Introduction
Our second paper focused on the following hypothesis: Google’s primary source of competitive advantage is in its core organizational competence of innovating better than its competitors. In this paper we describe five relational contracts that Google has with its employees that have allowed it to develop and grow this competence over the past several years. Fundamentally, all of these contracts share a common promise: Google asks its employees to work harder and smarter, constantly improving the product and the company, and in return promises unprecedented benefits, opportunity, and resources, as well as brilliant fellow coworkers. Below we go into each of these specific contracts in detail.
The analysis in this paper is based on three interviews we conducted with current and past Google employees in March 2008. Please see Figure 2 in the Appendix for more information on the interviews.
Relational Contracts
“Into being challenged? Into having fun? Want to change the world? If the answer is yes, then you’ve come to the right place.” – Google Jobs Website
Overall, Google offers its employees the following proposition: If you come to Google and work hard and make us better, we will take care of you and give you the support to pursue your imagination, and together we will change the world. As you can see from the charts in Exhibit 1 in the Appendix, this fundamental contract requires a few promises on both sides. The relational contract from the Google employees’ perspective requires that they take real ownership for their work. They agree to buy in to the mission of the organization and to bring all of their passion and creative energy to bear to accomplish those goals. In exchange for their commitment, Google provides a great environment to work in. Their rewards include talented coworkers to work with, great facilities, benefits without compare and the support of the organization. For the employee, the primary defection motivation is simply to free-ride. One could come in to work, eat free lunches and enjoy the other benefits without contributing to the fullest. The punishment, however, is no longer havingthe opportunity to work in such a unique environment. In addition, Google goes to great lengths to recruit the types of people that value these opportunities so this punishment is a significant deterrent.
Over time, this basic agreement has developed in several more specific contracts, five of which we describe in detail below. However, we should note that there is one important contract that we have chosen to ignore, one based on financial rewards: If you work hard, you will make a ton of money. While this reward likely benefited Google in its initial years, we do not believe that has contributed to its long term success, especially not to the firm’s accomplishments post-IPO.
Contract #1: Reciprocity
Reciprocity was one of the reasons stated in our interviews for why Google’s employees feel compelled to work so hard. As Cialdini put it, “People tend to return a favor.” In the words of our interviewee, “You feel like you are being done right by the company, and you want to do right by them.” In this most basic of contracts, employees feel more compelled to go the extra mile because of all the lengths the company seems to go for them. Google provides free meals, game rooms, in-office masseuse, company trips and other seemingly excessive perks. All of these things contribute to making the employees feel like the stars of the show. They feel valuable and appreciated and in return for this, they are more motivated to go beyond simply collecting a paycheck and chasing a promotion. They commit to performingat the highest sustainable level they can. The contract is that the employees work and produce like stars and in exchange, Google agrees to treat them and recognize them as such.
Google provides this wonderful environment and resources for their employees, and in exchange, those employees invest themselves in their work. The defection motivation for Google is to save money. All of those benefits cost money. In one of our interviews someone mentioned seeing pictures in Mountain View of the company ski trip from years ago. The earlier pictures showed a bunch of people all clearly having a good time. Later images showed the group had grown to an entire ice rink full of people. Today, the company ski trip still happens and the number of employees have sky rocketed. It would be much less costly if Google cut back on these types of expenditures. However, these are the very things that Google’s culture is built upon. As Google grows, concerns increase that they are no longer the nimble startup with the fun culture and this further increases the importance of maintaining those cultural artifacts. The punishment scenario if Google did opt for the less costly strategy would be damage to their culture and subsequently more trouble attracting and retaining talent.
Contract #2: Change the World
Another motivator for Google employees is an idealistic vision of and belief in the company’s stated goals. “Organize the world’s data.” That is a grand goal, but Googlers see their opportunities to be even larger. Whether they areengaging in engineering a more democratic wireless spectrum auction, investing in clean technologies or just using the company stipend to purchase a hybrid, Googlers see their jobs as an opportunity to reach far beyond their offices and affect change in the world. The contract is that employees can change the world in a very visible way and Google will support their efforts and provide them a platform to launch these efforts. In exchange for this opportunity, employees dedicate themselves to both philanthropic efforts and those more closely aligned with Google’s core business. Google gets motivated and energized employees as well as all the inherentand external benefits of being a good corporate citizen. The defection motivation for employees is to only do the philanthropic and completely neglect the more profitable segments of business and the punishment is to no longer be able to work at Google, or in the long term, to contribute to driving Google’s costs up while bringing in no profit and putting Google out of business. However, punishment again is losing the opportunity to work at Google and lose the opportunity to do those philanthropic efforts in the first place.
Contract #3: Have a Big Impact
Just as grand, but slightly less philanthropic, Google employees cherish the opportunity to have impact. There is a great feeling of satisfaction knowing that you are working on tools that millions of people use. The percentage of people in the United States on the Internet who do not actively interact with some part of the Google landscape must be small and the percentage that hasn’t heard of Google is even less, if not zero. Knowing that you, through your work, have that kind of reach is very satisfying, according to another interviewee. The contract is that employees have the opportunity to work on applications that millions of people will use and in exchange for that, those employees will dedicate themselves to building useful and scalable applications. The defection motivation is to slack on the building of quality apps and the punishment is to no longer have the opportunity to create products on such a grand stage.
