Google’s culture and leadership structure are discussed and illustrated. Solutions are proposed for existing problems.
Google follows a fairly regular functional structure with management positions specialized by value chain activity. As a globally diversified company. These positions are further divided and grouped into regions of interest that aid the company in managing the breadth of its operations. As Figure 11 shows, within each top-level activity, there is a multidivisional structure where small business units are divided on the basis of geography or product market. This hybrid form of functional and multidivisional structure works well for Google. It ensures the centralized planning a large company needs while giving the small business units the flexibility to innovate like a small start-up company.
Google’s informal corporate slogan is, “Don’t be evil.” The motto was first suggested by Paul Buchheit, the creator of Gmail, who said he “wanted something that, once you put it in there, would be hard to take out.” He also added that the slogan was “a bit of a jab at a lot of the other companies, especially our competitors, who at the time, in our opinion, were kind of exploiting the users to some extent.” The name of the company is a play on the mathematical term “Googol”, 1 followed by 100 zeros. It represents the company’s unique vision to organize more information and make more money than customers and investors thought was possible. Eric Schmidt, Google’s CEO, is fond of saying that according to their math, it will take 300 years to accomplish their goal (Mills, Google Reveals its 300-year Plan, 2005). These quirky things are part of what sets Google apart from the rest of corporate America. Even their IPO was unique – they use a Dutch auction in which the market determined the initial stock price to prevent insiders and institutions from quickly selling for a profit (Salkever, 2004).
Google is often lauded for the way the company treats its employees. Fortune magazine ranked Google at the top of its lit of the best companies to work for in 2007 and 2008 (Fortune, 2008).Perhaps that’s because Google’s corporate vision includes such axioms as, “You can be serious without a suit.” (Google, 2008)
“The goal is to strip away everything that gets in our employees’ way. We provide a standard package of fringe benefits, but on top of that are first-class dining facilities, gyms, laundry rooms, massage rooms, haircuts, carwashes, dry cleaning, commuting buses – just about anything a hardworking employee might want. Let’s face it: programmers want to program, they don’t want to do their laundry. So we make it easy for them to do both.” -Eric Schmidt, CEO
Around the office Google’s employees get around on Segway and Razor scooters, and recently, custom bicycles. But for the longer morning commute from home, they offer free bus rides to the main Mountain View office. ”We are basically running a small municipal transit agency,” said Google’s director of security and safety, Marty Lev (Helft, 2007). The busses feature bike racks and leather seats, internet access, and allow pets onboard. For nearly a quarter of Google’s home office staff, this transportation keeps them from having to spend hours in the Silicon Valley traffic.
Google hired their first chef in November 1999 when Charlie Ayers, ex-chef for the Grateful Dead, won a cook-off judged by the company’s 40 employees. Ever since then “an unending supply of wholesome, free food” (Dudley, 2007) has been the trademark bonus of the Google corporate environment. There’s a rule that workers can never be more than 100 feet away from food, and the elaborate snack stations scattered throughout the office halls prove it has been carried out.
The 70/20/10 Rule
Google allows employees to spend 70 percent of their time on the core business, 20 percent on related projects, and 10 percent on unrelated new businesses. This rule is so important that Google has people on staff to manage the 70/20/10 rule. The engineering and design staff make use of the “free time” to persue new products and technologies, but even the top-level managers adhere to the rule. According to Eric Schmidt, they spend 70% of time on search and advertising, 20% on adjacent businesses like Google News and Google Earth, and 10% on new things like the free wireless initiative (Battelle, 2005). The 20% rule has a good return on investment since about half of Google’s new product launches occur as a result of that “free” time, according to Vice President of Search Products & User Experience, Marissa Mayer (Eckoff, 2009).
