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Tag: company culture

Laszlo Bock on Building Google’s Culture

Much has been written about what makes Google work so well: their ridiculously profitable advertising business model, the technology behind their search engine and data centers, and the amazing pay and perks they offer.

My experiences investing in and working with startups, however, has taught me that building a great company is usually less about a specific technical or business model innovation than about building a culture of continuous improvement and innovation. To try to get some insight into how Google does things, I picked up Google SVP of People Operations Laszlo Bock’s book Work Rules!

Bock describes a Google culture rooted in principles that came from founders Larry Page and Sergey Brin when they started the company: get the best people to work for you, make them want to stay and contribute, and remove barriers to their creativity. What’s great (to those interested in company building) is that Bock goes on to detail the practices Google has put in place to try to live up to these principles even as their headcount has expanded.

The core of Google’s culture boils down to four basic principles and much of the book is focused on how companies should act if they want to live up to them:

  1. Presume trust: Many of Google’s cultural norms stem from a view that people are well-intentioned and trustworthy. While that may not seem so radical, this manifested at Google as a level of transparency with employees and a bias to say yes to employee suggestions that most companies are uncomfortable with. It raises interesting questions about why companies that say their talent is the most important thing treat them in ways that suggest a lack of trust.
  2. Recruit the best: Many an exec pays lip service to this, but what Google has done is institute policies that run counter to standard recruiting practices to try to actually achieve this at scale: templatized interviews / forms (to make the review process more objective and standardized), hiring decisions made by cross-org committees (to insure a consistently high bar is set), and heavy use of data to track the effectiveness of different interviewers and interview tactics. While there’s room to disagree if these are the best policies (I can imagine hating this as a hiring manager trying to staff up a team quickly), what I admired is that they set a goal (to hire the best at scale) and have actually thought through the recruiting practices they need to do so.
  3. Pay fairly [means pay unequally]: While many executives would agree with the notion that superstar employees can be 2-10x more productive, few companies actually compensate their superstars 2-10x more. While its unclear to me how effective Google is at rewarding superstars, the fact that they’ve tried to align their pay policies with their beliefs on how people perform is another great example of deviating from the norm (this time in terms of compensation) to follow through on their desire to pay fairly.
  4. Be data-driven: Another “in vogue” platitude amongst executives, but one that very few companies live up to, is around being data-driven. In reading Bock’s book, I was constantly drawing parallels between the experimentation, data collection, and analyses his People Operations team carried out and the types of experiments, data collection, and analyses you would expect a consumer internet/mobile company to do with their users. Case in point: Bock’s team experimented with different performance review approaches and even cafeteria food offerings in the same way you would expect Facebook to experiment with different news feed algorithms and notification strategies. It underscores the principle that, if you’re truly data-driven, you don’t just selectively apply it to how you conduct business, you apply it everywhere.

Of course, not every company is Google, and not every company should have the same set of guiding principles or will come to same conclusions. Some of the processes that Google practices are impractical (i.e., experimentation is harder to set up / draw conclusions from with much smaller companies, not all professions have such wide variations in output as to drive such wide variations in pay, etc).

What Bock’s book highlights, though, is that companies should be thoughtful about what sort of cultural principles they want to follow and what policies and actions that translates into if they truly believe them. I’d highly recommend the book!

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Trust but Verify

Back in my consulting days, I learned a lot of management aphorisms. One that always felt oxymoronic to me was “trust, but verify” — apparently Russian in origin — I came to understand it as a two-part idea:

  1. You should have a trusting and open attitude regarding your colleagues’ conclusions but still spend the time and effort to validate them
  2. That you should not view a colleague checking the assumptions / data behind your work as a sign of lack of trust

Of course, when it stops being a two-sided thing, you get something made for Dilbert:

Trust but Verify

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How to properly define a company’s culture

Company culture is a concept which, while incredibly difficult to explain or measure, is very important to a company’s well-being and employee morale. Too often, it comes in the form of vaguely written out “corporate mission statements” or never-ending lists of feel-good, mean-nothing “company values”. Oh joy, you value “teamwork” and “making money” – that was so insightful…

It was thus very refreshing for me to read the Netflix company culture document (sadly no longer embed-able, but you can find it at this Slideshare link).

Slidumentation aside, I think the NetFlix presentation does three things extremely well:

  1. It’s not a list of feel-good words, but  actual values and statements which can actually guide the company in its day-to-day hiring, evaluation. Most company culture statements are nothing but long lists of virtues and things non-sociopaths respect. “Teamwork” and “honesty”, for example, are usually among them. But, as the Netflix presentation points out, even Enron had a list of “values” and that wound up not amounting to much of anything. Instead, Netflix has a clear state of  things they look for in their employees, each with clear explanations for what they actually mean. For “Curiosity”, Netflix has listed four supporting statements:
    • You learn rapidly and eagerly
    • You seek to understand our strategy, markets, subscribers, and suppliers.
    • You are broadly knowledgeable about business, technology, and entertainment.
    • You contribute effectively outside of your specialty

    Admittedly, there is nothing particularly remarkable about these four statements. But what is remarkable is that it is immediately clear to the reader what “curiosity” means, in the context of Netflix’s culture, and how Netflix employees should be judged and evaluated. It’s oftentimes astounding to me how few companies get to this bare minimum in terms of culture documents.

