PDF Summary:No Rules Rules, by Reed Hastings

In a span of just 15 years, Netflix underwent four major evolutions to grow from a fledgling DVD-by-mail company to an award-winning entertainment behemoth, boasting over 200 million subscribers across 190 countries. In No Rules Rules, Netflix CEO Reed Hastings and business professor and author Erin Meyer detail how the company achieved this level of success by implementing unconventional management practices that empower employees and promote innovation.

In this guide, you’ll learn why Netflix fires adequate employees, why employees need to critique their bosses, and why it pays to give workers unlimited vacation time.

We’ll compare the Netflix culture with other unorthodox workplace cultures—such as those at Pixar Animation Studios and hedge fund Bridgewater—and cite other works to support or offer counter-arguments to the management ideas detailed in the book.

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(Shortform note: Make the most of 360s and the vital feedback they provide by following up with individuals to make sure that they understand the feedback. Then, work with them to address the feedback in three steps: First, make them aware of what they need to do to implement the feedback. Second, make sure they commit to making the necessary changes. And third, motivate them to change by setting goals for their improvement.)

Process 2: Live 360-Degree Reviews

Hastings saw that the discussions following written feedback were effective, so he implemented live 360 reviews. A manager and her team gather for several hours and go around the room as each employee takes a turn receiving feedback. Although this process can be uncomfortable and potentially embarrassing, the feedback could save receptive employees from being fired in the future.

(Shortform note: Such open discussion can create a good deal of tension between those giving feedback and those receiving. While you want to manage this tension, some argue that having a little drama during a meeting is a good thing. In Death by Meeting, Patrick Lencioni writes that having disagreements keeps participants engaged, so you should actively look for signs of disagreement. Pay attention to comments and people’s facial expressions, and prod further when you notice that they’re trying to avoid conflict.)

Practice #3: Eliminate Controls

The third unconventional business practice that Hastings established at Netflix was to eliminate controls. This meant giving employees enough relevant information that they could make big decisions on their own—a practice that was only possible with the culture of radical transparency and candor that Hastings had established. In this section, we’ll discuss how this transparency also increased Netflix’s flexibility and efficiency.

(Shortform note: Hedge fund Bridgewater has a similar principle of extreme transparency, which Ray Dalio describes in Principles: The firm records all meetings and interviews and makes these recordings available to the entire team. Additionally, each employee has a personality profile, which allows co-workers to see everyone’s strengths and weaknesses at a glance. Bridgewater also makes use of an in-house app that allows team members to rate each other in real-time. Such levels of transparency can be uncomfortable, but Dalio emphasizes the importance of putting the team’s best interest before your pride.)

Empower Employees by Giving Enough Information

Hastings made sensitive information, such as financial data, available to all employees. By being transparent about this information, Hastings allowed for dispersed decision-making. In other words, he created an organizational structure in which executives and managers lead by giving employees enough relevant information instead of exercising control over employees’ decisions.

With access to relevant information, employees could operate more autonomously and make decisions on their own—they could determine the risks they were willing to take and take ownership of the consequences, without having to seek approval from higher-ups.

(Shortform note: Netflix takes pride in giving its employees the power to make big decisions by providing them with enough relevant information, but some argue that this practice might just be a covert way of exercising control. They argue that managers may already know what decision they want employees to make and manipulate them by giving selective information that will point them in the desired direction. This bogus empowerment can erode trust and demoralize employees who can detect that the empowerment is inauthentic.)

Empowerment Only Works in Some Situations

Netflix empowers its employees to use the information they have to calculate—and make—risky decisions. Hastings found that this led to some big wins for the company. However, empowerment doesn’t work in every scenario. While delegating responsibilities to team members and asking for their input can improve job performance and satisfaction, the results vary depending on the task and circumstances. In particular, research shows that:

• Empowering employees encourages creativity, but it doesn’t improve the performance of routine tasks—in these cases, employees tend to view empowerment as an additional burden.

• Different cultures have different degrees of receptivity to empowering leadership. Eastern cultures tend to be more open to leaders who give additional responsibilities, while Western cultures, ironically, may view empowering leaders as controlling.

• Less experienced employees respond more positively to empowering leaders, possibly because they see additional tasks as a chance to prove themselves.

By understanding the type of employees you have and the kind of work they do, you can figure out how much empowerment you should give them to produce positive outcomes.

However, this system comes with a great deal of risk: Employees could make decisions that are costly and harmful to the company’s progress and reputation. For this reason, the authors stress, dispersed decision-making can only work under certain conditions:

Condition #1: A High Concentration of Talent

Meyer explains that if the company has developed a high concentration of talent, every employee should be deserving of the trust and freedom to make decisions without oversight or controls.

(Shortform note: Not a lot of companies have the level of talent that Netflix has, so it may not be easy to trust employees to make decisions without oversight. In Built to Last, Jim Collins says that another way to develop a strong sense of trust is through indoctrination: Align new hires tightly with the corporate philosophy so that they can operate autonomously while adhering strongly to the company’s core values.)

