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How does an analytic company like Google make its most important decisions?

 If we are to believe the Google myth, we learn, first and foremost, that they test everything:

We test everything at Google. While any company would prefer real-life data to hunches and guesses, Google is more focused than most (or any) on getting conclusive proof that a new feature or function improves the user experience. We release many of our products in beta on Google Labs to get this kind of feedback early in the process so that we can influence the design and iterate quickly.

The ability to test lots of products and features on hundreds of millions of users is enormously valuable. This test-bed of users (otherwise known as google.com) provides Google with an incredible advantage over enterprise-only search vendors. Bad ideas can be discarded quickly and great ideas can be implemented rapidly, because we have confidence and data to show that they'll improve the user experience.

Of course, when all decision-making is data-driven, it can lead to "madness."

 Here's how Douglas Bowman explains why he quit Google:

When a company is filled with engineers, it turns to engineering to solve problems. Reduce each decision to a simple logic problem. Remove all subjectivity and just look at the data. Data in your favor? Ok, launch it. Data shows negative effects? Back to the drawing board. And that data eventually becomes a crutch for every decision, paralyzing the company and preventing it from making any daring design decisions.

In the end, said Bowman, he "won't miss a design philosophy that lives or dies strictly by the sword of data."

The testing culture doesn't end there.  On the Google Testing blog, James Whittaker describes the testing frameworks he's observed among the job applicants he's looking to hire:

• Input Domain Framework
• Divide and Conquer Framework
• Fishbowl Framework
• Storybook Framework
• Pessimists Framework

Which one of these frameworks will be best for Google, asks Whittaker.

 Which leads us to the topic of this blog post: Just how do the executives at Google make decisions?

Do they base their decisions on the data?  Let's look at one well publicized executive decision and the executive decision-maker: Eric Schmidt and his decision to buy YouTube.

On October 9, 2006, in a deal valued at $1.65 billion, Google outbid a number of other competitors to snag YouTube, the online video site which was growing at a rate far outpacing Google's own Video site.

The official Google line was as follows:

The YouTube team has built an exciting and powerful media platform that complements Google's mission to organize the world's information and make it universally accessible and useful," said Eric Schmidt, Chief Executive Officer of Google.  "Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience. Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers."

 So how did Eric Schmidt value Google?  Was he analytical, precise, objective?

By his own admission, Schmidt says, in a deposition by lawyers in the Viacom copyright lawsuit, that there was very little revenue coming into YouTube to justify the price his company paid.

Schmidt says that he told his company's board of that YouTube was worth $600 million to $700 million.

Via CNET, we get Schmidt's own words:

Viacom attorney Stuart Jay Baskin: And what was management's valuation?

Eric Schmidt: Much lower than we paid for it.

Baskin: And how was that communicated to the board?

Schmidt: I told them.

Baskin: So why don't you tell us what you remember telling the board in connection with the valuation?

Schmidt: I believe YouTube was worth somewhere around $600 million to $700 million.

...
Baskin: What methodology did you use to come up with that number?

John P. Mancini, an attorney working for Google, objects.

Schmidt: My judgment.

Baskin: Was it based on cash flow analysis? Comparable companies? What were you using as the basis for your judgment?

Mancini objects.

Schmidt: It's just my judgment. I've been doing this a long time.

...
Baskin: I'm not very good at math, but I think that would be $1 billion or so more than you thought the company was, in fact, worth.

Mancini objects.

Schmidt: That is correct.

Later...

Baskin: Can you tell us what reasoning you explained?

Schmidt: Sure, this is a company with very little revenue, growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer--because of who Google was--paying much more than they were worth. In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It's set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.

What this tells us is that even in the most analytic company in the world, the big decisions are still made on intuition.

Here's why. Analytics can only tell us about the past. We have no data on the future.  So Eric Schmidt was making an intuitive decision about Google's own future through examining the intangibles.

For example:

1. YouTube's popularity was sky-rocketing, making it the runaway market leader among video-sharing sites.
2. It was crushing his company's own site, Google Video.
3. YouTube was up for auction and would be sold to a competitor unless Google jumped first.
4. Google overbid to ensure YouTube didn't fall into rival hands.

And that doesn't take into account two other points which made the deal a winner.  From the very beginning, the Google philosophy has been - get attention first, then monetize it.  And that is what this bet was all about.

Schmidt saw the attention trajectory in YouTube's growth, and he knew that if anyone could monetize that attention it would be Google.  To leave YouTube for Murdoch, Microsoft, or Yahoo was not an option.

