Hastings

It was not obvious at the time, even to me, but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls. Our culture, which focused on achieving top performance with talent density and leading employees with context not control, has allowed us to continually grow and change as the world, and our members’ needs, have likewise morphed around us. Netflix is different. We have a culture where No Rules Rules.

Policies and control processes became so foundational to our work that those who were great at coloring within the lines were promoted, while many creative mavericks felt stifled and went to work elsewhere. I was sorry to see them go, but I believed that this was what happens when a company grows up.

Then two things occurred. The first is that we failed to innovate quickly. We had become increasingly efficient and decreasingly creative. In order to grow we had to purchase other companies that did have innovative products. That led to more business complexity, which in turn led to more rules and process.

The second is that the market shifted from C++ to Java. To survive, we needed to change. But we had selected and conditioned our employees to follow process, not to think freshly or shift fast. We were unable to adapt and, in 1997, ended up selling the company to our largest competitor.

If you build an organization made up of high performers, you can eliminate most controls. The denser the talent, the greater the freedom you can offer.

... teaching your managers principles like, “Lead with context, not control,” and coaching your employees using such guidelines as, “Don’t seek to please your boss.

Build up talent density by creating a workforce of high performers.

Introduce candor by encouraging loads of feedback.

Remove controls such as vacation, travel, and expense policies.

Strengthen talent density by paying top of market.

Increase candor by emphasizing organizational transparency.

Release more controls such as decision-making approval.

Max-up talent density by implementing the Keeper Test.

Max-up candor by creating circles of feedback.

Eliminate most controls by leading with context not control.

I thought of Erin Meyer, whose book The Culture Map I had just finished reading. A professor at INSEAD business school outside of Paris, Erin had recently been selected by the Thinkers50 as one of the world’s most influential business thinkers. She writes frequently about her research on cultural differences in the workplace for Harvard Business Review, and I learned in her book that she was also a Peace Corps volunteer teacher in Southern Africa ten years before I was. I sent her a message.

We learned that a company with really dense talent is a company everyone wants to work for. High performers especially thrive in environments where the overall talent density is high.

Our employees were learning more from one another and teams were accomplishing more—faster. This was increasing individual motivation and satisfaction and leading the entire company to get more done. We found that being surrounded by the best catapulted already good work to a whole new level.

In my first few years as CEO at Pure Software, I managed the technology well. But I was still pretty miserable at the people part of leadership. I was conflict-avoidant. People would become upset if I addressed them directly with a problem, so I would try to work around issues when they arose.

I trace this personality trait back to my childhood. When I was a kid, my parents were supportive, but we didn’t talk about emotions in our house. I didn’t want to upset anyone, so I avoided any difficult topics. I didn’t have many role models for constructive candor, and it took me a long time to get comfortable with it.

Afterward, I tried to take this same commitment to being honest back to the office. I began encouraging everyone to say exactly what they really thought, but with positive intent—not to attack or injure anyone, but to get feelings, opinions, and feedback out onto the table, where they could be dealt with.

After Leslie gave constructive feedback to Barry, Barry gave constructive feedback to Patty and later to me. Seeing how well he had responded to Leslie’s feedback, Barry’s team dared to tell him, with a bit of humor, when his moodiness was slipping back in and started giving more feedback to one another. We hadn’t hired any new talent or raised anyone’s salaries, but day-by-day candor was increasing talent density in the office.

When giving and receiving feedback is common, people learn faster and are more effective at work.

If you would like to develop a culture of candor in your own organization or on your own team, you can take several steps. The first is not the most intuitive. You might think the first step for cultivating candor would be to begin with what’s easiest: having the boss give copious feedback to her staff. I recommend instead focusing first on something much more difficult: getting employees to give candid feedback to the boss. This can be accompanied by boss-to-employee feedback. But it’s when employees begin providing truthful feedback to their leaders that the big benefits of candor really take off.

