Co-authored by Reed Hastings, CEO of Netflix, and Erin Meyer, Professor at INSEAD's School of Business Administration, Zero Rules describes Netflix's "Zero Rules" approach to business, which is different from that of other companies in many ways, such as "mediocre employees receive generous severance packages," "full information and secure authorization," and "the importance of freedom and responsibility" in its business philosophy. Netflix has a culture that is different from other companies, such as "mediocre employees get paid well" and "full information, secure licenses". These seemingly unique statements are in fact a manifestation of its business philosophy, which emphasizes "freedom and responsibility. This book illustrates how Netflix's experience has led to the successful establishment of a free and responsible business model, and it is especially worthwhile for managers who aspire to build an innovative system with a high degree of human resource density.
Table of Contents
How to achieve zero rules? The Basics of a High-Freedom Work Environment
In an environment like Silicon Valley's technology industry, success depends on innovation. Most of the success stories of Silicon Valley companies are about a small company that developed great business value through innovation. However, after a company grows to a certain size, it is always necessary to establish processes to prevent mistakes. If the rules are too rigid, following the rules for a long time will limit the thinking of the employees, and easily cause the company to be unable to adapt to the trend. It is difficult to strike a balance between freedom and avoiding mistakes. Most large companies always develop a lot of rules and processes.
Netflix's commitment to a high-freedom environment is driven by a focus on maintaining a high-performance work environment that allows the company to be consistently agile, according to Reed Hasting.
By giving employees more freedom than making rules and not allowing them to make their own judgments, they are able to make better decisions and be more accountable. As a result, not only will colleagues be happier and more motivated, but the company will also be more agile.
Creating an environment of high freedom is easier said than done. That's because freedom doesn't work well in every environment. The prerequisites for practicing freedom can be understood by using my favorite example from the book: Imagine you have a sixteen year old son who has recently started going to parties on Saturday nights with his older friends. You don't want him to drink and drive, and there are two ways you can deal with this problem: either you supervise all of his actions, which is controlling leadership, or you give him enough information to get a consensus on the dangers of drinking and driving, which is informational leadership. The appropriate approach depends on your son's judgment and your ability to trust him.
To be able to allow freedom.An environment of high talent density, honesty and transparency must be established before we can be assured of reduced control.The company's "Freedom and Responsibility" ethos, as Netflix calls it, is being practiced.
When thinking about whether to adopt informational leadership, it's also important to consider goals. For many technology companies, innovation is more important than error prevention. But there are some industries that should focus on error prevention, such as doctors, who can't afford to make mistakes. This type of work requires detailed processes to ensure that nothing goes wrong.
High talent density
In his book, Reed Hasting says that his deep understanding of the benefits of high talent density comes from an unintentional and successful experiment at Netflix, which had to lay off employees in 2001 because of the dot-com bubble. Unexpectedly, after a rigorous screening process to eliminate one-third of the poor performers, the atmosphere in the office improved dramatically and became more creative.
For capable people, it is exciting to work with others who are truly capable. It only takes a few underachievers in a team to bring down the team's performance. Colleagues who strive for excellence may leave, and those who remain may find the workplace accepting of mediocrity and switch to mediocrity.
Having mediocre people under you will cause many of your otherwise excellent subordinates to perform mediocrely as well.
Netflix has learned from experience that it must increase its talent density. In practice, this means hiring only the best employees and laying them off if they don't perform well enough.
Attracting Creative Talents with the Highest Salary in the Industry
Reed Hasting categorizes jobs into operational and creative. For operational jobs, such as cleaners and drivers, a good employee's performance can be twice the average. But for creative jobs, the best people can outperform the average by more than ten to one. Therefore, the most efficient way is to pay the median salary in the market for operational jobs, while paying the highest salary in the market for creative jobs to hire the strongest talent. The advantage of this is that the team can be kept lean.
Netflix doesn't use a bonus system either. They believe that high-performing people are already willing to commit themselves, so it would be counterproductive to spend all their time thinking about whether their performance is good enough and whether they can get bonuses. Therefore, they directly offer the most favorable salary to let the talents give full play to their creativity. The same reasoning applies to salary adjustments. When adjusting salaries, the company will conduct a precise survey of the market situation and take the initiative to make substantial salary adjustments according to the market situation, so that employees do not need to go out to look for a job and then come back to talk about it, and it even encourages employees to take the initiative to ask for a price when they receive a phone call from a headhunter.
