A recent article in Harvard Business Review by Netflix’s former Chief Talent Officer, Patty McCord, did a great job of explaining five core principles of building your team that could benefit any company. McCord, who was Chief Talent Officer at Netflix for 14 years, believes their policy towards HR is a key reason the company has been so successful. At its root, Netflix’s success is tied to hiring great people, and by hiring great people it creates a much better environment for the other great people (as everyone carries their weight). The other related foundation of Netflix’s success with its people was a willingness to let go of those who were not a good fit (or no longer a good fit). Netflix’s principles can help any company build a fantastic and high performing team. Overall, there are five core principles to Netflix’s success with its team.
Hire adults and treat them like adults
Rather than create long, complex and often bureaucratic policies on how employees should do everything, Netflix provides very high-level guidance and expects its employees to act in the company’s best interest. During the hiring process, it focuses on employees who can do this without strict guidance or careful observation. If they find they made a hiring mistake, they let the employee go.
Part of this axiom is expecting the employee to discuss issues openly with their boss, their colleagues and their subordinates. The opposite is having to praise an employee continuously, even when they make mistakes, or having employees who say one thing to somebody and something different to someone else.
To execute this strategy, you also should abandon long and complex policies. Even in companies with reams of HR policies, those policies are frequently skirted as managers and their reports work out what makes sense in real life circumstances. At Netflix:
- Salaried employees were told to take whatever time they felt was appropriate. Managers and employees were asked to work it out with one another.
- Rather than a detailed travel and expense policy, Netflix implemented a five word policy: Act in Netflix’s best interest.
Tell the truth about performance
Netflix built a great team by eliminating formal reviews and asking employees to have conversations about performance as an organic part of their work. As McCord comments, building a bureaucracy and elaborate rituals around measuring performance usually does not improve it.
She also points out the inherent dishonesty in performance improvement plans (PIPs). These are often used to create a paper trail to fire, without legal ramifications, an employee, rather than actually improve performance. Then the manager and employee go through a ritual in which the employee fails to achieve their tasks, and weekly the manager takes time to document and discuss it. This process will bring down the morale of the whole team and eventually the employee will be fired. Instead, Netflix policy is to tell the employee the truths (they don’t have the right skills or attitude for the job) and give them a generous severance package to leave (so there is no legal liability).
When Netflix stopped doing formal reviews, they went to informal 360 reviews. People were asked to identify things that colleagues should stop, start or continue. Although initially anonymous, they found these reviews most effective when signed or face-to-face.
Managers own the job of creating great teams
Netflix regularly tells its managers that building a great team is their most important task. They do not measure them on whether they were great coaches or mentors or got their paperwork done on time. Great teams accomplish great work, and recruiting the right team is their top priority.
To accomplish the goal of building a great team, managers were asked about their business unit
- What specific results do they do they see in six months?
- How is the work different from what the team is doing today?
- What skills are needed to make this six month future a reality?
The purpose of these questions is to get away from focusing on the existing team and envision what the team needs to look like to reach its goals..
Also, in fast-changing industries, like the game industry, you will have mismatches. In the case of people who do not have the skills for what you need in six months, you need to have honest conversations about letting some team members find a place where their skills are a better fit.
Netflix also aligned its compensation policy with the philosophy to treat people honestly and like adults. They did not pay performance bonuses because they did not feel they were necessary if you hire the right people. They also believed in market-based pay and encouraged employees to interview with competitors so they could get a sense of the market rate for their talent. Instead of larding stock options on top of a competitive salary, they let employees choose how much (if any) of their compensation would be in equity. Netflix felt employees were sophisticated enough to understand the trade-offs between equity and salary and the associated risks and decide for themselves what was best for them and their families.
Leaders own the responsibility of creating corporate culture
Leaders should align activity and messaging so it is consistent with the culture they want to build. If you are aiming to build a culture of efficiency, then you should not encourage team members to be late to meetings to finish up their ping-pong games (and thus keep multiple people waiting). It is a waste of time to articulate ideas about values and culture if you do not model and reward behavior that aligns with those goals.
You also need to make sure the employees understand the levers that drive the business. You need to clearly communicate how the company makes money and what behaviors will drive its success. For example, employees may need to know that even if revenue is strong, managing expenses is critical for success.
Your HR department should think like business people
The goal of HR is not to get your company on a best place to work list (which is really just a measurement of perks) or run morale improvement programs (which also never work), but the same as the goals of the other business leaders: To make the company more successful. The HR department should be focusing on what is good for the company and how best to communicate that to employees, not cheerleading. As McCord points out, there is no reason your HR department cannot be as innovative as your other business units.
Your team will lead to your success
If you hire correctly, employees will want to be star performers and you can manage them through honest communication and common sense. Most companies focus too much on formal policies aimed at the few employees whose interests are not fully aligned. Hire, reward and tolerate only fully formed adults. Tell the truth about performance. Make clear to managers that their top priority is building great teams. Leaders should create the company culture and HR should not fall into the traps of creating bureaucracy rather than being innovative business people.