How Google Works

By: Eric Schmidt & Jonathan Rosenberg

28-MINUTE AUDIO / 3,500 WORDS (12 PAGES)

SYNOPSIS

What management tactics should you follow to not only survive but thrive like Google? Infinite information, connectivity, and computing power have fundamentally disrupted the business landscape, and old rules no longer work in the Internet Century.

In this book, Google Executive Chairman and ex-CEO Eric Schmidt and former Senior Vice-President Jonathan Rosenberg reveal the management principles that powered the rise of Google from a dorm room startup to a tech giant. Read this book summary to learn proven ways that Smart Creatives and help you build a circle of innovation and achieve 10X growth.

TOP 20 INSIGHTS

  1. With vast information and infinite consumer choices, selling a mediocre product has become nearly impossible. Product excellence is the only pathway to success. As Jeff Bezos says, "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."

  2. Traditional command-and-control management structures were designed for the 20th century when information was scarce and mistakes were costly. At a time of fast-paced acceleration, however, this architecture actually works against businesses. The primary focus of businesses today must be accelerating the speed and quality of product development.

  3. Business plans can’t help you achieve continuous product excellence. Companies must attract top-notch talent and give them the freedom to create. This is the era of self-driven Smart Creatives who have technical knowledge, creativity, business savviness, and a hands-on approach. Management has to create an environment where they want to work, but not to tell them how to think.

  4. With the democratization of information, computing, connectivity, and manufacturing, global scale is within everyone's reach. To stand out in the Internet Century, leaders have to create and grow platforms that connect users and create multi-sided markets.

  5. While conventional management thinking values competitive advantage, the Internet Century rewards open sharing of intellectual property, using open standards, and giving customers the freedom to exit. Openness can be a powerful way to dislodge entrenched incumbents as it drives innovation and reduces the costs of complementary products.

  6. Hire for intelligence and learnability rather than specialized knowledge. In a world of rapid change, today's skills will become obsolete tomorrow. Once you hire, consistently create new opportunities for learning new skills, even those not directly related to work. Those who don’t respond well to this are probably not good hires.

  7. Recruiters merely manage the process and can therefore be tempted to hire average talent just to meet targets. It is then the company that bears the consequences. Finding talents should be everyone’s job and one way to encourage this is to make recruitment part of the performance appraisals.

  8. Google's internal research found that after four interviews, the cost of an additional interview outweighs the extra value created. Limit interviews to 30 minutes to enhance focus. No-hire calls can be easily made within that duration. If a candidate is good, you can always schedule another interview.

  9. Hiring decisions must be based on data and left to committees, not managers. The manager only has veto power. Five-member committees with diversity across seniority, skills, strengths, and background is a suggested composition. Similarly, promotion decisions are decided by committees, while the manager can only make recommendations.

  10. The right decision is the best one, not the lowest common denominator that everyone agrees with. Encourage Smart Creatives to voice strong opinions through solution-oriented open debates.

  11. CEO's should make very few decisions. These should center on core issues like product launches, acquisitions, and public policy issues. On other matters allow leaders to arrive at decisions and intervene only when it's a very poor call. For critical issues, leaders can use their convening power to hold regular meetings, even daily ones if necessary.

  12. Spend 80% of time on the products that generate 80% of the revenue. While it’s tempting to focus on innovations, an organization can take a fatal hit if the core business is neglected.

  13. The business should always outrun the processes. So when things look smooth and organized, it means that processes have overtaken the business. Since the steady state of the Internet Century is chaos, leaders must understand their employees and earn their trust.

  14. To create platforms, companies will have to work with partners who may be competing with them in certain markets. These relationships should be managed pragmatically by clearly acknowledging differences. For key partnerships, create roles that can keep both the external partner satisfied and your company interests furthered.

  15. 500 incremental improvements to Google search in a year can be just as radical as a team that works on a self-driving car. This inclusive outlook on innovation gives the entire organization – not just the R&D department – the possibility to innovate.

  16. Google uses three criteria to decide whether to pursue an idea or not. First, it must address a challenge affecting hundreds of millions. Second, it must be radically different from existing market solutions. Finally, the technologies required have to be achievable in the near future.

  17. Innovation resists traditional management as it cannot be owned, mandated, or scheduled. It has to evolve organically. The company should therefore create a favorable environment that encourages risk-taking innovators and also the risk-averse employees to participate.

