20-41:02)
His name was William Phelps. The research project that William Phelps did was that he invited us. For MBA students into his lab at a time. Right. And he gave those four MBA students, a task and a 45-minute task. And he rewarded them financially based on how well they performed right now, unbeknownst to them on half of the teams, there was an interloper.
So the interloper was this actor who had been hired by William Phelps to pretend that he was a regular MBA student but to behave in a way that was a little bit undesirable. Right. So sometimes, the actor, what on these teams during the task, sometimes he would do things like act a little bit bored.
Like he might kind of lean back and start texting his friends, acting as he’d rather be anywhere else. Right. And sometimes Nick would act a little bit jerky. So he might say, things like, you know, have you ever even attended a business school class before? Right now, what was amazing is not okay. The first part is interesting, the first part, but not the most interesting, the first part was that Will Phelps saw in study after study team, that the teams that had Nick on them performed worse.
Even when the other three MBA students were all stunning, pre head B performed worse at a 45% rate of lower. Right. Okay. Not only that, what’s the most interesting was that the other people on the unmixed team started to take on his behaviors and behave a little bit like him. Now I have a short audio clip of the will of professor William Phelps talking about the research talking about what he found.
So again, I hope you’ll be able to hear this. There’s no video. There’s only audio and it’s only 40 seconds long. Okay. Here we go. Here’s William Phelps. So what was sort of eerily surprising was how these. Team members would start to sort of pick on his characteristics. So for example, I mean, we remember we videotaped all of these and you would see that people would start, what was it that they would be a jerk too.
Right? So they would start being a little bit insulting or abrasive or obnoxious and what it was really interesting as they wouldn’t just do it sort of in response to him, but also to each other. Right. So there’s sort of a, like a spillover effect. And it’s really interesting because you could actually watch these videotapes that William Phelps made.
And there’s one of them where you see. The MBA students come in, right? The three and then Nick, the actor and those three, they’re really excited. Right. They’re energized to take on this new project and they’re hoping they’re going to get this great financial reward. And then Nick is looking kind of depressed, right.
And, also Really bored. Like he doesn’t think this is a great place to be. And what’s amazing is that during these 45 minutes, you gradually see the other three people on the team starting to act just like Nick and after just 40 minutes. You can see all of them just deflated, right? Like, like looking like they’d rather be anywhere else.
And one of the MBA students actually puts her head down on the desk in her fatigue. So I just wanted to make the point that most managers. I think that an individual performance problem is an individual problem, but we know from huge amounts of research that an individual performance problem is not an individual problem.
It’s a systemic problem that impacts your entire team. And unfortunately, I mean, I’m really sorry. Sorry to give you this news, but what William Phelps concluded from his study is that the best predictor of how a team performs is not how great the best performer is or what the average member is, is like most often it comes down to what the worst team member is like.
In other words, poor performance is especially contagious. So, in other words, if you want a high performing team, you got to get rid of Frit. Now, if you want to do it depends and find another job for him all the better, right? If you can find a number of other places where he can thrive, right. But after you’ve given him that candid feedback, if you’re really going for a high performing team, the lower performers will pull down the energy and the performance of the others on the team. Whereas if you have all high performers, they tend to cycle up, right? The energy tends to cycle up. Now, even if you believe in this high performance, you know, the question is then, well, what would I do in order to encourage the managers in my organization to actually get rid of France?
Right? So at Netflix, they have this. Sane, which many people hate. And I know it’s very controversial if you dislike it. I understand, but I do think that it’s important to get us thinking where they say, you know, unlike many companies at Netflix, we practice adequate performance and get a generous severance practice.
Retaining employees and why is it important (41:03-44:03)
Prep package. Right. In other words, you know, help brands find a better home for themselves. That’s not on your team. Right. Okay. Now, if you want to try to get this kind of high performance in your own organization, how are you going to get your managers? Actually, take these tough decisions. Managers don’t like to fire their employees.
We love our employees. It was hard to find them. It was hard to train them. We keep hoping that the mediocre ones will turn into amazing ones. Even when all indicators tell us it’s probably not going to happen. And what they do at Netflix is something quiet. Simple. They use something that they call the keeper test and you can just, we can just keep it really easy,which is something like twice a year, maybe you as a manager, you just sit down by yourself and you ask yourself some questions.
You go through every employee on your team. And you think if Jason came to me today and Jason told me that he was leaving the organization to go work somewhere else, how would I feel? Would you feel devastated, would you think, Oh my gosh. If Jason leaves, it’s going to be so hard to find a replacement, right.
