Over the last ten years, Google has become a poster child for successful internet businesses. Much of its success derives from a business strategy which CEO Eric Schmidt has described as "ubiquity first, revenues later".
What is the secret behind Google's capacity to innovate successfully? Commentators frequently mention the freedom Google gives to its staff to work on projects of their own choosing, and the fun atmosphere created at the company's headquarters.
Working for Google
"People in Google have up to 20% of their time to 'play' with ideas and initiatives which might be of interest to the customers," explains Phil Anderson, a client director at Ashridge Business School.
"There is also a wonderful physical environment - the Googleplex - where people are provided with free food, coffee and 'play areas'."
Google staff say that typically half of all new products and features result from "personal project" time.
However, this is not the only way Google promotes innovation. Another key component is Google's technology platform. Tom Davenport, a professor of information technology and management at Babson College in Massachusetts, explains that this infrastructure "allows Google to rapidly develop and roll out services of its own or its partners' devising," with engineers able to "prototype applications and launch beta versions to see if the company's vast captive customer base responds enthusiastically."
The emphasis, he adds, is "not on identifying the perfect offering, but on creating multiple potentially useful offerings and letting the market decide. There is no need for Google to do market surveys to forecast trends: the information is in Google's database."
Richard Hunter, a group vice-president at Gartner and Gartner Fellow, points out that Google has also developed proprietary data management technologies that allow it to derive value and success from the mountains of data it acquires. "Most companies ask: 'What information do we need to run the business?' But Google asks, 'How can we get our hands on every piece of information in the world - never mind if we do not know what to do with it all right now?'"
Davenport adds that the infrastructure acts as an "innovation hub where third-parties can share access and create applications that incorporate elements of Google functionality. Google gets its product widely adopted, and its partners can devote their energy to developing product functionality important to their customers" while leaving aspects such as map display to Google. Allowing elements to be mixed and matched easily engenders what Davenport calls a "just try it" lean innovation environment.
He thinks that "while few organisations can match the magnitude of Google's infrastructure investments, many could create reusable software components, bake them into its infrastructure, and make them accessible to the enterprise - or to members of the extended enterprise who might be inspired to use them in building and delivering their own applications."
Learn from Google
He also thinks other companies could make use of some of the ways Google taps into the intellect and opinions of employees. For example, Google runs nearly 300 prediction markets - basically, betting exchanges - with panels of employees who make assessments of everything from demand for new products to likely future competitor performance.
Similarly, Google has taken the "suggestion box" a step further, by encouraging staff to submit ideas and allowing colleagues to comment on and rate them. Staff can also submit code for projects being run by other teams - such as a feature enhancement - without asking permission, and have the code incorporated into the testing process.
One of the reasons Google is able to put this much trust in its employees is that it recruits very carefully and continues to manage them in ways that encourage innovation. "Employees are scored on 25 performance metrics and Google continually modifies its hiring approach based on an ongoing analysis of which employees perform best and most embody the qualities of 'Googleness'," Davenport explains.
Google also allows for failure. "Rewarding ideas that do not progress is important to encourage people to keep innovating," Anderson argues. With an approach based on releasing many products and hoping some will become blockbusters, many fail, but Google CEO Eric Schmidt encourages persistence, describing his outlook as, "Please fail very quickly - so that you can try again."
Google's approach may be hard for others to copy because few companies have a revenue stream as profitable as Google's search-based advertising to support potentially unprofitable development. However, they could successfully apply many of the key planks in Google's strategy - the right infrastructure, an analytical approach to every aspect of their operations, and a focus on valuing staff - to boost their performance.