Navigating Cultural Differences: Thought Sparks with Rita McGrath and Erin Meyer

Hi everybody, I'm Rita McGrath and welcome to our Friday Fireside Chat with Erin Meyer, who is a professor at INSEAD, a good friend, someone who's been an inspiration to me for many years. A couple of little housekeeping things: this session is being recorded, so do not say or type anything you do not wish your mother or the Wall Street Journal to get a hold of, and we will have the replay ready in about Usually it takes about a week before we get it up, and you'll find it on my YouTube channel. If you have questions, please put them in the chat. We generally don't do raise hand stuff because I just don't know who's signed in, and so— but we do try to get to the chat. If we don't get to them in the live session, I record them and we'll get to them afterwards. So without further ado, welcome, welcome, Erin. So pleased that you're here. Thank

Thanks for inviting me, Rita. I'm really pleased to be here with you and with everybody.

Yeah, hello everyone. So I actually want to start not with your most recent book, which is just out a week, right?

Yeah, one week, maybe 2, 10 days, something like that. Yeah.

Baby books, I love them. But I actually want to go back to your previous book, which has been a super inspiration for me, as my husband will tell you. It sat on my bedside table for, for ages. And one of the things you did in that book was you really looked at these dimensions of national cultures and observed that there are a couple of things I thought were interesting. They're relatively enduring, and that they tend to come from sort of formative situations. So I always think of Japan, right? And I remember a talk you gave years ago which explained things to me about Japan. I've been there many, many times, but things I never even understood, which is, you know, you've got this mountainous culture with lots of hazards, and everybody is jammed in there, and they have to develop this way of behaving together. That is a lot less like the Wild West in the US than it is there. And I know that's how you got to meet the Netflix people. And when they were going international, that's really why they looked to you for inspiration. So I thought, let's start there. Let's start with sort of what's happened to the culture map since you wrote it. Like, what new things have come up? What do you think people need to know about that book?

So that, of course, is my first book child. And that's a system that— I mean, I still spend most of my time working on national cultural differences. So what we do in that book is we look at things like how do we build trust differently in different countries, how do we make decisions differently in different parts of the world, and then we look at countries in comparison to one another so we can better understand our global teams. And what we've been working on since then— so I did that kind of map that came out in 2014, and since then we've been working on both personal profiling, so helping people to to think about their personal— to like map themselves out and compare them to countries is actually quite interesting, right? So like if you're moving to a new country or you're taking on a new responsibility of a new area, you can look at your personal preference and then compare it to other countries. And then I also started looking, you know, quite a bit at corporate cultures and team cultures. And we were mapping them out on the same scales, the same 8 scales, and comparing them both to nations and also to other companies. So, I mean, that's actually interesting. It's the same framework. But if you're merging 2 companies together, you can also map out those corporate cultures, you can compare them to one another, and you can look at where the hazards and the similarities might lie. So that's all kind of the work that I had been doing as I was starting to approach this Netflix project.

And so did they reach out to you? Is that how it all started?

Well, so there was a very funny morning for me, which is that I woke up one morning, and, you know, there's always like lots of kind of unknown people who are sending emails about this part of the book or that part of the book. And I kind of was glancing through them, and there was this one email, and it said, The subject line was Peace Corps. So I was in the Peace Corps as a young woman. I was in Botswana in Southern Africa. And I was like, okay, fine. So I opened it up and it said, hi, Erin, my name is Reed. I was in the Peace Corps near you— near where you were. I read your book and I loved it. I'm the CEO of Netflix. I hope we can meet sometime. So a very endearing first message. Classic. But after a couple of times, it kind of woke me up.

Well, you know, then you always wonder if it's some bot. Like, could this— like, does this ever happen in real life, right?

I think I was really kind of sleepy. I showed it to my husband. Is this what I think it is?

What did he say?

Yeah, that's it.

Very interesting. So then you obviously connected, and how did the project unfold from there?

Yeah, so that was in That was in 2016, and maybe some of your— some of the participants remember that Netflix used to be a pretty local company, right? It was really a US company. And then in January— must have been in 2015, because in January 2016, they went through this huge international expansion, right? So I worked with the company quite a bit on getting them ready. Reed, the CEO, was quite concerned about how their corporate culture, which he felt was the whole engine to the success of the company, how that was going to be able to transfer into some of the countries they were moving into, like Japan and Singapore and Brazil. So those were some of the very long and tough conversations that he was having with his team and that we were leading.

That's fascinating. Because, I mean, I think one of the things that does come through in the new book is that kind of step-by-step— well, let me go back a little bit. So this was not Reid's first rodeo. He'd had a company called Pure Software. And in the book, he describes, you know, so somebody made a mistake or screwed up or did something. So we put in place a process. And then there was another thing that happened. So we put in place a process. And by the time he finally exited that company, it was like this hairball of just stuff, which kind of meant you couldn't do anything anywhere. And he said, well, what if we kind of rethought that for the new company? And he talks about a pretty systematic way of trying to unglue all the things we assume to be necessary to run a large and complex organization. So starting with vacation policy. You know, like, and so that is so deeply embedded within that company to take it to someplace like Singapore, let's just say, or Japan. Radical candor, rich feedback environments, all those kinds of things. How do you adapt that to the local circumstance?