Would you fight hard to keep Jason? And if so then, you know, you’ve got the right person in that spot. Would you feel relieved? Would you think to yourself a good than not now I can get rid of that issue? Right. Would you feel excited? Would you feel excited about who you could maybe get into that spot and if you feel relieved or excited, then you have another question you would have to ask yourself, which is, have you given Jason candid feedback?
If you’ve given Jason candid feedback if you haven’t, you better go give it now, but if you have, he hasn’t been able to improve. Now you need to make a tough choice. Okay. And you know, whether you believe in Reed’s vision of adequate performance gets a generous severance. I do think that this is a very good exercise.
For all managers to go through, just so we’re constantly kind of thinking about, you know, the, the makeup of our team and if it’s high performing like we would like it to be right. Um, okay. So that ends up in our first section, right? Because I can tell you if all of your managers in your organization are following the adequate performance, get a generous severance, and they’re all following the keeper test already.
You’ve got a lot more of what Netflix called talent density. Right? You’ve got a lot more high performance in a small team now already, you can start getting rid of a lot of the rules, those high performers. They don’t need that rules and process, but you still have a second thing you need to do in order to make sure that people don’t take advantage of the freedom that you’ve allotted them.
The feedback dilemma (44:04-49:09)
And that brings us to our fourth and last dilemma. So the fourth and last dilemma is about feedback.
Karthik is going to ask me some tough questions in the fireside and you can too. Okay. So anything that’s bothering you or you’d like to bring up, we can bring up at that time. Okay. All right. So here’s your next dilemma. Fourth and last dilemma. Here’s the situation? We’ll see if we got some diversity. Okay. You are the, you were on the sales team in your company.
You’re not a manager. You are one of the sales representatives. Now you go to a meeting with one of your colleagues. Okay. Now this colleague is a little bit higher level in the organization than you are. He’s been there a little longer than you have, and you know him, but not really well.
Right? You have, let’s say kind of a little bit of a relationship. Now you go into this meeting and during the meeting, your colleague does something that you do not think is great. What he does is he talks too much. He talks too much. And because he talked so much, the client doesn’t have an opportunity to express himself.
And there’s actually one point where the client is speaking and your colleague actually interrupts the client right now. You feel that this is not good. It’s not good for your relationship with the client. And it’s not good for the team. Right. But you’re not sure if you should tell. Your colleague or not.
I mean, he didn’t ask you for feedback. Is he gonna want that feedback? Is he going to appreciate that feedback? Is it safe to give him the feedback now? I just thought I’d help out those of you who are always pushing for it. Depends I gave you and it depends. Okay, so here we have an, a, B or C.
Okay. So a yes, you’ll give the feedback. Okay. You’re going to get, you’re going to tell them don’t talk too much. Okay. B You might give the feedback. You’ll give the feedback if the opportunity arises, right? Like if a good moment arises, you’ll get the feedback, or no, you’re going to keep the feedback to yourself.
Okay. So let’s see. We’ve got okay. And I see some people are wanting to know about the corporate culture. Someone’s asking me. Okay. Well, do I work for Netflix? Because if I don’t work for Netflix, I might get fired if I give the feedback. Okay. You didn’t say that, but I assume that’s what you’re saying. And of course, right.
We all know that in some work environments, it’s really dangerous to give someone feedback, especially someone senior to you, or more experienced than you. Now, what I can see are a lot of A’s and B’s, and I see absolutely no CS, and actually I’ve come to expect that I actually added B because everyone was saying, Hey, and I didn’t believe that.
So I didn’t believe them because I think that many people think that they feel, yes, I should give them feedback. Right. But of course, in truth often we don’t give feedback. We don’t give eedback because of the amygdala. The amygdala is the most primitive part of your brain and your amygdala sets off alarms.
When it’s worried that you are going to be kicked out of the tribe. Right. It’s one of the biggest human fears is to be kicked out of the group. So when someone criticizes your work. Or tells you that you’ve done something poorly, especially someone, a little bit senior to you. You’re a MIG, Dilla goes off, right?
It starts setting alarms and you know what it feels like to have your amygdala go off. And you also know what happens when you set other people’s amygdalas off. Right. So often we feel it would be safer to just be quiet. Right? Okay. No, that being said, I saw again, we got lots of A’s and lots of bees, and now we’ve got a couple of brave people who are coming forward with CS.
