Episode with guest: Patty McCord

Co-creator of the Netflix Culture Deck and Netflix’s original Chief Culture Officer
(This episode was recorded in September 2020.)

1. Innovation can happen anywhere.
2. Humans are motivated by doing great work with good people.
3. Make sure you have an incredible team of people.

\\ Episode with guest: Patty McCord \\ 

Co-creator of the Netflix Culture Deck and Netflix’s original Chief Culture Officer

(This episode was recorded in September 2020.)

Key Episode Take-Aways:

1. Innovation can happen anywhere. (click to jump to this topic below) We used to have a meeting every Friday in our parking lot. We called it the metrics meeting. And literally what we would hand out would be the equivalent of what in most companies is the executive dashboard. 

2. Humans are motivated by doing great work with good people. (click to jump to this topic below) I think humans are basically motivated by doing great work with amazing colleagues. When I talk to people who deeply rely on the employee engagement survey and net promoter scores, and all that kind of stuff, I sometimes say, "Go find five people in your company that are amazing, that everybody knows are amazing--we all have some of those people--and sit down with them and say, 'Tell me about the time that you did something that made a difference to our company or our customers. Tell me about something that you're really proud of."

3. Make sure you have an incredible team of people. (click to jump to this topic below) What we want to do is make sure that we have an incredible team of people that are able to make products for those consumers that make them love it and hear stories from all around the world, right? That's our job, is to deliver stories. And so I think when we start talking to people about the work that we do, we have to talk about who we serve, why we're there. And capitalism exists to create goods and services that people want to exchange their hard-earned money for. And so as long as we respect that transaction--and the other part is, back to how we started this conversation, most people don't understand. 

Continue scrolling to read the full episode transcription.

Announcer  0:00  Welcome to the "Change the Game" podcast, where we share stories of open-book management and highlight capitalism at its best. Thank you for tuning in to this special episode of the "Change the Game" podcast with special guest, Patty McCord. This episode was recorded live during The Great Game of Business^® conference in September 2020. Here's your hosts, Rich Armstrong and Steve Baker.

Steve Baker  0:23  Welcome to the "Change the Game" podcast, where we unite organizations who are changing the Game by doing business differently. The Great Game of Business community exists for people to learn, share and celebrate the game-changing principles and practices inspired by Jack Stack in classic books, "The Great Game of Business," "A Stake in the Outcome, and of course his new book, "Change the Game." Our community believes that business has the potential to make a positive difference in the world, and Great Game of Business organizations empower their people to pursue their dreams and benefit our society as a whole. That is capitalism at its best.

Together, we believe that we can save the American Dream by closing that gap between the haves and the have-nots. And together we aim to transform 10 million lives in the next 10 years. I'm Steve Baker, Vice President of the Great Game of Business and here with me is the president of the Great Game and co-author of our new book--that's right, ladies and gents--"Get in the Game: How to Create Rapid Financial Results and Lasting Cultural Change," Rich Armstrong. How are you, Rich?

Rich Armstrong  1:24  Very good. Thanks, Steve. I am really excited about today's guest, Patty McCord. She is the author of "Powerful: Building a Culture of Freedom and Responsibility." Patty was a key confidant of the founder Reed Hastings, and the head of HR at Netflix during its rise. In her book, she credits reading "The Great Game of Business," by Jack Stack and Bo Burlingham, for inspiring Netflix to adopt transparency and education when it came to the company's financials and its strategic goals. According to "Powerful," a big part of Netflix's secret to success in shifting first to a subscription model and then later to digital streaming was that it practiced open-book management.

Every employee, from their engineers to their customer service agents, was taught how the business made money. In other words, they focused strictly on building a business of business people. Patty also writes in her book that she preferred the title of Chief Product Manager of People because she understood that her role was not [just] to enforce policies or procedures, but also to help teach every Netflix employee how his or her actions impacted the business. So welcome, Patty. And we thank you for joining us. How are you? 

Patty McCord  2:33  I'm great. Thanks for having me. I'm glad to be here. 

