Netflix's Management Strategy Explained

This article is an excerpt from the Shortform book guide to "No Rules Rules" by Reed Hastings. Shortform has the world's best summaries and analyses of books you should be reading.

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What is Netflix’s management strategy? How can such a huge company remain successful with so few policies?

Netflix’s CEO Reed Hastings believes that employees should have as much autonomy as possible. That’s why he aims to eliminate controls so employees have the power to act in the company’s best interest without a long and complicated approval process.

Here are the three benefits of Netflix’s lenient management strategy.

Eliminating Controls Improves Workflow

When managers entrust employees with making their own travel and expense decisions—even when this freedom is reined in by relevant information, safeguards, and transparency—the company’s costs are typically a little higher than they would be if the company had an approvals process. However, Netflix CEO Reed Hastings contends that those costs are outweighed by the benefits of creating a low-rule environment. These benefits of Netflix’s management strategy include:

1) Flexibility

Without a restrictive approval process, Hastings says that employees have the flexibility to react, problem-solve, and make decisions under any circumstances. For example, when 4K resolution technology was new, Netflix partnered with Samsung to promote it. A tech product reviewer for The Washington Post agreed to test the new Samsung TV by watching House of Cards—which could give both companies a big publicity boost—but the night before, a junior Netflix employee discovered the TV was missing from the Netflix offices. As it was after hours, he couldn’t reach his boss for approval to purchase a $2,500 TV.

Empowered with the mandate to act in the best interest of the company, the employee bought the TV and averted a crisis—and the positive review in the Post was worth far more for Netflix than the cost of the last-minute purchase.

Stop Asking Employees to Front Money for the Company

Hastings says that the absence of an approval process gives employees more flexibility. But this idea can feel unrelatable to many: While Netflix employees are paid handsomely enough to be able to spend $2,500 on a TV, this isn’t the reality for the average employee at other companies. Fronting cash for company expenses puts an unfair burden on employees who don’t have access to corporate cards or who may not have ready cash for urgent expenses. Employees might also be frustrated and stressed by the paperwork and time-consuming process to get their money back, while finance personnel may be uncomfortable if they’re forced to deny some expense claims. To take the burden away from employees, replace your reimbursement system with a proactive expense policy: Implement a pre-approval process so that employees can spend company money without stress.

2) Speed

Hastings says that the previous example illustrates the need to act quickly in order for employees to perform their jobs well. Approvals processes slow down the workflow, and sometimes the window of opportunity for an important purchase closes by the time the company has signed off on it.

(Shortform note: Employees must have good judgment to make sound decisions—like making big, urgent purchases—on the fly, so it’s important to improve your employees’ decision-making skills through training. One way to do this is to hold regular meetings to discuss complicated situations and ask the group to describe how they would handle each case.)

3) Frugality

The authors write that, paradoxically, employees often spend less when they’re told to use their judgment than when they’re given concrete spending limits. For example, if a company has a specific limit for how much employees can spend when they take clients out to dinner, the employees will be more likely to spend up to the limit because they know they’re in the clear as long as they don’t go over the limit. By contrast, if employees are told to use their judgment, they’re likely to spend more conservatively, because they know they have to answer for their spending choices.

(Shortform note: Additionally, being too detailed when it comes to allowable amounts in various scenarios can backfire because employees might be overwhelmed by all the information and may need to constantly ask for guidance. Experts say that expense policies are most effective when they’re simple and easy to remember.)

How to Get Employees to Spend Less

Netflix doesn’t make use of a bonus system, but other companies have attached bonuses and rewards to employees’ low spending. This serves to encourage employees to be frugal. For example, one financial services company gives employees 50 cents for every dollar they save when they choose cheaper options for business travel. Employees are thus rewarded for choosing coach over business class for their flights or an Airbnb instead of a pricey hotel for accommodations.

Netflix’s Management Strategy Explained