Um, but I think like even the C here we have Mohana who said C because giving feedback is not my strong point. Right. But we are still here, they’re all kind of like, I feel like I should, and I know it would be helpful. Right. Um, Well, what I found. Okay. So first of all, you know, I don’t know if you like my, my dilemma, maybe I don’t have it.
Right. But it’s something like honesty and high performance is the intention with politeness and kindness. Right. I don’t care about politeness, right? Without upsetting the person that we’re working with. Let’s say something like that. Right, now interestingly, and maybe that’s why we have so many A’s in the group.
People’s opinion on receiving feedback (49:09-53:09)
In one piece of research that was conducted across many different industries, 72% of people polled felt that they would do their job better with more corrective feedback. Right. So people are asking for this, that being sad for me. It is very difficult to find an organization where feedback is actually the superpower of the company.
Right. And we’ve got this couple of people here who were talking about where do we work? Do we work at Netflix? I mean, Netflix feedback is their superpower. And I just would like to get you to think for a moment about if you would like. To create, an atmosphere in your organization where you’re getting the advantages, the upward performance push that comes from that feedback.
Right. Then there are a couple of things you can do in your company to really encourage it. And I’m just going to give you a few ideas. Okay. So the first one is that if you want a culture of candor, Then you can start having an an environment where feedback gets put on the agenda frequently. So one thing that you’ll see at Netflix is that very frequently you’ll come into the office.
You’ll look at your agenda and it will say something like 10:00 AM. Feedback with Jane. I feel James put that there. What, what you know is that when Jane comes to your office, she’s going to ask you to give her some feedback about her performance. And then she’s going to give you some feedback about your performance.
If you have a corporate, organizational culture or a team culture, we’re putting feedback on the agenda is very good. Frequent. It deals with all of the BS that we’ve just seen here, all those people who say, you know what? I give the feedback, but only if the right moment arose. Right. Okay. Well, now the right moment has arisen.
It’s on the agenda or on your monthly meetings. It’s always the first item of the meeting, or it’s always the last item of the meeting. Right? You give one another feedback. Okay. So that’s one thing that we can all start doing. Now, the second thing that I want to do, that they do at Netflix, is actually quite controversial.
And I have to tell you. I was amazed. I was amazed and I am maybe disgusted when I originally heard about this, but I came around to loving it. So let me tell you what they do. So Netflix does what they call, um, three 60 feedback dinners and a three 60 feedback dinner is, you know, maybe once a year, you don’t have to do this, but most teams do it.
Maybe once a year, your team gets together. And, um, you sit down over a meal for several hours, right? And you take turns. And when it’s my turn, we go around the table and everybody at the table gives me feedback about how I can improve my performance. Now you can give me some positive feedback, some actual positive, actionable, positive feedback.
Like, I love that you do this, please continue. But that should be no more than 25% of the feedback. Right. Um, really we want to focus on what do you think I can do to improve right. To get better. Um, and then after we’re done with me and we move on to the next person, right. And we go around the table. Now I have to tell you when I first heard about this, I thought it sounded crazy like public shaming.
And I had always heard right. Praise in public. Criticize in private, but I came to see, as I was interviewing people at Netflix that the large majority of people love these dinners. I mean, they’re difficult, but they love them because they start to really get a clear picture as to how to up their performance.
Right. Often if one person gives you feedback, you don’t know, is it about them? Or is it about me or is it about our relationship? It’s hard to know, but when you have these kinds of circles of feedback, it becomes clear what’s about one person versus what’s really something that everyone thinks that you could do better.
I actually started doing this with my own teams at NCI, and it’s been really successful. Uh, okay. So here I have a quote. This is a quote from this guy named Larry tans, who’s an employee at Netflix. He says getting publicly ripped apart. Sounds like torture. Each time I go to a live three 60 I’m nervous, but after you get started, you see, it will be fine because everyone is watching.
People are careful to be generous and supportive with the single intention of helping you succeed. No one wants to embarrass or attack you. Everyone gets a lot of tough advice. So you’re not singled out when your turn comes. It might be difficult to hear what people have to say, but this is one of the greatest developmental gifts of your life.
Okay. So this is a provocative idea, but I thought, I think it’s worth thinking about right. Maybe some of you would even feel like you’d like to do something like that on your own team or organization. All right. Now, um, Up until now we have dealt with two things that are very controversial. Some of you love them and some of you hate them.
The cake and adequate performance (54:37-55:02)
And I know that, but if you deal with these first two aspects, then we can move on to the cake. And everyone loves cake. So what I mean by that is adequate performance gets a lot, gets a generous severance, a lot of controversy in that principle. Right. It’s kind of like spinach, right? Some people love it and some people hate it, candor.
