Sunday, August 23, 2009

The culture at Netflix

Netflix CEO Reed Hastings has a very interesting presentation, "Our Freedom & Responsibility Culture", with some thought-provoking ideas on how to run a company.

Some excerpts:
Imagine if every person [you worked with] is someone you respect and learn from ... In creative work, the best are x10 better than the average ... [A] great workplace [is made] of stunning colleagues.

Responsible people thrive on freedom and are worthy of freedom ... [They are] self-motivating, [pick] up the trash lying on the floor, [and behave] like an owner ... Our model is to increase employee freedom as we grow rather than limit it ... Avoid chaos as you grow with ever more high performance people, not with rules.

Pay at the top of the market is core to high performance culture. One outstanding employee gets more done and costs less than two adequate employees ... We pay at the top of the market ... Give people big salaries ... no bonuses ... no stock options ... [and a] great health plan ... [Everyone feels] they are getting paid well relative to their other options ... Nearly all ex-employees will take a step down in comp for their next job.

We try to get rid of rules when we can .... The Netflix vacation tracking policy [is that] there is no policy or tracking. There also is no clothing policy at Netflix, but no one has come to work naked lately ... Netflix policy for expensing ... [is] five words long ... "act in Netflix's best interest" ... You don't need detailed policies for everything.
Reed also makes a great point about how to organize large companies, saying he prefers to align groups on goals and strategies while minimizing meetings over tactics. He contrasts this with "tightly-coupled monoliths" where everything is inefficiently controlled (usually from the top down) and "independent silos" where groups (e.g. engineering and marketing) work so independently that "alienation and suspicion" creep in.

There are some suggestions I disagree with. First, I think Reed's claim that Netflix should fire with "generous severance" people who managers would not "fight hard to keep at Netflix" if they were to threaten to leave conflicts with Reed's later advice that managers should not blame someone who "does something dumb" but rather ask themselves what "context [the manager] failed to set." Personally, when someone I manage is not doing well, I blame myself, not them, and I think Reed should have emphasized finding people the right challenge rather than suggesting just giving them the boot.

Second, I think Reed's advice to push new software to the website every two weeks is not nearly frequent enough -- I prefer at least daily -- and I also see this as at odds with his later claim that he wants "rapid innovation", "excellent execution", and "to be big and fast and flexible".

But, overall, a great presentation with excellent food for thought. It is a must-read for anyone thinking about how to use organizational culture to help manage a company, from little startups to bloated corporate empires.

Please see also my old 2006 post, "Management and incentives at Google", that discusses Google's corporate culture.

[Netflix slides found via Ruben Ortega, TechCrunch, and Hacking Netflix]

Update: Scott Berkun has some good thoughts on the slide deck, including nice references to Zappos' "pay to quit" idea and the "Lefferts law of management".

10 comments:

Daniel Tunkelang said...

I like the attitude and a number of the concrete examples that prove they're not just spouting theory without practice. But 128 slides to convey all that? They'd do well to cut to the chase of their concrete examples and compress the explanations. Specifically, they could compress sequences like slides 4-21 and 38-58, and instead focus on the actions that speak louder than words: their comp, vacation, and expense policies.

Here's a test for this and any other culture manifesto: what parts of it would 99% of companies have no trouble agreeing with? Cut those parts out; it's the rest that communicates your distinctive culture.

Amit said...

Glassdoor.com was my best reference for culture when I was looking. Too many people are fired from netflix to make one comfortable.
The reason that checks and balances work is that Energy has cycles, people go through phases. If you want to get your best year squeezed, do a startup.

Joran said...

On culture: Jeff Bezos was once quoted as saying his favorite business book was Built to Last: http://www.amazon.com/Built-Last-Successful-Visionary-Companies/dp/0887307396.

High pay and "best place to work" status may certainly attract employees but perhaps for the wrong reasons. These strategies may introduce more bugs than they solve.

Greg Linden said...

Thanks, Amit, interesting comments on Glassdoor.

In particular, several say that middle management has difficulty firing the right people (due to lack of information, politics and favoritism, or incompetence), which is why policies like firing the bottom 20% and forced ranking tend to do so poorly.

Greg Linden said...

That's an interesting point, Joran. Can you elaborate? What bugs are introduced by implementing high pay and best place to work strategies?