In hindsight, it may have been a brilliant move.  Although the monetization has proved difficult, Google is breaking even today, which is far better than what has happened at MySpace, for example.

Hats off to Grist's David Roberts for putting together a thought-provoking line of thinking in Why Bill Gates is wrong. And no, he's not talking about Bing.

At the core, Roberts challenges the hubris of viewing all society's problems through the lens of innovation.  That is, he says that Gates is fundamentally off mark when he sees the solution to our environmental crisis as primarily technical.  Innovate our way out of this mess, says Gates.  Not so fast, says Roberts.

Innovation ≠ technology, is what Roberts states, and he's right. Here's how he describes the sustainable city of the future:

Everything is linked up in a smart, integrated communications, power, and transportation network. The city "knows" which roads are congested and which parking spots are free. It can communicate to individuals what combination of walking, transit, and individual vehicles will get them where they're going fastest. Vehicles are small, electric, modular, and--via sensors, GPS, and broadband wireless--intelligent, so they can pilot and park themselves. They can be charged by parking-integrated stations or even electromagnetic coils embedded in curbs, and since they're interchangeable and easily customizable, they can be public goods (like today's car-sharing services), easily swapped out and thus continuously in use. The city uses the vehicles' batteries as distributed energy storage, along with other storage options including pumped hydro integrated into the sewer system. Rooftops, parking lots, and other marginal lands are covered with solar panels; small-scale wind turbines are perched on bridges and towers; cogeneration systems are attached to every industrial facility. Through smart design and sensing, every building and neighborhood maximizes efficiency. The city senses power demand, knows where power is being produced and stored, and continuously balances supply and demand.

So what's holding this vision up? By a wide margin, says Roberts, the biggest barriers to creating such bright green cities are social.

I agree. It's not technology - all of the technology needed already exists - but political will that is holding us back; remember Copenhagen?

Roberts describes the social innovations that need to take place:

Building a city that behaves like an integrated organism means developing a holistic, long-term plan that will coordinate multiple agencies and levels of government. Big, long-term thinking is not exactly an American strong suit these days. Also--and this is a underappreciated problem--cities are cripplingly dependent on the financial largesse of state and federal authorities. They have very little autonomy to borrow money and invest in their own futures.

There are all kinds of collective action and first-mover problems: Who puts the charging stations in if there aren't electric cars on the road yet, and vice versa? Who pays for a smart grid before distributed generation is in place, and vice versa? How can public infrastructure and private market development be coordinated?

Many of the investments involve high upfront costs that are paid back slowly over time. New financing models will be needed both for private individuals and companies and for cities themselves.

Changes in the way individuals live, work, communicate, and travel must be introduced in a way that maintains social cohesion and political support for further changes. That requires research in social psychology and other behavioral disciplines (sorely lacking in much policymaking). How these things are introduced matters just as much as what they are.

OK. So, let's ask again, what's the holdup? Why can't we address the challenges - both socio-political and technical?  The answer: the structure of our democracy is damaged.  When lobbyists have taken over every aspect of the debate, and the Supreme Court seconds this type of behavior, it doesn't take a genius to see that "the future" doesn't stand a chance.

The "inconvenient truth" has once again been buried.  And to say that technology and innovation will take care of it is a huge mistake, one that might even cost us a lot in our near future.

As much as I respect Bill Gates's exceptional achievements there is always something fundamental missing for me to feel fully engaged when i hear his highly analytical presentations at TED. Always very seductive intellectually, extremely well analyzed and thought out, very well documented, supported by a wealth of data and facts, with solutions to complex issues made simple to understand ... but has human complex evolution ever been sorted out by analysis alone?

A while back, I published a short article on the strategic role of Human Resources in the new economy.  The article: Le rôle stratégique des DRH dans les 10 ans à venir is in French, but since I get so many requests to talk about this issue, I've translated it here for you.  The main point I'm making is that in today's disruptive economic climate, HR can and must become a critical differentiator.

The strategic role of Human Resources in the coming years
 
To generate creative added value is one of the surest ways for companies to win in the global competition today. Innovation is the new imperative. And in some industries business model reinvention is mandatory. A new approach to human capital is necessary to succeed in the new economy.

Because of the complexity of the new economy human capital becomes increasingly important for a company to succeed.

Let's explain why.