Yeah, well, so I mean, this was like pre-book. So before we started even thinking about writing the book together, I had a some big concerns for you. And I actually, I felt at that time that the kind of candor that they were practicing at Netflix was really going to be impossible to implement successfully. I mean, I'm sure you can say you want that, but I thought it would destroy relationships, that it would not be possible in many of the countries that Netflix was moving into. And I remember having a very clear discussion, one of the first discussions that I had with Reed. He asked me, you know, is this going to work? I was very doubtful. And he was— he said, I can't— he said, that is foundational to our success. He said, that candor, he said, I can't change that. So tell me something else I can work on.

Hmm.

And I remember that my response was, well, if you can't work on the candor, then there is something else to work on. So I was looking at my Culture Map scales, right? And we had the Netflix culture that was mapped out on it. And Netflix is both a very direct culture when it comes to negative feedback, which was what we were talking about. And it's also very task-oriented, or it certainly was at the time. And, you know, I said, look, if you're not going to work on the candor, then at least work on being more relationship-oriented. Because if you can develop strong relationships and you really value relationships in your various international offices, then, you know, maybe people can get used to the direct feedback. But without the relationships, it's just going to crash down. And that became his new mantra, is we will become more relationship-oriented. oriented as we internationalize. So that was something that he didn't feel was foundational. He could certainly adapt to.

That's— that is super interesting. Well, one of the examples you give in the book is of a, I guess, an administrative assistant in Singapore who gets this email about a meeting that got screwed up, which this person had no role in setting up. And the meeting was like, well, we could have done better things with that time if this hadn't gotten screwed up. And this person felt it was like a personal attack. And I thought that was just an interesting example because there was nothing inherently offensive about the note. It was just sort of straightforward, right? The meeting didn't happen.

From an American perspective, right. I actually found that very interesting because often in the West we think of Singapore, Singaporeans, as being sort of like the Asians we understand and who understand us in the West. And I do think that Singaporeans have a specific talent at adapting their external persona to really work well with people from a variety of different backgrounds because they've been in such flexible international situations. So here I had this woman. I mean, that's not in the book. She's very young, a young woman, maybe she was in her 20s. She had her hair dyed blue, right? So like she really looked like someone who would be like ready. And she was really upset. Oh, she was so angry about this email. And she said to me, you know, Erin, I just want to show this to you. Tell me, is this actually appropriate in the US? And I looked at it and I was like, Well, yeah, yeah. It's so— I mean, from an American perspective, this woman, she said please, she suggested something they could do in the future. It seemed polite. And then, you know, I showed it to some other Singaporeans who confirmed that that was totally inappropriate in their cultural context. So, yeah, interesting learnings, right?

Yeah. Well, and I mean, we've all seen just massive examples of culture just I'm kind of screwing up. So let's just talk about the, the elements of the Netflix culture for those that might not know it, because I think it is remarkable. And we had Patty McCord on a few Friday Firesides ago, and she was talking about creating a culture of freedom and responsibility. And one of the things she leads off with is assume you've got intelligent adults working for you. So let's start with the idea of talent density, because I think that's such an interesting core pillar to what makes this whole thing work.

Yeah. Okay, I will start there. But I also want to say that since many of your listeners maybe attended the Patti McCord session, I interviewed Patti—

Oh, did you?

Dozens and dozens of times for the book. Dozens of times. So as we were getting ready for the book, I mean, I conducted 200 interviews with Netflix employees and then interviewed Reed a bunch. And whenever Reed couldn't remember something, I called Patti because Patti has a great memory and she's full of stories. But she and Reed did something that I took issue with, which was that they acted like everything that they were doing at Netflix was just common sense. And I really didn't think so. I really didn't. You know, I was like, no, this is not common sense. This is weird.

Well, early in the book you talk about thinking this was like a recipe for total disaster. Like, because the idea of, you know, average performers get a generous severance and, you know, you have to be totally exceptional. And if we wouldn't fight to keep you, you know, we really just should say sayonara. And I mean, it sounds like a

Yeah, I found it— I found a lot of it not just provocative, but really confusing. I mean, I know, of course, that you are a good friend of Amy Edmondson, that she's been on your fireside chat too. And of course, she talks all about psychological safety. And I'm just trying to figure out— so the idea of psychological safety obviously being that if you really want to have an innovative work environment, that you have to create an environment where people feel secure so that they're free to create. And I just couldn't imagine how those 2 elements, this stating— so Netflix states adequate performance gets a generous severance— how that statement could not lead to an environment where people did not feel psychologically safe and why that would not then inhibit innovation. So, okay. So I'll just start there that I do not believe that these ideas are common sense, at least to us today. Now, I do believe— I mean, my kind of like over— overriding learning from the whole project was that the fundamental foundations of corporate culture at most organizations are hangovers from the Industrial Revolution. Meaning that during the Industrial Revolution or the industrial era, which of course powered the economy for hundreds of years, so it's no surprise, but we learned all of these methods for encouraging behaviors that decreased error and increased efficiency. And we're still doing most of those things in companies today, even though in most, at least creative companies, the goal is no longer error prevention. It's fresh thinking, right? So I really think this is kind of a way to think about things differently. Okay. And then I can move on to your other question if you'd like. No,

it's just, I think it's absolutely right. And of course, you know, You are very thoughtful at the end of the book talking about here are places where this could work, right, where it's fresh thinking and new perspectives and everything. And then here are places where, you know, I do not encourage workforce experimentation in nuclear plants or when you're flying an airplane. I want you to do exactly as you're told. And I think that's a distinction we don't often make enough. And we try to take the rules of the latter and apply them to everything involving the former. It's like innovate on demand, you know. You get a lot of that.

