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No Rules Rules: Netflix and the Culture of Reinvention

Author: Reed Hastings
REED HASTINGS

After co-founding Netflix with MARC RANDOLPH in 1997, he has been the CEO since 1999. Netflix, which started as a DVD rental business, changed its business to internet streaming service in 2007, and started to produce dramas starting with 〈House of Cards〉 in 2013, and is showing disruptive innovation in line with the trend of the times. Lead Hastings, who led the business at the center, was ranked No. 1, the Company of the Year by in 2010, and is called “Post Jobs” as it caused a shift in the entertainment industry. He graduated from Borden College and received a master’s degree in artificial intelligence from Stanford University, while serving as a volunteer teacher in Swaziland, South Africa (now Swatini) as a member of the Peace Corps. He has been actively involved in education-related nonprofit activities in California for four years since 2000, and has held board positions at several educational institutions including Dreambox Learning, KIPP, and PAHARA.

Author: Erin Meyer
ERIN MEYER

Professor at INSEAD, the world’s leading business school. She has written articles such as Harvard Business Review, The New York Times, and Forbes that provide cutting-edge strategies and tactics for global leaders to interpret the diversity and complexity of cultures and to work efficiently across cultural differences. Her in particular, 《THE CULTURE MAP》, which she wrote based on her in-depth research on this, has become a bestseller. She earned her MBA degree from Insead in 2004, and she served as a volunteer teacher in South Africa as a member of the Peace Corps. She was named one of the world’s most influential business thinkers in 2019 by THINKERS50.

Endless innovation, faster speed than anyone else, the best talent…
“Our rival is human’sleep time’!”

Netflix was ranked 1st in the ‘Company with the Happiest Employees’ and No. 1 in the U.S. in 2019 by technical workers in 2018. It is reported as a company that recently recorded the highest growth rate in the pandemic and benefited from a business model suitable for an untouched (non-contact, non-face-to-face) society, but Netflix has long been called the’pronoun of disruptive innovation’. Netflix, which broke away from the DVD rental business and started Internet streaming services, bought copyrights for various TV programs and movies and provided them to consumers around the world, and became an entertainment company by becoming a large producer who directly produces high-quality video content. And in 2019, they said. “Our rival is human’sleep time’!”

What is the secret that Netflix was able to transform lightly and at a very fast pace whenever the market changed? Reed Hastings, co-founder and current CEO of Netflix, promotes their own corporate culture of “Freedom and Responsibility (F&R)” that requires no rules. There are literally no rules on Netflix! This means there are no tricky procedures or regulations that will reduce the momentum and efficiency of work. He stresses that what companies or teams need in today’s information age is not error prevention or exact replication, but creativity, speed of innovation, and agility. What is the biggest risk that threatens the survival of companies in this era? Reed affirms. They are not able to attract the best talent, to come up with new products, and to quickly change direction when the environment changes.

Erin Meyer, one of the world’s most influential business thinkers and co-author of this book by Thinkers50 in 2019, agrees that Netflix’s exceptional success is due to their ‘weirder’ corporate culture. After collecting the best players with the best treatment in the industry, they raise their salaries to match the market value, while maintaining a high “talent density”. Since then, by introducing a culture of honest feedback, various regulations and controls are removed so that employees can make the best decisions without seeing anyone. This way of operation has enabled innovation faster than anyone else. Professor Meyer interviewed more than 200 former and current Netflix employees over a two-year period to analyze their culture. The reality of Netflix’s success, which has never been known by countless companies and media outlets that have studied and explored their culture outside Netflix, is unveiled in 『No Rules』.

“Don’t keep eagles in cages!”
Netflix’s unique ecosystem incredibly flexible

Creativity and innovation. It is a word that appears without falling into the “success factor” of not only companies in this era, but also individuals. The problem is that even though the company is packed with talented people who work efficiently with extraordinary creativity, many organizations offset the strengths of their employees by establishing controls and regulations that would only work in the industrial era. He traps an eagle trying to soar into the sky in a cage.

Reed Hastings decided to run Netflix completely differently, taking lessons from his failures in “Pure Software,” which he first founded. It was decided to remove the bureaucratic controls and procedures that were striking the wings of talented people. There are more than 10 rules and procedures that most companies do, but Netflix does not. For example, these are things.

Vacation regulations | Cost regulations | Approval process | Travel rules | Contract approval | Salary grade
Decision approval | Performance improvement plan | Impression pool | Key Performance Indicators | Goal management method
Decision-making by the committee | Salary band | Bonus based on performance

Netflix doesn’t have a set vacation period. There is no need to wait for the approval of the boss to proceed with the planned item or whether to make a contract with the company. There is also no regulation on how much money can be spent on business trips and how much can be purchased without payment when purchasing company goods. There is no annual salary standard for each position, but what is certain is that it is the highest in the industry. Of course, there are no performance bonuses. This is because it already gives a salary that exceeds the bonus. It is in the judgment that the best ideas and creativity emerge when humans are first guaranteed a certain reward.

Without rules or procedures, you may be concerned that you may be running too lazy and some employees will abuse them. Of course, the expense has increased by about 10% compared to the standard payment system, but in the words of Reed Hastings, this is nothing compared to the benefits that can be obtained without the rules. Because of this, Netflix has become the company that star players want to work for, and through them, it has become an innovator that moves incredibly fast and incredibly flexible!