Rich Armstrong  2:36  Fantastic, fantastic. Well, let's start with your book. What was your inspiration in writing your latest book, "Powerful"? What was the inspiration? 

Patty McCord  2:45  You know, I left Netflix and I thought I would find other people doing some really interesting experiments around how we manage people. And the honest truth is, I didn't find much that was different. And so I wanted to talk about the things that we had done in giving people freedom and responsibility and using good judgment to do the right thing. And I thought it was important that I write it to help people understand that, yes, you can do it differently. Because I did.

Rich Armstrong  3:15  Yeah. Awesome.

Steve Baker  3:16  You specifically wrote a chapter in your book, Patty, that focused on the need for every single employee to understand the business. And I know you shared a little bit of--you just did it, right? You just went out and did it. Why was it so important at Netflix?

1. Innovation can happen anywhere.

Patty McCord  3:33  Well, partly we were making up a business that nobody had ever done before. And we were also creating a subscription business, which was really unusual in our space, right? You're used to a gym subscription or a magazine subscription, but the idea of subscribing to a DVD-by-mail service is really different. So that's thing one. Thing two was, I was just really interested in how it was working. So we used to have a meeting every Friday in our parking lot. We called it the metrics meeting.

And literally what we would hand out would be the equivalent of what in most companies is the executive dashboard. It would have, what's the revenue, what's our cost per shipment... basically, we taught people how to read a P&L without explicitly saying, "We're going to teach you how to do this." And honestly, we just assumed that everybody was smart enough to understand it. And if we thought somebody wasn't, then why were they working with us?

Steve Baker 3:36 That begs the question, a little further deep dive: Did you ever do any formal financial literacy training? Or was it just the informal-ness of those parking lot huddles?

Patty McCord  4:45  It was the informal-ness of those parking lot huddles, and sometimes we would get a question at the parking lot huddle that we realized we needed a bigger deep dive. And then what we might do is have our CFO stand up in the parking lot huddle and say, "Let me explain revenue and profit metrics to you. Oh, we don't have any profit." [Laughter.] “But here's how the subscription model works with building on the base that builds over time.”

And the beautiful thing about focusing on how the business worked was it created a secondary incentive that I never thought about until much later, which was because we had a subscription business, the only way we could keep going was to have our customers be extraordinarily happy, right? Because you want them to keep signing up, right? So what we realized is through teaching people about how the mechanisms worked, they knew that everybody's--literally everybody's--job was to make the customer so happy that they would keep coming back. And that "keep coming back" was an essential part of the subscription business model.

Rich Armstrong  5:53  You know, there's a lot of talk about employee engagement, Patty, and there's no question engaged employees are probably going to give you better performance. But it was interesting in your book, you said that communicating and teaching employees how their work actually contributed to the success of the business was actually the most engaging thing you could do to create some engagement in their work. Can you talk a little bit about why that was so effective? 

2. Humans are motivated by doing great work with good people. 

Patty McCord  6:19  I think humans are basically motivated by doing great work with amazing colleagues. I mean, I've been doing what I do for over 30 years. And every engagement survey in the world that says people are “likely to recommend,” doesn't mean they're likely to love their job or feel great about the work that they're doing. And so, here's another funny thing about engagement--you know, it's one of those words I hate.

When I talk to people who deeply rely on the employee engagement survey and net promoter scores, and all that kind of stuff, I sometimes say, "Go find five people in your company that are amazing, that everybody knows are amazing--we all have some of those people--and sit down with them and say, 'Tell me about the time that you did something that made a difference to our company or our customers.

Tell me about something that you're really proud of.'" And every one of those stories is going to be about something hard. And so when we talk about engagement, we usually mean that people are loving what they're doing, and it's a little bit outside of their comfort zone. And the achievement at the end is what really motivates people, not that we're inciting people to be engaged.

Steve Baker  7:36  To reiterate what you just said, to make sure I fully understand it, you're actually kind of breaking the old engagement myths or beliefs, as Ari said earlier in our conference, in saying engagement is actually better when you take people outside their comfort zone. That's where growth happens. Is that what you were saying?