Don’t just ask for feedback but tell and show your employees it is expected. Put feedback as the first or last item on the agenda so that it’s set apart from your operational discussions. When the moment arrives, solicit and encourage the employee to give feedback to you (the boss) and then—if you like—you can reciprocate by giving feedback to them.

Your behavior while you’re getting the feedback is a critical factor. You must show the employee that it’s safe to give feedback by responding to all criticism with gratitude and, above all, by providing “belonging cues.” As Daniel Coyle, author of The Culture Code, describes them, such cues are gestures that indicate “your feedback makes you a more important member of this tribe” or “you were candid with me and that in no way puts your job or our relationship in danger; you belong here.” I speak with my leadership team frequently about displaying “belonging cues” in situations when an employee is providing feedback to the boss, because an employee who is courageous enough to give feedback openly is likely to worry, “Will my boss hold it against me?” or “Will this harm my career?”

A belonging cue might be a small gesture, like using an appreciative tone of voice, moving physically closer to the speaker, or looking positively into that person’s eyes. Or it might be larger, like thanking that person for their courage and speaking about that courage in front of the larger team. Coyle explains that the function of a belonging cue “is to answer the ancient ever-present question glowing in our brains: Are we safe here? What’s our future with these people? Are there dangers lurking?” The more you and others in your company respond to all candid moments with belonging cues, the more courageous people will be in their candor.

The only remaining question is when and where to give feedback— and the answer is anywhere and anytime. That might mean giving feedback in private, behind closed doors. Erin got her first Netflix feedback in front of a group of three or four people in the middle of a keynote. That is fine too. It can even be shouted out in front of a group of forty, if that’s where it will help the most.

We decided, despite some trepidation, to remove the vacation policy, but only as an experiment. The new system would allow all salaried staff to take off whenever they wanted for as long as they wanted. There would be no need to ask for prior approval and neither the employees themselves nor their managers would be asked or expected to track their days away from the office. It was left to the employee alone to decide if and when he or she felt like taking a few hours, a day, a week, or a month off.

LEADERS MUST MODEL BIG VACATION-TAKING… If the CEO is taking only two weeks’ vacation, of course his employees feel the unlimited plan doesn’t give them much freedom. They’re bound to take more time off with three allotted weeks than with an indefinite number and a boss who models just two. In the absence of a policy, the amount of vacation people take largely reflects what they see their boss and colleagues taking. Which is why, if you want to remove your vacation policy, start by getting all leaders to take significant amounts of vacation and talk a lot about it.

With the absence of a policy, most people look around their department to understand the “soft limits” of what’s acceptable. I have always been interested in travel and before we lifted our vacation policy I already tried to take a good amount. But after we lifted the policy I started talking a lot more about those vacations to anyone who was willing to listen.

Leadership modeling is the first part of getting the unlimited vacation to work properly. The other concern many have about removing the vacation policy is that their teams will use the freedom to take off months on end at inconvenient moments, harming teamwork and sabotaging the business. That’s what brings us to the second required step for a successful lifting of vacation policy. Do this well and it will also help you fix the problem of any leaders in your organization, like Kyle, who don’t emulate the big vacation-taking their bosses are modeling and in doing so fail to achieve healthy work-life balance on their own teams.

SET AND REINFORCE CONTEXT TO GUIDE EMPLOYEE BEHAVIOR… This brings us to the second step critical for successfully removing your vacation policy. When you remove a policy, employees don’t know how to operate with the absence. Some will be paralyzed until the boss tells them explicitly what actions are okay. If you don’t tell them, “Take some time off,” they won’t. Others will imagine they have complete freedom to behave in wildly inappropriate ways like going on vacation at a time that causes pain to everyone else. This not only sabotages team effectiveness, but could ultimately lead the manager to throw up his hands and fire the employee, which is not good for anyone.

In the absence of written policy, every manager must spend time speaking to the team about what behaviors fall within the realm of the acceptable and appropriate.

