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How Google Works

Every Thursday we discuss the business books we use (or nor use) with our clients on NewstalkFM. You can listen back to the podcast, where Alan and Ian discuss “How Google Works” here.

It’s what you learn after you know it all that counts

Both Eric Schmidt and Jonathan Rosenberg came to Google as seasoned Silicon Valley business executives. After more than 10 years both have ended up feeling that, ‘it’s what you learn after you know it all that counts’. They say they relearned everything they knew about management, corporate culture, strategy, talent, decision-making, communication, innovation, and dealing with disruption. “In the old world, you devoted 30% of your time to building a great service and 70% of your time to shouting about it. In the new world, that inverts.” They explain how the confluence of – the internet, mobile, and cloud computing – has shifted the balance of power from companies to consumers.

How Google works

They have written this book on the basis of their belief in open networks.

“Open-sourcing says something, in effect, that we are committed to growing a platform, an industry, and an ecosystem as a whole. It lets everyone see that the playing field is level, with no unfair advantages conferred upon any particular player. Removing this suspicion of unfair advantages helps growth. This combination of technology + open will lead to a better learning ecosystem that provides, as Khan’s mission states, “a free world-class education for anyone anywhere.”

“Traditional, MBA-style thinking, which dictates that you build up a sustainable competitive advantage over rivals and then close the fortress and defend it with boiling oil and flaming arrows. Like most things heretical, open is terrifying to the establishment mindset. It’s a lot easier to compete by locking customers into your nice, closed world than it is by venturing out into the open wild and competing on innovation and merit. With open, you trade control for scale and innovation. And trust that your smart creatives will figure it out.”

There is no doubt that both have lifted the lid on the Google stew so you can dip in and see if it’s to your taste.

What Google is good at

Larry Page and Sergey Brin the founders of Google “ figured out that they could determine the quality of a web page—how relevant its content would be in answering the user’s query—by figuring out which other pages linked to it. Find a page that a lot of other pages point to, and you have probably found a page with higher-quality content”. There are a lot of other factors that made Google Search so much better than the competition when it launched—for example, it placed more faith in results found on academic websites—but the heart of the product’s advantage consisted of that single technical detail. So to grow its search platform in the late ’90s, Google focused on one thing:

Being great at search, which they measured along five axes:

  1. Speed (fast is always better than slow),
  2. Accuracy (how relevant are the results to the user’s query?),
  3. Ease of use (can everyone’s grandparents use Google?),
  4. Comprehensiveness (are we searching the entire Internet?), and
  5. Freshness (how fresh are the results?).

The company was so intent on getting users the right answers, that Google search results often included links to Yahoo, and AltaVista,

AdWords

AdWords, the Google ads engine that generates most of the company’s revenue, was based on the insight that ads could be ranked and placed on a page based on their value as information to users, rather than just by who was willing to pay more.

The blueprint for success

Schmidt argues that “today they stand as a foundational blueprint for how to create an Internet Century success story: Bet on technical insights that help solve a big problem in a novel way, optimise for scale, not for revenue, and let great products grow the market for everyone”

Information, Connectivity, and Computing

Information, connectivity, and computing power the three disrupter. Schmidt says “These three factors of production have become cheaper —affecting any cost curves in which those factors are involved. This can’t help but have disruptive effects. Many incumbents—built their businesses based on assumptions of scarcity: scarce information, scarce distribution resources and market reach, or scarce choice and shelf space. Now, though, these factors are abundant, lowering or eliminating barriers to entry and making entire industries ripe for change.”

What Schmidt has to say on:

OKRs

“These are an individual’s Objectives (the strategic goals to accomplish) and Key Results (the way in which progress toward that goal is measured). Every employee updates and posts his OKRs company-wide every quarter, making it easy for anyone to quickly find anyone else’s priorities. When you meet someone at Google and want to learn more about what they do, you go on Moma and read their OKRs. This isn’t just a job title and description of the role, it’s their first-person account of the stuff they are working on and care about.” Check out Vineet Nayer’s Employees First and Customers Second and ask yourself why you are not doing something similar in your organisation?

Conversation

Conversation is still the most important and valuable form of communication, but technology and the pace of work often conspire to make it one of the rarest.

