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    Chapter 3

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    MAITRI JOSHI

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    © All Rights Reserved
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    of 22
    / Culture and Climate Considerations for High-Tech Companies The “Googley” Culture at Google “To understand the comporate culture at Google, takes Took atthe toilets. Every bathroom stall has a Japanese high-ec comme witha heated set, a bidet, and a dyes. flier acked inside cach stall bears the tide, “Testing on the Toilet” featuring a geek quiz that changes every few weeks ‘and asks technical questions about testing programming code for bugs. The tollet reflects Google's general philosopiy of work: “Generous, quirky perks keep employees happy and ihink= ing in unconventional ways, helping Google innovate ast rpidly expands into new lines of busi- ness.” Some initiatives in Google's repertoire include Google Earth, Google Trends, Google ‘Web Accelerator. Google Mars, and Google Knol, to name just a few. Google isan example of a best practices “culture of innovation.” As many previously sue- cessful businesses can ates, increasing size can be accompanied by miné-numbing bureaucratic procedures and rules, Yet somehow, despite tripling its workforce between 2005 and 2006, Google was able to auch anew product nearly every week—Including some widely regarded as failures lv sddtion {0 its oven intemal innovation process, Google i also willing (© acquire new technologies, ast did in 2006 when it acquired YouTube for S165 biion instock, an in 2007 when it acquired DoubleClick. How does Google manage to continuously innovate? «+ Although i places a premium on sucess it shrugs off failure. Tis creates a culture of feat iessness that permeates the “Googleplex,” as its campus of intorconnected Jow-rise buildings iscalled, “If you'se not filing enough, you'r ot trying hard enough,” said Richard Holden, the product management director of Gaogle AdWords. The stigma of failure doesn’ test If se produet doesn’t Work, managers encourage staff to move on, + Bmployees are encourzged to prapose wild, ambitious ideas often, Supervisors assign srall teams to see if the ideas work, Indeed, the se proclaimed mission ofthe company is equally ambitious: to organize the world’s information and make it universally accessible and useful, + Allengineets ate alloued 20% oftheir time to work on any projets they choose, Maay of their personal projects yield pubic offerings, such as Google News and the social network: ing website Orkut. « ‘The company encourages Forays into related business arenas. For example, in 2006 Google, in partuership with Earthlink, proposed a free WiFi Inleret service ia San Francisco, Ale though Barthtink pulled the plug on the project in fall 20072 the foray is emblematic of Google's willingness to ventare info new terms, + Hiring follows a rigorous procedure, New hites not only have to be very, very start, but jst as important, according to chief culture officer Stacy Sullivan, they also have to be (continued) nies “Googley’—meaning someone not (00 traditional or stuck in the status quo. The best can- didates have a free-wheeling approach and a dive to solve big problems. * The company focuses on employee morale and productivity. Heated toilets are just one of ‘many amenities designed to Keep employees happy and on-ask at work. Examples ofthe other convenicnces the conipany offers: thre free gouriel maltcultral meals a day, ee use of an ‘outdoor wave pool, an indoor gym, a large child cae facility, and fre private bus service to San Francisco and other uesidentil areas. Buildings are environmentally friendly, eltng light into interiors trough glass-walled workrooms shared by small groups of employees. Google does two, seemingly contradictory, things extremely well: It has a laser like focus on ef: ficiency for score asses (optimizing the performance ofits search and advecising platform) coupled ‘with a radical openness to innovation and experimentation for everything else. Google is fundamen tly an engineer-diven company, engineers love to find new challenges and solve problems in novel ‘ways. This cultures formidable to competiors: Even Google's premature ides, anche before they are ready for prime time, may ultimately tr out o be Killer apps in the industry. ‘Yet, Google faces increasingly serious challenges in the marketplace. One common thread in | Google's business model is advertising —yet what i the risk of Google remaining focused on an advertising business model? Can it mature without losing the youthful vigor that was so impor- tant to its success ?