upstart thoughts on talent and leadership

Netflix, talent density and trust

In ! Kristy, Culture, Leaders, Uncategorized on Sunday, October 11, 2009 at 12:25 pm

I’m late to the Netflix culture slideshow conversation, but it pushed my thinking about talent, culture and leadership so far forward that it deserves a minute, even now.

If you haven’t checked it out yet, take a gander. Don’t freak at the slide count;  it’ll take you less than 10 minutes to read but will fill up your brain for days. It’s chock-full of common-sense, simple-but-not-easy concepts (who doesn’t love their vacation or travel expense policies?), but what stuck with me the most was the concept of talent density.

Simply put, when organizations grow more quickly than their percentage of high-performing employees, the density of their talent decreases. Growth breeds complexity, and where there is complexity, chaos tends to lurk, and fear of chaos leads organizations to create processes and policy manuals. We started small and freewheeling with 10 of 10 rockstars, but once we hit 100 employees we might only have 50 rockstars, and we can’t just randomly TRUST these people (can we?) so we need to let them know that Crocs are unacceptable workplace attire.

What’s the tipping point for policy and process? I imagine it, simplistically, as such: Joe Manager notices that Ed Employee is consistently late for work. Instead of 1) asking himself whether it’s really important that Ed be in the office at a certain time (and it may be, but not as often as you’d think),  and depending on the outcome of step 1, 2) having a tough conversation with Ed about why he needs to be on time, what might be getting in the way of his punctuality, and what the consequences will be if he continues to be late, what does Joe do? He calls HR and demands that an attendance policy be written so he can throw it at Ed — or better yet, have HR throw it at Ed.  Voila, an easy out for the hard work of being a people manager is born. This example is simplistic, but apply it to expense reporting, project management, vendor management, and the principle still applies: fear of chaos and destruction is the mother of process.

Are processes and policies inherently a bad thing? Absolutely not. Protecting an organization from liability is a noble and necessary function. And the intent of most processes and policies is always to increase efficiencies and decrease risk; no one gets up in the morning intending to gum up the works (do they?).

Unfortunately, when implementing process we ignore the unintended consequences that may very well outweigh the benefits. Guess what?  The people who joined your entrepreneurial, egalitarian, work-hard play-hard, innovative company hate process. They hate policies. And when they see that the form for requesting IT resources for their kickass new marketing strategy is going to take them three weeks to complete, and that they get nickel-and-dimed on the tip they gave the only taxi driver who stopped during the blizzard, one of two things will happen: 1) they will leave. Nah, you say, the economy sucks and there’s nowhere to go.  In that case, 2) they will stay and disengage and become a waste of oxygen and a downer to everyone who comes into contact with them. Neither option is particularly attractive, and both lead to a decrease in the percentage of stellar employees in your company.

Do you see the downward spiral starting? The less kick-ass employees, the more process and policy are needed to govern and direct and control. And the increase in bureaucracy drives the remaining great talent underground or out the door. Etcetera.

Which is why Netflix’s policy on expensing, entertainment, gifts and travel for salaried employees reads: “Act in Netflix’s best interests.”

This is where the finance people get apoplectic. You mean we have to trust every single salaried employee to manage their own expenses and not take advantage of the company? But we can’t do that. We can’t trust everyone!  Bring on the chaos and destruction!

Folks, if you can’t trust everyone in your company, identify who has proven themselves untrustworthy through example, fire them, and examine your hiring practices to find out how you ended up with untrustworthy people in the first place. And don’t replace them until you find someone you’d trust with your own PIN. And that’s the crux of the Netflix talent density theory: Never increase the size and complexity of your business faster than the strength and quality of your talent. Growing, and then scrambling for talent — or worse, hiring in haste — will always get you on the wrong side of this equation.

If you’ve read the Netflix manifesto, do you agree with my take? What else resonated with you?

  1. Great Summary, I’m reading lots of thoughts on this as research for my own company, yours is amongst the better takes. your talent density observations are consistent with my understanding. The bottom line ‘trust’ is the key to relationships.

  2. Rob — total LATE response to your post, but my excuse is that I had a baby on April 25! I’d love to hear more about how you are considering applying the talent density concepts to your company. Any impact or results so far? Do you think the nature of your business lends itself more or less to trust?


  3. Kristy – loved the slides, loved the analysis. A couple of things were striking to me:

    1) Culture is at its essence human. The only way any strong culture flies is if the top pocket of leadership believes UNWAVERINGLY. Then the battle cry of the organization is clear, and unwavering as well. I would love to see / hear the leadership core team at NetFlix. Great culture and achieving talent density is hard work – seeing what that looks like in the ‘living’ of it would be fascinating.

    2) Not until slide 125 do they mention briefly the challenge of having an organization full of mavericks. Conflict resolution is another area I’d give my left arm to observe. In American culture, I would argue that most ‘superstars’ don’t know how to assist. NetFlix has to be faced with this as they deliberately build a high energy organization. Would love to see how they handle.

    3) Lastly, I am stopped in my tracks by the theory that Development is not needed in an organization in which colleagues are stunning. I see this play out with my children in school – high expectations become unspoken when you are in a classroom with 15 or less kids, they all are smart, and the teacher is passionate. There is no need to talk about working hard, it just happens. It’s just so contrary to most current business practices…

    I can tell you the trust theory plays out breathtakingly well within a team, will have the chance at some point to impact a larger organization… can’t wait. Hope Rory is well, as is his family.

  4. The concept of Talent Density is what stuck with me after reading through this slide deck last year. It came at just the right time, too, as our company has grown dramatically in the last 18 months. As a tech lead I was involved in almost all the hiring decisions for our development team. I shared this slide deck with our hiring managers (and anyone else who would listen) and luckily the concept seems to have taken root. We don’t have the autonomy to implement vacation and expense policies, of course, but there are plenty of other process/policy decisions where we’ve been able to say “do what works for your team” in large part because we’ve been ridiculous at trying to hire only top talent. The one time we strayed and hired to get the position filled we suffered because the person didn’t work out.

    The other challenge we have maintaining this is we don’t have a lot of control over the talent hired by the off-shore team with whom we work. We’re still trying to work the kinks out of that aspect of our process.

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