New recruits to Netflix are eager to understand what they should and shouldn’t spend money on, and we provide them with the context to make good choices. During the ten years that David Wells was CFO he set the first round of context for incoming recruits at our “New Employee College.” He explained it like this:

Before you spend any money imagine that you will be asked to stand up in front of me and your own boss and explain why you chose to purchase that specific flight, hotel, or telephone. If you can explain comfortably why that purchase is in the company’s best interest, then no need to ask, go ahead and buy it. But if you’d feel a little uncomfortable explaining your choice, skip the purchase, check in with your boss, or buy something cheaper.

This is the nub of F&R. If your people choose to abuse the freedom you give them, you need to fire them and fire them loudly, so others understand the ramifications. Without this, freedom doesn’t work.

...even if your employees spend a little more when you give them freedom, the cost is still less than having a workplace where they can’t fly. If you limit their choices by making them check boxes and ask for permission, you won’t just frustrate your people, you’ll lose out on the speed and flexibility that comes from a low-rule environment.

I don’t want rules that prevent employees from making good decisions in a timely way. Fowler’s review was worth hundreds of times more to both Netflix and Samsung than that TV. Nick had just five words to guide his actions: “Act in Netflix’s best interest.” That freedom enabled him to use good judgment to do what was right for the company. But freedom isn’t the only benefit of removing your expense policy. The second benefit is that the lack of process speeds everything up.

Once you have a workforce made up nearly exclusively of high performers, you can count on people to behave responsibly. Once you have developed a culture of candor, employees will watch out for one another and ensure their teammates’ actions are in line with the good of the company. Then you can begin to remove controls and give your staff more freedom. Great places to start are the lifting of your vacation, travel, and expense policies. These elements give people more control over their own lives and convey a loud message that you trust your employees to do what’s right. The trust you offer will in turn instill feelings of responsibility in your workforce, leading everyone in the company to have a greater sense of ownership.

For operational roles, you can pay an average salary and your company will do very well. At Netflix, we don’t have a lot of jobs like that. Most of our posts rely on the employee’s ability to innovate and execute creatively. In all creative roles, the best is easily ten times better than average.

But for all creative jobs we would pay one incredible employee at the top of her personal market, instead of using that same money to hire a dozen or more adequate performers. This would result in a lean workforce. We’d be relying on one tremendous person to do the work of many. But we’d pay tremendously.

This is the way we have hired the majority of employees at Netflix ever since. The approach has been remarkably successful. We have exponentially increased our speed of innovation and our output.

When those lean teams are exclusively made up of exceptional-performing employees, the managers do better, the employees do better, and the entire team works better—and faster.

But people are less creative when they don’t know whether or not they’ll get paid extra. Big salaries, not merit bonuses, are good for innovation.

By avoiding pay-per-performance bonuses you can offer higher base salaries and retain your highly motivated employees. All this increases talent density. But nothing increases talent density more than paying people high salaries and increasing them over time to assure they remain top of market.

Figuring out top of market can take a lot of time, but not as much time as finding and training a replacement when your best people leave for more money at another company.

My goal was to make employees feel like owners and, in turn, to increase the amount of responsibility they took for the company’s success. However, opening company secrets to employees had another outcome: it made our workforce smarter. When you give low-level employees access to information that is generally reserved for high-level executives, they get more done on their own. They work faster without stopping to ask for information and approval. They make better decisions without needing input from the top.

In most businesses, without even realizing it, senior managers stunt the abilities and intelligence of their own workforce by keeping financial and strategic information hidden. Although just about all companies talk about empowering staff, in the vast majority of organizations, real empowerment is a pipe dream because employees aren’t given enough information to take ownership of anything.

The more employees at all levels understand the strategy, financial situation, and the day-to-day context of what’s going on, the better they become at making educated decisions without involving those above them in the hierarchy.

Of course, transparency, like all of our cultural principles at Netflix, does sometimes go wrong. In March 2014, a director of content acquisitions downloaded reams of confidential data and took it with him when he left to work for a competitor. This led to headaches and lawsuits and took a lot of our time. But when one employee abuses your trust, deal with the individual case and double your commitment to continue transparency with the others. Do not punish the majority for the poor behavior of a few.