* Its intial business model, built around online search by aggregating massive amounts of data and optimizing transactions with both end users and advertisers around those data, was driven by advertising revenue and search asthe primary way consumers access the Internet. Yet, social net- ‘working sites and online media and entertainment are increasingly serving as entry points tothe Internet. Aggregating and transacting around social data poses a similar opportunity to Google as its initial online search model. Google's release in November 2007 of OpenSocial, a set of soft- ‘ware bulging blocks that allows prograinmers fo use a single standard to create applications 10 perform sks on social networking websites (share music, contacts, an other online content, is 4 move into this market space. Bebo, Friendster, LinkedIn, MySpace and Ning—ll rivals 10 Facebook plan to suppast Google's OpenSacil architecture, which suggesis that Googie istry ing to pesition itself against Facebook, This speculation is further balstered by the fact that Google's announcement was made just afew days before Facebook launched its own online ad- vertising system that would allow marketing partners (Sony, Verizon, Blockbuster, ete.) o be “Sriends” with users. A further complicating factor is Microsoft's payment in October 2007 of $240 million fora 1.6% stake in Facebook. Google's core competence—aggrogating data to sell advertising aad creating opportunities (0 sell more ads —migh also find new marketspace in the mobile arena. Wit izobile advertising expected lo grow more than 30% in 5 years, Google’s release in November 2007 of its new An- droid software (which inchudes a mobile operating system and mobile software applications dis- tributed free under an open source software license) is poised to allow it to tap inte mobile advertising revenue,° The Open Handset Alliance—a group of wireless technology companies including Sprint, T-Mobile, NTT DoCoMo, Qualcomm, and Motorola—stated its intention to ‘use Google’s Android software to power celular phones that bécame available in fate 2008. The oa! is to “unleash the potential of mobile technology for billions of users around the world.” says Google: Because Google already captures personal data (eg. through Gmail) tbat allows it to deliver ads, some people predict that Google will move into medical data, another online market oppor- ‘onity. It has invested $3.9 million in 23andMe, a company that allows people to access and un- derstand their genetic information through Web-based software tools. AAs noted previously, this expanding collection of services offers ruore oppottunities to sell ads. What ae the other revenue opportunities it could seek, andthe attondant risks of diversifying its revenue base? For example, take Google Apps a suite of open source (free) software designed to compete with Microsoft Office (calendar feature, word processor, presentation soflwave, Web page editor, ec). (This software is also available ander a subscription model.) What if Google ‘were to Heense some of its underlying software to other industry players? Or, could it become a hosted application provider and charge customers to use its computing infrastructwe services (much like Amazon.com charges customers to use its Elastic Compute Cloud, also known as EC2, and its Simple Storage Service, known as $3)? Are these variows initiatives too diffused, or are they sufficiently focused on a common thread—search, advertising? ‘Google's various initiatives reveal an entrepreneurial company that is willing to take on es- tablished players to shake up existing markets. This leads another important question: Can Google be both a dominant player who protects its exiting. market position as well as an indus- try upstart ready to alack established companies in mature markets such as telecommenications and publishing? Moreover, even as Google strives 1o continue tobe nine, ts dominance causes another sei of issues: I must bea good partuer and a fair competitor. Many other companies have ound that size and doininance ereates a type of backlash from society, other industry player, and government. Despite Google's informal company sotto, “Don't be evil” some people are i- creasingly suspicious ofits motives and worried about potential abase of the data itis amassing Moreover, as il grows, it must maintain its start-up-tike, innovation-driven culture. To do this, iL must fist keep a compensation structure that motivates employees: Stock options are less motivating when the stock price is high, And second, it must keep internal teams nimble, small, and independont, with time and resources to pursue new ideas. ‘Market domination tends to lll the leader to sleep. . .. Market domination produces ‘remendous intemal resistance ageinst any innovation and thus makes adsptation (0 change dangerously difficult be auadoxically, high-tech comprnies founded gn the development of innovative new products p= a susceptible as nny olher companies to the complaceneies and bureaucratic procedures that swecess breeds, This chapter tors from the concepts and processes of marketing strategy formulation to address organizational culture and clieate, Because a fiem’s caltre and climate pro- vide the backdrop against which its strategy is developed and implemented, ican either enhance or undermine its marketing efforts Culture is the deeply rooted set of values and beliefs that provide norms for behavior in a company. Calture helps employees understand why things happen the way they do, Climate isthe set of behaviors that ave expected, supported, and rewarded. Climate explains how things actually happen in the company.” To a large extent, climate is the observable manifestation of culture, Be- cause cultural values ave so deeply ingrained, not only are they often tacit and difficult to articulate, tut they