Patty McCord  7:54  That's exactly what I'm saying.

Steve Baker  7:56  You've taken me out of my comfort zone, right now! [Laughter.]

Patty McCord  7:59  Well, you know, somebody asked me the other day about debating, right? So there's a part of the Netflix culture that's about, debate vigorously in order for a great customer experience. If you're debating on behalf of that customer experience, you can do a lot of stuff. And somebody said to me the other day, "Wasn't that really uncomfortable?" I'm like, oh God, I love nothing better than being in a meeting where somebody changes my mind. Right? You know, it's like, "Oh, you're right; you're right! Yeah!"

Steve Baker  8:31  It's powerful.

Patty McCord  8:34  Yeah, I mean, that intellectual stimulation is, I think, what really motivates people. And that's why I think the underpinnings of... If you really know what your role is in the organization, you really know how the machine works, then you get this sense of pride because you know what you contribute.

Steve Baker  8:58  And in your case at Netflix, the culture of trust that's developed--because there are so few rules--it's really more, as I think you told us, context. The idea is, the more I'm trusted, the more I have a chance to be trusted. It feeds itself, which is really counterintuitive for most business people.

Patty McCord  9:18  Yeah, and it was for me, too, to be fair. There was this little actual VP of HR on my left shoulder. And on my right shoulder was the person who worked for an engineer who always said, "Why, why, why, why, why?" [Laughter.] And, you know, every time we would break a rule or try something, [or] tell people something that nobody else would say, we would say to them, "Look, we think you're smart. We think you understand what we're trying to do. We think you guys are all high performers. So if this is a secret, we expect you to keep it." And it just turned out that that's empowerment. Right? That's when you say to people, "I trust you to do the right thing for the company," and then they do. It's much better than waving that magic wand and saying, "You're empowered."

Steve Baker  10:15  Right? They think they will find someone with.

Patty McCord  10:17  [Laughter.] Right, right. Well, you know, I always say that the reason why we have to go around empowering people is because we took it all away. All those rules and all the people that you have to ask permission from, and all the approvals that you have to get and all the guidelines that you have to follow so that we protect ourselves from that two  percent of people who aren't going to do the right thing. And, you know, one of the sayings we used to have at Netflix, I would say it this way: you know when you're talking to somebody, and there's kind of this bubble over their head, and you think to yourself, "This person is clueless.'" Close your eyes and count to 10 and say, "That may actually be true." They just don't know, right? And when you do that, and you say, "I'm talking to a smart person, who does great work and cares about the company, and they appear to not know what at all they're talking about," then I can say to them, "That's an interesting perspective. What leads you to believe that's true?" And then you can understand where they're coming from, and you realize, Oh, they don't have the full picture, because they just don't know.

Steve Baker  11:28  And then it's our responsibility as leaders to provide that context.

Patty McCord  11:32  All the time, all the time. It's just how we managed over time, you know. And the way we came up with managing at Netflix, we didn't decide one morning when we woke up. If anybody's read the Netflix culture deck, that took us 10 years to write.  And so what we did was we would experiment and then if the world didn't fall apart, then that would embolden us to experiment more. But I will say that the boldest things I ever did, or we ever did as an executive team, wasn't necessarily to invent things. It was mostly around just stopping doing things that didn't matter. Replacing that, for example, you have to get approval from finance to spend X number of dollars, instead of teaching people, "Here's how the business works. Here's what our budgetary constraints are. Here's the profit percentage, here's our fixed costs. So make your decisions, do good judgment, make your spending decisions within the context of those parameters.” And smart people can do that. 

Rich Armstrong  12:48  Yeah. So true.

Steve Baker  12:50  For sure. 

Rich Armstrong  12:51  What are your thoughts about engaging so-called millennials, like Steve? 