Daniel Tunkelang said...

I'd take reviews with a grain of salt--both the positive and negative ones are likely represent the outliers, making it hard to get an accurate picture of overall sentiment. It's probably more useful to see what people are praising and condemning.

It's telling to see the negative reviews (1s and 2s) acknowledging the high compensation. They complain that the open vacation policy amounts to no one actually being able to take vacation, and that performance evaluation (and performance termination in particular) is arbitrary rather than enlightened.

Conversely, even the positive reviews (4s and 5s) acknowledge that no paid time off makes it difficult to have a vacation or take a day off if you're sick, and that accomplishment often goes unrecognized.

What I conclude is that the culture Netflix advocates is a major management challenge. A culture of rock stars can devolve into a cult of egos and personalities. Lightweight process can devolve to no process. It's great to give employees discretion, but it's also important to set expectations around how to use it.

All that said, I think it's a great vision on the whole (though the slide deck could have been much shorter. The comments on Glassdoor suggest they might need to work a bit on execution. But don't we all?

jeremy said...

Second, I think Reed's advice to push new software to the website every two weeks is not nearly frequent enough -- I prefer at least daily -- and I also see this as at odds with his later claim that he wants "rapid innovation", "excellent execution", and "to be big and fast and flexible".

I still have a question about the efficacy of changing software daily. Don't users get frustrated? When using online software, I see things come and go all the time, and it gets annoying. I tend to want to use that software less, when it changes all the time.

We had part of this discussion the other day (https://www.blogger.com/comment.g?blogID=6569681&postID=3316571975109150929). I still don't feel resolved on it. How long do you need to hold something constant, until you can start changing it again? Daily feels too quickly. Even every two weeks feels too quickly, esp. in the Netflix case where I probably log on twice a month, anyway. Every two weeks means that the software is already changing every time I use it. Annoying.

Does any one know of user studies along these lines? Not A/B tests. But actual end user studies, about how the user is affected by software that is different every time he/she uses it.

Greg Linden said...

Hi, Jeremy. I am not familiar with studies on the negative effects of user interface changes, though I am quite sure that is more my ignorance of past work than that these studies don't exist. If you do a literature search, I'd enjoy hearing about what you discover.

One point of clarification: I certainly don't mean that the user interface is changing in large, noticeable ways for all users daily. When rolling out software daily, the vast majority of the changes will be bug fixes and performance twiddles. Most of the remainder will be A/B tests of minor UI changes or small new features that only a small fraction of users see. Only a very few will involve large and noticeable user interface changes.

The main reason I see for rolling out software frequently is that it forces changes in how software engineers deal with risk. Software changes have to be independent and backward compatible because you can no longer count on rolling out bundled with other changes. Rather than an expensive and ultimately futile effort to eliminate all errors, bugs are expected but controlled, the risk and impact mitigated by keeping changes small and allowing quick rollbacks or quick rollouts of new code. Frequent rollouts change how a company does software development.

jeremy said...

@Greg: Ok, if you're talking about adjusting the width of a bar from 2 pixels to 3 pixels, or doing a bug fix or whatever, that makes sense. I gots no problem with that. If you can fix a bug every day.. why not? That certainly won't impact the user in a negative way.

But is that what the Netflix fellow really meant, too? Bug fixes and color tweaks? Or was he talking about actual functionality changes?

GreenScreenCinema said...

As an ex-employee I feel I need to clear up some of the misinformation. First, Netflix does attempt to fire the bottom 20% each year. When I was there an informal study showed the turnover to be close to 25%. And the employees that are fired usually have no idea its coming, since there is no review system. The net effect is that no one knows who is going to get it next. Which brings us to the real problem at Netflix: everyone is so concerned about the firings that nobody will stick their neck out. There is no innovation going on there. Nothing is attempted that takes more than a couple weeks to plan. It's just fighting fires and trying to look good... When it comes to website features, you will notice that improvements come at a glacial pace. And site outages are common, at least for various site features (just check how often your friends recommendations are actually visible and working). There is no attempt by anyone to make Netflix the "best place to work". Everyone that works there knows this culture goal is total BS. I am just surprised at how many people will believe something posted in a slide deck, when literally hundreds of ex-employee postings say the opposite.