Case study – how Netflix reinvented HR

Netflix reinvented HR

In life, the simplest solutions are often the best, and the way Netflix attracts, manages and retains talent is no different. By Patty MacCord’s own admission, the HR strategy is so compelling because it is based on common sense and Patty should know, she is a former chief talent officer at Netflix and co-writer of the revolutionary HR strategy that has reinvented Human Resources. The strategy is set around seven key points and outlines a culture based on company values, hiring top talent, giving employees the freedom to succeed and opportunities for self-improvement.

  1. Values

Do as I do, not do as I say. Leaders and managers need to live and breathe the company values in everything they do. In this way others will emulate them. It is also important to hire people who believe in those values and educate those employees who don’t, even if they are high performers. Compromising on company values results in diminishing and ultimately losing sight of them altogether. After all, one of ENRON’s values was integrity. Ironic given the company collapsed due to fraud. It’s values like grit, rigor, impact, teamwork, ownership and curiosity that ultimately drive success and it’s important that staff buy into this.

  1. High performance

Hire, develop and support high performers; the more talented people in an organization, the more they can accomplish. But, they must assist each other and internal “cut-throat” or “sink or swim” behavior must not be encouraged or tolerated. It doesn’t matter how many hours an employee works, it matters how much they achieve – in fact its been widely reported that Netflix believes if an employee is only adequate, then they should be given generous severance pay. Of course, there are times when a high performer becomes an adequate one and a company has a duty to help its people become great again. Inversely, a high performer who is not a team player and doesn’t embrace the company values should not be tolerated as their impact on the rest of the team’s performance can be extremely detrimental.

  1. Freedom and responsibility

Be honest and treat people like adults. If you are looking for people to take ownership, innovate, be smart and creative then you need to give them the freedom and responsibility to do so. Responsible people thrive on freedom and are worthy of freedom. MacCord explains. If you’re careful to hire people who will put the company’s interests first, then 97% of your employees will do the right thing. Most companies spend a great deal of time and money writing and enforcing HR policies to deal with problems the other 3% might cause. Adult like behavior means talking honestly and openly with your employees and colleagues on a regular basis and enabling managers and their reports to solve issues together on a case-by-case basis. If you create a clear expectation of responsible behavior, most employees will comply.

  1. Context not control

Don’t control staff, rather provide context to get the best results out of them. Only by understanding the full context of their business can employees really help their company grow. At Netflix, employees used to focus too heavily on subscriber growth, without much awareness that expenses often ran ahead of it. The company was spending a lot on buying DVDs, setting up distribution centers, and ordering original programming, all before they’d collected a cent from their new subscribers. It was therefore important to make employees understand that even though revenue was growing, managing expenses really mattered.

  1. Highly aligned, loosely coupled

Set a common goal and allow your teams to achieve it without heavy-handed supervision. Teams across the company have to work to the same strategy ensuring they are highly aligned but loosely coupled, meaning that they are not constantly checking each others work or sitting in endless meetings. This strategy gives a great deal of trust to employees to do what they are meant to, on time and to a high quality. It is the job of managers to ensure the strategy is clear and to reassess tactics from time to time to ensure teams are working harmoniously and independently of each other for the good of the company.

  1. Pay top of market

Hire the best and pay top dollar for it. One outstanding employee gets more done and costs less than two adequate employees. Netflix does not reward it’s employees with bonuses as it believes that employees who believe in the company values will not be motivated by promise of a bonus. Instead they are paid well and given the choice as to what proportion of their pay they want in stock options, if at all. On the flip side, if the nature of an employee’s job changes and their skills are no longer needed, the kindest thing is to give them a generous severance pay, no matter how loyal they have been. If the pay is good, then the person will normally by satisfied.

  1. Promotions and development

Encourage self-development. People should shape their own futures within a company rather than have a career plan shaped by the company. Netflix scrapped formal yearly reviews early on in the company’s life. They found them to be too ritualistic and infrequent. They asked managers and employees to have regular conversations about performance as an organic part of their work as having frank conversations on a regular basis was far more effective than infrequent reviews.

And MacCord’s advice to talent managers? Well, it’s think less like an HR person and more like a businessperson. Too many HR people devote time to morale improvement initiatives. These initiatives are usually based on a set of benefits, but no amount of perks or freebies will help if the company’s stock is tanking. Instead of cheer-leading, talent managers should think of themselves as business people. They should be asking themselves: “What’s good for the company?”,“How do we communicate that to employees?”, “How can we help our people understand what we mean by high performance?” – and implement strategies to address these. Ultimately, when a company is at the top of its game, so too are its people and their morale.

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