If you want to keep your top employees, it's always better to give them a raise before they are hired by someone else than to make up for it later.
Using retention tests to weed out unsuitable employees
If you truly value talent density, you have to get used to doing something that's a lot harder: firing a good employee because you think you can hire someone better.
Reed Hastings says the workplace is not a family, it's a team. He believes the ideal environment is like that of a professional football team, where athletes strive for excellence, where they are constantly asking for feedback and improvement in order to win, and where a person not only has to specialize in his or her own strengths, but also has to be able to work as a team to help the team win the game. No matter how hard they try, if they don't help the team, they get benched.
It's not always easy to replace someone, and supervisors use retention tests to help determine this: If someone on your team were to quit tomorrow, would you want to try to keep them? If not, prepare for severance pay and look for the next best thing. At Netflix, "mediocre employees receive generous severance packages.
Unlike some other companies that deliberately lay off poorer performers, Netflix avoids a mandatory ranking system and does not require a fixed number of employees to be laid off. Therefore, just because someone is a better performer doesn't mean that a poor performer will be eliminated. So there's no problem with over-competition if all employees are good. However, the use of retention tests still tends to create anxiety among employees. Netflix's approach encourages employees to ask their supervisors, "If I were to leave, how hard would you try to convince me to change my mind? Netflix encourages employees to ask their supervisors "If I were to leave, how hard would you try to convince me to change my mind? But this can only be done when both parties have enough trust, which is why building trust is so important. Building trust is also an important part of organizational transparency.
Organizational Transparency
In order to build trust, Netflix has gone to great lengths to create an environment of honesty and outspokenness, based on the principle that "you only say in private what you would say in person.
Creating an honest and outspoken environment from encouraging feedback
The best way to create an environment of honesty and outspokenness is to start by encouraging people to share their feedback.
There are five principles of appropriate feedback:
- Give feedback with the goal of helping. Be aware that some people give feedback in an overly "asshole" manner, interrupting or snubbing others, which undermines the principle that giving feedback is based on the goal of helping, and if not corrected, must be eliminated as inappropriate.
- The feedback given must be practicable.
- Feedback must be appreciated when it is received. We must fight the instinct of self-defense and the defensive mindset.
- When it comes to feedback, both the person giving the feedback and the person receiving the feedback understand that it is up to the person receiving the feedback to decide whether or not to accept it.
- Adjust expression and response to the culture of cooperation to achieve the desired results.
As long as all people give back with good intentions and courtesy, good people can help each other grow, and having enough transparent conversations can minimize the amount of rivalry.
But even if everyone is honest, it is still very difficult to encourage people to speak up. It is probably not uncommon for us to find ourselves in a workplace where we feel that something is not right, but usually no one speaks up. The reason why no one speaks up is that people have to consider whether they will be supported, and they don't want to look bad or make their colleagues feel bad or angry, so the opportunity to speak up is lost in the balance. One of the more difficult aspects of creating a culture of honesty is emphasizing outspokenness, and Reed Hasting suggests that fostering an environment of honesty and outspokenness starts with honestly asking employees to give their supervisors detailed feedback. Encourage feedback by scheduling one-on-one conversations with employees and putting feedback on a regular agenda. Supervisors must take the initiative to encourage employees to speak up and give "cues of belonging" when they receive feedback.
Belonging cues are verbal or verbal actions that suggest to the other person, "Your opinion makes you a more important member of the team" or "Your honesty with me doesn't jeopardize your job or our relationship; you belong on this team".
Clues to belonging might be expressing gratitude, using appreciative tone and body language, or even finding opportunities to mention it in front of more people.
Once good feedback habits are in place, the culture of feedback can be more fully generalized to provide feedback to everyone. netflix eventually adopted a method called 360-degree ratings, which avoids anonymity and scoring, and doesn't tie the results to raises and promotions, but is open for all to leave comments to help coworkers improve. When giving feedback, the structure of "start, stop, continue" was used to give 25% of positive feedback and 75% of constructive comments.
Another interesting topic here is how to overcome cultural differences and promote communication. Especially in an internationalized environment, people from different cultures understand and accept feedback in different ways. This book suggests that for recipients from more direct cultures, there can be more frank discussions, while in places less accustomed to direct feedback, there is a need to establish more formal feedback mechanisms to facilitate communication.