Exactly. Okay, good.

Let's start with talent density.

I think that's interesting. Okay, so let me introduce that topic by saying that talent density, as they call it at Netflix, which basically means that you try to have all top performers on your team, that the, the whole goal here, as you said, is giving your employees freedom from rules and process. So Reed found himself after his first company, feeling like he needed with his next company to find a way to have less and less rules as the company grew instead of more and more rules, which would then create more innovation. And in order to do that, he thought, well, usually the best performers, the top performers, don't need many rules. So maybe we can start by, you know, by just trying to have a company of top performers. And if we get a lot of feedback and candor going between those employees, then we can also kind of get this co-accountability going where if people are taking advantage of their freedom, one another will notice it, and that that will then lead to an environment where we really don't need much rules or process at all. Okay, so that's the underlying foundation, which I think is critical. And, you know, there's a couple of elements then to this talent density, and the first has to do with how you pay people. And the second has to do with who you keep on the team. And I guess we'll talk about each of those.

Sure. Well, let's start off, though. I mean, this was not something that he thought about in advance. And I thought that was one of the most interesting things, that the whole notion of talent density actually came from having to do a layoff, right? Having to sort of decide who stays and who goes.

That's right. So he did— I mean, he did have the idea in entering the second company that he wanted a high-performing organization. But there's nothing very innovative than that. I think probably everybody on the call would like to have a high-performing organization. And he really set out— he really set out to find the best people, have a rigorous hiring process, to pay them as best he could given that they were struggling. And if there were really poor performers, he would get rid of them. But then by 2001, the company had grown to 120 people. And the work environment was fine. But then, of course, the financial crisis hit, and he learned that he was going to have to lay off a third of his employees if the company was— otherwise the company would have to shut down. And, you know, he felt, of course, as anyone would, he felt sick about it. And he was really concerned about what the employees who stayed in the company, what they would think about him after he laid those people off. I mean, here they were loyal to him, and then he turns around and fires them. So

joining a startup to begin with, you know, many of them had probably left some cushy corporate job to come work for him, right?

Of course. And then he sees that actually, you know, he's not ready to be loyal to them, was his concern. So he did the layoffs and, you know, people were upset, people cried and slammed doors and all that stuff. But then within a month, something totally surprising had happened, which is that the environment in the workplace had changed completely for the better. So suddenly there was like all this passion and enthusiasm, and people just seemed to be loving coming to work. And the company started to accomplish more with those less— a third less people than they had when they had those people. So that was a big question mark for Reid and Patty at the time was, you know, why possibly had that happened? And they came to the conclusion after talking to a lot of their employees was that actually, they're really— they are top performers. For them, an excellent workplace was stunning colleagues, right? And for them to be surrounded by the best, that was really, you know, made coming to work like being in love. So Reed's goal then moving forward was to find a way to move adequate performers on and keep a special place for those rare top performers so that they could really thrive together.

Fascinating. Fascinating. So let's talk about some of the building blocks. And then let's start with pay, because I think that's just something that is universally fascinating to everybody. So Netflix had a historic— well, has developed a policy eventually of paying at or slightly above market. Yeah. And that is such a struggle. I mean, I can think of very few workplace policies that are as fraught as how much people get paid and who those people are and what gender they are and what race they are and how senior they are and so forth. And I just think it's absolutely fascinating. So if you don't mind, I'd like to start with like the conventional corporate way people get paid with, you know, you've got a pool of money that you're allowed to use for raises And if you reward one person, it's a zero-sum game against these other people. And maybe start there, and then what Netflix does differently.

Yeah, so you've outlined in the way that I think the vast majority of companies pay their employees. And the idea is always like, of course, with a pay grade or a pay range, that we want to as much as possible pay people who have the same kind of talent— or talent, not level, but the same kind of responsibility— about the same. And I think— I actually think that that is one of the hangovers from the Industrial Revolution. So we can think about pay in a totally different way. And, you know, that's what's going on in this company. So they— the whole— this whole issue of paying top of market is built on this fundamental idea of the rock star principle. And if you have any software engineers, if we have any software engineers with us today, they know this principle. So I learned, like, I'm not a software engineer, obviously, but I learned all software engineers more or less know this. So this is based on this study that was conducted in 1968 in Santa Monica where there were these 9 programmers who were brought into a lab. They were given some tasks and they had this limited amount of time and their performance was compared to one another. And at the end, they thought that the best performer would maybe do, I don't know, 2 or 3 times times better than the others. They were all at least adequate, which is why they had been invited. But the top performer actually did 10 to 25 times better on the different tasks than the average ones. And the idea that came out of that in the software industry was that if you have a bucket of money, you have a choice. Either you can hire 10 people To work on a project, or you can hire one rock star and give him all that— her all that money. And she can perhaps do even better than those 10 people— those 10 people would. Now, so that's been known in the software industry. I think the innovation with Netflix was, why only engineers? Isn't that of course true for anybody who's in a creative or innovative role? Mm-hmm. And I think we— that I do think is common sense if we think about it, Rita, that like the person who is the best marketer in your city can obviously deliver, you know, maybe 1,000 times better results than just the average marketer. Mm-hmm. So the idea behind pay was, you know, don't try to pay people the same, try to really find the best you can. And if you have a bucket of money, get less people and pay them more, but find the very best. So that kind of created this sort of lean workforce where people were being paid, yes, sometimes exorbitant amounts of money in order to create huge, huge value for the company.

