as a Company of the

New EconomyTomasz Kłosiński

The New Economy

● The result of the transition from an industrial and manufacturing-based economy.

● As the economy took off in the late 1990s, it was said we were witnessing the transition of a manufacturing-based economy to one centered on the exchange of ideas and information.

● Some believed the tech boom would create permanent steady growth, low unemployment, and immunity to boom-and-bust cycles--thus, a new economy. ○ Yet something was lost in all this theory making, as some

decidedly old-economy concepts were forgotten. ○ A company still had to be competitive and earn money, it still had

to attract--and retain--customers, and it still had to justify its stock price. In short, new was not improved.

Google's Business Model

● Google's business model is sometimes referred to as a new management paradigm. The management theory uses innovative companies as concept models.

● Examples to imitate:○ Ford, 1910: the mass production○ General Motors, 1930: The M organization○ Toyota, 1970: quality and mass production

● Google is the last of these models. Not because of its successes that come from the context and the situation but because of its innovations in:○ Technology○ Customer relationship○ Management

Google's Success Factors

● Google's success can be placed in specific situation and context.

● The situation: ○ The Silicon Valley

■ Universities■ Financial tools■ Financial competences (they know how to select the best

projects)■ Legal rules■ Very difficult to impose non-compete clauses■ Engineers and ideas flow freely from one company to other

● The context○ The internet bubble○ Engineers are (relatively) cheap○ The rapid growth of internet

From Zero to Hero

● When they started, Larry Page and Sergey Brin (the "Google Guys") were not rich:○ They had to build their computer farm with PCs and cheap used

computers○ Everyone knows theses PCs don’t last very long, are not very

reliable○ They has to build an ad hoc system

■ Very redundant■ That duplicates data several times■ With a software that copies automatically the data from one

PC to the other○ They used Open Source software that gives a bettercontrol on

home-made soft● They have today a very powerful (1 million computers; thousands of

petabytes of data), reliable system that grows incrementally

How do they get the money?

● When Page and Brin started Google, the search engines where financed by advertising○ Free search for everyone, money comes from advertisers○ But too much advertising is a "pain in the neck", that slows

search and harms the reputation of the engines● They tried to find other ways of financing before finding their own

way with○ Advertisements that are useful and almost invisible○ A price per click

■ The advertiser pays only useful impressions of his ad vs hepays all impressions (as in the press)

○ An automatic customer relationship■ No need to sell the ads■ No need to negociate the prices

○ A price defined by a double envelope auction

Management Style

● Google innovated in○ Governance○ Human Resources

■ The 20% rule■ Reputation as a motivation driver■ Hire the best

○ Customer relationship○ Management of innovation

Governance

● Usually, there is one head, the boss● They have a tripod: Schmidt, Page, Brin

○ Which opens up the cognitive capacities of the leaders○ Gives them more freedom○ Gives them the opportunity to look at the business from different

points of view and not only from the financial one○ Helps create a company with less layers of management and

bureaucracy● It’s not totally new (many start-ups have the same structure) but

they choosed to keep it active

Hiring the Best

● Google hires only the best○ Everyone says so? Yes, but…

● It’s hiring methods are non conventional○ They don’t wait for the best people to come to them, they look for

them○ They reverse the usual way of hiring○ Diplomas are not a proof of your technical abilities but a proof or

your personal abilities○ Tests and meetings are used to discover your

technical capabilities

Reputation as a Motivational Driver

● Working with the brightest gives the impetus to work a lot○ One wants to be considered bright and capable by those one

considers so well● Rather than being judged by hierarchy, projects are judged by

colleagues○ Like in the academic world

● This method is good for innovation○ The ideas flow between teams○ The colleagues that judge your projects work on other topics

● If you want your colleagues to judge your work you’d better make it short and readable○ Everyone speaks the same (IT) language○ Projects are short

The 20% Rule

● Each engineer can spend 20% of his working time on personal projects

● An unconventional but efficient way of managing people○ When one has an idea, he has time to work on it, even if it’s not

in the company’s priorities○ In traditional companies, these ideas are abandoned or their

inventors go elsewhere to develop them○ To find these 20% time you mus rush on your official job : it’

s good for productivity○ Procrastination is no longer loss of time

● Several Google products come from this 20% rule○ Google News, Cloud Computing…

The User's and Consumer's Relationship

● The user is the main personage○ "Take care of the users all else will follow" (Larry Page)○ "First make sure our users are satisfied, we’ll always find ways to

monetize our invention" (LP)● Users play different roles

○ They test the products○ Delivered in beta phase○ They give the company directions○ Through the statistical analysis of their behaviors○ They promote them○ Through their blogs, in the forums…○ They develop them when they participate in mashups

Innovation Management

● A lot of companies innovate, Google does it differently○ Every week something new

● Google behaves like an explorer that discovers a new continent : it tries, tries and tries○ The scientific experimental method applied to industrial

innovation○ An objective : lift all obstacles to innovation

● Two means○ The beta phase protocol○ Mobilize all available creative ressources

The Beta Phase

● The innovations are released very quickly○ The rule : release often and quickly (Open Source rule)

● Some of the new products are… perfectible○ The first version of Google Docs was… terrible○ But as they are free users don’t protest○ Everyone knows they are going to improve

● This method gives Google time○ to analyze user’s behaviors○ understand them & develop the product according to their

preferences■ It supposes very powerful statistical tools and the collection of

data on our behaviors■ The price of innovation could be the loss of a part of our

privacy

The Mobilization of Creative Resources

● Engineers and their ideas (the 20% rule)● Universities● The Open Source Community and its developers

○ Google code and project hosting● The archives of IT

○ The Tesseract story and how it became OCRopus● Competitors● Rather than reinventing their applications, Google buys young

companies● Users as developers

○ API and maps, Sketchup and Googleearth…○ Mashups

● User as producers of contents● Users as testers

Google's Attitude

● There is an inverse relationship between control and trust-- David Weinberger

● Trust the people● Listen

Google's Ethic

● Make mistakes well● Life is a beta● Be honest● Be transparent● Collaborate● Don t be evil

Google's Imperatives

● Beware the cash cow● Encourage, enable, and protect innovation● Simplify, Simplify

Google's Impact on the Society

● Connectivity○ We stay linked

● Publicness○ Is privacy over?

● Thought○ Does the internet make us smarter?

● Politics and government○ Is this the transparent administration?

● Talent○ This is the creation generation

Google in the New Economy

● Small is the new big● Manage abundance (not scarcity)● Join the open-source, gift economy● The mass market is dead, long live the mass of niches● Google commodifies everything

A Model for Everyone?

● Following all Google’s rules is not a recipe to become a new Google

● But most of these new ways of managing will in the years to come enter the catalogue of business’s best practices

● Somes companies already started emulating them○ In the hight tech sector○ Most start-up imitate Google’s ways○ But also in the old industry○ Chrysler and the tripod as a mode of governance○ Even in very different businesses