Condition #2: Emphasis on Innovation Over Error Prevention

Meyer explains that in some industries and organizations (such as vehicle manufacturers), controls are necessary to ensure safety and accuracy. On the other hand, if the company’s success depends more on adapting and staying relevant in a changing market, then leading with context is an important way to promote innovation.

(Shortform note: Meyer makes a clear distinction between companies that should be led by control and those that shouldn’t: Companies that need controls are those whose businesses rely heavily on safety and accuracy, while companies that need relevant information are those that rely on creativity and innovation. However, some creative companies may only appear as if they’re leading with relevant information, when in fact they have more abstract, self-imposed unspoken controls in place such as profits and shareholder expectations. In The Innovator’s Dilemma, Clayton M. Christensen argues that these hidden controls reveal themselves when creative companies try to pivot but are blocked by their self-imposed controls.)

Condition #3: A Loosely Coupled Organizational Structure

An organization that has a dispersed decision-making system is called a loosely coupled organization. In these organizations, each department is independent enough that lower-level managers and employees can make decisions without greatly impacting other departments. As a result, employees enjoy more freedom, departments have more flexibility, and progress moves more quickly throughout the organization.

(Shortform note: One way for companies to get around a tightly coupled system—one where there are layers of approvals—is to create a spin-off organization that has a different structure more suited to handling innovation. In The Innovator’s Dilemma, Clayton M. Christensen writes that these smaller spin-off companies have more freedom to invest in new ideas in the face of disruptive innovations, unlike larger companies that typically manage their risks by taking a wait-and-see approach to big changes.)

Condition #4: Company-Wide Alignment

When you lead by giving relevant information, you allow your employees to find their own routes to a common destination—and your job is to ensure that everyone knows which direction to go. Meyer explains that the CEO provides information to the senior managers about the general direction and values of the company, those leaders use that information to give their teams another layer of information that homes in on their specific responsibilities, and the process continues down to the most junior employee.

(Shortform note: Creating company-wide alignment means getting rid of forces that constantly oppose each other, slowing down progress or causing a company to stagnate. Researcher Jim Collins advises sticking to your core philosophy even when introducing major changes, and making sure you correct any misalignments right away—for example, if you value teamwork, eliminate incentives that reward individual performance.)

Abolish Vacation and Expense Policies

With a highly motivated staff and a culture of candor and accountability, Hastings was able to give Netflix employees more autonomy to make big decisions. It also enabled Hastings to implement another unconventional measure at Netflix: He abolished the vacation policy and the travel and expense approval process.

(Shortform note: Hastings uses unconventional practices at Netflix to drive the message that great freedom comes with great responsibility, but he doesn’t explain how companies that don’t have Netflix’s unusual culture can create enough accountability to make the risky move of abolishing limits on vacations or expenses. To foster more accountability in your workplace, experts say you should be clear about your expectations, ensure that everyone has both the skills and the resources they need to do their jobs, set milestones to track progress, give feedback, and ensure that employees see consequences following undesirable behaviors.)

Eliminate the Vacation Policy

Netflix neither allots vacation time nor tracks days off, giving employees more control to create a work-life balance. This makes it easier to attract top talent and sends a message to employees that management trusts them. To prevent employees from taking too much vacation, Hastings instructed managers to provide enough relevant information for employees to make good decisions—for example, this may include telling employees that they can’t take time off within two weeks of a deadline, or that no more than one team member can be out at a time.

On the other hand, to ensure that employees still took enough vacation, he encouraged leadership at all levels to take big vacations, talk openly about them, and encourage employees to do the same.

(Shortform note: There are a few alternatives to the unlimited vacation policy that may encourage employees to take time off: First, you can implement a minimum vacation policy, which relieves employees of the pressure of determining what’s considered an acceptable amount of vacation time. Second, you can impose mandatory time off—employees have to take one week off every four months (or any other specified time period). Third, you can reward people who go on vacation with spending money.)

Eliminate Travel and Expense Policies

Hastings also eliminated travel and expense approvals and instead made it Netflix’s policy for employees to “act in the company’s best interest.” For instance, it’s in the company’s best interest for an employee to stick to a modest budget for lodging, unless she’s in an unusually expensive area and must pay up to afford a hotel that allows her a decent night of sleep before a presentation. This policy empowers employees to use their judgment, but it also requires managers to provide information about what’s appropriate and inappropriate so that employees can make wise decisions.

(Shortform note: Some employees may disagree with the company’s idea of what’s appropriate and inappropriate—for example, they may think they “deserve” a pricey meal if they’re asked to work out of town on a weekend. To resolve any disagreement with your company’s policies, try using some negotiating tactics. For example, in Never Split the Difference, Chris Voss suggests the strategy of showing the other person how helping you achieve your desired solution will satisfy their own wants. In the case of the pricey meal, you can explain how the extra expense eats into the budget for the venue of the company’s summer outing.)