  2. Netflix actually gives clear value judgments.  I’ve already lamented the extent to which company culture statements are nothing more than laundry lists of “feel good” words. Netflix admirably cuts through that by not only explaining what the values mean, but also by what should happen when different “good words” conflict. And, best of all, they do it with brutal honesty. For instance, Netflix on how they won’t play the “benefits race” that other companies play:

    A great work place is stunning colleagues. Great workplace is not day-care, espresso, health benefits, sushi lunches, nice offices, or big compensation, and we only do those that are efficient at attracting stunning colleagues.

    Netflix on teamwork versus individual performance:

    Brilliant jerks: some companies tolerate them, [but] for us, the cost to teamwork is too high.

    Netflix on its annual compensation review policy:

    Lots of people have the title “Major League Pitcher” but they are not all equally effective. Similarly, all people with the title “Senior Marketing Manager” and “Director of Engineering” are not equally effective … So, essentially, [we are] rehiring each employee each year (and re-evaluating them based on their performance) for the purposes of compensation.

    Within each of the three examples, Netflix has done two amazing things: they’ve made a bold value judgment, which most companies fail to do, explaining just how the values should be lived, especially when they conflict (“we don’t care how smart you are, if you don’t work well with the team, you have to go”), and they’ve even given a reason(“teamwork is more important to delivering impact for our customers than one smart guy”).

  3. They explain what makes their culture different from other companies and why. Most people who like their jobs will give “culture” as a reason they think their company is unique. yet, if you read the countless mission statements and “our values” documents out there, you’d never be able to see that difference. Granted, the main issue may just be that management has chosen not to live up to the lofty ideals espoused in their list of virtues, but what might help with that and make it clearer to employees about what makes a particular workplace special is explaining how and why the company’s culture is different from another’s. Contrast that with the Netflix presentation, which spends many slides explaining the tradeoffs between too many rules and too few, and why they ultimately sided with having very few rules, whereas a manufacturing company or a medical company would have very many of them. They never go so far as to say that one is better than the other, only that they are different because they are in different industries with different needs and dynamics. And, as a result of that, they have implemented changes, like a simpler expense policy (“Act in Netflix’s best interests”) and a revolutionary vacation policy (“There is no policy or tracking”) [with an awesome explanation: “There is also no clothing policy at Netflix, but no one has come to work naked lately”].

Pay attention, other companies. You would do well to learn from Netflix’s example.

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Innovator’s Delight

imageKnowing my interest in tech strategy, a coworker recommended I pick up HBS professor Clayton Christensen’s “classic” book on disruptive innovation: The Innovator’s Dilemma. And, I have to say I was very impressed.

The book tries to answer a very interesting question: why do otherwise successful companies sometimes fail to keep up on innovation? Christensen’s answer is counter-intuitive but deep: the very factors that make a company successful, like listening to customer needs, make it difficult for successful companies to adopt disruptive innovations which create new markets and new capabilities.

This sounds completely irrational, and I was skeptical when I first heard it, but Christensen makes a very compelling case for it. He begins the book by considering the hard disk drive (HDD) industry. The reason for this is, as Christensen puts it (and this is merely page one of chapter one!):

“Those who study genetics avoid studying humans, because new generations come along only every thirty years or so, and so it takes a long time to understand the cause and effect of any changes. Instead, they study fruit flies, because fruit flies are conceived, born, mature, and die all within a single day. If you want to understand why something happens in business, study the disk drive industry. Those companies are the closest things to fruit flies that the business world will ever see.”

image From that oddly compelling start, Christensen applies multiple techniques to establish the grounds for his theory. He begins by admitting that his initial hypothesis for why some HDD companies successfully innovated had nothing to do with his current explanation and was something he called “the technology mudslide”: that because technology is constantly evolving and shifting (like a mudslide), companies which could not keep moving to stay afloat (i.e. by innovating) would slip and fall.

But, when he investigated the different types of technological innovations which hit the HDD industry, he found that the large companies were actually constantly innovating, developing new techniques and technologies to improve their products. Contrary to the opinion of many in the startup community, big companies did not lack innovative agility – in fact, they were the leaders in developing and acquiring the successful technologies which allowed them to make better and better products.
But, every now and then, when the basis of competition changed, like the shift to a smaller hard disk size to accommodate a new product category like minicomputers versus mainframes or laptops versus desktops, the big companies faltered.

