What’s the Talent Density of Your Team?

Even though some of the business decisions that Netflix management has made recently have not been well received, I still think that many of the firm’s cultural attributes are worth studying.

As Netflix is back in the news again with a new DVD plan, I thought of CEO Reed Hastings’ words in a 2009 slide presentation:

“The actual company values, as opposed to the nice-sounding  values, are shown by who gets rewarded, promoted, or let go.”

“Actual company values are the behaviors and skills that are valued in fellow employees”

The presentation goes on to describe in some detail the nine behaviors that are particularly valued by Netflix (Judgment, Communication, Impact, Curiosity, Innovation, Courage, Passion, Honesty and Selflessness); and details the firm’s uniquely demanding standards for high performance and other aspects of its culture.

But the part I found most interesting was the view that turns on its head the conventional wisdom that growing firms must add significant processes and procedures to deal with increasing complexity, simply because it’s “Time to grow up”.

Instead, Hastings sees the root cause as the decline of “talent density”, as the percentage of high performance employees typically falls with total employment growth. Exacerbating the problem, the increased focus on process actually drives more talent out of the company, as they feel stifled by the bureaucracy and process orientation.

The solution, Hastings says, is to increase talent density faster than business complexity.

” Avoid Chaos as you grow with Ever More High Performance People —

not with Rules”

Not that Hastings advocates absolute freedom from rules. In fact, he lays out two types of necessary rules– those around moral, ethical and legal issues, and those that prevent irrevocable disaster (it remains to be seen whether the public relations flap over the company’s price increases are irrevocable).

Financial firms operate in highly regulated environments, and the inherent financial leverage makes the cost of some errors unacceptable. This means a higher degree of process orientation and policy compliance than many industries, but I don’t think this negates the idea that financial firms should also focus on increasing their talent density.

Especially critical, in my view, is the concept that a company’s actual values are demonstrated by “who gets rewarded, promoted, or let go”.

While firms must reward results more than efforts, leaders have a responsibility to shape the culture of their firm by also celebrating and rewarding the skills and behaviors that led to those results, and sharing those to help improve others’ performance.

I have seen managers who act like hostages to data. “I have to give Joe the big sales award. He hit his numbers, even though he fell into that one big sale at the end of the year.”

Your incentive plans have to be driven by financial results, but if they force you to reward results while being blind to the requisite underlying skills and behaviors, you need to rewrite your plans.

Top performers want to be rewarded on results, but they also want a clear vision of how their skills and behaviors are expected to be applied to get those results.

It’s the leader’s job to set that vision and apply the rewards appropriately.

If you don’t, you will eventually help another firm increase its talent density. With your former talent.

What’s the talent density of your team?

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