How Can We Create Cultures of Reinvention?

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Wednesday, February 16, 2022
By Tricia Bisoux
At AACSB’s Deans Conference, INSEAD’s Erin Meyer explained what Netflix can teach leaders about adapting, innovating, and thriving during times of change.
  • Great employees care less about luxurious offices than they do about working with talented colleagues—performance is contagious.
  • Companies that encourage kind but candid feedback are more likely to see their employees embrace innovation.
  • In high-performing, high-feedback cultures, employees can be trusted to be at their most creative and make decisions that are in the best interest of their organizations.

How can leaders create cultures of innovation and reinvention? What can they do to set up their organizations—and the people who work there—to thrive amidst constant change? Forward-thinking leaders might follow three steps, said Erin Meyer at AACSB’s recent Deans Conference. They can hire only the best talent. They can encourage candid feedback. And, most important, they can give employees full freedom to innovate.

As a professor of management practice at INSEAD’s campus in Fontainebleau, France, Meyer specifically studies organizational culture. Chosen by Thinkers50 in 2019 as one of the world’s 50 most influential business thinkers, Meyer is author of the book The Culture Map: Breaking Through the Invisible Boundaries of Global Business. Her keynote at the conference, held virtually earlier this month, was titled “Developing a Culture of Reinvention.” In it, she outlined the case of Netflix, a company that has succeeded in transforming itself, in a short period of time, from a mail-in DVD company to a full-fledged media company juggernaut. Meyer conducted in-depth interviews with Netflix’s CEO Reed Hastings and more than 200 of the company’s employees for her 2020 book No Rules Rules: Netflix and the Culture of Reinvention.

Step 1: ‘Increase Talent Density’

Hastings, Meyer said, attributes Netflix’s great success to its “highly unorthodox” culture. That culture was created not by chance, but through experience. For example, when Hastings’ first company, Pure Software, was still small, his team had set no policies. Employees were free to use their own best judgment to make decisions. But as the company grew, some took advantage of that freedom, from purchasing first-class airline tickets to bringing disruptive pets to work.

Hastings became concerned that if he did not put control mechanisms in place, the company would “descend into mayhem.” So, he worked with his human resources team to create a comprehensive employee handbook. But the boundaries set out in the handbook had an unintended effect: The most creative thinkers, who did not appreciate limits to their freedom, started to leave the organization.

When Hastings started Netflix, he wanted to avoid making the same mistake. This time, he started what Meyer called “the Netflix experiment.” The first part of that experiment was hiring and keeping the best talent he could find. At the time, he did not have much money for salaries, but he used what he had to hire “rock stars,” Meyer explained, who would increase the company’s “talent density.”

That meant making some hard decisions. At this point in her keynote, Meyer presented a hypothetical scenario to attendees: What would they do if they had an employee, Fritz, whom they really liked, but who was not turning into a high performer no matter how much coaching he received? Many deans in the audience shared in the chat that they would not let Fritz go. After all, why fire a decent employee who had done nothing wrong?

“If you would feel relieved that someone on your team is leaving the organization, that’s a clear indicator that’s not the right person in that job.”

For organizational cultures that prize loyalty, this decision would make sense, Meyer said. But there could be consequences of keeping a hard-working employee who might not be a good fit for the organization.

Meyer offered an example from Hastings’ experience. By 2001, Netflix had grown to 120 employees and was performing fairly well. But then 9/11 happened, and the company was hit by the subsequent financial crisis. For the company to survive, Hastings had to make the difficult decision to lay off one third of his workforce. In that process, he laid off not only mediocre employees, but also so-called “brilliant jerks” who were great at their jobs but unpleasant to work with.

This was an incredibly painful moment for the company, Meyer said. But once the company emerged from the layoffs, something surprising happened. A few months down the line, Hastings realized that the company now had 80 passionate, talented employees who were “madly in love with their work,” Meyer said. “The atmosphere around the office had just improved dramatically.” Moreover, the remaining employees “were accomplishing a good deal more than the 120 employees had before them.”

This experience led Hastings to an unexpected conclusion: For high-performing employees, a great workplace is not about fancy lunchrooms and luxurious offices—it’s about “being surrounded by stunning colleagues.” This aligns with a 2006 study that shows that most often, teams do not perform up to their best members, but down to their worst ones.

For this study, researchers asked teams to complete a task—but some teams unknowingly had an actor in their midst who would exhibit bored or even obnoxious behaviors. What the researchers found was that teams that had the bad-behaving member performed nearly 50 percent worse than those that did not. In other words, Meyer said, “performance is contagious.”

