netflix hr case study

5 Ways Netflix Reinvented HR

“We had no idea it would go viral” said Patty McCord, one of the geniuses behind the 129 slides of 'Netflix Culture Desk' - and former Chief Talent Officer at Netflix.

It’s been over 6 years since the Powerpoint on Netflix's management style was posted online. But the takeaways from its creators - Patty McCord, Reed Readlings and colleagues, are yet to be reinforced in the veins of many organisations. The PowerPoint won over 5 million views on the internet. It had an opening line that got us curious before clicking on this article. “What gives Netflix the best chance of continuous success for generations of technology and people?” Let's find out How Netflix reinvented HR.

It first began in the late 2001 when Netflix only had 120 employees...

When the tech bubble burst, Netflix's need to layoff employees became clear. “It was brutal.” said McCord. But something changed.

The rise of DVD players grew into demand. “By early 2002, our DVD-by mail subscription business was growing like crazy. (And) suddenly we had far more work to do, with 30% fewer employees.” [Note: This marks Netflix’s need to hire new talent .]

The words of an engineer lit the first enigma of Netflix HR reinvention...

There are two incidents, in particular, which were a reason to How Netflix reinvented HR. One of Netflix’s best engineers (at that time) realised something after the layoffs, and cited to McCord, “I’ve learned that I’d rather work by myself than with subpar performers .”

“The best thing you can do for employees, a perk better than foosball or sushi, is hire only “A” players to work alongside them. Excellent colleagues trump everything else," realised McCord.

Netflix's exceptional bookkeeper...

Another incident took place that led to How Netflix reinvented HR was when McCord had no choice but to lay off an an exceptional bookkeeper with a severance package. From this second incident came the second learning; as Patty McCord quotes,

“If we wanted only “A” players on the team, we had to be willing to let go of people whose skills no longer fit, no matter how valuable their contributions had once been.”

In the light of these two events, the team at Netflix then produced five strategies that gained popularity overnight. So, let's know How Netflix reinvented HR?

5 Ways How Netflix Reinvented HR

1. “hire, reward, and tolerate only fully-formed adults”.

Today, Netflix’s vacation policy is nothing but “take vacation." Whereas, its employee expense policy is no longer than five words: “Act in Netflix’s best interests.”

Netflix initially had a paid-time-off policy of 10 vacation days, 10 holidays, and a few sick days. Right after this policy was publicly announced, the auditors mandated an official attendance and leave tracking system. But instead of shifting to a formal system, Netflix employees did the opposite.

Salaried employees were then told to take time off whenever required. “Bosses and employees were asked to work it out with one another” said Patty.

"If you are careful about hiring people who will put the company’s interests first, who understand and support the desire for a high-performance workplace, 97% of your employees will do the right thing”

2. “Tell the truth about performance”

Netflix, a decade ago, got rid of formal performance reviews . Instead, Netflix adopted an informal 360-degree performance reviews .

“We kept them fairly simply,” said McCord. “People were asked to identify things that co-workers should stop, start, or continue.”

Performance Improvement Plans (PIPs), McCord believes and we agree, are “fundamentally dishonest” and “never accomplish what their name implies.” Netflix also made the use of an HR software system to conduct the 360-degree reviews , and later, also held them face-to-face.

“In my experience, people can handle anything as long as they’re told the truth.”

3. “Leaders own the job of creating the company culture”

McCord stresses on the three issues that occur when leaders try to create a company culture . She shares a personal story of a new organisation she joined after Netflix.

When the CEO was showing her around, McCord asked about the most important value of his company. The CEO replied, “Efficiency.”

McCord continues, “Imagine that I work here, and it’s 2:58pm. I’m playing an intense game of pool, and I’m winning at it. I estimate that I can finish the game in 5 minutes. But we have a meeting at 3:00pm. Should I stay and win the game or cut if short for the meeting?"

“You must finish the game,” insisted the CEO; as many tech start-ups these days try to promote a casual culture, believes McCord. She further adds , “You told me that Efficiency is the important cultural value . It is not efficient to delay a meeting and keep co-workers waiting because of a pool game. Isn’t there a mismatch between the values that you are talking up and behaviours you’re modelling and encouraging ?” This mismatch becomes the first issues according to McCord.

Second issue, is being sure that employees understand the “ levers that drive the business .”

“Even if you have hired people who want to perform well, you need to clearly communicate how the company makes money and what behaviours will drive its success.”

