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Google’s Innovation

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Should we look to Google (the company, not the search engine) for lessons on economic growth and employment? Eric Schmidt, Google’s executive chairman, and until last April Google’s chief executive, thinks what he’s got goes way beyond Google’s campus.

“Google proved that you could systematize innovation,” he told me recently, adding that this meant you could “create an environment where are asking why things are the way they are, and wondering if they can be done in a different way — where you look outside your own field for an idea.”

Whether you think that can be made universal depends, on first pass, on whether you feel Google is some kind of special case. On the one hand, Google makes a fortune we’d all like to emulate — $87,000 in profits per employee, in the quarter ending last month, more than IBM or Goldman Sachs, though still less than Apple. It also does an impressive job on innovation, continuously scaling up a computing system the likes of which the world has never seen.

On the other hand, Google is a ludicrously small employer – with 30,000 workers, about as many toil at one Boeing factory in Everett, Wash. Foxconn has more than 10 times that many people assembling iPods just in Longhua, China. Plus, most of those Google people are smarter than the rest of us. Doesn’t that make it a special case, particularly at a time when we need to put millions of less-skilled people to work? One way you do that at scale is manufacturing – look at some numbers if you need convincing.

No matter how smart or degree-laden you are, though, I’d argue that you’re capable of working out ways to improve your environment – look at the ingenuity of any wait or sales person in juggling routes and shifts, or how people in conditions of scarcity – be it a natural disaster, resource deprivation, even confinement – figure out workarounds and communications systems to teach each other.

That is what innovation is all about, applying new inventions and ways of seeing to existing systems. And it’s a universal – we just have to put it into our daily working lives. To that end, Google can teach a lot.

Early on, “we put in a system of mechanisms,” for innovating, Schmidt said, citing the so-called “70/20/10 system.” This was a principle that everyone should spend 70% of their time on their core job, 20% as part of another team, and 10% on something blue sky. It was often honored in name more than the event, I’ve heard from insiders – if you’ve got a critical job and a tight deadline, you don’t give it up at that 70% mark. It was however, a good way for people to see projects all around Google, and test them against their own ideas.

In addition, said Schmidt, “the leadership, in particular the founders (Larry Page and Sergey Brin) spent a lot of time on stressing this, on having original ideas – if you had an idea that was copycat you were derided.”

This may sound simple enough, but Schmidt noted that it flies in the face of what is commonly vaunted as “excellence” in the press and business schools – in particular, the kind of high-quality, low-defect manufacturing they like at Boeing, Foxconn, or General Electric.

“If people have been working at a company too long they’re inculcated in a development process that is relatively predictable,” he said. “Real innovation is hard to do when you have a process culture with six sigma (i.e., extremely low defect manufacturing). Risk management is around the process, keeping it the same.” That is one reason why Google hires so many grad students and professors – things like tenure aside, they’re used to more turmoil in their ideas about how the world works.

At Google, “We don’t have a two year plan. We have a next week and a next quarter plan. Most of our successful products were built by small teams reacting quickly.” Indeed, awhile ago I asked Android head Andy Rubin what Android would look like in three years. He said there was no way to know; they have a one-year plan for it that they tweak every couple of months. I have no idea what it’s like to be a financial manager inside Google; I guess you just keep planning on search ads to be a powerful revenue baseline.

For that matter, isn’t it difficult to carry out a large, complex project like Google+? “Google+ is a 500-person project inside Google, but that includes everything, like apps and photos,” Schmidt said. “The ‘Circles’ design was led by one person. The teams were 5 to 10 people building on each other’s work on a common platforms.

“At the launch, the trick is not to get expectations too high. What you don’t want to see is the headline, ‘Facebook Killer Fails,’” he said, “We’re really trying to define (social software) in a new way.”

So, can this be made into a general principle, applicable across lots of industries? With a few challenges, yes. For one thing, this kind of high-speed innovation seems to require a near-addiction to a rapid flow of data that everyone can agree on, with a good feedback loop to test ideas. That way people can think constructively about their processes. As more and more things connect to the Internet, this should become more prevalent throughout industry.

You also probably need to tolerate a certain level of waste – which people should start calling learning and experimentation. It is important to keep trying things.

In addition, Schmidt said, “You need an unregulated market, a common platform people can work off of, a fast iterating model, and you have to work like hell.

“The ideal market is consumer driven, so you get feedback without friction, where you can iterate quickly, where there are low barriers to entry (so you can develop a lot of things quickly and cast off the ones that don’t work), that is global, so you get the best feedback, and without high capital lock-in costs.”

Does this apply only to software, with very low costs of production? In fact, the cost of software-driven machines is driving manufacturing down, as our strange rise in productivity during a recession suggests.

“The chip industry has generally become more like the software industry, and moved away from a high-capital model,” Schmidt said. “Printers able to do 3D designs can do this in the physical world: You and I make a model of a hammer, send it out, people say ‘this part doesn’t work,’ we make another and send it out, pretty soon we have a good hammer.”

Where couldn’t you do it? Anywhere with a stress on keeping the process the way it is. “It’s almost impossible to do in aviation, where every step of design is regulated,” said Schmidt. “Pharmaceuticals are almost impossible. Textbooks, which are certified.”

The most brutal challenge may be the reality of human existence. “One problem for an innovative company is that the executives age,” said Schmidt, 56 (but I’m no spring chicken, either.) “Nobody wants to talk about it, but it’s real. A company full of 20 year-olds feels different – there is no experience in building complex systems, but there is a palpable energy and excitement.

“Combining the two of these is an art. When he came on as CEO Larry (Page) spelled out that he wants the strength and scale of Google, with the energy of a young company.”

Finally, I asked Schmidt if anything like that had been done before. “Sony did it in the 80s. Apple has done it recently.” Of course, Sony seems to have lost its way, and Apple sends those boring but necessary six-sigma manufacturing jobs over to Foxconn.

Clearly, there is room for continuous predictable process and innovation in the world, though possibly not in single companies. That is not the critical issue, however, so much as building the habits of mind, from the executive suite to the shop floor, that encourage an innovative mindset. It is a challenge at the base, in terms of creating and living in a world of continuous questioning and re-learning, and at the top, in terms of allowing oneself to be challenged and found wrong.

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