Spinning the truth is one of the most common ways leaders erode trust. I can’t say this clearly enough: don’t do this. Your people are not stupid. When you try to spin them, they see it, and it makes you look like a fraud. Speak plainly, without trying to make bad situations seem good, and your employees will learn you tell the truth.

The fall of 2017, one of our leaders, who unbeknownst to us, struggled with alcohol addiction and fell off the wagon on a business trip. He immediately entered rehab. What should we tell his staff? His boss believed that we should follow the Netflix culture and tell everyone the truth. Human Resources insisted that he should have the right to choose what he shared about his personal challenges. In this case, I agreed with HR. When it comes to personal struggles, an individual’s right to privacy trumps an organization’s desire for transparency. Here we didn’t take the most transparent route. But we didn’t spin either. We told everyone that the guy had taken two weeks off for personal reasons. It was up to him to share more details if he chose.

I went back to the office and, at our next all-employee meeting, did the same thing I’d done in the boardroom. I outlined my mistakes in detail and expressed my regret for having hurt the company. This time, not only did I feel more relief and build trust with my staff, but also people began telling me about all sorts of mistakes they made, mistakes they’d been previously sweeping under the rug. That offered them relief, improved our relationships, and gave me more information so I could do a better job managing the business.

Since then, every time I feel I’ve made a mistake, I talk about it fully, publicly, and frequently. I quickly came to see the biggest advantage of sunshining a leader’s errors is to encourage everyone to think of making mistakes as normal. This in turn encourages employees to take risks when success is uncertain . . . which leads to greater innovation across the company. Self-disclosure builds trust, seeking help boosts learning, admitting mistakes fosters forgiveness, and broadcasting failures encourages your people to act courageously… Humility is important in a leader and role model. When you succeed, speak about it softly or let others mention it for you. But when you make a mistake say it clearly and loudly, so that everyone can learn and profit from your errors. In other words, “Whisper wins and shout mistakes.

At most companies, the boss is there to approve or block the decisions of employees. This is a surefire way to limit innovation and slow down growth. At Netflix, we emphasize that it’s fine to disagree with your manager and to implement an idea she dislikes. We don’t want people putting aside a great idea because the manager doesn’t see how great it is. That’s why we say at Netflix: DON’T SEEK TO PLEASE YOUR BOSS. SEEK TO DO WHAT IS

Awhile back, Sheryl Sandberg of Facebook spent a day shadowing me at work. She attended all of my meetings and one-onones. It’s something I do occasionally with other Silicon Valley executives, so we can learn from watching one another in action. Afterward, when Sheryl and I debriefed, she said, “The amazing thing was to sit with you all day long and see that you didn’t make one decision!

The difference is the decision-making freedom we provide. If your employees are excellent and you give them freedom to implement the bright ideas they believe in, innovation will happen. Netflix does not operate in a safety-critical market, like medicine or nuclear power. In some industries, preventing error is essential. We are in a creative market. Our big threat in the long run is not making a mistake, it’s lack of innovation. Our risk is failing to come up with creative ideas for how to entertain our customers, and therefore becoming irrelevant.

In order to encourage our employees like Kari and their managers like Jack to shift their mind-set in the direction of experimentation, we use the image of placing bets. This motivates employees to think of themselves as entrepreneurs—who typically don’t succeed without some failures. The examples of Kari and (from a few pages back) Paolo reflect everyday life at Netflix. We want all employees taking bets they believe in and trying new things, even when the boss or others think the ideas are dumb. When some of those bets don’t pay off, we just fix the problems that arise as quickly as possible and discuss what we’ve learned. In our creative business, rapid recovery is the best model.

“INNOVATION CYCLE STEP 1: FARM FOR DISSENT . . . Finally, one VP said to me, “You’re so intense when you believe in something, Reed, that I felt you wouldn’t hear me. I should have laid down on the tracks screaming that I thought it would fail. But I didn’t.”