70/20/10

70/20/10 became our rule for resource allocation:

  • 70 percent of resources dedicated to the core business
  • 20 percent on emerging
  • and 10 percent on new

Focus on the user

Focus on the user … and the money will follow. “In every other company where Jonathan had worked, a financial analysis was one of the most important hoops that a product needed to jump through before getting approved. How much revenue will the product make? What will the return on investment (ROI). For some projects in Google it wasn’t even considered – Google Earth case in point.”

The management maxims

Consensus requires dissension
Exile knaves but fight for divas
Think 10X, not 10%

Innovation

“A few years ago, a major consulting firm ( It was Accenture – sorry about that folks) published a report advising all companies to appoint a “Chief Innovation Officer.” Allegedly, to establish a “uniformity of command” over all the innovation programmes. We’re not sure what that means, but we’re pretty sure that “uniformity of command” and “innovation” don’t belong in the same sentence”

If your customers are asking for it, you aren’t being innovative when you give them what they want; you are just being responsive.

According to the Wall Street Journal the word “innovation” was mentioned 33,000 times in company reports in 2011 alone.

For something to be innovative, it needs to be new, surprising, and radically useful.

Hiring staff

The higher up you go in most organisations, the more detached the executives get from the hiring process. The inverse should be true.

If you could trade the bottom 10% of your team for new hires, would your organisation improve? If so, then you need to look at the hiring process that yielded those low performers and see how you can improve it.

The best way to avoid having to fire underperformers is not to hire them.

Great talent often doesn’t look and act like you., check your biases at the door.

You must work with people you don’t like, because a workforce comprised of people who are all “best office buddies” in an organisation breeds failure.

What we look for: “Googleyness” one of four standard sections, along with general cognitive ability, role-related knowledge, and leadership experience.

Finding learning animals can be a challenge along with a growth mindset.

Intelligence is the best indicator of a person’s ability to handle change.

From the outset, Google’s founders understood that to consistently hire the best people possible, the model to follow wasn’t that of corporate America, but that of academia. Universities usually don’t lay professors off, so they invest a lot of time in getting faculty hiring and promotion right, normally using committees. Peer-based, not hierarchical.

Smart creatives power the Google engine

They all must possess business savvy, technical knowledge, creative energy, and a hands-on approach to getting things done. Those are the fundamentals. She is risky creative. She is not afraid to fail, because she believes that in failure there is usually something valuable she can salvage. Either that, or she is just so damn confident she knows that even in the event that she does fail, she can pick herself up and get it right the next time around. She is self-directed creative. She doesn’t wait to be told what to do and sometimes ignores direction if she doesn’t agree with it. She takes action based on her own initiative, which is considerable.

A smart creative is a firehose of new ideas that are genuinely new. Her perspective is different from yours or ours. It’s even occasionally different from her own perspective, for a smart creative can play the perspective chameleon when she needs to. S/he is curious creative. S/he is always questioning, never satisfied with the status quo, seeing problems to solve everywhere and thinking that s/he is just the person to solve them.

S/he can be overbearing

In other words, they are not knowledge workers, at least not in the traditional sense. They are a new kind of animal, a type we call a “smart creative,” and they are the key to achieving success in the Internet Century.

Siege mentality

“At the highest echelons of business, the default mentality is, too often, siege. This fixation leads to a never-ending spiral into mediocrity. Business leaders spend much of their time watching and copying the competition, and when they do finally break away and try something new, they are careful risk-takers, developing only incremental, low-impact changes. Being close to your competition offers comfort”

Keys for success

“The people with the greatest impact—the ones who are running the company—should be product/service people. When a CEO looks around her staff meeting, a good rule of thumb is that at least 50 % of the people at the table should be experts in the company’s products and services and responsible for product development. Regardless of your business, there is a robust corpus of technical knowledge upon which the industry is based. Who are the geeks in your company? The guys in the labs and studios working on new, interesting stuff? Whatever that stuff is, that’s your technology. Find the geeks, find the stuff, and that’s where you’ll find the technical insights you need to drive success.”