Third issue, is the notion of a “ spilt personality start-up .” See HR for Startups: The Ultimate Guide

“At Netflix, for instance, I sometimes had to remind people that there are big differences between the salaried staff at the headquarters and the hourly workers in the call centres.” she added. “As leaders build a company culture , they need to be aware of subcultures that might require different management.”

Must Read: How Google is using people analytics to completely reinvent HR

4. “Managers own the job of creating teams”

One of the most noticeable part in the ways of How Netflix reinvented HR of managers at Netflix were asked to picture what their team is accomplishing six months from now. Down the line, you would be asking two questions with regards to the vision.

• What specific results do they see?
• How is the work different from what the team is doing today?

"We continually told managers that building a great team was their most important task. We didn’t measure them (managers) on whether they were excellent coaches or mentors or got their paperwork done on time."

5. “Good talent managers think like the innovators first – and like HR people last”

"Too many ( HR specialists ) devote time to morale improvement initiatives ,” says McCord. Even today, we see many instances where the entire team aims to get their company onto the lists of “Best Places to Work.”

McCorth further suggests that “instead of cheerleading”, HRs need to think of themselves as business executives. They should consider what’s good for the company and how can that be communicated to the employees.

A simple test, according to McCord, would be to approach any employee and ask, “Do you know particularly what you should be doing right now to increase your bonus?” And if an employee fails to answer it, the Netflix HR department is not making things as clear as they need to be. This is How Netflix reinvented HR .

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Jamie Lawrence

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• January 15, 2014

How Netflix reinvented HR

• By Jamie Lawrence

Sheryl Sandberg, COO at Facebook, called this document one of the most important to ever come out of Silicon Valley.

Written by Reed Hastings, CEO of Netflix, and colleagues, the document sets out the techniques used to shape culture and motivate high performance at TV-on-demand company Netflix 

Warning: some of the ideas are out there. But it’s a very impressive document. And a very compelling vision.

Take a look.

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Organizational Development

How Netflix Reinvented HR

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Publication Date: January 01, 2014

When Netflix executives wrote a PowerPoint deck about the organization's talent management strategies, the document went viral--it's been viewed more than 5 million times on the web. Now, one of those executives, the company's longtime chief talent officer, goes beyond the bullet points to paint a detailed picture of how Netflix attracts, retains, and manages stellar employees. The firm draws on five key tenets: (1) Hire, reward, and tolerate only fully formed adults. Ask workers to rely on logic and common sense instead of formal policies, whether the issue is communication, time off, or expenses. (2) Tell the truth about performance. Scrap formal reviews in favor of informal conversations. Offer generous severance rather than holding on to workers whose skills no longer fit your needs. (3) Managers must build great teams. This is their most important task. Don't rate them on whether they are good mentors or fill out paperwork on time. (4) Leaders own the job of creating the company culture. You've got to actually model and encourage the behavior you talk up. (5) Talent managers should think like businesspeople and innovators first, and like HR people last. Forget throwing parties and handing out T-shirts; make sure every employee understands what the company needs most and exactly what's meant by "high performance."

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Reinventing HR: The Netflix Case

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In the early days of Netflix, Reed Hastings, Co-Founder and CEO, asked Patty McCord (Chief Talent Officer) to write out the company’s core values, which led to  – quoting Sheryl Sandburg, COO of Facebook –  “one of the most important documents ever to come out of Silicon Valley”.  In this interview series, we will talk with Human Resources leaders about Netflix’s famous innovative HR practices.

Episode 2: A discussion with  Heiko Wieprecht , Managing Director at Singularity HR

1. What do you think about offering employees unlimited paid holiday allowance?

I am actually a fan of giving employees as much flexibility and holidays as possible. As long as the performance is there, as long as the work is done and done right. I am fine with employees taking as many holidays as they want. I know some start-ups in Germany which – although do not have a formal unlimited paid vacation policy – are extremely flexible in regards to employees taking long and spontaneous vacation periods. I believe the whole market is moving in this direction, based on the evolution of my interactions with trade unions. Some companies have even already implemented a 4-day work week, and the results seem to be good (i.e. no decrease on productivity). 

2. Rather than submit reports detailing money spent on mileage, meals, hotel rooms, and office supplies, employees are expected to spend money “acting in Netflix´s best interests”. What’s your take on this no limits travel and expense policy?