Patty McCord  12:56  I don't buy it. [Laughter.]  I just don't buy the whole millennial thing. I mean, come on, guys. You were a millennial; I was a millennial. We're not anymore, but we were once, early in our careers. And what do you want when you're 20-something and starting in your career? Everything. When do you want it? Now. [Laughter.] It's just called, you know, starting out, right?  I'm more in favor of talking about maturity and judgment. So I have met and know many, many hard-working, really smart, dedicated, terrific, 20-something-year-old employees. And I know a bunch of lazy, not very mature, 45-year-olds.

So I think that it's perfectly reasonable for us to look at employees in terms of where they are in their career, and what they came into the business with, right? And I've found that I've learned so much ... you know, I've learned everything I know about social networking from young people, including my own millennial children, right? By the way, the term “millennial” is kind of passe now because my millennial children are in their 30s now, so...

Rich Armstrong  14:17  Yeah, gotcha.

Patty McCord  14:17  You know, I have a grandchild now. He’s not taking a job for, you know, happy hour on Friday afternoon at three.

Steve Baker  14:27  So there's no kegerator in kindergarten, is what you're saying? [laughter]

Patty McCord  14:31  Well, you know, let's be realistic; bring it to now. What he’s pining for is an hour in his car alone, because he's got a one-year-old 24/7 [and is] working from home.

Steve Baker  14:41  If I could, let's delve into that, because I was at a conference last year, where I was on a panel with younger people and more diverse people than myself. And one of the things that came out was, I brought up Ruby Payne and this framework for understanding poverty; I don't know if you're familiar with it. But there was a really contentious thing about, "Well you can't put people in buckets like that." And then the whole millennial thing came out. If we just strip away all of the labels, and we talk about the differences between people--I love how you put it: I know some pretty motivated young people, I know some pretty lazy, older people. Can you just expound on that a little bit for us,  about how you tend to deal with it? And in this picture--and I know this is kind of a long,  rambling question, but bear with me--the Netflix culture basically says you can be awesome, or you can be mediocre. But if you're mediocre, we'll give you a great severance package--something like that. What about Jack Stack? If he were on the call with us here, he might say, "Well, should you pay more attention and invest in their training and bring them up?" I don't know, exactly. But could you talk about that a little bit? Because where do you draw the line?

Patty McCord  15:54  I'll give you a long rambling answer. [Laughter.]

Steve Baker  15:56  Excellent. Cheers.

Patty McCord  15:58  Let me bracket it first. The first thing as a leader you need to understand is what you're trying to accomplish as a team and what your timeframe for accomplishing it is. Which is where Jack and I might completely agree if we have somebody who's faltering a little and they're close and need some help, and the timeframe is a couple of years, then absolutely, that's worth doing. But if you say I want my team to be exceptional--let's use a timeframe of six months. By the end of the year, middle of next year, we're going to be awesome and amazing, right? Absolutely incredible.

Then ask yourself, what would be occurring then that's not occurring now? And give me all your metrics, because we're  financial people, right? We're going to find, is it more revenue? Is it more growth? Is it more customers? Is it better interaction with the customers? Is it better collaboration within the organizations? Is it people that are customer-facing more internal--what is it? What is it on your team, when it's amazing in six months? 

Okay, now you drop down and say, "Oh okay, in order to accomplish that, what would people need to know how to do?" And maybe it's that you've gotten really successful, and you're growing functionally, and you need to look at problems of scale, right? And the thing about problems of scale is they're best solved by people who've seen something bigger, right? It's hard to imagine 100 x if you've only seen 10, right?

So now we think, okay, in six months, we're going to need to have the capability of doing that. Then you drop down and say, "What kind of skills and experience would it take for someone to have that ability in order to accomplish that in six months?" And then, and only then, would it work. So now you're saying, Okay... 

The Netflix story I tell around this is we'd grown 30 percent quarter over quarter, three quarters in a row, compounded. Talk about that happy stuff, right? So we go into an executive meeting, and Reed wants to talk about, what if it goes to hell? He loves disaster planning. I'm like, what if we just talk about, like, what if it kept up? What if we kept doing it? The CFO goes to the  whiteboard, he compounded top-line revenue of 30 percent for years, right?