  18. Allocate 70% of resources to the core business, 20% to emerging products, and 10% to completely new initiatives. This ratio retains focus on the core business while protecting promising new initiatives from budget cuts. Overinvesting can be problematic as million-dollar bets are harder to kill than smaller initiatives.

  19. The job of management is not to reduce risks or prevent failures, but to create an environment resilient enough to take these risks and handle the missteps.

  20. Studies show that extrinsic rewards, such as extra money, do not improve creativity. In fact, they inhibit it by making people see an inherently rewarding endeavor as a money-earning chore. This is why that while Google engineers can spend 20% of their time working on anything they choose, they’re not explicitly rewarded when these projects succeed.

SUMMARY

With a plethora of information and infinite consumer choices, continuous product excellence focusing on the user is the only path to industry disruption. Traditional management structures were designed for the 20th century when information was scarce and mistakes costly. At a time of fast-paced acceleration, this architecture actually works against businesses. Management needs to be reimagined ground-up for the Internet Century.

THE ERA OF SMART CREATIVES

In a world of abundant data and computing power, cheap failures and effortless collaboration, individual employees can have an outsized impact. This is the era of Smart Creatives who have technical knowledge, creativity, business savviness, and a hands-on approach.  Here are some qualities of Smart Creatives:

  • In-depth, hands-on technical knowledge to be able to both design and prototype

  • Understands the complete process from technology to business success

  • Competitive and willing to go beyond 9-to-5 in pursuit of excellence

  • A power user who understands the industry from the consumer perspective

  • Questioning status-quo, seeking new problems to solve and willing to risk failure to address them

  • Self-driven and takes action based on their initiative. Does not wait to be told what to do.

  • Openly collaborates and analyses ideas on merit, not status

 

CULTURE

The right culture encourages high-performing Smart Creatives to work with your organization. Therefore, it’s essential to think of what culture you wish to create right from the start. 

  • Be Authentic: Many companies focus on being successful and then seek to formalize their culture. This usually leads to a set of bland corporate sayings that mean very little to the employees. The mission statement has to be authentic and reflect what matters most to the company. The ideal way to do that is to ask the Smart Creatives working for you about what they think the organization stands for, cares about, and seeks to achieve. Their responses contain the founder's values along with their own practical insights. 

  • Keep Desks Crowded: Smart Creatives thrive on interactions. Office spaces must maximize interactions by keeping desks crowded, interactive, and brimming with energy. There should also be some options for quiet spaces to do focused work. 

  • Live and work with Smart Creatives: Teams must be functionally integrated. Product managers must work with teams to design, engineer, and develop great products. They must work and live with their Smart Creatives to understand technical insights, user behavior, and technology trends of the future.

  • Be messy: Messiness is usually the by-product of creative expression. Curtailing it can have a powerful negative effect. 

  • Be generous: Be generous with the resources that Smart Creatives need to do their work. In Google's case, this means access to near-infinite computing power. However, it is equally important to be frugal with things that do not matter like upscale office spaces.

  • An obligation to dissent: Creating a meritocracy requires effort from the senior executives not to force their opinions on others and give Smart Creatives the space and freedom to disagree. There must be an "obligation to dissent" if employees feel that an idea is mediocre. Meritocracy creates an environment where the best ideas win, biases are removed, and employees feel valued.

  • Keep it flat: Google managers must have a minimum of seven direct reports. This creates a flatter organization with greater employee freedom as managers have no time to micromanage. Organizations must be built on small teams as they are tightly knit and get more work done. Jeff Bezos advocates a "Two Pizza Rule" that states that teams must be small enough to be fed by two pizzas. 

  • Bad Apples and Divas: The character of a company is the sum of the character of its people. Managers should reduce the responsibility of bad apples or even fire them if required. However, exceptional performers may have unusual quirks. As long as others can find a way to work with these Divas and their performance outweighs the damage caused, defend them. 

  • Encourage vacations: If employees try to make themselves indispensable, make sure they take a nice vacation and ensure that their next-in-line fills their role in the meanwhile. They will come back refreshed, and the next-in-line grows in confidence too.

  • Avoid procedure overkill: Excessive procedures can dampen the spirit of Smart Creatives who thrive in startup-like environments. Avoid introducing a new process unless when absolutely necessary. 

STRATEGY

  • Bet on Technical Insights, not Market Research: Technical insights apply technology or design to reduce costs or significantly increase functionality and usability. Unlike products based on market research, the result is a far superior product compared to existing competition.