From that profound yet seemingly innocuous observation grew a series of studies across a number of industries (the book covers industries ranging from hardcore technology like hard disk drives and computers to industries that you normally wouldn’t associate with rapid technological innovation like mechanical excavators, off-road motorbikes, and even discount retailing) which helped Christensen come to a basic logical story involving six distinct steps:

  1. Three things dictate a company’s strategy: resources, processes, and values. Any strategy that a company wishes to embark on will fail if the company doesn’t have the necessary resources (e.g. factories, talent, etc.), processes (e.g. organizational structure, manufacturing process, etc.), and values (e.g. how a company decides between different choices). It doesn’t matter if you have two of the three.
  2. Large, successful companies value listening to their customers. Successful companies became successful because they were able to create and market products that customers were willing to pay for. Companies that didn’t do this wouldn’t survive, and resources and processes which didn’t “get with the program” were either downsized or re-oriented.
  3. Successful companies help create ecosystems which are responsive to customer needs. Successful companies need to have ways of supporting their customers. This means they need to have or build channels (e.g. through a store, or online), services (e.g. repair, installation), standards (e.g. how products are qualified and work with one another), and partners (e.g. suppliers, ecosystem partners) which are all dedicated towards the same goal. If this weren’t true, the companies would all either fail or be replaced by companies which could “get with the program.”
  4. Large, successful companies value big opportunities. If you’re a $10 million company, you only need to generate an extra $1 million in sales to grow 10%. If you’re a $10 billion company, you need to find an extra $1 billion in sales to grow an equivalent amount. Is it any wonder, then, that large companies will look to large opportunities? After all, if companies started throwing significant resources or management effort on small opportunities, the company would quickly be passed up by its competitors.
  5. Successful companies don’t have the values or processes to push innovations aimed at unproven markets, which serve new customers and needs. Because successful companies value big opportunities which meet the needs of their customers and are embedded in ecosystems which help them do that, they will mobilize their resources and processes in the best way possible to fulfill and market those needs. And, in fact, that is what Christensen saw – in almost every market he studied, when the customers of successful companies needed a new feature or level of quality, successful companies were almost always successful at either leading or acquiring the innovation necessary to do that. But, when it came to experimental products offering slimmer profit margins and targeting new customers with new needs and new ecosystems in unproven markets, successful companies often failed, even if management made those new markets a priority, because those companies lacked the values and/or processes needed. After all, if you were working in IBM’s Mainframe division, why would you chase the lower-performance, lower-profit minicomputer industry and its unfamiliar set of customers and needs and distribution channels?
  6. Disruptive innovations tend to start as inferior products, but, over time improve and eventually displace older technologies. Using the previous example, while IBM’s mainframe division found it undesirable to enter the minicomputer market, the minicomputer players were very eager to “go North” and capture the higher performance and profitability that the mainframe players enjoyed. The result? Because of the values of the mainframe players as compared with the values of the minicomputer players, minicomputer companies focused on improving their technology to both service their customer’s needs and capture the mainframe business, resulting in one disruptive innovation replacing an older one.

image The most interesting thing that Christensen pointed out was that, in many cases, established companies actually beat new players to a disruptive innovation (as happened several times in the HDD and mechanical excavator industries)! But, because these companies lacked the necessary values, processes, and ecosystem, they were unable to successfully market them. Their success actually doomed them to failure!

But Christensen doesn’t stop with this multi-faceted and thorough look at why successful companies fail at disruptive innovation. He spends a sizable portion of the book explaining how companies can fight the “trappings” of success (i.e. by creating semi-independent organizations that can chase new markets and be excited about smaller opportunities), and even closes the book with an interesting “ahead-of-his-time” look (remember, this book was written over a decade ago!) at how to bring about electric cars.

I highly recommend this book to anyone interested in the technology industry or even, more broadly speaking, on understanding how to think about corporate strategy. While most business books on this subject use high-flying generalizations and poorly evaluated case studies, Christensen approaches each problem with a level of rigor and thoroughness that you rarely see in corporate boardrooms. His structured approach to explaining how disruptive innovations work, who tends to succeed at them, why, and how to conquer/adapt to them makes for a fascinating read, and, in my humble opinion, is a great example of how corporate strategy should be done – by combining well-researched data and structured thinking. To top it all, I can think of no higher praise than to say that this book, despite being written over a decade ago, has many parallels to strategic issues that companies face today (i.e. what will determine if cloud computing on netbooks can replace the traditional PC model? Will cleantech successfully replace coal and oil?), and has a number of deep insights into how venture capital firms and startups can succeed, as well as some insights into how to create organizations which can be innovative on more than just one level.

Book: The Innovator’s Dilemma by Clayton Christensen

(Image credit: hard disk drive) (Image credit: David and Goliath)

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