To let employees know that their bosses could be monitoring their actions and thus discourage overspending and abuse, Netflix managers regularly check a sampling of expenses. Hastings also says it’s important to reinforce the threat of getting caught by telling employees when someone is fired for overspending.

(Shortform note: Even though Hastings and Meyer say that you should publicize these firings to let employees know you’re paying attention, there are certain things you should do as a manager to protect the dignity of the person being fired. Research suggests that making the effort to do so has a positive effect on the employee’s reaction—if they’re made to feel shame, they might view the firing as unfair and lash out by badmouthing the company. Allow them to leave with their dignity intact by not sharing the fired employee’s name and by not making a spectacle of the firing. Give them a chance to quietly pack up their belongings when other employees aren’t around.)

When Going Global, Accommodate Cultural Differences

By 2011, Netflix had cultivated a culture of autonomy and accountability that was enabling the company to produce great results in the U.S. The company began expanding globally and, by 2016, Netflix was in more than 130 countries worldwide.

(Shortform note: Netflix is now in 190 countries, setting the stage for the company’s next phase and a new form of disruption: producing non-U.S. content. This strategy seems to be paying off. Netflix has a roster of international hits, including the wildly popular Spanish show Money Heist and the record-breaking South Korean drama Squid Game.)

As Netflix expanded, Hastings considered whether the corporate culture he’d worked so hard to develop would work outside the U.S. He made a plan to make the international expansion as smooth as possible: He would hire foreign employees who could adapt to the culture he’d cultivated, the company would then train those new hires on the ins and outs of working within Netflix’s culture, and he would be willing to adapt to and learn from the cultures of his new employees.

How to Preserve Your Company Culture Abroad

Aside from Hastings’s give-and-take approach to cross-cultural adaptation, companies can preserve their core philosophies by adhering to Meyer’s principles when expanding operations to other countries:

• Determine the pressure points. Identify the specific aspects of the company culture and the country’s culture that are likely to cause conflict, such as decision-making processes (consensus or authoritarian?) and the approach to timelines (rigid or flexible?).

• Make sure everyone is heard. Use a common language and speak slowly and clearly during meetings, then summarize what was discussed. Give every cultural group the chance to contribute by asking international participants to give their input.

• Preserve creativity. It’s prudent to put formal systems in place when it comes to departments like finance and IT, but keep creative departments flexible.

• Have a diverse workforce in every office. Having homogeneous staff at each office might create chasms between international offices. For example, a Singapore office with mostly young creatives might have a hard time communicating with an office in Copenhagen with mostly middle-aged finance experts. Ensuring diversity helps all employees get used to working with other cultures on a day-to-day basis.

Adapt Candor Cross-Culturally

Hastings found that his employees from other cultures often struggled most with Netflix’s culture of candor. This was a cornerstone of Netflix’s culture, but each country’s attitude toward candor and providing feedback—especially to superiors—differed greatly.

(Shortform note: To better understand a culture’s approach to candor or other company practices and attitudes, consult an expert such as a local corporate anthropologist. This anthropologist can serve as a “culture translator,” helping you understand local norms and behaviors, as well as correcting any stereotypes that you might have about a culture. Another way to understand cultural nuances is to ask employees directly about their expectations and preferences.)

Through their experiences, Netflix’s leaders learned important lessons for creating a middle ground in which employees from indirect cultures can still adhere to the company’s culture of candor.

Lesson #1: Create More Opportunities for Formal Feedback

Formal feedback is less daunting than delivering impromptu feedback. Make feedback an agenda item for meetings, provide instructions and a clear structure for the feedback, and invest time and effort in relationship building to soften the sting of negative feedback.

(Shortform note: During these formal feedback sessions, you shouldn’t just be mindful about your delivery of negative feedback, but also of the culture’s attitude toward positive feedback. While some cultures thrive on praise and positive reinforcement, others see praise from their managers as unwelcome or embarrassing.)

Lesson #2: Learn About Other Cultures and Adapt Your Feedback Style Accordingly

Keep in mind that colleagues from other cultures may have different attitudes toward frankness. Discuss and explore these cultural differences. Adapt to giving and receiving feedback that is more (or less) candid than you’re typically comfortable with. This might mean softening your negative feedback by refraining from placing blame and by framing the critique as a suggestion.

How to Give and Receive Feedback in Other Cultures

Meyer outlines some general principles for cross-cultural feedback in The Culture Map:

• Explain how you normally deliver feedback in your culture.

• Don’t try to mimic the other culture, because you risk offending the other person.

• If you’re used to receiving indirect negative feedback, learn to view direct feedback as a sign that the other person respects you enough to be honest with you.

• If you’re used to giving indirect negative feedback and find yourself in a more direct culture, be explicit about both positive and negative comments, but make sure that you keep the amount of both types of feedback balanced over time.

• If you’re used to giving direct feedback, one way to adjust to indirect cultures is by not mentioning the negative at all. Instead, praise only the positives—employees can infer what’s not being addressed directly.