  • Platforms not Products: With the democratization of information, computing, connectivity, and manufacturing, global scale is within everyone’s reach. To succeed in the Internet Century, leaders have to create and grow platforms that connect users and create multi-sided markets.

  • Default to Open: While conventional management thinking privileges competitive advantage, the Internet Century rewards open sharing of intellectual property, using open standards and giving customers the freedom to exit. Openness gives your organization scale and innovation. It can become a powerful way to dislodge entrenched incumbents as it drives innovation and reduces the costs of complementary products.

  • Don’t Follow Competition: Obsession with competition leads to a siege mentality and a focus on mere incremental innovation. The job of a disruptive organization is to create things that don’t even exist yet. 

  • Preparing for Disruption: It’s crucial to ask what would be true five years ahead based on disruptive trends and opportunities. During disruption, incumbents can acquire competitors or build the same products in-house. To do either of these, it is vital to have a deep understanding of the technical insights that the competitor is leveraging. Challengers need to invent products, build businesses, and understand the obstacles incumbents will create including regulations and lawsuits. Your strategy must have ways for outsiders with aligned incentives to collaborate with your organization.

HIRING

  • Set the bar high: A workplace with Smart Creatives attracts more Smart Creatives creating an environment of innovation and creativity. The bar has to be set high from the very beginning.

  • Hire for intelligence and learnability: In a world of rapid change, today's skills will become obsolete tomorrow. Once you hire, consistently create new opportunities for learning new skills, even those not directly related to their work. 

  • Hire for talent:  Hire great talent who may not match your ideal qualifications, titles, and experience, and challenge them to do new things. They will join you as you are willing to bet on them. This applies in the case of hiring senior candidates as well. 

  • Recruiting is everyone’s job:  Recruiters can be tempted to hire average talent to meet targets. It’s the company that bears the consequences. An excellent way to make recruiting everyone's job is to measure their performance in recruiting and include it in performance appraisals. 

  • Keep interviews short: Limit interviews to 30 minutes to enhance focus. Interviewers can easily make no-hire decisions within that duration. If a candidate is good, you can always schedule another interview . Google's internal research found that after four interviews, the cost of an additional interview outweighs the extra value created.

  • Use hiring committees: Hiring decisions must be made by committees, not managers. To hire someone, the committee needs to approve based on data. The manager only has veto power. Similarly, promotion decisions are decided by committees with the manager having only the ability to recommend.

  • Disproportionately reward excellence: Exceptional people possess rare skills that can create exponential impact. Their work needs to be recognized and rewarded disproportionately.

  • Individuals over constraints: Prioritize the interests of highly capable individuals over organizational constraints. Enable job shifts within the organization and provide newer opportunities to retain your best Smart Creatives.

  • Elevator pitches: When people want to quit to start their own venture, don't discourage them. Instead, ask for their elevator pitch. If they aren't clear, then request them to continue with their jobs until their venture is genuinely ready to launch. This has helped Google retain numerous people.

DECISION MAKING

The decision-making process, the timing, and its implementation are crucial as they can set precedents.

  • Use data to drive decisions: Slides should just contain data required to run the meeting.  Data is best understood by those working with the issue, so trust the insights of Smart Creatives who are working on that issue.

  • Consensus is not unanimous agreement: Consensus is about rallying people around the best idea for the company. Encourage Smart Creatives to voice strong opinions through solution-oriented open debates. The right decision is the best one, not the lowest common denominator everyone agrees on.

  • Manage the conflict: This conflict-based approach must be managed by a decision-maker who sets a deadline, runs the process, and breaks ties. End debates when they are no longer valuable and shift towards building a consensus over the decision.

  • Make fewer decisions: CEO’s must make very few decisions. These should focus on core issues like product launches, acquisitions, and public policy issues. On other matters allow leaders to arrive at conclusions and intervene only when it’s a very bad call.

  • Use convening power: For critical decisions, leaders can use their convening power to hold regular meetings, even daily ones if necessary. This signals the importance of the issues and makes decisions happen.

  • 80% time on 80% revenue: While it is tempting to focus on new innovations, making mistakes in the core business can be fatal to an organization. Spend 80% of time focusing on products that generate 80% of the revenue.

COMMUNICATIONS

Effective leaders in the Internet Century do not hoard information. They share it.  Leadership should optimize the flow of information across the company every day.

