Managing Innovation: Google and the “Learning Culture”

As we prepare for our annual research conference IMPACT 2008:  The Business of Talent®, I want to mention an important topic which has come up frequently in the last few weeks:  the critical importance of managing innovation.

All organizations in all industries must continuously deal with change.

Our research continues to show that one of the greatest strengths of enduring organizations is the ability to effectively adapt to change.   Every market we study is undergoing continuous change:

  • Global climate change and a focus on environmentalism is changing manufacturing, technology, insurance, and consulting.  Tesco is computing the carbon footprint of almost every product it sells.  GE expects to generate more than $20 Billion in “green” products in the next ten years.  Apple recently committed to recycling as much as 40% of its used computers in the next 5 years because of buyer backlash.  Insurance companies like Marsh McLennan are restructing their products to offer insurance to businesses located in low-lying areas.   Chevron is rebranding itself a company of “people energy” not “assets.”   The “green economy” is reshaping most businesses.
  • The economic slowdown and credit crunch appeared rapidly and dramatically.  Bear Stearns found itself in the wrong business at the wrong time.  Bank of America, Wachovia, and other retail and mortgage banking companies suddenly see their portfolios change overnight.  New regulations in the works.  Financial services organizations have to deal with reduced spending overnight (read our post on this topic Managing the Downturn in Financial Services).
  • Facebook’s internet traffic is growing at more than 4X the rate of Google, and if it continues it will rival Google within 3-4 quarters.   If people spend more and more time on their social networking site, where will the advertising revenue go?

“Enduring organizations” manage innovation as a strategic process.

Given these rapid changes, companies must prepare for continuous innovation.  Innovation is not “invention” or “creativity”  – rather it means continuously moving “up the value chain” to add value in each and every product and service.  Many innovations are actually quite mundane, but they result in tremendous business benefits.  Consider UPS’s ability to continuously add new services to its shipping business (we use the local UPS store for something almost every day) – this is a company which has learned how to innovate continuously over the last 100 years.

Our research clearly shows that “enduring organizations” do not rely on the “product home run” strategy.  Rather they build a set of cultural, marketing, and engineering processes to innovate continuously.  The history of business is filled with companies that were “one-trick ponies.”   (e.g. Look at the Motorola RAZR vs. Blackberry and Apple’s continuous innovation in cell phones;  look at IBM’s ability to innovate from mainframes to PCs to services while Tandem, Digital, and Compaq could never evolve beyond their core products.)

We call these continuous innovators “enduring organizations” – they have built processes and culture which enables them to grow, evolve, and thrive in the face of continuous and often relentless market change.  Our research shows that these companies have five interlocking key strengths:  strategy, leadership, management, learning, and systems.  I will write more on these five keys in a later article.

Is Google an Enduring Organization?

Which leads me to Google.   Google is the most “googled” company in business today.  Just as IBM and CocaCola were the “best companies” in my youth, everyone wants to pattern themselves after Google now.  How does Google innovate and will the company endure?  And what can we learn from Google’s success?  We’ve been speaking with several Google HR and develpment managers and the company has some very unique strategies.

First, it is clear from our research that Google is relying heavily on innovation to grow.  The company hires the “best and brightest” (top schools, top GPAs, regardless of age and experience) and has created a work environment which is the envy of any Generation X or Y employee.  Gourmet cafeterias, flexible working conditions, and the “20%” policy which enables each and every employee to spend up to one day per week working on a special and innovative project of their own.   Few companies today can afford to lavish such luxuries on every employee.

Second, the company has also built a culture of product innovation.  Dozens of new products and services are available from Google today and engineers are encouraged to continuously build new ones.   Engineers who find bugs in other engineers’ products are encouraged to “check out the code line and suggest a fix.”  The company builds its own internal HR and talent management systems (something few organizations do today), built on the belief that Google can do it “better.”  (Not a strategy employed by many companies these days.)

While most of the “new products” from Google never become market leaders, some do.  Google Finance, Google Maps, and Gmail are all products which entered the market with strong entrenched competition.  Through innovation and strong execution each of these products have taken on tremendous market share in a short period of time.  And when the company sees a tremendous market opportunity to enter through acquisition, Google takes the plunge (YouTube and Blogger).

The question to consider is how “enduring” Google will be.  Will the company build the internal processes and culture to endure for decades like IBM, HP, and Microsoft?  Time will tell.  The web is attracting the most enterprising, hard-working, and bright minds to web 2.0 solutions today (just as PC software did 20 years ago).  Google’s long term success will be dependent on the company’s ability to build a “learning culture” – one which embraces change, innovates continuously, honestly admits mistakes, and invests heavily in the winners early in their process.  As the center of the web moves slowly away from “search” toward social networking, communications, and mobile applications, Google has plenty of innovation to think about in the future.

As a note:  “Learning Culture” is one of the strongest predictors of long term business performance in our upcoming “High Impact Learning Organization” research which is coming in a few months.  A “learning culture” includes a wide variety of programs, processes, and systems which encourage people and the organization to learn, recover from mistakes, and innovate.

The technology industry is littered with the remains of many “first-mover” companies who lost their edge when the market made a dramatic shift (Digital, Lotus, Ashton-Tate, Compaq) – and others who endure by building internal talent processes which create a continuous ability to adapt (IBM, Oracle, Cisco).  We will all watch Google and hope the company builds these enduring qualities in the coming years.

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