Google's 20% Mistake
"The company's top brass seem to think they know better than their employees what the next big thing is going to look like." By BRIAN M. CARNEY and ISAAC GETZ
Recent reports indicate that Google has been effectively zeroing out employees' "20% time"—the policy of letting Googlers spend a fifth of their time working on whatever innovative, maybe even crazy, projects they wished.
The news is a shocker. Google had widely touted its 20% time as a cornerstone of its "innovation machine." Larry Page and Sergey Brin also cited 20% time as leading to many of Google's "most significant advances." These include Gmail, Google News and Adsense—and that last one accounts for a quarter of Google's $50 billion-plus in annual revenue.
Founders Page and Brin, together with ex-CEO Eric Schmidt , reportedly used it personally. So what explains Google's push to reduce the number of such projects, to put "more wood behind fewer arrows"? The short answer: ignorance. Google's top brass seems not to understand the reasons for their company's success.
Continuous innovation is one of the hardest tricks in business. Sustaining it over decades has proved impossible for all but a select few, such as 3M or W.L. Gore & Associates. One can't just throw money and bodies at innovation—there is no correlation between the size of a company's R&D budget and its innovation rate. Most ideas are bad ones, so you have to entertain a lot of them to find the real gems. On average, a company needs 3,000 ideas to get 300 of them formalized, 125 of them into small experimentation, ten of them officially budgeted, 1.7 launched—and one that makes money.
Those are long odds. So naturally many executives seek to "optimize" these dynamics. Looking from the top, they decide on, say, 10 official projects to favor. This kills most of the informal ideas, which employees just keep to themselves—or bring to a competitor. What's more, it is extremely unlikely that people at the top know in advance which ideas are going to be the big winners.
A mini-golf course on the balcony at Google's office in Toronto. REUTERS
At 3M and Gore, it is their employees' initiatives that have introduced them to new markets. Take Gore's Elixir guitar strings—which started as an employee's informal idea for an innovative bike gear cable. Today Elixir is a market leader, and one of 1,000 new products the company has successfully launched since it invented Gore-Tex.
Seen in this light, this 20% time is not just another on-the-job perk. Within a culture in which employees are free to act and believe that their ideas will be taken seriously, it is a token of respect that offers room for personal growth and a degree of autonomy to every employee, regardless of what their "day job" is. On paper, eliminating it might look like it saves money. But the signal it sends is that management, not the workers, know what the most productive use of your time is. It's a step down the road to a company of clock-punchers.
The freest, most innovative companies we know were coherently built to produce a corporate culture that nurtures those universal needs of intrinsic equality, growth and self-direction. In such a culture, the vast majority of people are self-motivated and decide for themselves what initiatives are best for advancing the corporate vision.
Google has never consciously built such a culture. And as it has now made clear that its 20% time was not—unlike at Gore—part of a freedom-of-initiative culture, but a perk. Google has a legendary collection of those, from free gourmet food to, most recently, a death perk: As Chief People Officer Laszlo Bock explained to Forbes, an employee's surviving spouse gets a 10-year pay package, with all stock vested immediately, while any children receive $1,000 monthly until 19 (or 23 if a student).
Adding perks is a business decision. They are powerful retention tools, and reducing turnover by several percentage points saves a lot of money.
But scrapping perks is also a business decision. At some point, some executive will demonstrate that a given perk's cost exceeds its benefits. Paradoxically, as soon as a perk becomes established, it loses its motivating power and becomes a potential liability. Ex-Googlers tell us that the crackdown on 20% time began during the post-crisis recession, as the company's revenues declined. This suggests that 20% time has long been viewed by management as just another expensive indulgence.
When 20% time isn't a perk but part of the freedom-of-initiative culture, it stands as an acknowledgment of the higher-ups' ignorance—that they don't know what the next Gmail or Adsense is, and so they're counting on you to find it. A company that wants to put "more wood behind fewer arrows" is a company that believes it has already found all the targets worth aiming at. Such a company risks leaving its best growth in the past, and exporting its best ideas to its competitors.
Mr. Carney is editorial page editor of The Wall Street Journal Europe. Mr. Getz is a professor at ESCP Europe Business School. They are co-authors of "Freedom, Inc." (Crown Business, 2009).