Full transparency to build trust
When you share your secrets, the other person will feel confidence and loyalty.
Transparency builds trust quickly. Leaders have a responsibility to personally model transparency by sharing information with everyone as much as possible, even if it's company finances or news that affects employee well-being. The trust built by letting employees know as soon as possible outweighs the detrimental effects of distractions. However, if a situation involves the privacy of certain individuals, it is important to keep it to yourself and explain to your employees that they should ask the people involved directly.
Reed Hastings believes that making employees feel like they own the company increases their willingness to take responsibility and makes people smarter.
When you give junior staff access to information that's usually restricted to senior executives, they can accomplish more on their own and more efficiently, without having to stop and ask for information and permission all the time.
Transparency improves employees' understanding of the situation, and if mistakes made in the company are made public, everyone can learn from them at the same time. Sharing mistakes is also a way to increase trust, goodwill, and innovation in a situation that has already proven its strength.
Reduced control
Once the conditions of high talent density and honesty in the environment are met, it is possible to reduce control and implement the principle of "full information and secure authorization".
Elimination of red tape
Removing regulations is not an easy task, and there are several difficult problematic situations when there are no regulations.
First, people are likely to be overwhelmed.
Most people look at their own department and try to get a handle on the "flexible limits", i.e. what is acceptable.
This can be solved by supervisors leading by example or communicating with employees. For example, when Netflix eliminated vacation restrictions, it asked supervisors to take the lead in taking long vacations and sharing their experiences. In the case of eliminating travel expenses, Netflix ultimately used the principle of "acting in the best interest of Netflix.
Secondly, there may be people who abuse the system.
For example, some people will take time off when the team is particularly busy. To deal with this kind of problem, supervisors need to improve communication with their teams and provide a pulse on what behaviors are inappropriate. The most important rule is to communicate before you check, and Netflix handles travel abuse by spot-checking usage and asking employees to explain any spending that might be out of line, and if the finance department finds out that someone is intentionally spending money, the employee can be fired outright.
Establishment of Decentralized Decision Making System
In an environment of rapid innovation, individual accountability is important. A decentralized decision-making model is one in which "employees don't have to get approval from their supervisors for what they want to do, but they do have to let their supervisors know what's going on. If employees are good workers and their values are aligned with the company's, supervisors can trust their subordinates to make the best decisions without assigning tasks from the top down. While decisions can go wrong, in the creative industry it's more efficient to be experimental and quick to recover, so Netflix encourages employees to make good bets.
Netflix uses the framework of the innovation cycle. There are four steps to working on an idea and executing it:
- Actively ask for opinions. Because an environment of honest feedback has already been established, where everyone can honestly express their opinions on the idea, spreading the idea in such an environment will allow everyone to contribute directly to the idea and start a constructive debate.
- Ideas if very large scale, survey clearly.
- Become the leader of the game and place your bets. Although there are steps to be taken to ask for input, if you are sure you want to go further you do not need the approval of your supervisor.
- Celebrate your successes and review your failures.
The final step of celebration and review is for the supervisor. The supervisor's role in this cycle is not to take charge, but if it works, the supervisor should openly celebrate, especially if the idea is contrary to the supervisor's original idea. If it fails, it should be viewed as a learning process, and employees should be encouraged to share the experience of failure so that everyone learns. Most importantly, teach employees that failure is acceptable, that they need to remember the experience, grow together, and then let go of the failure and move on to the next project.
Recognize consistency, loose coupling
In order for everyone to make big decisions, there needs to be absolute agreement on goals between employees and supervisors, so transparency is a must. The way to create a transparent environment was mentioned earlier, but how do you actually ensure agreement? Reed Hasting believes that communicating goals is the responsibility of the leader.
Instead of blaming your subordinate for doing something stupid, ask yourself what information you are not giving them enough. Is the wording of your goals and strategies clear enough? Is it encouraging enough? Have you clearly explained all the assumptions and risks that will help the team make decisions? Do you and your subordinates share the same views and goals?
The decision maker is the leader of the organization, not the boss. The boss's job is to establish the background information that will guide the team to make the best choices for the company.
The structure is tree-like, with the higher up the hierarchy getting closer to the root of the tree, and the lower levels being the branches of the tree. The boss supports the supervisor at the root of the tree, and the supervisor is the trunk of the tree supporting the branches at the base. Those who make decisions are the branches.
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