And there's some specific examples like people that created the Choice algorithm. And I mean, one of the things that I think is sort of poignant that you point out in the book is for most people, the best way to make more money is to change companies. And so in a way, we reinforce this notion of kind of disloyalty and job hopping and moving from place to place, because if you move, you're gonna get paid market rates. And if you stay, you're gonna get paid some percentage increment over whatever it was you were making before. I see this, by the way, in universities right, left, and center. I mean, and you— I don't know if this is how it works in France, but certainly in the US, if you want to make a lot of money as a professor, you move schools like every 4 years.

Sure, everyone knows it. I mean, you know, young people know it too, right? You can only get so big of a raise. They're not going to give you a 25% raise even though your skill set might have grown 25%. But this is— Rita, this is where the Netflix system gets really strange, which is— I mean, I think that we can really like— I mean, it made me think, wow, is this the future of pay? And maybe it is. But it's one thing to hire people. So, okay, so Netflix tries to know what the range of each person that they're hiring, what the range for that role would be, and then to hire them at the top of market. Okay, fine. But they also, beyond that, try to keep— they want everybody to know what their market is on an ongoing basis. And they try to keep track of everybody's market, and then they adjust the pay with the market. So there may be somebody who gets, you know, who grows a huge amount in a 12-month period, and that's— they might get a 40% greater salary the next year. And there were also people who failed to do the research. And the research means, Rita, imagine, right? The research means that you have to call up your colleagues and ask them how much money they're making. Which sounds kind of startling, but on the other hand, when you think about it, it's like Well, if you don't know what your value is, then who should, right? Totally. So make the phone calls. And the other weird thing they do at Netflix, but I actually thought, well, gosh, everyone should be doing that, is that they encourage their employees to take recruiters' telephone calls. And when the recruiters call, your employees' goal should be to find out how much does that job pay, because nobody knows more what your market rate is than the recruiter who's trying to recruit you. And even if you have to go to the interview in order to find out what that job is paying, you know, that gives you that information. So yeah, I think that in the next 5 years we're gonna see a lot more companies that are moving to these really unheard-of type of pay structures.

Well, it does raise something that I've been mulling over a lot, which is more and more— well, you know, in academia— pardon me for the digression— but in academia we've had this traditional debate about markets versus hierarchies, right? And so you need a hierarchy when you've got uncertainty about what value an asset has, you've got the potential for cheating on either side, you've got lack of transparency, blah blah blah blah, all the reasons you need to put something inside an organization. And one of the things I think digitization has done is made more and more of the assets we might want to use for production— first of all, it made them it makes us able to access them on a variable basis. But secondly, it allows us to create markets where you could never create markets before. And so if you think about the freelance economy, right, you know, it works this way, right? I mean, if you want to get that superstar film producer, you're gonna pay a ton relative to the newbie just out of wherever. And, and, you know, maybe that's an early harbinger of what Netflix is trying to figure out and harness inside Yeah,

well, I do think it's an example of how in today's creative age, in our new technological information age, we can't stick to this sort of, oh, moving everybody up 2% or 3% every year because the world's not moving at those slow paces anymore. That's a great way to lose your talent density, right?

Yeah, yeah, people will move on. Absolutely. Well, one of the things Netflix talks about, and I think Patti mentioned this, she said He said, we always wanted Netflix to be a great company to be from. And I thought that was— that's not the way a lot of corporate HR types think about things.

Yeah, well, that's right. But I also think that it's fundamental to Reed's kind of thoughts about the corporate culture is that he's not worrying too much about what other companies think about the culture that he's he's created there, right? That he's really trying to experiment with an ecosystem that will allow for this kind of unusual level of innovation and flexibility, and that others might look at the company and say, whoa, what are they doing there? But he's just trying to kind of keep that noise out and see, okay, what can we learn in order to breed this innovation and flexibility that we need for the future? And that's why I This, this is such an important learning experience, not just for myself, but really for the reader, is that, you know, he's done this big experiment and now the rest of us hopefully can learn from it.

And learn something from it. I heard him interviewed— oh, this must go about 6 or 9 months ago— when it was the first time I became aware that you guys were working on this project. And it was in the context of Columbia has a media forum run by one of my colleagues, and Reid was their guest at their annual their big— in this case, it was virtual, but he was their guest at their sort of big virtual confab. And one of the executives who was attending this meeting said to him, so hang on, you've got this culture, right? And you think it kind of works. And you've actually invited this professor to come and talk to people without you in the room about whether this is real or not? You're actually going to do that? And the guy was completely incredulous that he would make it possible to have a project like that happen.

Yeah, and maybe I should add, Rena, that at the beginning, I mean, Reed was really vocal that everyone was supposed to tell me the honest truth. And because they have so much candor in the organization, I mean, you would not believe how honest people were with me. And, you know, it's not all rosy, right? Some people cried, some people told me stories, you know, like in any organization. And I heard all of it, right? And the fact that I was there, you know, invited by the CEO, I think at many companies would lead people to just be quiet or just give positive stories. So yeah, it worked.

Or tell you all the dirty laundry. I mean, that's the other thing.

That's right, in case I would tell him and they could get their needs met. Something like that.

