Silicon Valley's most important document gets an update

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Hey everyone,

Netflix has just updated their famous ‘Culture Memo’ for the first time in 15 years. We talk about culture all the time around the virtual water cooler at Vivace — how to build our own culture, lessons from other companies like Netflix, and embedded in the work we’re doing with our clients. In a moment of synchronicity, we’re currently leading one of our clients through some values development work which has been a real joy.

We thought it’d be timely to review Netflix’s renowned organizational culture code and its impact. Stick around to the end for some recommendations to pop in your queue from the team.

-joel

Op-Ed by Mimi Hayton

Netflix Culture: Freedom & Responsibility was originally written in 2009, the same year its streams overtook DVD shipments and the stock price closed out at USD$7.87 a share (up 86.6% for the year). Today’s stock price: USD$631.37 (StatMuse).

‘Culture eats strategy for breakfast’, as Peter Drucker’s famous quote goes, and perhaps few tech companies have proved this better than Netflix which is currently the only profitable major streaming service in the US (YahooFinance). On the quality front, it’s the second most awarded streamer after HBO, with 134 Primetime Emmy Awards (and in fairness HBO had a bit of a head start).

Developed by Reed Hastings (Netflix’s former CEO) and Patty McCord (its former chief talent officer), the 125 slide deck became a seminal touchstone for not just for organisational culture, but HR more broadly, influencing leading companies globally then and ever since – including Zappos, Hubspot, Facebook, Spotify, Hootsuite, and others (Fast Company). 

The deck has been viewed over 20 million times since it was first shared publicly on SlideShare. According to McCord, they were surprised when such a basic set of slides went viral (the only visual branding: the logo), but her explanation was simple: “the approach is compelling because it derives from common sense.” (HBR)

And here’s what Hastings had to say about why a new generation of companies needed such a ‘radical’ new HR model in an interview with Harvard Business Review:

Netflix’s original code was based on five tenets:

1. Hire, reward, and tolerate only fully formed adults

2. Tell the truth about performance

3. Managers own the job of creating great teams

4. Leaders own the job of creating the company culture

5. Good talent managers think like businesspeople and innovators first, and like HR people last

The tenets manifested in many innovative best-practice-be-damned approaches to how Netflix attracted, maintained and managed talent. Which was a key shift in and of itself – this wasn’t about managing human resources, this was about cultivating excellent talent, as defined by Netflix:

“Adequate performance gets a generous severance package”

If you want only A players, be willing to let go of people whose skills no longer fit, no matter how valuable their contributions had once been. Out of fairness, offer rich severance packages.

“The company’s expense policy is five words long: ‘Act in Netflix’s best interests.’”

Employees are expected to spend company money frugally, as if it were their own. Eliminating a formal policy and forgoing expense account police shifts responsibility to frontline managers, where it belongs. It also reduces costs.

“Eliminate formal reviews.”

Building a bureaucracy and elaborate rituals around measuring performance usually doesn’t improve it. They’re ritualistic and too infrequent. We instituted informal 360-degree reviews. If you talk simply and honestly about performance on a regular basis, you can get good results – probably better ones than a company that grades everyone on a five-point scale.

So why update the code now? A few recent developments provide likely catalysts; foremost, last year Reed Hastings transitioned from CEO to Chairman after nearly 27 years running the business. As many of us are familiar with, a regime change generally means out with the old and in with the new (or the old old rebranded). 

Secondly we are approaching peak streaming (many pundits say we’re there) in the US at least, where 85% of households use at least one streaming service. The streaming wars are set to become a zero-sum game of attempting to poach each other’s customers or perhaps all-in-one services like Roku rising to greater prominence. Accordingly, Wall Street is bringing an end to profligate budgets in the name of subscriber growth, “pressuring studios to curb content spending, leading to big writedowns, layoffs and cuts”. (Fortune)

Next year, Netflix will stop releasing subscriber numbers (Variety), after which other streamers are likely to follow suit, meaning that success in the industry will be defined by a new set of metrics. All this means a new business landscape and one which might well require a new cultural code. 

The updated memo, Netflix Culture — The Best Work of Our Lives, is now based on four principles:

1. The Dream Team

2. People over Process

3. Uncomfortably Exciting

4. Great and Always Better

The result is a condensation and modernisation of the original 125 slides; where they were a guide or a How To, this is a manifesto. Much of the explanation, comparison and justification is removed, with just the essence of the original thought retained, all underpinned by the same autonomy and freedom-enshrining beliefs.

The updated code reflects a business evolution from needing to address specific talent acquisition and management issues in an effort to define and build a fast growing culture according to Hasting and McCord’s vision, to needing to maintain and manage an established one. The new addition of principles that speak directly to artistic expression and their programming strategy demonstrates how inextricably linked this culture is with their operation.

It will be interesting to see if Netflix’s cultural vision will weather the next phase of The Streaming Wars, or ultimately become corrupted, like so many innovations in the name of profit-seeking process standardisation and the financial market’s desire for predictability. The future dear subscriber, might just be in our remotes.

Mimi is a freelance brand, content and creative strategist with a passion for all things culture – from the micro to the macro. Alongside working with Vivace, she is currently developing a podcast on mental health and wellbeing, and a web series on organisational culture.

💬 Vivace on values

So what is the Vivace approach to shaping organisational culture through values and behaviours? We spoke to Vivace partner Mark Lulsens to understand how we are currently leading on this work with some of our clients:

📺 Vivace recommends

Need a little more Netflix? We polled the Vivace Slack to get a few recommendations on what to watch next. Please note: Some selections on the service vary between countries.

• Love, Death & Robots (Mimi Hayton)

• Shogun (Ryan Sheppard)

• The Resident (Jeanette Juetten)

• Remembering Gene Wilder (Marie Ianazzo)

• Simone Biles: Rising (Laura Kuglitsch)

• Gladiator (Cesare Serventi)

• Unfrosted (Joel Leeman)

Please let me know if you enjoyed this issue by emailing [email protected] or commenting on LinkedIn. Also if you’d like to see your name added to the illustrious and growing roster of Spark contributors – commentary, opinions, analysis and think-pieces are always welcome 😁 

Spark is a production of Vivace Content, where we help our clients around the world navigate what to say and how to say it every single day. Get in touch if you’d like to have a no-hassle consultation about how we can help you too. Have a great week ahead, and see you next week.