He's like, "Wheeew!" doing that happy dance that CFOs do. He's like, "Oh my God, it's so much money!" And Ted Sarandos, who was the head of content--he's now the co-CEO of Netflix--at the time, we would say to ourselves, "Someday, we'll be as big as HBO. Someday." And we meant in our lifetimes. And Ted looks at the numbers and he goes, "It's next year." We could be as big as HBO next year. And our head of engineering says, "By the way, that will represent a third of the US internet bandwidth."

Rich Armstrong  16:04  Unbelievable.

Patty McCord  16:07  [Laughter.] Like, what? It shocked us, right? And then he and I got together afterwards, and I said, "Oh, my God, do we have anybody that knows how to do that?" And he's like, "No." And I said, "Can we do it in our data center?" He goes, "No, it has to be in the cloud." So we go to our IT guys, we explain the situation. They're like, "No worries. You guys go exec something; we'll build the cloud."

Steve Baker  19:24  Nice.

Patty McCord  19:25  And I said, "If anybody on earth could do it, it's probably you." Couldn't even buy the equipment in nine months, right? We had a data center. And so it began the conversation that we could have, where--you know, somebody looked at me in that meeting and said, "I've been here seven years. Are you telling me I might not be part of this team?" And I said, "I don't know. But we got nine months to figure it out." And that's what I'm saying. So for me, the experience wasn't necessarily that somebody's high performance suddenly shifted to low performance; it was typically that the business changed around them, and they were still high performing in the job we hired them to do, not necessarily the job going forward. 

I'm a great example of that at Netflix. I'm a tech gal. I'm a Silicon Valley person, I really love engineers. I left the company when the company was changing to yet another iteration, which was about original content globally. So it's not that I didn't do a pretty great job for the 14 years I was there; I was just not the best person for the company going forward. So the reason I'm telling my long-winded answer is, when you determine what the deltas are and the problems that you're trying to solve, the problems you're trying to solve become the requisition. Here's how most people write job descriptions: they describe the person that left that they wish hadn't, or a fantasy person that doesn't exist, or whatever it takes to get it approved. None of which actually helps you find the right person.

Steve Baker  21:09  Pretty unhealthy approach, right?

Patty McCord  21:11  But if you look at that particular problem you're trying to solve within the timeframe  you're trying to solve it, then you're going to be way more open to hiring different kinds of people to solve it. And what we tend to do is say, "Whew. We have more work to do. We're going to need a lot more people who are smart, quick on their feet, really good decision-makers--people like me.” [Laughter.] So you hire them and then you wonder why you can't get anything done.

Steve Baker  21:39  Yeah. I love it.

Patty McCoy  21:41  Because if you could have gotten it done, you would have. So my experience is that very often the situation is outside of the person's purview, or the person gets another opportunity; that's terrific. Or they don't want to do that anymore; they want to do something different. And if you have another part of the organization that can absorb that person, that’s ideal - that’s great. But if you don't, you don't. And then there's no harm, no foul there.

Steve Baker  22:07  Thanks for going into that, because I think you just effectively put in-- I mean, everybody that's listening is wondering about the what and the why, and then there's the who that is a combination of all that. So you really covered all that very well. Thank you for going deeper on that for us. I know, Rich, you probably have another question. 

Rich Armstrong  22:24  I wanted to shift gears just a bit. Because you know that the theme of this conference, as we talked earlier, is capitalism reimagined, right? And capitalism, in a lot of ways is getting challenged, continues to get challenged. And I won't call it the millennials--I'll call it the new workforce--maybe have a different kind of perception about capitalism. I'm just curious what your thoughts were on that  for one. But also, how could we maybe change that perception a bit?

Patty McCord  22:50  I think we just have to change some of the words we use in some of the dialogue. And maybe we have to throw out capitalism; maybe the "isms" are just bad words right now. But what I've found is that people can get passionate about the work they do as long as they know who they serve. So in my HR organization, I would say to them, "Yes, we are a service organization. But it's not spelled s-e-r-v-a-n-t-s. The people that we serve don't work here. The people that we serve are the person who checks you out in the grocery store, or your kid's teacher, or your grandmother, right? Those are the people that we serve.”