  • Default to open:  At Google, the quarterly board report is again presented to employees in a company-wide meeting. The company intranet has upcoming product information and the Objectives and Key Results (OKR) of each employee. This makes it easy for employees to find out what others are working on.

  • Ask Hard Questions: It must be safe to ask hard questions. This requires a culture of open, transparent, and honest communication.  Google encourages this by following up product launches with "postmortem" sessions to discuss what went right and what went wrong. The findings are shared publicly.

  • Conversations Still Matter: Conversation remains the most valuable form of communication in the Internet Century. As a leader, it is vital to break the ice and begin conversations.

  • Chant your Organizational Mantras: Leaders must learn to over-communicate habitually.  Here are some guidelines to do this well:

  1. Communication must reinforce a few core themes that everyone must understand. If something is repeated multiple times and people don’t get it, the problem is with the theme and not communication.

  2. Repetition must be done in a fresh way periodically to not induce fatigue.

  3. You cannot fully outsource communication. To sound authentic, it has to be based on your thoughts, ideas, and experiences.

  4. Set a tone of honesty and humility in your communication. Create goodwill by acknowledging mistakes openly.

  • Create Your Playbooks: Create effective communication playbooks for key stakeholders.

  1. Board Meetings: Google Executive Chairman and ex-CEO Eric Schmidt would start quarterly board meetings with an overview of both Google's highlights and lowlights. This usually led to an animated board discussion. Board meetings must focus primarily on strategy and products, and the discussion must generate valuable insights. The legal and governance issues can be handled in subcommittees and summarized to the board.

  2. Partners: Partnerships should be managed pragmatically by clearly acknowledging differences. For key partnerships, roles must be created with the objective of keeping both the external partner satisfied and furthering company interests.

  3. Press Interviews:  Don't use press interviews for bland, scripted marketing speeches. These are unimpressive. Instead, focus on having an engaged conversation by answering questions with insights and stories.

 

INNOVATION

Innovation is characterized by being new, surprising, and radically useful. 500 small increments in a year to the Google search engine makes for a radical improvement as much as a team working on a self-driving car.

  • Three criteria: Google uses three criteria to decide whether to pursue an idea or not. First, it must address a challenge affecting hundreds of millions. Second, it must be radically different from existing market solutions. Finally, the technologies required have to be achievable in the near future.

  • Innovation resists management: Innovation resists MBA-style management as it cannot be owned, mandated, or scheduled. It has to evolve organically. The company can only create a favorable environment for the creative churn of ideas, give these the time and freedom to grow or in some cases, die.

  • Think 10X, not 10%: Thinking Big gives Smart Creatives more freedom by removing constraints and empowering creativity. Further, it leads to a higher likelihood of success as the company cannot afford to fail. Big challenges can attract and retain the best talent. Finally, thinking and doing big inspires a culture of excellence across the entire organization.

  • Use the 70/20/10 Rule: Allocate 70% resources to the core business, 20% to emerging products, and 10% to completely new initiatives. This ratio retains focus on the core business while ensuring that promising new initiatives are protected from budget cuts. Overinvesting is as problematic as underinvesting as million-dollar bets are harder to kill than smaller initiatives.

  • 20% time: Google engineers can spend 20% of their time working on anything they choose. This has led to a host of innovations ranging from Google News to transit information in Google Maps. However, the value of 20% time comes more from skills people learn and the collaboration across teams that happens while doing their projects than the projects themselves. 

  • Real artists ship: Don't wait to perfect your new idea. Create a product, ship it, learn from data, and improve through iterations. Management must be ruthless in feeding the projects that gather momentum and starving the ones that don't.

  • Fail well: If projects are ambitious enough, they will yield valuable technical and user insights even when they fail. Give good jobs to teams that fail. Failure should be a badge of honor to encourage future efforts. The role of management is not to reduce risks or prevent failures, but to create an environment resilient enough to take these risks and handle the missteps.

  • Success is the reward: Google doesn’t reward people for successful 20% projects. Studies show that extrinsic rewards like extra money do not improve creativity. They inhibit it by turning an inherently rewarding endeavor into a money-earning chore.

In the Internet Century, incumbent businesses can either use technology as a tool of radical transformation and exponential growth, or continue thinking of it as a mere means to improve efficiency. Those who choose the latter will be rendered irrelevant by the upcoming waves of disruption.