Candid work environment- is it for all? (55:02- 58:38)
Okay. Some people love the idea of a candid work environment. Some people are not so sure. Right. Okay. Again, it’s the spinach. But if you get, if you manage to get a high-performing work environment, however, you go about it and you manage to get a culture of candid feedback. Now you can move on to what I found.
Everybody thinks it is great, which is freedom, right? You can remove the controls that most organizations have in order to control their employees’ movements here, and I’m going to end up in five minutes, stop in five minutes. Okay. So at that moment, anybody who would like to speak up and ask questions is welcome.
And I would love that. Okay. Now, what we’ve got here, It’s a list of all of the policies and processes that many companies have. Now, maybe you don’t have them in small entrepreneurial companies often. Don’t right. But many companies have, and Netflix does not have. And when you look at these, they fall into three different categories.
So some of these, um, our policies, right? Our policies about you know, how much you can spend or what you can do at what time. So for example, the Netflix vacation policy is to take some, right, or the expense and travel policy at Netflix is, um, S. Act in Netflix’s best interest right now, these, I would say these freedoms, are mostly symbolic.
These are mostly symbols that tell your employees that you trust them to behave like adults, which then triggers them to be responsible and behave like adults. Right now, the second set is a little bit more surprising. So often, I think many of you probably don’t think about these as management controls.
In fact, you think they’re freedoms. Key performance indicators management by objectives pay per performance bonuses, but these actually process that we use in many companies in order to give our employees some level of freedom, but also to keep our hand on their shoulder. Right to make sure that they’re still moving in the direction that we want them to.
Right, the idea of Netflix is of course, that they’re really creative people, right? Those really mavericky employees that are the most innovative. They don’t want to have a hand on their shoulder. They want to work at a place that they can run free. Right. And, um, then of course also, if you have the best employees, they don’t need these things so much.
Right. And then we have the last type, um, the last category here, which is, I think the most interesting, which is approvals. So, um, decision-making approvals are approval processes, right? So in almost all organizations, if you want to spend a lot of money and you’re at a lower level in the company, you have to get approval from your boss.
Right at almost all companies, if you want to start an initiative or, or buy a product or sign a deal with our client, and it’s kind of a big deal, you have to get approval from your boss. Right? I, at Netflix, I know it’s kind of crazy to think about, but they actually have no approval processes. And what they say is.
Pleasing your boss vs what’s best for the company (58:39-1:00:19)
Don’t seek to please your boss seek to do what’s best for the company. And I think there’s this great image, which is that at most companies decision-making is like a tree, right with the CEO, sorry. And most companies’ decision-making is like a pyramid, right? With the CEO at the top of the pyramid and the lower level.
Employees lower down, right. And lower-level employees can make small inexpensive decisions, but with more expensive or more important decisions, they push up the chain. Right? Netflix, operate like a tree. And what they say is lead with context, not control. So you see Netflix is the CEO. Who’s like kind of down at the roots of the tree.
He’s not controlling or approving people’s actions. Instead, he’s setting the context for the company. Right. This is the way that we’re moving. This is the strategy we should keep in mind. This is the North Star that we’re running towards. And then the senior, the senior people are kind of like those low-level branches clarifying the context for their parts of the organization.
And then we have the lower-level managers that are really on those outer, smaller branches. And they’re the ones making the big decisions. Right. I actually heard, you know, uh, seems like dozens and dozens of stories about lower-level managers at Netflix signing off on them, telling me stories about signing off on multimillion-dollar deals that often their bosses didn’t think was a good idea.
Wrapping up before the fireside chat (1:00:19-1:02:07)
Right. But they had done their homework and they really thought it was gonna work. And they would talk about their hand shaky as they signed the deal because they never been given that level of responsibility before. Right. nd that of course brings us back to dilemma two. And you remember it.
Seventy-five percent of, you said with Sheila, right? You remember Sheila that Sheila, when she came to you with that great idea and you didn’t believe in it, you know, about 75% of you said, yes, you let Sheila work on it. And the other 25% were like, well, gosh, I don’t know if I want to, if I really want to throw that money away, if I feel like Sheila is not going to be successful.
But, I think that really brings us to. Well, we can see as the secret sauce of Netflix, which is that they’ve got all of this crazy innovation speed that comes because of this high freedom, no wool environment. Okay. Karthik, I have talked a ton and I see there’s a lot of action going on here in the chat box.
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