The culture at Netflix had been sending the message to our people that, despite all our talk about candor, differences of opinion were not always welcome. That’s when we added a new element to our culture. We now say that it is disloyal to Netflix when you disagree with an idea and do not express that disagreement. By withholding your opinion, you are implicitly choosing to not help the company.

I can’t make the best decisions unless I have input from a lot of people. That’s why I and everyone else at Netflix now actively seek out different perspectives before making any major decision. We call it farming for dissent. Normally, we try to avoid establishing a lot of processes at Netflix, but this specific principle is so important that we have developed multiple systems to make sure dissent gets heard.

The more you actively farm for dissent, and the more you encourage a culture of expressing disagreement openly, the better the decisions that will be made in your company. This is true for any company of any size in any industry.

For smaller initiatives, you don’t need to farm for dissent, but you’d still be wise to let everyone know what you’re doing and to take the temperature of your initiative. Let’s go back to your employee, Sheila, the woman who came to you with an idea you’re against. After explaining why you don’t agree, you can suggest that she socialize the idea with her peers and other leaders in the company. This means that she sets up multiple meetings, where she outlines her proposal and enters into discussions in order to stress-test her thinking and collect numerous opinions and data points before making her decision. Socializing is a type of farming for dissent with less emphasis on the dissent and more on the farming.

INNOVATION CYCLE STEP 3: AS THE INFORMED CAPTAIN, PLACE YOUR BET… For each important decision there is always a clear informed captain. That person has full decision-making freedom. In Erin’s scenario, Sheila is the informed captain. It’s not for her boss or any of her colleagues to decide. She collects opinions and chooses for herself. She is then solely responsible for the outcome.

INNOVATION CYCLE STEP 4: IF IT WINS, CELEBRATE IT; IF IT FAILS, SUNSHINE IT

If Sheila’s initiative succeeds, make it clear you’re delighted. You might pat her on the back, offer her a glass of champagne, or take the entire team out to dinner. How you celebrate is up to you. The one thing you must do is show, ideally in public, that you are pleased she went ahead despite your doubts and offer a clear “You were right! I was wrong!” to show all employees it’s okay to buck the opinion of the boss.

We suggest instead a three-part response:

1. Ask what learning came from the project.

1. Don’t make a big deal about it.

1. Ask her to “sunshine” the failure.

With our dispersed decision-making model, if you pick the very best people and they pick the very best people (and so on down the line) great things will happen. Ted calls this the “hierarchy of picking” and it’s what a workforce built on high talent density is all about.

To achieve the highest level of talent density you have to be prepared to make tough calls. If you’re serious about talent density, you have to get in the habit of doing something a lot harder: firing a good employee when you think you can get a great one.

One of the reasons this is so difficult in many companies is because business leaders are continually telling their employees, “We are a family.” But a high-talent-density work environment is not a family.

A job should be something you do for that magical period of time when you are the best person for that job and that job is the best position for you. Once you stop learning or stop excelling, that’s the moment for you to pass that spot onto someone who is better fitted for it and to move on to a better role for you.

A professional sports team is a good metaphor for high talent density because athletes on professional teams:

• Demand excellence, counting on the manager to make sure every position is filled by the best person at any given time.

• Train to win, expecting to receive candid and continuous feedback about how to up their game from the coach and from one another.

• Know effort isn’t enough, recognizing that, if they put in a B performance despite an A for effort, they will be thanked and respectfully swapped out for another player.

On a high-performing team, collaboration and trust work well because all the members are exceptionally skilled both at what they do and at working well with others. For an individual to be deemed excellent she can’t just be amazing at the game; she has to be selfless and put the team before her own ego. She has to know when to pass the ball, how to help her teammates thrive, and recognize that the only way to win is for the team to win together. This is exactly the type of culture we were going for at Netflix. This is when we started saying that at Netflix: WE ARE A TEAM, NOT A FAMILY.

