Modern thinking at Netflix

In having a lazy day surfing the ‘net I stumbled across this gem of an article written by one Patty McCord who was chief talent office at Netflix between 1998 to 2012.  It describes the management techniques employed by the CEO Reed Hastings, and the way in which they differed from those of other companies, across a period which saw Netflix grow from nothing to being one of the biggest media companies in the world.  Entertainment media is a lot different from oil and gas, but nevertheless there are universal aspects to management which apply to any industry.  In reading the article, it was easy to see think of counter examples which demonstrate how modern oil and gas management is failing so badly.

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.

This confirms what I said in this post: if you want to know if an employee is any good, ask their colleague not their manager.  Oil and gas companies tend to do the opposite to Netflix in this regard, judging an employee based on their compliance with the requirements and expectations of the hierarchy rather than their ability to deliver.  It is therefore extremely common to find yourself in a team with one or more utterly incompetent individuals whose failure to deliver puts your own tasks in jeopardy and derails the whole project.  I long ago gave up trying to address this issue through management, because they either don’t recognise the individual’s incompetence or refuse to do anything about it if they do.  Modern oil and gas managers simply don’t have the authority, and many don’t have the willingness, to deal with incompetent employees.  It is their colleagues who have to suffer – and ultimately the bottom line.

Over the years we learned that if we asked people to rely on logic and common sense instead of on formal policies, most of the time we would get better results, and at lower cost.

Logic and common sense are in desperately short supply in an oil and gas company.  I saw more logic and common sense in the army, and military absurdity inspired Catch-22.  Words would have failed Joseph Heller in a modern supermajor.

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.

The problem the oil industry has is that its managers look after their own interests and nobody else’s.  As I said in this post, if a manager’s interests happen to be the same as those of the company at any given moment, it is merely a coincidence.  Company managers hire people who will make them look good and avoid making any decisions which might make them look bad.  The company’s interests are rarely considered.

Most companies spend endless time and money writing and enforcing HR policies to deal with problems the other 3% might cause.

I have an annoying habit of turning up in new assignments and asking why there is no company credit card issued to employees for business expenses.  The answer is always the same: it would get abused.  So rather than firing people who commit fraud on company credit cards, it is apparently better to get employees to shoulder the financial burden and employ hundreds of people to administer the claims.

Instead, we tried really hard to not hire those people, and we let them go if it turned out we’d made a hiring mistake.

Oil companies, by contrast, try really hard to employ people with egos and ambition that would make Napoleon Bonaparte look like a model of humility and are stuck with them for life.

Adultlike behavior means talking openly about issues with your boss, your colleagues, and your subordinates. It means recognizing that even in companies with reams of HR policies, those policies are frequently skirted as managers and their reports work out what makes sense on a case-by-case basis.

I must confess, I have generally found that HR policies are invoked to deny an employee whenever they want to improve something for themselves, or to prevent a useless employee from being fired.  But if management really want to shit all over somebody, the HR polices go out the window.

We also departed from a formal travel and expense policy and decided to simply require adultlike behavior there, too. The company’s expense policy is five words long: “Act in Netflix’s best interests.” In talking that through with employees, we said we expected them to spend company money frugally, as if it were their own. Eliminating a formal policy and forgoing expense account police shifted responsibility to frontline managers, where it belongs.

Compare and contrast.

But overall we found that expense accounts are another area where if you create a clear expectation of responsible behavior, most employees will comply.

Whereas in the oil business, employees are treated not only as children, but as children who HR think only want to shit on the living room carpet first chance they get.

Many years ago we eliminated formal reviews. We had held them for a while but came to realize they didn’t make sense—they were too ritualistic and too infrequent.

Compare and contrast.

So we asked managers and employees to have conversations about performance as an organic part of their work. In many functions—sales, engineering, product development—it’s fairly obvious how well people are doing.

It is staggering how many processes, procedures, and initiatives in an oil and gas company are substitutes for general, day-to-day, sound management practices.  Reporting being one such example I noted in my last post.

Building a bureaucracy and elaborate rituals around measuring performance usually doesn’t improve it.

No, it doesn’t.  Because the purpose of that bureaucracy and those rituals is not to improve anything but to keep people employed and managers handsomely remunerated for presiding over a mini-empire.  That’s why they should be dismantled, the personnel laid off, and the responsibility handed back to front-line managers.