R&P and F&R, your choice?
Fun like Netflix, their management method

The two authors of 『No Rules』 exchange stories with insightful perspectives and clear brushstrokes, and continue their arguments using abundant examples of actual Netflix former and current employees. Part 1 is the first step to a culture of freedom and responsibility, building talent density by securing talented employees first, introducing a culture of honest feedback that allows you to tell your thoughts as they are, then approving vacation rules and travel and expenses. It guides you to remove the control by removing it. Part 2 is the next step to a culture of freedom and responsibility, with industry-leading rewards to strengthen talent density, to promote a culture of honesty with transparent management that is open to everything, and to ensure that no decision-making needs to be approved. Lets get rid of control. Part 3 introduces how to strengthen a culture of freedom and responsibility, maximizing talent density through keeper testing, maximizing honesty through the use of feedback circles, and removing most controls by providing context rather than control. In the final 4th part, we will introduce a culture map as cultural awareness that a global company that pioneers overseas markets on the world stage must have.

In the industrial era that has created wealth for the past 300 years, a culture of “rules and process” (R&P) that controls the movement of employees has been in force. This is the way we all know it, and the vast majority of businesses around the world still operate like this. But after reading this book you will find that you can do the same with the F&R method. The choice is up to us. What is clear is that in an environment where intellectual property rights and creative services are the basis of growth, the proportion of economies that rely on fostering creativity and innovation has become much larger, and this trend will accelerate.

Do you want to build and run an excellent organization? Are you looking for ways to attract the best talent? Do you want to stand out in the techno field? Would you like to know what it takes to innovate and leap forward in your company? Just wondering how Netflix people, recognized as the world’s top value companies, work and what skills they need to be able to join a global company? Whatever you are wondering about, in this book you will find surprisingly clear answers. Most of all, a tough business book is just as fun as a Netflix original movie!

There was one thing we didn’t have in the blockbuster. It was a culture that values ​​people over procedures, emphasizes innovation over efficiency, and controls control as much as possible. Thanks to a corporate culture that focuses on delivering the best performance based on’talent density’ and leading employees in a context rather than control, we will continue to grow and seek change together as the world changes. Could. Accordingly, the demands of our members have also transformed with us. Netflix is ​​different. In our culture, it is a rule that there are no rules.
— 「Introduction」

We trained our managers to fire employees who did undesirable behaviors or did not perform exemplary. From the lobby’s receptionists to senior executives, I’ve worked hard to fill Netflix with some of the best performing yet collaborative staff in the field. This is the most important point on which the Netflix story is based. Fast and innovative workplaces are made up of so-called “extraordinary colleagues”. Extraordinary colleagues from diverse backgrounds and perspectives are talented, creative, competent at important tasks, and work closely with others. If this first point is firmly established, no other principle will function.
— “Chapter 1 First Build Up Talent Density”

If I told the employee to go on vacation as I wanted, the sky would fall. But nothing changed. With exceptions, people’s satisfaction seemed to have risen a little, and there are employees who enjoy the freedom a little bit like they go to the Yanomani tribe in the Brazilian Amazon after working 80 hours for three consecutive weeks. We’ve figured out one way to allow high-performing employees to take control of their own lives. And he also confirmed that such control makes everyone more free. Due to the high talent density, our employees were already acting with a sense of conscience and responsibility. Since an honest culture has been established, if someone reverses the system or abuses the given freedom, people around him pointed it out and corrected the situation.
— 「Chapter 3-1 Remove Vacation Policy」

The fact that one best player outperformed other programmers caused a big ripple in the software industry as a whole. Executives wanted to figure out how much higher value a top programmer would have than their average peers. There was a method of hiring 10 to 25 engineers with moderate skills at a reasonable wage, and a method of hiring one “rock star” for a large sum. After choosing, through several examples, I was able to confirm the true value of a rock star. The best programmer’s value wasn’t about 10 times that of a moderately skilled programmer. They were worth more than 100 times. When he took on Microsoft’s board of directors and had the opportunity to work with Bill Gates, Bill said more than that. There is a passage that is frequently cited in his story. “Great turners are paid several times more than ordinary turners. But a great software programmer is worth 10,000 times more than an average programmer.”
— 「Chapter 4 Pay Top of Personal Market」

Typically, a company’s boss exists to approve or reject the employee’s decision. This is the surest way to stop innovation and slow growth. At Netflix, even though the managers think they are decent, if they think they are right, they are pushing to put them into practice. We don’t want the manager to put aside a subordinate or someone’s good ideas because they don’t recognize them. So Netflix says: ‘Don’t try to match your boss’s stomach. Do what is most beneficial to the company.’ There is one thing people are mistaken. The myth is that CEOs and senior executives are deeply involved in the details of the business, making their products or services better. People think that Apple’s iPhone was a success thanks to Steve Jobs’ involvement in everything until his last name. This is also a misunderstood story.
— Chapter 6 Now Release More Controls

We also encourage all managers to always think about their subordinates and make them the best in their positions. The’keeper test’ was devised so that managers can judge wisely in their own way. ‘If one of the team members said that they would quit tomorrow, would you persuade them to think about it again, or would you mind resolving the letter of resignation with good luck? If it’s the latter, pay him a severance pay right now and find a star player. Someone who has to stick with it anyway.’ Netflix is ​​trying to apply the Keeper test to everyone. We ourselves are no exception. Would the company be better if someone else does my job? The reason for doing this is not to be embarrassed when sending someone out. Consider a hockey team competing in the Olympics. It’s a pity to get a player out of the team, but fans and others will praise it as a decision that only people with the guts and abilities to make the team strong can make. — 「Chapter 7 Keeper Test」

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