We also encourage all managers to consider each of their employees regularly and make sure they’ve got the best person in every spot. To help managers on the judgment calls, we talk about the Keeper Test:

If a person on your team were to quit tomorrow, would you try to change their mind? Or would you accept their resignation, perhaps with a little relief? If the latter, you should give them a severance package now, and look for a star, someone you would fight to keep.

We give everyone we dismiss a big severance—enough to take care of themselves and their families until they move on to another job. Each time we let go of someone, we offer several months’ salary (from four months for an individual contributor to nine months for a vice president). That’s why we say: ADEQUATE PERFORMANCE GETS A GENEROUS SEVERANCE.

To some people, this will sound prohibitively expensive. And it probably would be, if it weren’t for our efforts to eliminate unnecessary control processes.

But with our culture of candor at Netflix, people get loads of feedback every day. Before any employee is let go, he should have heard clearly and regularly what he needs to do in order to improve.

Accidentally inciting internal competition is a real concern for organizations like ours that seek to increase their talent density. Many have implemented processes and rules to encourage their managers to get rid of mediocre employees and have fallen into systems that accidentally stoke internal competition. The worst is so-called stack ranking, also known as the “vitality curve” or, more colloquially, as “rank-and-yank.

We encourage our managers to apply the Keeper Test regularly. But we are very careful to not have any firing quotas or ranking system. Rank-and-yank or “you must let go of X percent of your people” is just the type of rule-based process that we try to avoid. More important, these methods get managers to let go of mediocre employees, but they kill teamwork at the same time. I want our high-performing employees to compete against Netflix’s competitors, not one another. With rank-and-yank what you gain in talent density you lose in reduced collaboration.

Fortunately, there is no reason to choose between high talent density and strong collaboration. With the Keeper Test we can achieve both. That’s because there is one critical way we are not like a professional sports team. On the Netflix team there is no fixed number of slots. Our sport isn’t being played to a rule book and we don’t have limits on how many people we play with. One employee doesn’t have to lose for the other to win. On the contrary, the more excellence we have on the team, the more we accomplish. The more we accomplish, the more we grow. The more we grow, the more positions we add to our roster. The more positions we add, the more space there is for high-performing talent.

Experts have found that if you stare at what you are desperate to avoid, you are actually more likely to paddle into it. Similarly, at Netflix, we tell all employees it is best to focus on learning, teamwork, and accomplishment. If a person gets obsessed by their risk of being let go (or an athlete becomes obsessed with the risk of being injured) they can’t play light and confident, and this can bring about the very troubles they were trying to prevent.

There are two steps we take at Netflix to minimize fear around the office. The first step is that any employee who is feeling the type of anxiety that Marta and Derek discussed is encouraged to use what we call the “Keeper Test Prompt” as soon as possible. That almost always improves the situation. During your next one-to-one with your boss ask the following question: “If I were thinking of leaving, how hard would you work to change my mind?

POST-EXIT Q & A

There is nothing more ominous than people on your team disappearing from the roster with no word about how the decision was made or how much warning that person received. The biggest worry people have when they learn a colleague has been let go is whether that person had feedback or whether the termination came out of the blue.

When we first tested annual written 360s, we ran them like everyone else. Each employee selected a handful of people she wanted to receive feedback from, and those people filled out the report anonymously, rating the employee on a scale of 1 to 5 across a series of categories and leaving comments. We used a “Start, Stop, Continue” format for the comments to ensure that people didn’t just pat each other on the back but gave concrete, actionable feedback… We no longer have employees rate each other on a scale of 1 to 5, since we don’t link the process to raises, promotions, or firings. The goal is to help everyone get better, not to categorize them into boxes. The other big improvement is that each person can now give feedback to as many colleagues as they choose at any level in the organization—not just direct reports, line managers, or a few teammates who have invited input. Most people at Netflix provide feedback for at least ten colleagues, but thirty or forty is common. I received comments from seventy-one people on my 2018 report.

