Netflix, the immensely popular online streaming video company, has become almost as popular online for its human resources advice as it is for “Orange Is the New Black.” Its advice has been viewed more than 5 million times on the web.
Patty McCord, the former chief talent officer at Netflix, wrote about the company’s success in an article in the January/February 2014 issue of The Harvard Business Review. In it she observed, “People find the Netflix approach to talent and culture compelling for a few reasons. The most obvious one is that Netflix has been really successful: During 2013 alone its stock more than tripled, it won three Emmy awards, and its U.S. subscriber base grew to nearly 29 million.”
McCord said the company’s human resources plan was formed in the hard times immediately after 9/11 when its initial public offering had to be postponed and when the company enjoyed success after launching its IPO that required letting a long-term valuable employee go because she didn’t fit in with the company’s expansion.
In the latter case, Netflix learned, McCord said, “If we wanted only ‘A’ players on our 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.” (But, she added, only with generous severance packages that allowed them to regroup.)
The downturn after 9/11 meant laying employees off and then facing the stress of hiring new workers when things suddenly turned around. That led, McCord said, “to the most basic element of Netflix’s talent philosophy: The best thing you can do for employees—a perk better than foosball or free sushi—is hire only ‘A’ players to work alongside them. Excellent colleagues trump everything else.”
That was the first step in creating Netflix’s 5 keys to human resources success:
- Hire, Reward, and Tolerate Only Fully Formed Adults
- Tell the Truth About Performance
- Managers Own the Job of Creating Great Teams
- Leaders Own the Job of Creating the Company Culture
- Good Talent Managers Think Like Businesspeople and Innovators First, and Like HR People Last
That last point might cause consternation among human resource professionals because McCord said in her three decades in human resources she has never seen an initiative that improved morale. McCord explained, “Instead of cheerleading, people in my profession should think of themselves as businesspeople. What’s good for the company? How do we communicate that to employees? How can we help every worker understand what we mean by high performance?
Hiring fully formed adults, McCord said, means asking workers “to rely on logic and common sense instead of on formal policies,” which most of the time led to better results at a lower cost. She added, “If you’re careful to hire 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.”
Formal reviews don’t exist at Netflix. “Building a bureaucracy and elaborate rituals around measuring performance usually doesn’t improve it,” McCord observed. “If you talk simply and honestly about performance on a regular basis, you can get good results—probably better ones than a company that grades everyone on a five-point scale.”
Managers create good teams, and take responsibility for them, McCord explained. “We continually told managers that building a great team was their most important task. We didn’t measure them on whether they were excellent coaches or mentors or got their paperwork done on time.”
Finally, a company’s culture has to come from the top but the leaders need to be sensitive to the needs of all employees. McCord cited the case of a desire to implement direct deposit to save money on payroll costs. It wouldn’t work, she said, for the many hourly employees who didn’t have bank accounts. “As leaders build a company culture, they need to be aware of subcultures that might require different management,” she said.
Of course the Netflix philosophy may not work for every company. As J. Lynne Cannon, principal at the Princeton Management Development Institute, said in an article at the Society for Human Resources Management website, [t]he larger a company gets, the more difficult it becomes to foster freedom. “In larger organizations where rules are unavoidable, they are drafted to support the adult conduct of the mainstream 90 percent, not the outliers,” Cannon said.