After his experience in 2001, Hastings has learned to apply what Meyer calls the “Keeper Test”: If an employee were to come to you and say, “I am leaving because I have an offer from another company,” would you feel that you needed to do everything you could to keep that employee? Or would you feel relieved?

“If you would feel relieved or excited to find out that someone on your team is leaving the organization, that’s a pretty clear indicator that’s not the right person in that job,” Meyer noted. On the other hand, “if you manage to get a team where you get all the top performers together, the energy and enthusiasm are contagious as people learn from one another.”

Step 2: ‘Put Feedback on the Agenda’

Let’s say that your business school has increased its talent density by hiring only top performers. Now, Meyer said, it’s time to take the next step—make giving candid feedback an integral part of the culture. Too often, the people in an organization do not offer constructive criticism to others out of fear of putting their relationships at risk. And when faced with criticism themselves, people can become understandably anxious.

But when people do not give and receive feedback, they cannot maximize their innovative capacity, Meyer noted. “I think we all know that feedback is a highly underutilized tool,” she said. “It’s free, and it can help everybody.”

That’s why Netflix “puts feedback on the agenda.” For example, “At Netflix, it’s very common that you might walk into the office and open up the calendar to see ’10:30 feedback with Jane.’” Moreover, all employees make sure to deliver any criticisms with kindness, following the “four A’s” of feedback. They aim to assist others, and they give feedback that is actionable. Similarly, they appreciate feedback when it’s given, and they feel free to accept or decline the notes. They also keep two additional A’s in mind—that feedback can be given anytime, anywhere.

At business schools, Meyer offered, this might mean setting aside a meeting once a month where close colleagues sit down to give each other feedback. Deans might also hold meetings where they solicit feedback on their own leadership from staff. Different national cultural contexts might require different approaches, Meyer said. But organizations can work with their employees to decide, as a team, what kind of feedback they are most comfortable giving and receiving.

“Feedback is a highly underutilized tool. It’s free, and it can help everybody.”

Meyer mentioned that Netflix employees often schedule informal annual “360-degree feedback dinners” where they take turns giving each other constructive criticism. When she first heard about these dinners, Meyer said, she thought they sounded “absolutely crazy.” Why would anyone want to hear their weaknesses aired in front of a group of colleagues?

But after she saw one of these dinners in action, she found out that they provided a “transformational experience” for many teams; people were able to speak openly about how they thought others could perform better. She shared one Netflix employee’s perspective on participating in these gatherings: “When your turn comes, it might be difficult to hear what people have to say, but this is one of the greatest developmental gifts of your life.”

Step 3: ‘Now, Remove Controls’

At his first company, Hastings made the mistake of placing limits on his best employees, rather than giving them the freedom to make decisions and innovate. But once he had taken the two steps above at Netflix—increased talent density and created cultures that encouraged candid feedback—he was prepared to take the next, perhaps most fulfilling, step in the Netflix experiment. He could remove the controls.

Most organizations set limits on employee behavior, dictating everything from when employees can take vacation to how much they spend while traveling on company business. But in a high-performing high-feedback culture, employees can be trusted to do their best and hold each other accountable, Meyer explained. These factors make strict controls unnecessary.

At Netflix, employees do not need approval to buy a new business laptop or spend six figures on a project, because they have the company’s trust. The resulting freedom, said Meyer, fosters cultures that are driven by innovation.

Build Trees, Not Pyramids

At the end of her keynote, Meyer presented attendees with two images: one of a pyramid and one of a tree. The pyramid, she explained, represented traditional command-and-control organizations. In “pyramid” companies, employees must defer important decisions to the CEO at the top. The tree, however, represented more innovative companies where the hierarchy is reversed—the CEO forms the roots that support the organization, but the employees live out at the branches where they are free to make their own decisions in the best interest of the whole.

Trees are more flexible and grow faster than pyramids, features that are necessary for reinvention to occur, Meyer emphasized. Not only that, they also attract more high-performing talent. “Top talent, especially young people today, want to work for trees,” she added, “not for pyramids.”

To conclude, Meyer shared an insight from Hastings himself on the rewards that come with creating an organizational culture driven by reinvention. “As we gave employees more control over their lives and jobs, it began to dawn on me … freedom is not the opposite of accountability, as I’d previously considered. Instead, it’s a path toward it,” Hastings said. “If you give employees control over big decisions, they will become increasingly responsible and conscientious. Give freedom to get responsibility.”

Tricia Bisoux
Editor, AACSB Insights
The views expressed by contributors to AACSB Insights do not represent an official position of AACSB, unless clearly stated.
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