-    The global economy is becoming more and more global, competition is steeper, speed to market is accelerating and barriers to entry into an industry are much lower
-    More consumers are now becoming better informed and more discriminating  "prosumers" with stronger values and higher expectations for return on their dollar
-    The impact of technology tears down business models and transforms industries (media, music, financial services, etc.) and leads to powerful knowledge networks which creates active communities (Facebook, LinkedIn, etc.) and boosts innovation  (open models)

For these three reasons, creative added value is the safest path to beat competition.

Innovation is now part of every CEO's mandate and in many industries it's all about business model reinvention.

A new approach to efficiency needs to emerge... fast!

As we well know innovations comes from executives' ability to generate new ideas. But idea generating does not follow a linear path! Studies show that on the average an executive generates 80% of his daily value in 20% of his or her time at work.  So it's really not that effective to impose tight working schedules on your team members.

Yet conventional management and most companies are still operating under the belief that productivity and time spent at your desk follow a linear correlation and not a variable correlation... Here is food for thought for all heads of HR if their companies believe innovation is a key driver of growth.

I recommend Ricardo Semler's book The 7 day week-end - changing the way work works. He's been so successful in his own company in Brazil that he wrote this book to share his no non-sense approach to efficiency and teaches it at Harvard Business School.

Inertia: the greatest stumbling block on the way to innovation

Designing smart innovative business solutions can be challenging but the real deal with innovation is implementation! Why? Because to implement new stuff you need to be able to change... and human nature does not like change... Actually it has a pretty reliable ability to resist change and this ability is called inertia. Any change entails some fear at some level, whether individual or collective, because it threatens our wellbeing and eventually our survival, even if it is ever so subtle.

Our propensity to inertia is linked our capacity for survival, i.e. our instinct. Inertia in an organization is all the more so powerful that it is exponentially cumulative with the number of people involved with a decision. It's easy to see how difficult it is to change mentalities and behaviors in large organizations with thousands of employees...

There are highly effective solutions to deal with inertia but once again they're not about logic. It is rare to get another person to be convinced and motivated to change behavior simply based on a lgical argument. People change because their environment is conducive of change.

People will let themselves be influenced all the more so easily that they feel emotionally motivated and their feelings are taken into account. I always wonder when I hear long impersonal rhetorical speeches at corporate gatherings where too many statistics and metrics are exhibited in tidy power point presentations. What's the strategy behind them? Aren't big collective changes often enough triggered by speeches with powerful emotions and great staging?

Recent research at MIT shows that 20% only of our grey matter is dedicated to conscious thinking and 80% to non-conscious thoughts. The best way to mobilize people is through symbols, rituals that impacts our senses and emotions and reaches our unconscious.  Steve Jobs understands it well and long before him popes in Rome. Many companies seem to understand this much better when it comes to consumers than when it is about communicating to their employees. And few only are actually convincing in this arena.
Some food for thought for heads of HR to put on the top of their 2010 new resolutions list to accelerate change and foster innovation.

Profit alone is no longer enough. Actually it's on its way to become the biggest stumbling block to innovation.

Last point, even more important than the above mentioned. To drive innovation and reinvention the most important factor today is to factor in sustainable development into the mission of the company and its strategy.

The sustainability challenge is a mega trend - if not the biggest one in our economy - and it is nowhere close to disappearing. It will affect many generations to come. Its ripple effects are felt on many levels and far beyond and deeper than our conscious mind since they directly affect our wellbeing and potentially threaten our survival as a species.

Therefore they directly and powerfully impact our capacity for imagination, and change. The fastest and most compelling way to facilitate innovation and change in an organization is to move beyond the usual objective of higher profit (which in itself is quite legitimate and necessary of course) to focus on sustainable value creation, which of course entails financial profitability but is not limited to it.

Sustainable value adds on top of profit the notion of the prosperity of all employees, associates, and partners of the company and respect of all ecosystems whether societal, cultural or environmental.

Here is, in my opinion, a third hot topic for any head of HR who values innovation and its impact to drive growth in the organization or reinvent a failing business model.

It is possible!

This holistic approach to corporate mission and strategic management may seem daunting and remote from the day to day concerns of business unit managers in the trenches, busy fighting for their market shares. But the ROI is exponential and reaches far beyond traditional strategic management favored by logic. Based on personal experience both as business leader and advisor to prominent CEOs this approach engages people beyond imagination. Companies like Google, Danone, Toyota or today Renault with its electric car have proved this quite eloquently.