Beware of Hippos

“Hippos are dangerous in companies too, where they take the form of the Highest-Paid Person’s Opinion. When it comes to the quality of decision-making, pay level is intrinsically irrelevant and experience is valuable only if it is used to frame a winning argument. Unfortunately, in most companies experience is the winning argument. “it is the quality of the idea that matters, not who suggests it.” Sounds easy, but of course it isn’t. Creating a meritocracy requires equal participation by both the hippo, who could rule the day by dictate, and the brave smart creative, who risks getting trampled as she stands up for quality and merit.”

Have a crowded workplace

Keeping people crowded also has the collateral benefit of killing facilities envy.

When no one has a private office, no one complains about it.

When you can reach out and tap someone on the shoulder, there is nothing to get in the way of communications and the flow of ideas.

The traditional office layout, with individual cubicles and offices, is designed so that the steady state is quiet.

Most interactions between groups of people are either planned (a meeting in a conference room) or serendipitous (the hallway / water cooler / walking through the parking lot meeting). This is exactly backward;
Offices should be designed to maximise energy and interactions, not for isolation and status.

Culture

“People’s BS detectors are finely tuned when it comes to corporate-speak; they can tell when you don’t mean it. So when you put your mission into writing, it had better be authentic. A good litmus test is to ask what would happen if you changed the statements that describe culture. Take “Respect, Integrity, Communication and Excellence,” which was Enron’s motto. If execs at Enron had decided to replace those concepts with something different—perhaps Greed, Greed, Lust for Money, and Greed—it might have drawn a few chuckles but otherwise there would have been no impact.” “Our mission is to build unrivaled partnerships with and value for our clients, through the knowledge, creativity, and dedication of our people, leading to superior results for our shareholders.” Boy, that sure checks all the boxes, doesn’t it? Clients—check; employees—check; shareholders—check. Lehman Brothers was the owner of that mission statement—at least until its bankruptcy in 2008. Surely Lehman stood for something, but you couldn’t tell from those words.”

Bookbuzz

One of our many favourite books on innovation is the Innovators DNA and Clayton Christensen the originator of the term ‘disruptive innovation’ says ” I keep my attention on the questions I need to ask so I can catch the issues of the future” We couldn’t have put it better.

The 21 questions you should ask:

In fine style Schmidt finishes by asking you to ” forgo conventional wisdom, crank up that imagination, and ask yourself what could happen in your industry in the next five years. What could change most quickly, and what will not change at all? Then once you have an idea of what the future could hold, here are some more hard questions to consider.”

  1. Do your decision-making processes lead to the best decisions, or the most acceptable ones? How much freedom do employees have?
  2. If there is someone who is truly innovative, does that person have the freedom to act on his ideas, regardless of his level?
  3. Are decisions on new ideas based on product excellence, or profit?
  4. Who does better in the company, information hoarders or routers?
  5. Do silos prevent the free flow of information and people?
  6. When you go through your pipeline of upcoming new major products and features, what percentage of them are built on unique technical insights?
  7. How many product people are on the senior leadership team?
  8. Does the company aggressively reward and promote the people who have the biggest impact on creating excellent products?
  9. Is hiring a top priority at the C-suite level?
  10. Do top executives actually spend time on it?
  11. Among your stronger employees, how many see themselves at the company in three years? How many would leave for a 10 percent raise at another company?
  12. Do company leaders use your products regularly?
  13. Do they love them?
  14. Would they give them to a spouse as a gift? (This obviously isn’t applicable in a lot of cases, but it’s a powerful thought experiment.)
  15. Do your customers love your products?
  16. Or are they locked in by other factors that might evaporate in the future?
  17. If they weren’t locked in at all, what would happen? (Interesting corollary to this question: If you forced your product people to make it easy for customers to ditch your product for a competitor’s,
  18. how would they react? Could they make your products so great that customers would still want it anyway…
  19. How would a very smart, well-capitalised competitor attack the company’s core business? How could it take advantage of digital platforms to exploit weaknesses or skim off the most profitable customer segments?
  20. What is the company doing to disrupt its own business?
  21. Is cannibalisation or revenue loss a frequent reason to kill off potential innovation?
  22. Is there an opportunity to build a platform that can offer increasing returns and value as usage grows?
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