Performance, Not Policy

By Kevin Meyer

Few people realize how employee policy manuals, usually given to you on your first day and then mostly forgotten, shape an organization’s culture and thereby its fundamental performance.

To give you a reference point, one company I worked for had a forty-plus-page employee manual that started every section with “COMPLIANCE IS ESSENTIAL” highlighted in bold, with “required to conform” sprinkled liberally throughout the document. The manual ended with a meaty discussion of the punitive measures that would happen if someone deviated from the policies. And this was a company considered very innovative in many ways!

The other extreme is Zaarly, a San Francisco-based startup. Its employee handbook, posted online for even non-employees to see, talks directly about culture. The “Rules for Work” section begins with “We don’t have these.” And in a style prevalent throughout the document, it adds that “if you want to coast, we recommend you apply for a job at Craigslist.” Included are some good thoughts on teams, work, and communication, but no rules.

Another example is the famous Netflix “business culture” PowerPoint that serves as the company’s employee handbook. Similar to Zaarly’s handbook, it talks a lot about culture and a lack of rules. There is no vacation policy, and the travel and expense policy is literally five words: “Act in Netflix’s best interests.” That’s it. Unlike Zaarly, Netflix does say some rules are necessary, such as: “Absolutely no harassment of any kind.” In this case, I completely agree, especially on that item. Some topics relating to privacy, security, and regulatory requirements are important enough that they need to be spelled out in no uncertain terms.

Netflix believes high-performance people should be free to make decisions, and those decisions need to be grounded in context. Mission, vision, and value statements do not create context. To demonstrate this, Netflix’s presentation provides the example of how Enron’s value statement included “integrity.” Real company values are shown by who gets rewarded for embodying desired behaviors and skills. The document goes on to describe the primary Netflix values and the associated behaviors.

At Netflix, flexibility is more important over the long term than efficiency. To inhibit the chaos that too much flexibility in a large organization can create, the company hires (and keeps) only high-performance people. High-performance people make great decisions, so building a staff of them is better than having people who are good at following lists of rules. Later on in the Netflix document, there is a good discussion that encourages managing with context instead of trying to control people. That way, when something fails, managers look to figure out what went wrong with the process rather than with the people.

One part of the Netflix document that gave me pause was an insinuation that defined processes (such as standard work) are all bad. But doing standard work doesn’t necessarily mean the employee has zero flexibility. As those of us in the Lean world know, standard work is the foundation for kaizen. Once an employee deeply understands a process, he or she can (and is expected to) come up with ways to improve it and then share it, which is called yokoten.

In January 2014, Brad Power posted a piece in Harvard Business Review titled Drive Performance by Focusing on Routine Decisions that hits at a similar concept. Instead of creating rule-bound defined processes, companies should focus on improving the quality of the decisions made by managers. Power illustrates the idea with an example those of us in the manufacturing world have all experienced: the maelstrom of materials control. He describes how the materials department of an electronics distributor was able to improve operations by better training managers to make key decisions about inventory. The goal of the training was to get managers to focus less on perfecting company processes (the “box and arrows” of a flowchart) and more on understanding what objectives the processes were supporting in the first place. When managers were able to understand how the processes affected actual business performance, they were able to make decisions (the “diamonds and arrows”) that improved performance:

These two stories highlight the advantages of focusing process improvement on “diamonds and arrows” — i.e., making better decisions. Project leaders who focus exclusively on the “boxes and arrows”of workflow action improvement will often find themselves caught up fixing yesterday’s operations and systems issues. Workers who participate in these interviews and workshops tend to fixate on the pain points they want fixed. This focus on immediate problems can actually distract the project team from the real goals of the business and the decisions that will help achieve them.

Are your rules improving the boxes (company processes) but harming the diamonds (managers’ decision-making)? How is that rigidity affecting your long-term performance? Do you have a team of high-performance people that you can trust to deal with the diamonds in a flexible, agile way? And how do your under-lying documents, even down to the employee handbook, support or impede that? These are questions to consider as you look to improve your company’s performance.