Traditional corporate performance reviews are driven largely by fear of litigation. The theory is that if you want to get rid of someone, you need a paper trail documenting a history of poor achievement.

I am fully on board with the requirement to have a paper trail documenting a history of poor performance if a company wishes to fire somebody.  I have seen enough people booted from companies by spineless, useless senior managers who demanded unthinking obedience from their employees and rapidly dispatched anybody, no matter how talented, who behaved otherwise, and this ought to be either made very difficult or the requirement to be a sheep expressly laid out in the job description.  But there is no reason why a competent departmental manager cannot create such a paper trail for an underperforming employee, indeed I would think it was their duty to do so as a matter of course.

When we stopped doing formal performance reviews, we instituted informal 360-degree reviews.

Ah yes.  I remember these.

In my consulting work, I ask managers to imagine a documentary about what their team is accomplishing six months from now. What specific results do they see? How is the work different from what the team is doing today?

Heh.  The modern oil and gas manager is concerned only with what his employees are doing for the next six hours, and any future developments will come out of a clear blue sky either in the form of direct, detailed verbal instructions from his own hierarchy or with a very loud bang.  That’s not to say oil and gas managers are not experts at long-term planning, however.  To a man, they know exactly what their pension will be worth in 17 years time, how much equity will be on their “primary residence” back home by the time their kids reach university, when is the optimal time to re-enter a Western tax system, and how many arses they need to kiss between now and Christmas to get a good score on their appraisal.

Even if you’ve hired people who want to perform well, you need to clearly communicate how the company makes money and what behaviors will drive its success.

This is absolutely crucial, yet shockingly neglected in even medium-sized companies.  The mechanism by which the company makes money, and the role each department and individual plays in that, ought to be communicated and repeated over and over by the senior management and department heads until the employees themselves automatically think about it every time they come to make a decision or execute a task.  Yet as companies grow from start-ups into SMEs and then into large companies and eventually giant behemoths which the majors and EPC contractors have become, this message gets fainter and fainter until it is forgotten altogether, replaced with woolly soundbites such as “Beyond Energy” or “Deliver. Improve. Innovate”.  You then have an organisation which, like a bloated public service, believes it exists in its own right, is focused on processes and not outcomes, and largely fails to do what it was created to do with most employees not having the faintest idea how the money is generated to pay their salaries.  The behaviour of the laughably-named “support services” in an operator or engineering company would change drastically if they were forced to understand that they exist only to make the lives of those who generate the revenues easier.  Currently, large companies in the oil industry are run on the basis that those who generate the revenues are micromanaged by hundreds of procedures and processes drawn up by people who have no idea of where the money comes from.  With oil at $36 per barrel, CEOs might want to take a good, hard look at that.

If your company has a performance bonus plan, go up to a random employee and ask, “Do you know specifically what you should be doing right now to increase your bonus?” If he or she can’t answer, the HR team isn’t making things as clear as they need to be.

To be fair, this is as clear as anything in the oil business.  To increase your bonus you need to brown-nose your management, backstab your colleagues, and shit all over your subordinates.  Remarkably, everyone figures this out without the need of HR telling them.

The oil and gas industry could learn a lot from the likes of Netflix.  The chances of them actually doing so are practically nil.

“I have a feeling we’re going to last forever.”

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4 Responses to Modern thinking at Netflix

  1. Graeme says:

    I am looking forward to your guide to the quarterly results’ season. The fall in oil prices should be showing up clearly in the revenue line by now…and how much will trickle down to the bottom line is going to make for interesting reading, I am sure.

    • Jake Barnes says:

      I’m not sure how much stock to put in quarterly results: too much scope to shift stuff from one period into another, plus 3 months is nothing in business. I’m looking forward to seeing the yearly results, though.

  2. dearieme says:

    I dare say that if netflix survives long enough to become a “mature” corporation it will become just as bad. Has anyone studied the dynamics of the rate of decay of managerial competence within corporations? I’m hoping for something as simple as “clogs to clogs in three generations” as applied to family firms.

    • Jake Barnes says:

      I am quite sure Netflix will soon revert to the norm, and might already have done so: the article was already a few years old and the key personnel it mentions have since moved on. I expect they’re already creating a giant HR department as I type.

      That would make an interesting study indeed: in fact, I have drafted a post that I will put up in the next few days comparing the decadence that inflicts nation states once they get wealthy and solve the most pressing concerns and companies which get too big and wealthy. The “clogs to clogs” analogy is a good one.