Is This Netflix Presentation Silicon Valley's Most Important Document?

What made Facebook COO Sheryl Sandberg say that a Netflix presentation, "may well be the most important document ever to come out of the Valley"? And what has compelled more than 15 million people to check out the now-legendary slideshow?

The Netflix presentation in question was originally written by CEO Reed Hastings for internal use and then shared online in 2009. It’s called "Freedom and Responsibility," and it’s available on Slideshare.

But why is it so groundbreaking? And is it relevant to other companies in different industries? I decided to find out.

What’s the Netflix Presentation's Core Message?

After reading through the slides, my first impression was that Netflix's presentation is crammed full of surprising and even counter-intuitive ideas about hiring, firing and corporate culture. In short, Hastings reveals Netflix’s secret to long-term business success: find brilliant people, pay them well, and give them the freedom to take responsibility for their own work.

“Responsible people thrive on freedom, and are worthy of freedom.” - Reed Hastings

I thought about this statement and realized that it agreed with my experience of a variety of workplaces. Who hasn’t wanted to leave a job because her employer monitored her every move and didn’t trust her to do her job?

I asked friends and co-workers for their opinions and they agreed: an excessively formal workplace makes some people yearn for creative freedom. If you, too, relish freedom and responsibility, you may be the kind of person that would suit a Netflix-style workplace. But why would any other business follow its example?

Why Does Netflix Promote Employee Freedom?

At first, I couldn’t understand how employee freedom was connected to Netflix’s overall business strategy. Doesn't it introduce waste? It turns out, that's not how Netflix sees it.

Netflix believes that increasing employee freedom creates an environment that is attractive to innovative, high-performing people. It seeks out and rewards people who can do great work in a rule-free environment. But what does that have to do with long-term strategy? Well, here’s what happens to most companies, according to Netflix:

1. Companies become increasingly complex as they grow.
2. They introduce procedures and formal rules in an attempt to prevent errors.
3. The excessive rules and formality drive away the highest performing employees. Companies lose their most creative talent.
4. The remaining employees are able to follow a procedure, but they aren’t “stars.” They’re comfortable in an environment that has rules for everything.
5. The market changes. The current strategy starts to fail. The remaining employees aren't creative enough to take the company in a new direction. The working environment doesn’t promote creativity.
6. The company fails to evolve and slowly slides into irrelevance.

By letting "adequate" employees go, and keeping brilliant people, Netflix ensures that it always has the talent required to adapt and survive. This, it believes, is the route to sustainable success.

How to Replicate Netflix’s Culture

So, according to the Netflix presentation, great people are the secret of the company's strategy. My next question was: how does Netflix identify the kinds of people it wants to keep? And how can other companies adopt the same approach? I did a little more digging and identified five lessons that we can learn from Netflix’s corporate culture:

• Discourage a Culture of Process Adherence

Instead, promote a culture of creativity, self-discipline, freedom, and responsibility. If you have the right people, they'll thrive in this environment. You might assume that dispensing with the rules would result in errors. On the contrary, Netflix found that high performers make very few mistakes.

However, it’s important to consider your industry and its particular needs. In creative fields like content streaming, mistakes can be fixed on the fly and don’t tend to have catastrophic results. If you're in medicine or nuclear power, you may not want to emphasize freedom to the same extent.

• Identify Star Employees

To filter for brilliant people, Netflix has a “Keeper Test.” This requires managers to ask themselves if they would fight to keep an employee if he wanted to leave. If the answer is no, that person is offered a generous severance package and the position is opened up for a potential star replacement. Only the “keepers” remain.

Hastings also claims that in procedural work, the best people are twice as effective as the average worker. However, in creative work, the best performers are 10 times as productive.

• Focus on Great Results, Not the Number of Hours Worked

The Netflix presentation revealed to the world that the company doesn't track employees’ working hours. The reason is that it knows they often have to respond to emails during weekends and evenings. An employee once pointed out that if the company doesn’t track working hours, then it shouldn’t track holidays either. So, Netflix stopped tracking employee holidays, too.

The organization hires people who are driven to go the extra mile, but it trusts them to take time away when they need to, as well. So, leaders set a good example by taking time off, then coming back energized and full of ideas.

• Dispense With Rules Whenever You Can

When it comes to expenses, Netflix has only one rule: “Act in Netflix’s best interests.” It also has no rules regarding dress. Despite this, Hastings points out, no-one comes to work naked. His point is that not everything needs a rule.

If an employee requires constant supervision, or can’t be trusted with responsibility, then she isn’t a good fit for the company. Again, Netflix gives her a generous severance package, thanks her for her service, and lets her find a more suitable fit.

Of course, Netflix understands that this approach has its limits. For example, it has rules to prevent irrevocable disasters, such as financial errors and hacking. It also has strict rules covering dishonesty, harassment and legal issues.

• Attract and Keep Top Talent

Netflix is willing to pay a premium for the best employees it can find. High salaries, Netflix believes, are the most attractive form of compensation.

It doesn’t force employees to take shares, bonuses, deferred payments, or other incentives. The company consolidates all of those expenses into the salary and lets the employee decide how to use it.

Netflix also regularly adjusts employees’ salaries to keep them competitive with the market. It pays at the top of the market range, so its people never need to change employers simply to earn their worth.

So that was what I took away from this eye-opening Netflix presentation. It certainly helped me to see recruitment and strategy in a new way and it raises lots of interesting questions, too. For example, could this approach work for all companies?

Well, the answer to that question will depend on your industry and your leadership style. It requires a high level of trust and a great deal of courage to adopt Netflix’s hiring and firing policies. However, if your organization values creative thinkers, and if errors don’t result in mortal danger or other serious consequences, Netflix’s approach could work for you, too. Perhaps it’s time you started identifying your “keepers”?