Contract #4: Be Entrepreneurial
One of the advantages of working at Google is that the firm is a place where one can be entrepreneurial yet have the resources and safety of a large company. The contract here is that Google asks its employees to be entrepreneurial and think of new initiatives, and in return promises support and resources, all just on the strength of a good pitch: “You feel like you can get things done because you have a sound case and sound reasoning”. This allows employees to feel empowered with the ability to change the direction of the company. In one example, one Googler wanted to move back to his home country, and made a case for starting a new Google office there, on the strength of the local technical talent. The company agreed to start the satellite office. Google also offers a technical playground for its employees and asks them to play in it. The firm has collected massive amounts of data in some of the largest data centers in the world; if you can make a strong case for analyzing that data, Google will make it available to you.
The much heralded 20% Rule is a critical way that Google achieves this relational contract. With this policy, Google asks each of its employees to spend 20% of their time working on their own initiatives. However, there is no explicit contract around the 20% time; nor is there a concrete way for anyone to know if you are slacking off in your 20% time. Instead, Google makes a point: we are giving you time to act creatively and grow the company, but we will not track your work. Instead, we simply trust that you are spending your time wisely. While it is still unclear to us how much value the 20% Rule generates for the company, it is clear that with this program, Google sends themessage that the firm wants the employee to be innovative.
Under this relational contract, both Google and the employee have the temptation to defect. For Google, defection means not making the effort to support employee initiatives, and instead eliminating pet projects to cut costs. Defection for the firm also means tracking the 20% Rule more closely to “ensure” a certain level of innovation. However, the punishment on both fronts is that the employee is then less likely to start new initiatives, in effect short-circuiting the innovation process that Google needs to stay successful. For the employee, defection again means slacking off and not fully utilizing your 20% time. However, punishment here is that, by free-riding, an employee misses out on key opportunities and wastes the chance to act as the local entrepreneur, perhaps even gets fired. By cooperating, the employee gets the ability to pursue his or her new initiatives, and Google gets a more innovative workforce.
Contract #5: Make us better
Employee empowerment also allows Google to create a culture of continuous improvement, in which Google creates an environment that involves employees in solving firm problems, captured by one of interviewee as, “If you think this is a problem, then go fix it, and if you make a good enough case, we will give you the resources to fix it.” The contract here is employees will strive to solve internal firm problems, making the firm better, and Google will provide the resources and support. Again, the 20% Rule plays a strong role here, providing employees the vehicle with which to work on fixing their and their coworkers’ internal problems. Defection and punishment here are similar to that in Rule #4, while cooperation for the employee is more focused on “problem-solving” than on “new initiatives”.
Conclusion
We believe that much of Google’s success to date can be traced to its ability to motivate its employees to work harder, be more innovative, and solve more problems than their counterparts at the firm’s competitors. Still, it is worth noting that the company is rapidly growing, having increased in size from 5,000 employees two years ago to roughly 15,000 today. According to one of our interviewees, the relational contracts at the firm appear to have changed from pre-IPO (1998-2004) to what it is now (2005-2007). Today, at 15,000, Google is far different than the Post-IPO firm of 5,000 it was in 2004; one can expect its relational contracts to continue to change.
What will be interesting to watch, and indeed, what many employees are actively watching, is how Google maintains the key contracts despite this growth, and what new contracts the firm develops given its rapidly increasing size. In addition, Google has been insanely profitable for the past several years; it will be interesting to see how the company reacts when it encounters itsfirst major down cycle and faces the temptation to defect on some of its contracts, as another of our interviewees has pointed out.
However, regardless of what happens in the years to come, so far Google appears to have been very successful in motivating its employees and keeping them happy. An interesting further analysis would be to interview employees who have worked at Google and its competitors, and determine whether Google employees are in fact more productive than at other firms like Yahoo!. Such an analysis would definitely help in understanding the role these contracts have played in the firm’s undeniable success.
Appendix
Figure 1: Overall Relational Contracts between Google and its Employees
Figure 2: Interview Detail
We conducted three interviews with current and former Google employees in the week of March 10th, 2008. The general profiles of these three are:
1. Former Google summer Sales intern, now current MIT Sloan MBA
2. Former Google Product Manager who spent one year at the firm, now current MIT Sloan MBA
3. Current Google Engineer who has been with the firm for two years, starting when the company was 5,000 employees (current size is around 15,000)
It should be noted that this paper focuses on the relational contracts Google has with its employees. While we also looked at Google’s relationship with its partners (i.e., advertisers), we believe that this relationship is less of a contract than of a business decision guided by metrics, not to mention less critical to Google’s long-term success.
http://www.google.com/intl/en/jobs/index.html, copied on March 13th, 2008
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