That’s exactly why you as the leader need to share your 360 evaluations with your teams, especially the really candid stuff about all the things you do poorly. It shows everyone that giving and receiving clear, actionable feedback isn’t so scary.

The live 360s are so useful because individuals become accountable for their behavior and actions to the team. Given how much freedom we grant employees, along with the general “don’t seek to please your boss” climate, this co-responsibility provides a safety net. The boss doesn’t tell the employee what to do. But if the employee acts irresponsibly, he will get feedback from the group.

If you’d like to try the live 360 for yourself, here are a few tips:

Length and location: A live 360 will take several hours. Do it over dinner (or at least include a meal) and keep the group small. We sometimes have sessions with ten or twelve people, but eight or fewer is more manageable. For a group of eight you’ll need about three hours. A group of twelve could run to five hours.

Method: All feedback should be provided and received as an actionable gift following the 4A feedback guidelines outlined in chapter 2. The leader will need to explain this in advance and monitor it during the session. Positive actionable feedback (continue to . . .) is fine, but keep it in check. A good mix is 25 percent positive and 75 percent developmental (start doing . . . and stop doing . . .). Any nonactionable fluff (“I think you’re a great colleague” or “I love working with you”) should be discouraged and stamped out.

Getting started: The first few feedback interactions will set the tone for the evening. Choose a feedback receiver who will receive tough feedback with openness and appreciation. Choose a feedback provider who will give the tough feedback, while following the 4A guidelines. Often the boss chooses to be the first to receive.

Live 360s work because of our high talent density and “no brilliant jerks” policy. If your employees are immature, have bad attitudes, or lack the self-confidence to show public vulnerability, you might not be ready to run these events. And even if you’re in a state of perfect readiness, you’ll need a strong moderator who makes sure all feedback falls within the 4A framework and steps in if someone says anything out of line.

If you’re starting up your own company and your goal is innovation and flexibility, try to keep decision-making decentralized, with few interdependencies between functions, in order to nurture loose coupling from the outset. It will be a whole lot trickier to introduce once your organization has settled into a tightly coupled structure.

All this said, tight coupling does have at least one important organizational benefit. In a tightly coupled system, strategic change is easily aligned throughout the organization. If the CEO wants all departments throughout the company to focus on sustainability and ethical sourcing, then she can control that through her centralized decision-making.

I use a handful of methods for setting context across the company, but my primary platforms are our E-staff (Executive Staff) and our Quarterly Business Review (QBR) meetings. A few times a year we bring together all the leaders (top 10 to 15 percent of people) of the company from around the world. It starts with a long meeting or dinner with my half dozen direct reports—people like Ted and Greg Peters and our head of HR Jessica Neal. Then I spend a day with E-Staff (all VPs and above) and then we have two days of presentations, sharing, and debates at QBR (all directors and above—about 10 percent of the entire workforce).

The number one goal for these meetings is to make sure that all leaders across the company are highly aligned on what I call our North Star: the general direction we are running in. We don’t need to be aligned on how each department is going to get where they are going—that we leave to the individual areas—but we do need to make sure we are all moving in the same direction.

Before and after QBR, we make available many dozens of pages of Google Docs memos to every employee, explaining all the context and content we shared at QBR. This information is read not just by QBR participants but also by people at all levels of the company, including administrative assistants, marketing coordinators, you name it.

Between QBRs, I hold ongoing one-on-one meetings to get a feel for how aligned we actually are and where context is lacking. I have one thirty-minute meeting with each director once a year. That makes about 250 hours of meetings with people who are three to five levels below me in the org chart. In addition, I meet with each vice president (two to three levels below me) for one hour every quarter. This results in another 500 hours of meetings annually. When Netflix was smaller, I met with each person more frequently, but I still spend about 25 percent of my annual time on all these meetings.

