Eric Schmidt, the executive chairman of Alphabet Inc., has deep roots in the world of research and development: He worked at both Bell Labs and the Xerox Palo Alto Research Center, before becoming a senior executive at Sun Microsystems and the CEO of software maker Novell. In 2001, he became the CEO of Google, which he led until 2011.
In 2014, with former Google SVP of Products Jonathan Rosenberg, Schmidt published the New York Times best-seller “How Google Works.” Rosenberg serves as an outside advisor to Larry Page, the co-founder of Google and CEO of Alphabet, Google’s parent company. We pinged them via Gmail—what else?—with a few questions about talent, acquisitions, failure, and moonshots.
InnoLead: In “How Google Works,” you define the concept of an employee who is a “smart creative,” organized in small teams with the freedom to move fast. Is it possible for established, more hierarchical companies to set up separate labs or divisions to attract and enable those kinds of people and teams? Do you find that CEOs take the talent issue seriously enough in 2017?
Schmidt: Yes, we find that CEOs and other company leaders pay very close attention to their people, both those in the company and those they want to recruit. After all, it’s hard to shift a company’s culture, but one thing a senior executive can pretty easily do is change how they hire people. In our experience, talented smart creatives want to work for companies where they care about the company’s mission and its values, and will have the freedom and opportunity to work on exciting things.
Setting up a separate lab or division can help; at Google we have set up a special program called Area 120, which gives people the opportunity to pursue new ideas with small teams in an entrepreneurial environment, without having to leave the company. We also have spun off companies like Waymo and Verily to pursue big visions in businesses separate from Google’s. So we have had success with the approach of creating separate groups. But we also strongly believe that the main company needs to be innovative as well, so that it can attract talented smart creatives. You don’t want to set up a structure where only the spin-off gets to do cool stuff.
IL: You talk about the Chief Executive Officer serving as the Chief Innovation Officer. Can you explain what you mean?
Rosenberg: We think that innovation isn’t something that should be delegated to just one executive. You can’t have executives thinking, “Hey, innovation isn’t my job—that’s Jennifer’s department.” Every executive in a company needs to think about innovation all the time, and that starts with the CEO. At Google we have various teams that may help with innovation, but these are pretty small and are working hands-on throughout the organization. At an exec level, everyone owns innovation!
IL: We dropped by the Google Garage on one of our last visits to Mountain View, for a 2016 InnoLead Field Study. As we understood it, the Garage is a makerspace where employees can go to prototype things. Is that a perk, or something strategic?
Rosenberg: The Garage is a space we have where Googlers can go to work on new ideas and projects, kind of a hacker space. We have this long-standing cultural tradition at Google of 20 percent time, which is the idea that as long as they are performing well in their “day” jobs, Googlers have the freedom to work on side projects of their own choosing. Some Googlers thought that it would be helpful for people working on 20 percent projects to have a place to go, so they could get away from their regular office space. They started by commandeering a couple of cubicles, and eventually opened up the Garage. So the Garage was itself a 20 percent project, and now it hosts them.
The space is important, but what is truly strategic is that anyone can book it, and anyone has the freedom to work on 20 percent projects. People use that freedom to try new things and learn new things.
IL: The idea of 20 percent time has really spread throughout the Fortune 500. Not many are actually doing it, but they realize that they probably should be giving employees some dedicated time to come up with new ideas. What advice would you give about creating a policy that works?
Rosenberg: In practice, 20 percent time at Google is more like 120 percent time. People feel so passionate about something [that] they put in the hours when they can, on top of their normal work schedules. There is no funding or special compensation, and we don’t officially track progress. What matters is [they] know the company values their pursuits.
That said, 20 percent time is such a cultural staple at Google, we’re not sure how to start it from scratch in an ongoing business. Probably start with a product team—engineers and designers—and let them know that it’s ok to tinker in their spare time. Then give them some resources to do so—a lab, a dedicated space, whatever information and computer resources they may need. Then don’t manage it! And see what happens.
IL: The idea that companies need to “celebrate failure” (or at least de-stigmatize it) is now part of the lexicon. What have you learned about how to do that, and to make sure people learn from failures, since the book was written?
Schmidt: We don’t celebrate failure. It’s not something we strive for. But when you are trying to achieve big things, you will fail. You have to accept it, learn from it, salvage what you can from it, and move on without stigmatizing those who participated. In fact, people who have failed are usually more valuable as a result.
This becomes harder to do as you invest more money and resources in things. It is much easier to kill a small project in its early days than it is to kill a bigger project with more people on it, even if they are both destined to fail and even if the bigger project will in fact lose more money. Google X has an interesting approach: they set well-defined milestones, and only proceed as long as they fail to fail. Too often, people on risky projects look for signs that they are succeeding, and use those as cues to proceed. By making it your objective to fail, and then only proceeding when you fail to fail, you can turn this calculus on its head.
IL: Many companies see the value of investing in traditional R&D organizations. X, the “moonshot factory” that is part of Alphabet, feels like something different.
Schmidt: X is a business lab, not a technology lab. Its mission is to invent and launch new “moonshot” technologies that can make the world radically better. Note the “and launch.” So they set out to achieve ambitious things and try what may seem like crazy ideas and technologies, but they ground that in business reality. This doesn’t mean they are driven by financial objectives, but it does mean the idea needs to have a feasible way to make money as it comes to fruition. If it doesn’t, then it probably isn’t that valuable.
IL: Many companies prefer to buy innovative startups or rivals rather than building things themselves. Google has a track record of doing both. But what advice would you give about the importance of building up that internal innovation or R&D “muscle,” rather than only innovating through acquisition?
Schmidt: The acquisition process actually helps you build that R&D muscle. At Google, acquisitions are usually initiated by product teams, who have identified a company with technology or resources they think fits into their vision for a product. So the acquisition process becomes an excellent opportunity to thoroughly review that vision. Are we thinking big enough? Are we building things based on our own unique insights? If the vision, strategy, and plan are sound, and it’s clear that the acquisition bolsters them, then we proceed. But sometimes this discussion illuminates issues with our approach that we wouldn’t have discovered otherwise. So we look on the process as another way to test our approach.
IL: Are there any stories you can share about the impact that “How Google Works” has had since it was published — perhaps anecdotes you’ve heard about how people have used it in their companies?
Schmidt: We have executives from all over the world come to Silicon Valley and to Google to learn more about technology and how it is affecting their businesses. One of the topics in which they are always interested is Google‘s management principles and culture, so we frequently chat with them about the stuff we cover in “How Google Works.” Many of these executives go back to their companies and make changes, mostly around hiring and communication practices. The advice we offer seems to be adopted most aggressively by smaller companies, both domestically and internationally.