I believe it´s in principle good to treat your employees as shareholders of the company and have them acting as if the company´s money was also their money. However, from my experience, I know how difficult it is to make this work in practice. Employees might abuse this rule or/and use it to justify questionable expenses. I remember in one of my past assignments how our employer had a reasonable expense policy and relied on employees acting in the best interest for the firm. It didn´t work out so well, including an incident of company card heavy usage in the Red light district in Hamburg. Consequently, we had to dissolve the employment contract with that individual.

3. Netflix chose to ditch formal performance reviews and rely on informal 360-degree reviews. “We asked people to identify things that colleagues should stop, start, or continue.” They also don´t pay performance-based bonuses. What is your opinion about these measures?

This is quite an interesting topic, as I am aware that a number of firms have adopted the continuous feedback process method. I think this is definitely good for many roles. Why? Because sharing feedback on a regular basis improves the immediate performance. On the other hand, I don’t think it makes sense for certain type of roles, like heavily performance-based positions in sales, where a clear target is set, and there are reliable parameters to judge the employee’s performance effectively. Regarding individual “Performance Improvement Plans”, I reckon it´s positive to separate the underperformer from the others and try to solve the situation. Unlike Netflix, I wouldn´t directly let them go with a generous severance package, although that would be the next course of action if the PIP does not work. 

Thank you  Heiko  for sharing your thoughts. Stay tuned for the next episode! If you have any questions about this series of interviews or you need support hiring, contact  Alberto Villar .  

If you enjoyed reading this interview, please also have a look into  Episode 1  &  Episode 3 . 

References: • Reed Hastings & Erin Meyer – “No rules rules: Netflix and the culture of Reinvention” (2020)• Patty McCord – “How Netflix reinvented HR” – Harvard Business Review, January 2014

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Netflix: A Creative Approach to Culture and Agility

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• | Pages: 27

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• Netflix: A Creative Approach to Culture and Agility  By: Ranjay Gulati, Matt Higgins and Allison Ciechanover
• Netflix: A Creative Approach to Culture and Agility (B)  By: Ranjay Gulati and Matt Higgins

How Netflix reinvented HR

In a recent article for the Harvard Business Review , McCord outlined how Netflix reinvented HR to create the viral ‘Netflix Culture Deck’ (NCD).Describing the NCD, Netflix CEO Reed Hastings previously said that not enough HR departments are thinking innovatively.

“Many of the ideas in it seem like common sense, but they go against traditional HR practices,” he said. “Why aren’t companies more innovative when it comes to talent management? As a society, we’ve had hundreds of years to work on managing industrial firms, so a lot of accepted HR practices are centred in that experience. We’re just beginning to learn how to run creative firms, which is quite different.”

Read full article: How Netflix reinvented HR

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• Culture Hinges On Great Hiring: Here’s How To Approach It

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How Netflix reinvented HR  

Various blogs and reviews have quouted the Netflix reinventing HR presentation below. Written by Reed Hastings, CEO of Netflix, and colleagues, the document sets out the techniques used to shape culture and motivate high performance at TV-on-demand company Netflix.

The presentation below is incredibly refreshing due to it’s brutal honesty – they admit their high performance culture isn’t for everyone, they want to attract people who thrive on high performance, candor and change. They are honest about not wanting to attract people who prefer job security and feel fearful. Some corporations may find the below uncomfortable reading however for those interested in a successful culture the presentation is a must read.

The above presentation is not owned by Engage for Success.

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8 ‘Golden’ HR Strategy Lessons From Netflix

Who on Earth would have thought that one day, people will have access to hundreds of movies and TV shows for only $15 a month.

The founders of Netflix didn’t just create a company, they created history, they created a household name, they created a revolution.

It’s true that the entrepreneurs who brought Netflix into existence were highly ambitious and talented, but the rest of the staff that helped the company become a worldwide sensation should not be ignored.

In this article, we will discuss the HR strategies that Netflix used to hire and retain top talent, and how their outside-the-box talent management techniques took the company to new heights.

Patty McCord , the chief talent officer at Netflix from 1998 to 2012, once mentioned how she had to lay off a very old employee in 2002, just a few months after their IPO. This employee, Laura, was a bookkeeper who worked really hard to help the company during its initial stage. Back when Netflix was a DVD rental business, Laura created systems to efficiently track movie rentals and pay royalties.

However, as the company grew, its customers also grew. Consequently, according to Patty McCord, Laura wasn’t qualified to handle such a large financial operation anymore. So, McCord explained her painful decision to Laura and hired highly qualified certified public accountants to handle the growing books. Netflix values its old employees. Still, if their skills are no longer relevant, the company looks for the person with the right skills.