It is time to bring back human capital where it belongs... to the core of corporate strategy, mission and culture. Only intuition can blend the efficacy of logic with the power of instinct.

Intuitive Intelligence is the optimum ability to innovate and help directors of HR in their  strategic mandate.

A short article in Les Echos:



Translated:

Another way to manage and lead
Neurosciences in the service of business

Francis Cholle author of L'Intelligence Intuitive recommends to executives to combine their analytical mind with their intuitive aptitudes to gain further consumer insight and improve business performance.

From our correspondent in the Sillicon Valley, Laetitia Mailhes
 
For beauty and fashion executives time has come to reconsider every aspect of business. "The economy is changing consumers' behaviors, independently from the evolution of incomes, explains NY Fashion Institute of Technology Professor Stephan Kanlian. To open their wallet consumers today want more than brand prestige. They demand more and more added value and a greater match between products they buy and their own values." But the business community is not well prepared to adapt to such a radical change.

"Obsession for financial return has led leaders to often forget they share a common humanity with consumers," says Francis Cholle, author of L'Intelligence Intuitive, innovation consultant for large corporations and advisor to their C-Level executives. A graduate of the best European business school, HEC (Ecoles des Hautes Commerciales) Francis Cholle insists that sustainable value creation requires the necessary synergy between analysis and ROI on the one hand and play and instinct, on the other (see graph below of The Intuitive Compass™).





The role of intuitive intelligence

"Neuroscience showed in 2005 that parts of our brain traditionally associated with our instinct are involved in our most sophisticated decisions" says our expert in reference to MIT Picower Institute for Learning and Memory research on our reptilian brain aka instinctual brain, published in the  scientific journal Nature. "It is very noticeable in consumer behaviors. For this exact reason if a company wants to understand its market and meet its expectations, it is necessary that they  understand how intuition works and integrate an intuitive process in their business approach," adds Francis Cholle. His message is well received. "My daily conversations with Francis Cholle greatly deepen my thinking at a particularly critical time for our company" says Ralph Lauren Fragrances and Beauty President Guillaume de Lesquen, based in New York to orchestrate the brand development on the world stage. 

Long before the economic recession Francis Cholle started to advocate the role of intuitive aptitudes and their impact on value creation. Biotherm for Men global marketing director, Charles Haddad is quite satisfied that he could attend one of Francis Cholle's seminar and acquire tools that explain in a simple language many key aspects of brand development and marketing that he could confusedly feel but could not clearly understand even less so replicate. Today Charles Haddad  encourages in his team " free and spontaneous communication. We then select what we feel is relevant". "It is not about leaving behind our marketing objectives but rather about dissolving automatic censorship mechanism often inherent to corporate structures."

Armand de Villoutreys, CEO of Firmenich in Paris and president of Firmenich Fine Fragrance World Division, asserts that he has "learned to approach differently his leadership role in a creative corporation." And it showed very tangible results! "We started four years ago to integrate into our management practices the principles of Intuitive Intelligence," says the French executive. "We have been happy to see an accelerated growth of our financial results across continents well above market average." 

© Les Echos n° 20486 dated 08-13-2009 p. 06 (Authorized translation by Peter Camo)

Intuitive intelligence can be a matter of life and death.

In Iraq, we learn that the use of intuition by US soldiers has led to numerous close escapes. This article in the New York Times gives us a glimpse of how soldiers may use their intuitive senses to avoid danger:

"On one route sweep mission, there was a noticeable I.E.D. in the middle of the road, but it was a decoy," said Lt. Donovan Campbell, who in 2004 led a Marine platoon for seven months of heavy fighting in Ramadi and wrote a vivid book, "Joker One," about the experience. "The real bomb was encased in concrete, a hundred meters away, in the midst of rubble. One of my Marines spotted it. He said, 'That block looks too symmetrical, too perfect.' "

These life-and-death decisions must be made instantly, with little, if any, time for rational analysis.  And what's more impressive, the Army has discovered that this ability to think intuitively can be improved through training.

Time after time, the Army learns from its feet on the ground, that "the speed with which the brain reads and interprets sensations like the feelings in one's own body and emotions in the body language of others is central to avoiding imminent threats."

Of course, intuitive intelligence is not a new idea for the Army. In COUP D'OEIL: STRATEGIC INTUITION IN ARMY PLANNING, a 2005 document produced by Strategic Studies Institute at US Army War College, we see a serious attempt to blend both analytic and intuition.