I get that a lot when I go to companies and they're talking about their strategy, right? And like, you know, you'll sit in the boardroom and everything's hunky-dory and, oh, this is going to be the plan that's takes us to the moon, and then you get to like their individual desks over a cup of coffee, and it's like, this is never gonna work. I don't know what they're thinking. You know, you just get this complete disconnect. And I'm like, well, why didn't you say that in the room?

That's what happens.

Absolutely, absolutely. So one of the things you and I talked about was how to create a corporate culture that really comes alive, and this notion of managing tensions, because I I do think that's a subtlety here that I wouldn't want people to miss, which is, yes, they're doing all these unusual things, but they're very— to a level I have not often seen articulated, they're very clear that the tensions exist and that they've made a choice about where they're gonna land on the side of those tensions. So direct feedback, for example, for many people can feel like an affront. You know, a lot of people would struggle with that, and they've decided very clearly to land on one side of that tension. So, you know, clearly the culture is not just lip service. Clearly he wouldn't have invited you in if he thought it wasn't unusual or important what they were trying to do. So how do you get that culture to really land?

Yeah, well, this was actually one of my most interesting learnings, and I have to say this is not in the book, so it just didn't seem to like to fit in the— to fit in the Well, you've

still got an HBR article to come. It's

coming. That's my next one. But what I learned was— I've studied a lot of corporate cultures. And I have to say, I've never really been that interested in them because I found that most corporate cultures, what the company says has very little to do with the way that people behave. And they tend to define their corporate cultures in these positive absolutes, like here we value integrity, or We value respect. And the problem—

And then you turn out to be Enron.

Yeah, for example.

Like, that was the thing on the wall. I remember visiting one of their corporate— it was like integrity, respect, transparency. I forget what the last one was.

Judgment.

Judgment.

It's always judgment. It's usually those 4. But what I learned as I was studying this corporate culture, which is one of the rare companies where what they've articulated actually comes alive in the behavior of the employees is the importance of speaking intentions when you define your corporate culture. So for example, instead of saying something like, oh, well, we value high performance, which may on the surface— I mean, anyone would say, okay, we value high performance. But you really have to think, you know, what is that intention with? For example, If I get to a point that I have an employee who's behaving adequately and he's trying hard, but he's not the best that I could get, and I give him clear feedback multiple times, he can't improve, do I find another job for him, move him out, or do I keep him on the team? Okay, now we have a dilemma, and the tension is If I get rid of him, I get higher performance, right, as the performance on the team then spirals up. But if I keep him, then I get a stronger sense of security and psychological safety on the team, right? So that's a real dilemma, right? And if companies really want their organizational cultures to come alive, they have to think about what are are the big dilemmas that are impacting our managers' decisions, and which way do we want them to turn? And whichever way you choose them to turn, you have to think in sort of those tensions. Now, Netflix has chosen high performance over security. Another interesting example— I mean, you spoke about candor, but that's a big one, right? Like, is it more important for us To have this environment where people are really pushing one another to higher and higher performance because of candid feedback, even at the risk of breaking the relationship? Or is it better for us to work towards a work environment where we all feel it's just really pleasant? It's really pleasant to work here because we feel it's, you know, just niceness all around. Right? And, you know, you've got a choice. Yeah. So what Netflix has done, I think, is something that every company should do, which is figure out which are the most important dilemmas, the most important tensions that are impacting the choices of your managers, and then tell your managers, you know, which way you want them to gear. And then what you've articulated really starts to take life in the organization as people make decisions. I think

that's profound, because I could also see, you know, I could see a strategy where you would go the other way, right? Where you would say, you know, we're going to be an army marching an inch at a time, but we're all going to be lined up together, arm in arm, kumbaya, you know. And, you know, I could see other contexts in which that might work, right?

That's right. I mean, it's a dilemma, and that's why when people read the next chapter, Netflix Culture Deck or our book, some people read it and think, oh my gosh, I love this. This is just like the first articulation of a good company. And some people read this and they're like, oh my gosh, this is so terrible. And of course, it's because the dilemmas are clear and there's a clear direction that has been chosen. And that's so rare in the articulation of corporate culture. So I really encourage your readers— I mean, our listeners here— I really encourage you, go back and take a look at how your organization has articulated corporate culture, right? And look at, you know, are you speaking in absolute positives? And if so, maybe you're wasting your breath.

Mm-hmm.

And instead, could you start thinking about some of those tensions and how to, you know, organize some debates around them, whatever it is that your organization decides directionally.

And how do they— but how do they reinforce that? Let's say— let's just say for argument's sake a manager just can't bring themselves to let go of an adequate performer, makes— in other words, makes a choice that's antithetical to the corporate culture. What are the sanctions? How does— how does that get rooted out?

Yeah, so we can think both generally and with regards to that specific question. So generally, I mean, of course you can't just have the discussion about about the tensions and then write them down and assume everybody will follow them. If you really take the time to do this, you have to reinforce it continually. So, you know, like if you have a quarterly management meeting, corporate culture should be on your agenda every management meeting. Every quarter at least, you're going back debating the tensions, seeing what's working, what's not working, and it's through those ongoing discussions that this, you know, continues to adjust and come alive. But then, you know, what I think is interesting is that the more you kind of come up with these methods to encourage— edgy methods to encourage people to think the way you were hoping they will when they make decisions, the more successful this will be. And with this adequate performance gets a generous severance, what they use at Netflix is something that is called the keeper test, right? Okay. It sounds a little ominous. But the keeper dust is basically a system where managers are encouraged on a regular basis, no specific timeline, but you're just encouraged on a regular basis to really think about each person on your team. And to think that the question you ask yourself is, if Polly came to me tomorrow and told me that she was leaving for another company, would I fight hard to keep her? And if you fight hard to keep her, well, then she's a keeper. There's no question. She's the best on the market. You've got your top performer. But most of us, we have at least one or two or maybe a bunch of people on our team that if they came to us and told us—

They have that at INSEAD? I thought we only had that.

