Google CFO Patrick Pichette: Growth planning, capital structure and leadership

When it comes to playing the classic role of the no-nonsense chief financial officer, Patrick Pichette has his own personal interpretation. Google's CFO may oversee $36 billion in cash reserves at one of the world's most recognized companies, but he still flies coach class, rides a beat-up bicycle to work, and responds directly to e-mails from fellow "Googlers" every day.

Patrick Pichette describes the attitudes and behaviour that Google hopes will keep it growing like a start-up.

When it comes to playing the classic role of the no-nonsense chief financial officer, Patrick Pichette has his own personal interpretation. Google's CFO may oversee $36 billion in cash reserves at one of the world's most recognized companies, but he still flies coach class, rides a beat-up bicycle to work, and responds directly to e-mails from fellow "Googlers" every day. "It takes a little more time," he says. "But it crushes the idea of bureaucracy-and that's the way it should be."

An alumnus of Bell Canada and McKinsey and a Rhodes Scholar with a master's degree in philosophy, politics, and economics from Oxford University, Pichette is no less direct about the business side of things. He calls acquisitions an "accelerator" for growth and scoffs at the idea of business units because they force people into "ownership" positions that hinder creative flexibility. Pichette is also a passionate advocate of sustaining Google's start-up culture-even as the company now generates $30 billion a year in revenue.

Clad in a rugby shirt and jeans in his office at Google's Mountain View, California, headquarters, he recently sat down with McKinsey's James Manyika to lay out some of his thinking on growth, strategy, and the financial side of Google's business.


The Quarterly: How do you think about growth?

Patrick Pichette: As [Google executive chairman Eric Schmidt] once said, "If we're not building a product that at least a billion people will use, we're wasting our time. How can you be a company that wants to change the world if you don't have at least a billion people using your stuff?" The corollary of that is if you have a product that a billion people want, he'll also say, "Give me a billion users, I'll show you how to monetise." And, by the way, computer science is the key linchpin to actually delivering that. Once you understand those three things, Google's initiatives completely make sense: Android, Chrome, Chrome OS, Google Wallet, and of course search.1

The challenge is in the planning. How do I feed the winners and hold back on the ones who aren't performing the way they should? They shift a lot.

The Quarterly: How do you do that?

Patrick Pichette: We have a quarterly review process that examines every core product area and every core engineering area against three beacons. First, what did it do in the last 90 days and what will it do in the next 90 days. Because in those 180 days, there's a lot to deliver-for example, in the amount of code that has to ship out and the number of users and whether it's going viral or not. We track these things continuously, but it's worth taking a look at-in some cases weekly, in some cases monthly, but at least every 90 days, given where we are.

The second beacon is what's your trajectory? Do the financial models and operating metrics for a couple of years out suggest a trajectory that is gaining or losing momentum? In some cases, are you going to need more capital expenditures because you'll need more data? If you have a fantastic success, then you need more capacity-Google Instant, for example, sometimes generates answers to user queries before they've finished typing. That requires a lot of computing power.

Then the third beacon is what's your strategic positioning in the context of a fast-changing landscape? If a competitor buys another company, what does that mean? Or if we ourselves decide to move on something this quarter, what does that mean for everything else that we have?

These beacons are very tactical and short term, with financial and operational metrics always running, and always viewed in the context of a shifting strategic landscape. For example, if we thought product growth would be X but now it's three-quarters of X, we retune our resources accordingly. So if we had planned to hire a sales force of 200 in the expectation that a product would be ready to ship, we might delay hiring them for an additional 90 days to give engineering time to run through all the testing. And we have those kinds of conversations in most areas of the company every quarter. It takes about a week, a week and a half-and if we need to, we shift resources.

The Quarterly: In many companies, those allocation decisions are pretty sticky, and reallocating that quickly is hard to do. What makes it happen here?

Patrick Pichette: We don't have business units. Once a company has business units, managers tend to take ownership of these units' resources. Managers have a plan, and the natural instinct is to say, "Those resources are mine and I have to fight to keep them."

At Google, we're more relaxed. We trust each other. When we sit down to do these allocation reviews, we're all one team with our Google hats on, and the question is what's winning. In that context, it's so much easier. People will say, "The guys next door are really on fire. They should get the next 15 engineers."

That kind of mind-set gives people the confidence that when they're on fire and things are going great for them, they'll get the capital and engineers they need, too. In a fast-moving environment, that's the way it should be.


Visit the McKinsey Quarterly website to read the full article >>


About the author

James Manyika is a director of the McKinsey Global Institute and a partner in McKinsey's San Francisco office


This article was originally published in The McKinsey Quarterly. Copyright © 2011 McKinsey & Company. All rights reserved. Reprinted by permission.

By James Manyika © The McKinsey Quarterly, August 2011

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