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Google, and Slaying the Cost Monster

Google must watch its costs, reports a recent Wall Street Journal article.1 The internet juggernaut still dominates its primary market and is flush with cash to invest or, for the first time, pay dividends to its shareholders. But now Google teams can no longer automatically hire new staff, and the new CFO is in the midst of a company-wide audit to identify excesses in what has become a large, “complex company.”

It was not long ago that Google was the poster child for “innovative,” open-ended work places where employee teams had ability to pursue projects with little interference. Now, Google reportedly will only invest freely in projects or project groups that hew closely to the firm’s "strategic priorities." What gives? Has Google suddenly become just a big, bureaucratic company, or have revenues flattened out? What's happening to Google, and what's happening in the areas of growth, costs and innovation?

Actually, Google’s revenues continue to grow, totaling nearly $70 billion in 2014, a tidy 19% increase from the previous year. While its growth rate may be slowing ever slightly, the firm is not suffering from tough competitive pressures in its primary business of search. It is however, facing the inevitable necessity of having to ward off bloat caused by growth and the pernicious effect of trying to support more and more businesses in its expanding corporate portfolio.

Revenues from maturing businesses will either flatten (because markets get saturated) or become less profitable (competing for share from others at reduced prices). At the same time, costs, if left unchecked, will continue to rise in the form of added head count and layers of support. This is where workplace innovation becomes critically important.

Understanding Innovation. Often we think company success hinges on big ideas or business innovations that open up new markets or expand existing ones. The mantra in the business press and inside companies is constantly to become a more “innovative company.” Indeed, innovation is the key, but not in the way most people think. Innovation is one of the most sought-after – and one of the most misunderstood – phenomena in business. Most people don't understand the distinction between market innovation and workplace innovation, lumping the two concepts into one pool of confused pursuit.

Market innovation involves seeking and planning to seize new business opportunities in an attempt to serve unmet or underserved customer needs. This almost always increases costs, but also (hopefully) leads to far greater revenues. Workplace innovation involves improving the way work gets done to alleviate frustration and inefficiency, often leading to substantial cost savings. In order to cut costs and gain new efficiencies, Google will likely seek more innovation – workplace innovation – than ever.

Two things are fundamental to encouraging innovation in the workplace. First, innovation should be prevalent but often innocuous. The notion that great innovations based on big ideas are the end goal is mostly a myth. Actually, established companies continue to excel because of thousands of small innovations that make all the difference in keeping the firm profitable. Coming up with better ways to do things every day is a key part of innovation in the work, and Google appears to recognize the need to ratchet up efforts to improve efficiency so that profit margins can be maintained.

Second, innovation will be conceived and employed by many people, not just a few “smart” or “creative” ones. The innovation will occur where the frustration is felt most directly by those doing the work, not by managers. The article reports on the CFO riding herd on costs, but the large firm will have to rely primarily on the creativity of front-line employees who meet head-on with processes that no longer work very well.

Managers will always be asked to get better results with fewer resources. But for innovation to be as prevalent as it needs to be, the people doing the actual work must be the ones to innovate, based on the specific frustrations they encounter when working. This type of innovation cannot be “trained” or formalized because it is not about doing something better, but finding a better way to do it. There is a subtle but critical distinction between doing something different, and doing something differently!

Innovation is encouraged by great managers and is not the result of having innovation officers or separate functions focused on innovation. In fact, here are some specific things managers can do (especially middle managers) to encourage the innovation required:

  • Specify authority so that those closest to the work can take responsibility for solving the frustrations they face. When innovation is most needed (the status quo is not working as well as it could) employees may even need some freedom to go around ingrained procedures and processes. Managers who hold too tightly to authority are not likely to get meaningful innovation.

  • Create processes where people must communicate and work together. Innovation requires creativity, and different perspectives are often critical to seeing different ways of doing things. This also includes providing access to resources such as customers, computer support, etc.

  • Nurture an environment of learning, where mistakes are not punished but serve as data points that inform. Productive learning does not often take place in hostile environments where mistakes are criticized or punished.
We suspect that Google is doing the right thing in trying to rein in spending by focusing its investments on new business opportunities. At the same time, they will be more successful at cutting costs if they can engender workplace innovation so that people across the company figure out ways to do a myriad of things in new, more efficient and more effective ways.

1“Google takes stricter approach to costs,” The Wall Street Journal, July 13, 2015, by Alistair Barr.

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