You looked behind you. I thought someone was at your door, Rita. They're listening.

The thought police are going to be here any minute. Thank God for quarantine.

No, but we know. Oh my gosh, of course, even if we all want high performers, we know we— it was hard to, you know, we want our people to succeed and it's such a hard question to ask. And when our answer is, you know, actually If he came to me and told me he was leaving, I'd be super relieved. If that's your answer, but you're saying that your overriding goal is high performance, that's inconsistent. So then you have to ask the next question. Did I give that person feedback? Have I been clear about how they can perform, how they can improve? And if not, okay, well, then you have to make the tough choice, which is either try to find another job for them, or if not, at Netflix, You know, you give them a big chunk of money, say thank you very much, and then do what's best for them too, which is allow them to move on to a job that they can really thrive in.

That they can thrive in.

So I know some of the listeners hate what I'm saying now because that's, I know, super controversial. I know it gets a lot of emotions going.

Well, of course, of course. But I think, I mean, we've all seen this over our careers, which is if you're in a place that's just a bad fit, you know, it just— and this goes all the way back to like Built to Last, right? I mean, I think Jim Collins Collins makes this point that if you're in a place that fits you, you're gonna thrive. And if you're in a place that just— what, for whatever reason it doesn't work for you, you're not gonna make it. And I think he uses the example of Nordstrom's, whose employee handbook consists of rule number 1: use your best judgment in all circumstances. Rule number 2: there are no other rules. And, and, you know, they take people and they actually put them through sort of an apprenticeship and to see how Nordy they are. And people that are Nordy love it there, and people that aren't are like, these people are nuts. This is retail. What do you expect me to go racing from the 2nd floor to the 5th floor to find the jacket that goes with every glove? Who wants to do that? I think it can apply— like, this isn't just a high-tech thing, right? This is a fit thing for companies all over. But there, um, there has to be— so I've got 2 thoughts going in my mind. One is the dark sides, and the other is if you're gonna attract the very best at X, right? You have to be such a compelling place to work that they're going to be willing to give up those other opportunities and come work for you. So how does that work?

Well, that's what brings us back to the freedom.

Yeah, okay, okay.

I mean, I think we didn't talk about that enough, so we can talk about that now. I mean, the number one thing happened— that happened while I was conducting these interviews, I would sit down with these employees and I would say to them, tell me about the culture Oh my gosh, the freedom, the creative freedom. Never before have I been allowed to make these decisions, to do these things without approval. They would tell me stories about, you know, signing contracts and their hearts pounding and their, their—

Because this is like 5 pay grades above what they'd be able to do at any other company, right?

At the last company, they couldn't sign off on something more than $10,000, and now they were signing off on something at $5 million. So that, I mean, of course, that level of trust in your employees is exhilarating, and people feel exhilarated to have that level of power, you know, power, ability to create, and not everyone wants to work at a place like that, because of course when you have a lot of freedom, you also have some fear. I mean, it's kind of scary to have a lot of freedom.

Well, Patti talks about responsibility.

What if it doesn't— what if what you do doesn't work?

Well, and there's some examples in the book of things that didn't work, and, and the, you know, big failures, and, and some of them pretty substantial.

That's right. Yeah, we can talk about that also, about the idea of a mistake versus a failure, which which I do think is interesting when we think about innovation. But so that's why people want to work there. And, you know, everything else, everything else in this creative company is set up to give people freedom.

Mm-hmm.

And, you know, I actually think that these other things, they're just footnotes. I mean, of course, they're the foundational elements. If you want the freedom, then you have to build the talent And then if you add the candor, then you can give even more freedom. But it's the freedom that's driving the place to work. And that's why people are willing to, yeah, sacrifice some things like job security, definitely, in order to have that level of freedom. Now, not everybody wants that. But they know when they enter the company what the corporate culture is. And I think that's important also.

Well, and I imagine they're pretty transparent about it. From a strategy perspective, one of the things I always found fascinating about Netflix was the onboarding process. And there was this wonderful graph where they had, you know, customers for DVDs, and then DVDs are going to go away, and then it's customers for streaming, and then streaming is going to go away, and then they have customers for content. And, you know, hopefully that's not going to go away. But, um, but the level of just strategic candor, you know, coming right in and saying, okay, you may be going to work for the DVD part of the business, but that, that's, that's a declining business, and we all know that. And, you know, it's like, okay. Very, very, uh, Yeah, that's

the other side. We already talked a little bit about feedback, right? But it's the other side of candor. So they use the word candor for 2 things. In my mind, they're 2 different things.

Mm-hmm.

One is feedback, and the other is organizational transparency. And I think that's actually also one of the huge learnings for every organization looking at this company is that, you know, everyone— you know that, Rita— in business schools, everyone is giving lip service to transparency. Oh, we all want transparency, we all want transparency, without thinking about the tension. And what's amazing when you look at this organization is they're really doing things that when you find out they're that transparent, you're like, oh, well, not that transparent. So some examples of that, I mean, for example, they're one of the only companies publicly traded that announces their results before they are announced to Wall Street.