The culture that Larry Page and Sergey Brin started as the founders largely influences the leadership within the company. In 2001, they hired Eric Schmidt, who had multiple degrees in engineering, served as CTO of Sun Microsystems, and was previously CEO of Novell. According to Page, this unusual combination of technical and business backgrounds was key to Schmidt’s success at Google (Google Inc., 2004). As the new CEO, Schmidt’s roles included providing business supervision as well as “building the corporate infrastructure needed to maintain Google’s rapid growth as a company” (Google, 2008). Page, Brin, and Schmidt run the company as a triumvirate because they believe that the “shared judgments and extra energy available from all three of us has significantly benefited Google” (Google Inc., 2004). The three meet daily in order to update each other on the business and brainstorm about the immediate issues (Google Inc., 2004). Google’s annual reports, other SEC filings, and videos are often very personal; and top-level management communicates in the first person to connect with investors.
Google also employs managers in unique positions that other companies may not have known they were missing. Google hired a Chief Culture Officer, Stacy Savides Sullivan, in 2006 to help maintain their characteristic start-up atmosphere (Mills, Meet Google’s Culture Czar, 2007). They also have a Chief Internet Evangelist and a Distinguished Entrepreneur on staff to help identify and enable new technologies. These managers ensure Google stays innovative.
Google’s Leadership Development and Compensation Committee keep the compensation of managers in check and broadly work to entice and retain good employees (Google, 2008).However, right now the top management has already taken the proactive step and each of the three take a $1 annual salary (La Monica, 2006). They feel that the salary sends a positive message to both employees and investors that their interests very much the success of the company and the long-term stock performance. However, they are certainly not going without; Brin and Page were tied for the 5th richest people in the United States in 2007, each with a net worth of $18.5 billion (Forbes, 2007).
Problem Identification and Recommendations
Google’s implementation of its corporate vision as been wildly successful so far. The company has managed to keep a very distinct culture intact throughout its growth over the past 10 years. Going forward, Google will need to constantly keep checking itself to ensure the culture remains. In a recent article by the Wall Street Journal, some Google managers are quoted as saying they are reevaluating the employee perks, 20% time, and infrastructure development due to lower revenue projections in light of the current recession (Morrison, 2008).
While it is important to control spending, these investments have historically produced great returns and have fueled the company’s innovation and speedy new product launches (despite an appearance excess). If Google can figure out how to weather the negative economic environments while maintaining its fun, productive atmosphere, then the company’s success is likely to continue… perhaps even long enough to realize full 300-year plan.
Google was criticized in its early years for paying its employees below industry averages, which was seemingly very bad given the high standard of living in the Silicon Valley area. However the company did award most of its employees with equity in the company that grew substantially after the company’s IPO. In addition, the company appears to have since rectified the low wage situation because according a recent news article, Google’s engineers now make an average of $112,573 plus stock options — by contrast, Apple’s engineers make an average of $97,840 (Truta, 2008).
As Google grows in size, another challenge the company faces is how to retain their fun image. Microsoft received a lot of bad press for their monopolistic actions such as bundling software in the Windows operating system like the internet browser and media player. Even Apple, with the next largest market share, has been criticized for its tight control over its music distribution system and private APIs in its software. As Google moves further ahead with its cloud computing and smart phone platforms it will increasingly run into the same sort of backlash for keeping software proprietary. Proprietary products have historically worked well for companies (just look at the multitude of cell phone adapters in the market) but in order to keep its image, Google’s management will have to work hard to keep their open culture do their best to not “be evil” like the other large companies.
Google management’s can achieve their goals and keep all stakeholders (developers, customers, and investors) happy through the continued use of frank and consistent communication. Figure 13 shows how employees at every level of the company can manage the company’s image in the eyes of the stakeholders.
Google’s success is clearly attributable to how it treats the people who have a stake in the company. Google’s founders started the company with a unique vision and the implementation of that vision has been very successful. The degree to which the company succeeds in the future will largely depend on how it leverages its experience while staying true to that vision.
Part of a series
by Ben Morrow
December 17, 2008
University of Texas at Dallas
School of Management