Instead I reminded myself of what I often tell leaders throughout Netflix:

When one of your people does something dumb don’t blame them. Instead ask yourself what context you failed to set. Are you articulate and inspiring enough in expressing your goals and strategy? Have you clearly explained all the assumptions and risks that will help your team to make good decisions? Are you and your employees highly aligned on vision and objectives?

During that QBR we discussed to what lengths we should go to in order to remain flexible. I provided some pre-reading that showed how bad we had been at predicting our growth in the past and how the best opportunities often can’t be predicted. We had breakout discussions looking at past cases where we could have paid more for an option that increased future choice or less for an option that reduced flexibility. We debated just how much flexibility we needed in our business and how much we should be ready to pay for it.

Those conversations didn’t lead to a clear conclusion or rule, but through the debates all our leaders became clearly aligned on the idea that preventing errors or saving money with long-term plans is not our primary objective. Our North Star is building a company that is able to adapt quickly as unforeseen opportunities arise and business conditions change.

This case, you’ll have noticed, is by no means unique. Throughout this book we’ve told stories about lower-level employees making multimillion-dollar financial decisions without getting approval from the boss. Outsiders are often puzzled about how this can work in a financially responsible organization. The answer is simple: it’s because of the alignment.

In a loosely coupled organization, where talent density is high and innovation is the primary goal, a traditional, control-oriented approach is not the most effective choice. Instead of seeking to minimize error through oversight or process, focus on setting clear context, building alignment of the North Star between boss and team, and giving the informed captain the freedom to decide.

During this same three years we doubled the number of Netflix employees overall, most of them still located in the United States, but of increasingly diverse backgrounds. We added inclusion as one of our cultural values, recognizing that our success would depend on how much our employees reflected the audiences we were trying to reach, and the ability of people to see their lives and passions reflected through the stories we told. In 2018, we added our first head of inclusion strategy, Vernā Myers, in order to help us identify and learn from our increasingly diverse employees.

The Keeper Test and all the elements that go with it can work internationally but require adaptation to the local employment practices and laws.

The Industrial Revolution has powered most of the world’s successful economies for the past three hundred years. So it’s only natural that the management paradigms from high-volume, low-error manufacturing have come to dominate business organizational practices. In a manufacturing environment, you are trying to eliminate variation, and most management approaches have been designed with this in mind. It really is a sign of excellence when a company manages to produce a million doses of penicillin or ten thousand identical automobiles with no errors.

Even at Netflix we have pockets of the company where safety and error prevention are our primary goals and there we fence off an area to build a little symphony orchestra that plays pitch-perfect rules-and-process.

Take, for example, employee safety and sexual harassment. When it comes to protecting our employees from injury or harassment, we invest in error prevention (training) and hotlines; we have strong processes to make sure all claims are properly investigated; and we use process-improvement principles to drive the incident rates down to zero.

In select instances like these, where error prevention is clearly more important than innovation, we have loads of checks, processes, and procedures to ensure we don’t screw anything up. In these moments, we want Netflix to be like a hospital where there are five people verifying the surgeon is operating on the correct knee. When a mistake would lead to a disaster, rules and process isn’t just nice to have, it’s a necessity.

With this in mind, you can consider your objective carefully before deciding when to opt for freedom and responsibility and when rules with process would be a better choice. Here are a set of questions you can ask in order to select the right approach:

• Are you working in an industry where your employees’ or customers’ health or safety depends on everything going just right? If so, choose rules and process.

• If you make a mistake, will it end in disaster? Choose rules and process.

• Are you running a manufacturing environment where you need to produce a consistently identical product? Choose rules and process.

Culture isn’t something you can build up and then ignore. At Netflix, we are constantly debating our culture and expecting it will continually evolve. To build a team that is innovative, fast, and flexible, keep things a little bit loose. Welcome constant change. Operate a little closer toward the edge of chaos. Don’t provide a musical score and build a symphonic orchestra. Work on creating those jazz conditions and hire the type of employees who long to be part of an improvisational band. When it all comes together, the music is beautiful.