That's right.

And Reid does that as a symbol to say to his employees, well, you're part of us, so of course you should know more than everybody else does. But that's a risk, right? Because if someone acted illegally on that information, they could really get in trouble. So he's very clear with it, but he makes that information public. And then, you know, there's just reams— everything is available, just about, strategically to every employee. But there's funny things that happen, Rita. I mean, there was like a couple of things that totally shocked me. One of them's in the book, one of them's not. them was that because Reid has this tendency to really just like knee-jerk share everything, right? So we were working on this book, right? Early days, I wrote this chapter and I sent it to him. It was still, you know, just a mess, right? But we had most of the ideas there, and I sent it to him for him to look at and give feedback on. And a week later, I was in the Amsterdam office interviewing an employee there, and he said, oh, what you wrote in that chapter was very interesting, and he started talking about the chapter I'd sent to Reid, and I was, I was confused, and he said, oh yeah, well Reid sent that to the managers, and I was like, all of the managers? He said, oh no, just the top 300. You know, my first reaction was like, What? Well, how could you do that? Because it wasn't proofread, it wasn't ready. You know, I was like getting ready to call him, and then I was like, well, you know, Erin, like, why does it matter, right? I mean, okay, so that's not the usual way to do things, but, you know, maybe that's okay. So I just dropped it, then I put it in the book. And the other one, Rita, okay, this is just between you I don't know if you and our audience— The book was supposed to come out in May, right? But then because of COVID we pushed it back to September. And as you know, but Reid felt that it was lacking transparency to not share it with the employees. So he shared it with the— he emailed it to the employees with the deal that they would then purchase it when it came out, right? That's what he said in the email. You can just imagine the publisher was a little taken aback. Never happened to her before.

I gather Netflix does a lot of things that way.

Yeah, that's right. She got over it.

Very interesting. Very interesting. So the freedom. So one of the things that's— it's actually in the subtitle of the book. It talks about the culture of reinvention. Title again, just a little product placement here. And what Reed says early on in the book is looking at Blockbuster. And of course, it's one of the iconic business school stories. Blockbuster had it all to lose, and they did. Netflix at one point tried to sell themselves to— people don't remember this— they tried to sell themselves to Blockbuster. They were in such trouble and basically got laughed out of the corporate offices. But his thesis was was that the blockbuster culture, aside from all the other strategic mistakes that they made, but that the blockbuster culture was so hidebound that when it came time for a different business model or a different way of doing things or radically different perception on the part of the public, that it just couldn't adapt. And his thesis, as I understand it, is that this culture allows you to morph from business model to business model, from one way of doing things to another thing. And if you think about Netflix, I mean, DVDs in envelopes, streaming content, original content, and God knows what's next. But it does seem like a real continuous reinvention kind of company. And would you— I mean, you've seen a ton of corporate cultures. Oh, yeah. Do you think that counts?

Well, that's actually the number one fundamental point, which is that Netflix managed to do something that is almost unheard of in the last 15 years, which is that they have reinvented themselves entirely again and again in a way that almost no other company has done. So as you said, just 15 years ago, for our listeners who are in the US, Netflix had these big warehouses and they were sending DVDs by mail through the post. And then the environment shifted and they turned to a high-tech company that was streaming movies and DVDs. And then the environment shifted and they shifted to a media company opening up studios in LA, creating their own award-winning TV shows and movies. So this is really, I think, the example of what most companies are needing in our disruptive age. They're needing a corporate culture that allows the organization to shift as the environment shifts around them. And the main principle, you know, the foundational principle of the book is not just the freedom, but that if people are not bound to processes, that when things shift around them, the whole organization will just shift, will just easily move, you know, with the wave of what What's going on. And I think that Netflix has actually proved that in this case, that's true. So any company— I mean, it's so perfect to think about that right now with COVID all around. With this COVID situation, so many companies are needing to reinvent themselves, and some organizations are finding that their corporate cultures are not really set up for it. So that's one of the big learnings here.

Absolutely. Well, I look, as you know, at strategic inflection points. And one of the big sort of ahas from my work was that the processes that a lot of these companies have just create these incredible blinders. Like, you know, you're literally stumbling over opportunity and you're kicking it out of the way because it doesn't fit your preconceptions about what your company should be doing. And yeah, and I think, and to come back to the pandemic, I think absolutely we've got to come up with really novel solutions to what comes next. And, you know, I think one of the hardest things about this particular thing that we're living through is most things in human life have a before, a during, and an after, right? And right now we're just a before and during. Like, like, you know, it makes me nuts when people talk about the new normal. I'm like, how can you even think about that right now? Like, that's just crazy.

We're in flux. But I think a great example of that, Rita, is is, I mean, just thinking about those processes that anchor the organization. I mean, a big one of those that most big companies use are bonuses, right, like annual bonuses. So they don't have those at Netflix, and the reason is that if you have an annual KPI and you have to accomplish a certain amount of a certain thing in 12 months, well then if the industry shifts, you're not motivated to shift with it. You're motivated to keep in the same direction. And I like this image of having like a ship in the sea, and the processes are like the barnacles that are pulling the ship down in the ocean, right? So then when the ship needs to change direction, it can change, but it's slow. Whereas if you don't have— I mean, what they do at Netflix is they say, okay, well, if we have top performers, we'll just take that money and give it to them in salary because— You know, generally the top performers are going to get that money anyhow. But those are the kinds of things I think we really need to be rethinking. Of course, we've been doing that for hundreds of years. But just because we've been using those processes for hundreds of years doesn't mean we should continue to use them.