are also difficult to chango—which means that dysfunctional behaviors may also be diffe cult to change. Successful high-tech companies must remaia highly innovative; they are characterized by a culture of innovativeness thal actively encourages, suppors, and rewards breakthrough think ing and risk taking. Rather than resting on their past successes, they continually replenish their stock with ideas and knowledge (o develop a steady stream of innovations, both incremental and breakthrough. Yet, history is tered with the skeletons of many high-tech companies that became so enam- cored with ther intial success that they were blinded to market tends and changes, xhable to sustain their upward trajectory, Rather than developing 2 steady stream of innovative new products, their inital suceess bred a sense of complacency and a desire to protect the status quo. lavish devotion to old business models plagues many companies, feading to suboptimat behaviors. Music industry executives sued individuals for illegally downloading songs (copyright infringement) rather than finding new business models early on, Verizon and Sprint sued and won judgment against Vonage ‘over patent infringement for their Voice-over-Internet Protocol {VoIP)—which is disrupting these incumbents’ tclecommbinications business models. Inertial forces Ulat undermine companies? at- tempis to develop or embrace radical ianovations are very strong, yet they must be actively resisted tocensure continued success. Organizational size and a bureaucratic mind-set can also make it difficult for companies to remain innovative, Experts continue to debate the relationship between firm size and innovative ness. Larger firms are said to suffer from inertia; they tend to be more bureaucratic and have ‘more to lose than other firms when they develop radical innovations that may obsofete their ex- isting product lines. However, contrary ta suffering this “incumbent's curse,” one study found thal since World War I more radical innovations have been introduced by larger, established firms than by smailer firms and new entrants.® So, size per se does not have to be a barrier to in- novativeness. One ofthe major threats to the innovation process is the boom-bust nature of business cy- cles. When companies do well, they invest more in innovation and product development. On the other hand, when the economy deteriorates, investments in R&D rend to go down. One way to cushion ionovation against cyclical funding cuts and spurts is to make R&D an indisponsa- ble part of everyday business.” If the output of innovation is to be reliabie, it must be worked on systematically every day, even during downterns, cven if blockbustes results are years away.! Consider the Korean conglomerate, Samsung. In 1997 Samsung was in dize steaits asa result of the Asian financial crisis. Since then, it made coatinuous, significant investments in R&D and product development, even through the globat economic downturn ofthe easly 2000s. By 2005, Samsung had made it onto Fortune's list of the “World's Most Admired! Companies” and was the global leader in memory chips and flat-screen TVs, anc was the world’s third-largest mo bile-phone maker.'! For many innovative finas, a key measure of success of their innovation efforts isthe percent of revenne derived trom recently released products that ate the outcome of new product develop- ‘ment procedures. In many companies, the new product development process is often rational and analytical, with formal pians and procedures bordering on bureaucratic, Unfortunately, bureaucratic processes are at odds with av innovative culture and the nature of innovation, which is often tamu ‘twous, nonlinear, aud serendipitous.'* Indeed, the developaient of most breakthrough innovations is nonlinear in nature, progressing in fits and starts.!> So, rather than vlilizing 2 stage-gate, step-by- step process through which new prodhict ideas nwust pass, “managing” innovative activity as an en- trepreneurial process (referred to variously as autonomony strategic behavion'* emergent processes," or “intrapreneuring""), the idea is to create an internal environment that fosters inno- vation and an entrepreneurial spirit. To develop anil maintain a culture of innovativeness, high-tech companies can actively culti- vate a set of values and beliefs that are forward-looking rather than complacent and reactive, This chapter expfores important facilitators of « coupany’s cultue of inaovativeness, and the barriers to sustaining such a cultere. Two other important aspects of a successful high-tech firm's organiza- tional culture—its macket orientation (or customer focus) and the way its marketing and R&D per- sonnel work together in the new product development and commercialization process—are explored in Chapter 4. FACILITATORS OF A CULTURE OF INNOVATIVENESS Cobtvating « culture and climate of innovativeness requires recognition of the nature of innovation itself. Creative destruction is the process, within organizations, of developing and commercializing radical or breakthrough new products, services, or business models at the tisk of cannibabizing sales of existing products. Creativity is the cognitive foundation forthe innovation ‘All innovation begins with creative ideas, Successful implementation of new prograrts, te product introductions, or nes services depends on a person ora tam having & good idea—and developing that iden beyond ils inital state. 