3. Make sure you have an incredible team of people. 

And so what we want to do is make sure that we have an incredible team of people that are able to make products for those consumers that make them love it and hear stories from all around the world, right? That's our job, is to deliver stories. And so I think when we start talking to people about the work that we do, we have to talk about who we serve, why we're there. And capitalism exists to create goods and services that people want to exchange their hard-earned money for. And so as long as we respect that transaction--and the other part is, back to how we started this conversation, most people don't understand. 

True story: I'm interviewing this woman, this is back in the dot-com boom/bust 10 years ago. And she's the VP of marketing at a very small startup that's going bust. And I said, "Help me understand how your business works. Help me understand some of the mechanics of your business model." And she says, "Well, I'll tell you one thing. I know that you can have revenue without profit, but not profit without revenue." [Laughter.] Yeah! You hit that one right on the head. She didn't know!

Steve Baker  25:01  And that was the end.

Patty McCord  25:02  And she was vice president! Now, it was a very small company and all that kind of stuff. But people go through an enormous amount of time in their careers before they understand how it works. So what you guys are talking about, I'm just fully in favor of, because that's how people understand. I have millennial children. My daughter was telling me the other day that billionaires were lizard brains. [Laughter.] And I said, "Really? Reed and Patty are lizard brains?" She's like, "It is not fair that because I know you, that I actually come into contact with humans who are billionaires. I would prefer to think about them in the complete abstract."

Steve Baker  25:52  Wow. Interesting.

Patty McCord  25:54  But that's part of it. Right? I mean, part of it is that people aren't exposed to it. And if  you're a leader of a company, it's really, really important that everyone in the company sees you being an adult, behaving in a way that's respectful of who you serve as customers. And so, if we just stay away from, "It's all about the money," which it's not! I mean, people like money, don't get me wrong. And a lot of money will keep somebody longer than not a lot of money. I get it; don't you?

Steve Baker  26:41  Yep.

Rich Armstrong  26:41  Yeah.

Patty McCord  26:41  It's been your passion, too.

Steve Baker  26:43  Totally. 

Rich Armstrong  26:44  

I think it's interesting, Patty, that it sounds like what you're saying, is that one part of the solution here to change that narrative is that you have to teach people the business, right? They have to understand the Game that we're in. And it was kind of interesting, when I was reading your book, you were talking about that when you first started to spread this idea of transparency and education through the company, that you had some executives that really had kind of a bias that, hey, these people don't want to know this information, or they probably wouldn't get it, even if we taught them. Can you talk a little bit about that challenge?

Patty McCord  27:20  Oh, sure. There's always the MBA bias, right? The only people that can understand this kind of complexity are the Stanford MBAs, you know, to Stanford. And then I would take my Stanford MBA executives and put them in front of a group of say, call center reps, and say, "Explain marketing to these guys." And they would be asked really great questions like, "Okay, fine. See?" I mean, I think it's an inherent bias in any organization. Because that's the way it's always been.

Rich Armstrong  27:55  Yeah.

Steve Baker  27:55  For sure.

Patty McCord  27:56  You know, we could say the same about women, and minorities, and we could have another whole podcast about all of that stuff.

Steve Baker  28:07  Exactly. I do like the universal appeal of--what we're so passionate about, which is what you all have been talking about here in the last couple of minutes--there is one universal thing, and that's understanding how money works. And those financials have been around for 500 years. Why don't we teach everybody this? But we don't.

Patty McCord  28:26  Well, you know, I've done a lot of work recently with nonprofits. They have financials, too

Steve Baker  28:33  Absolutely. We're all subject to them, Patty McCord, thank you so much for joining us. Author of "Powerful: Building a Culture of Freedom and Responsibility." Patty, you are amazing. Thanks so much.

Rich Armstrong  28:46  Thank you.

Patty McCord  28:46  

Sure.

Announcer  28:48  

The "Change the Game" podcast is produced by the Great Game of Business. To learn more, visit greatgame.com