Well, right, because the world really has shifted tremendously. So one of the cool things about the book, which is unusual in my experience, is the book's actually written with Reid talking about a bunch of ideas. And then you commenting or responding to them. And then sometimes you're doing something provocative and you sort of— and there's a couple of chapters where you're actually pretty in his face, right? It's like, here's a situation, what would you do? And then sort of here's how a typical company would answer it. And then he goes through his logic for what his responses are. And just recently he was interviewed, I want to say by the Wall Street Journal, on the topic of when do we all go back to the office and is that a good idea? And of all the CEOs they interviewed, and there must have been about 20, like they interviewed 20 of them, so they have a picture and a little paragraph. And he says, I hate this working from home thing. I don't think it works. I think it only— we need to be back in the office. We need to all be together. End of story. Like, just like no debate, no equivocation. And what I'm wondering is if that has some connection to this, you know, high trust, high commitment, high feedback, high performance Sort of atmosphere where you really, you're not just little individuals laboring away, you know, you're part of something that's bigger than the individual contributors.

Yeah, well, I think that was a really interesting comment and people have been bringing it up to me all the time. But I actually think that for Reed, that was quite an obvious statement, but you have to understand it in the context within which he was speaking, which is that Netflix employees have incredible incredible amounts of freedom as to where they work, right? They can work any hours they want. They can take vacation as much or as little as they want. They can work from their mother-in-law's laundry room if they prefer. So it's not like they're, you know, coming to the office every day and having to follow these processes. What Reid feels is lost is that relationship orientation that we talked about earlier that he's become a big advocate of. And of course it is, Rita. I mean, I regret it, right? In this COVID age, it's so difficult to build those emotional bonds in the way that we could when we had time face-to-face. That's right. So I think that that was actually the point, which is that, yes, other CEOs were saying, wow, amazing, we gave our employees freedom and they were successful. And Jane was like, well, my employees already had freedom, but I lost the— I lost the human That's so interesting. They lost—

think about it like an evolutionary path. He's kind of evolved way past that. Yeah, I was, I was very surprised. A lot of, like, about 2 months in, right, when a lot of these CEOs were being interviewed and they were like, how are we gonna control people? And there was all this talk about keylogging and monitoring the hours and everything. And then they came to this stunning revelation, which was, oh my God, People actually want to do a good job. They want to complete their tasks. They want to honor their commitments to their teammates. This is astonishing. You know, we all thought that the minute they have any freedom at all, they just slough off, you know.

Such a fascinating example about what we've been talking about, right? That if— especially if you have high-performing employees, you don't need to monitor their work or control them or set up KPIs or systems to make sure they're where you want them to be. one you want them to be, let them run free. And if you let your employees run free, then other people will want— the top talent will want to come work there so they can run free. And that's when that innovation and flexibility really starts taking over the organization.

That's fantastic.

So COVID was a lesson.

Right? Yeah, it absolutely

is. But there was a lesson, right?

A couple of things that, you know, I I know I'm conscious that we're running sort of up against time, but, um, there are places where this works and places where it doesn't. And I'd love you to just give a point of view on where would you be careful about implementing a system like this?

Yeah, so I think that's really fundamental, is that these lessons are for companies that want to increase innovation and that value innovation more than error prevention. And I think we can— we can say clearly, one dilemma in an organization is innovation versus error prevention, because if you want innovation, you have to let, you know, error— error take place. We have to fail. We have to try. That leads to innovation, right? So if you are working in a safety-critical market, if you are running, um, a manufacturing plant where you are developing penicillin, your goal is not to have each penicillin pill to be innovative. You want replication,

right?

You want zero error, you want perfection, don't read this book. And I think we can also see that in many companies there are areas of the company that really the industrial error model works great for because they're going for error prevention and replication and efficiency, and other areas of the company that are going for innovation and flexibility. And then you have, you know, something you can really think about here was, okay, we have the traditional model which works here, and then we have another model that's outlined in this book that may help us think more about these other areas of the organization.

Very interesting. Very interesting. Well, this time has flown. Let's talk about how people can learn more. So they're curious. Let me— well, obviously Get the book, read the book. But, but, you know, how do we get more of Erin's world?

Yeah, here I have the British copy here.

Oh, excellent!

It looks different than the one you held up earlier. Yeah, well, please read the book. Go to my website. Send me an email if you like. I'm just getting used to having this, this new topic to talk So people should feel free to email me. I'm at erin.meyer@insead.edu.

And you're on Twitter?

I'm on Twitter. I'm on— Social media. Join me on LinkedIn. There

you go. Okay. Well, Erin, thank you so much for being so generous with your time, and thank you for the book. I mean, I think it's, it's a fascinating read, and certainly for me, you know, it It filled in a lot of holes for me on the cultural side of innovation because I do a lot on the strategy side of innovation, but this was a really interesting kind of window into how it looks day-to-day and how it looks when you operate. So thank you so much.

I really enjoy being with you, Rita. It's just like we're sitting around a fire together.

I know, I know, and if it was a little colder, I'd have the fire on. Have a lovely weekend,

and thanks to all our listeners today. I hope next time I I hope to meet you face to face. Okay,

that would be nice.

All right, take care.

Bye, everybody.