Lesson #2: Employ Only the Best of the Best, Because That’s What the Best Employees Prefer

KEY TAKEAWAYS

• One of the key Netflix values concerning human resources is treating all employees like mature adults.
• When it comes to employee expenditure, one encourages employees to act as if they’re spending their own money and not Netflix’s money.
• Instead of emotionally draining PIPs, Netflix prefers attractive severance packages in order to save time and energy and to avoid spoiling relationships with employees.
• They do not encourage rigid performance reviews and HR policies. Rather, one expects employees to use common sense and act like adults.
• Netflix encourages talent managers to think like businesspeople instead of using generic tactics to raise morale.

This should be the HR strategy in any company, not just Netflix. HR professionals and talent managers spend weeks writing and refining best practices for attracting and retaining talent. However, if you just hire qualified adults who have common sense, you’ll realize that all those complex HR policies only need to be used for reference purposes and not as a standard procedure. For instance, if a company doesn’t have a maximum number of days you can take off. In this case, the staff should know, out of common sense, that they still have to show up for work every day if there is no specific reason not to.

Lesson #4: Don’t Force Employees to Work

Netflix offers its salaried employees as much paid time off as they wish. Meaning that if someone’s child is sick all of a sudden, they don’t have to go through a formal process to apply for a leave. They can simply take a day off. The same applies to other situations, such as attending one’s cousin’s wedding, taking a Friday off to enjoy a 3-day trekking adventure, or having a mental health break.

Lesson #5: Trust Employees to Handle the Company’s Money

Many companies have a military-like expenditure policy. Employees have to report and explain all expenses. But not at Netflix. The company discontinued the use of its formal policy to enforce judicious expenditure. Netflix’s HR strategy with employee expenses is simple: “Act in Netflix’s best interests.”

This means that when Netflix employees spend the company’s money, e.g., to buy expensive champagne for an important client , they’re expected to spend it like it’s their own money. Again, the company’s HR strategy to let adults act like adults comes into play here.

Lesson #6: Ditch the ‘PIP’ and Go for an Attractive Severance Package

PIP stands for Performance Improvement Plan and, in a lot of cases, it has actually nothing to do with performance. In fact, HR departments around the world have been using PIPs as a tool to get rid of employees they don’t like. Many times it goes like this: A record of the employee’s supposed underperformance is created, then a PIP is set up, and unrealistic expectations are put. Afterwards, the employee is fired if he doesn’t meet those expectations.

McCord mentions an instance in which a quality assurance engineer at Netflix was about to undergo PIP. But instead of beating around the bush and setting high expectations that the engineer was not going to meet, McCord offered the employee an attractive severance package which gave them the time and opportunity to find a new job.

Lesson #7: Build a Vision First, and Then Build a Team

Talent managers often hire employees first, and then explain the vision to the team. Netflix does the exact opposite. Their HR strategy is to build a vision first and then hire team members who can help them achieve that vision.

When the company went from being just a DVD rental business to a worldwide online streaming sensation, the company needed more helping hands than ever. DVDs are tangible objects that can be delivered by mail. However, creating an online streaming platform requires hundreds of thousands of terabytes of video content to be uploaded to Netflix. The company has a vision of “becoming the best global entertainment distribution service,” as they say. To achieve this vision, they require the top cloud services experts from around the world. By having a clear vision, the company managed to hire the right people instead of spending weeks and months training existing employees.

Lesson #8: Talent Managers Should Think Like Businesspeople

According to McCord, talent managers should not focus on improving employee morale by throwing parties or giving out free items. Instead, talent managers should think like someone who is running a business. So, what’s truly important in business? It is for sure essential to know how the company makes money and communicate this to employees so that they act accordingly. For example, a talent manager could ask an employee: “I’ll give you a $10,000 bonus, guess what you have to do to earn it.” An ideal employee would say something like “increase subscriptions by 20% in 6 months” or “reduce churn rate from 5% to 3%”.

If an employee doesn’t know what “good performance” means in the company and how the company makes money, nothing will improve morale. However, if employees perform well, the company will perform well. Thus, if the company performs well, then morale will be high anyway.

If you’re an independent HR consultant or anyone who is working in the HR field or running a business, you should try these techniques in your own workplace. Netflix is not just a company after all, but a revolution. And this revolution was only successful because of the people who worked for Netflix and took the company to great heights. So, applying at least some of these lessons to your business or a client’s business will most likely bring the much-needed results. All the best.

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