7 Creative ideas must be novel—different from what’s been done before-—but they rust also be useful.!® One example in Chapter 2 contrasted the success of online grocer FreshDireet with the Tellure of Webvan, Webvan was too optimistic about people's willingness to abandon traditional grocery stores in favor of something new an diferent. As Phi Very, CEO af Creative Good, a con- sulting fir thet has worked with online groves, said, “One ofthe fundamental mistakes chat every body made is the asstmpion that because there are som problems with te ofline experince that everyone would flock to online."”? Ultimately, Webvan did not offer customers a sufficient advan- tage relative to traditional grocery stores. "As the foundation of an innovation strategy, creativity motivates the generation of new concepts for produts oF marketing programs that are superior to those of competitors, Furs thesmoce, creativity is « valuable and rare competency that is inimitable and, thus, is a source of sustainable competitive advantage” However, unfettered creativity, by self, may not be 0d for business. I takes disciplined creativity to produce wseful innovation for a company. Apple illustrates the principle of disciplined creativity in designing pleasing products in com, bination with business models that provide attractive gross margins. By contrast, Sony has been inconsistent in tis spect in recent years with tri battles between its intemal divisions result: ing in quality probiems in many products from lapiop batteries to digital music players to PlayStation 3 ‘Companies that exhibit :his culture of inuovativeness share a common se of facilitating con- sions (see Figure 3.1}, The presence ofthese conditions establishes an environment that cco ages, supports, and rewards breakthrough thinking and tht resists te inesialforees that styie innovation. “Top Management sontan Compensation fr - ‘pnovation Creative Destruetion bk Tolerance araprs ines Expeditionary Marketing Product Gharepions ‘Corporate Imagination ‘Skunk Works Learning Orientation FIGURE 3.1 Facilitators of a Culture of Innovativeness Top Management Attention Conventional wisdom takes a skeptical view ofthe role of top managers in the innovation process, often characterizing thei as either irrelevant or impediments; at best, they may have a postive, but ingitect, infience on innovation. However, the resuits of a 10-year stucly of moze than 700 new product tears show that successful new product development efforts had senior managers who ei- ther were intimately involved with virwatiy every aspect of the process or made it clear tha they completely backed the projec.”! Thus, top management attention positively drives innovation, es- pecially when CEOs exhibit the following: * A ftir focus that leads to greater awareness and antieipation within the firm of evens inthe fature, rather than being prececupied with issues ofthe past and present * An extemual focus (outside the fiem) Unt ieads to greater awavene's of customers’ needs, wnar- et tends, and competitive actions Both of these its allow the fie to move quickly to detect and respond to new technologies und opportunities, Although CEOs who have an internal focus might move fester at developing new technologies, they are slower to detect new opportunites in te first place. Their key challenge, ‘en, isto cultivate and maintain a forward-fooking viewpoint; they should exhibit generic Focus con the future (rather than a focus oa specific events or opportunities) and view innovation as more {han product development, but opportunity detection as well. Top managers must clearly support ‘innovation through both words and actions. Jn this sense, top management sels the exarape for what ‘alles and beliefs are important and creates ite organizational culture for others to Follow, Creative Destruction Firms mast recognize that pmelucts in high-tech environments typically sustain omy finite spel at the technological finner before being made obsolete by better proiets. Giver this reality, a frm should not be too enamored with the techrofogy that forms the basis ofits initial success, but ic stead sive to develop even beter, next-generation lechnologies®*—aespite te Fact that such deve ‘opments nay alienate some current customers, make obsolete its sunk vestments in the prior technology, and render any economies of seale and experience curve advantages useless. [it doesn't, it rivals surely will, Recall that this paradoxical mode} of competition, known as creative destruc. tions, is roquived for ongoing leadership in innovation, Anexample is Microsof’s continued desiee to ride its wave of success from its operating sys- tems software (Windows 95, 98. XP, Vista, etc.) However, rivals introduced new approaches to software business models, including the open source software movement (Linux, MozillwFirefox, Google Docs), Moreover. the Web services mode! of softwere delivery allows consumers to access information via a range of consumer electronic devices and “information appliances” that don’t re-

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