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How Google Became the #3 Most Valuable Firm by Using People Analytics to Reinvent HR
Posted By Dr. John Sullivan On February 25, 2013 @ 5:08 am In Advice and How-Tos | 37 Comments
Google has the only HR function on the planet that is managed based on “people analytics”
If you haven’t seen it in the news, after its stock price broke the $800 barrier, Google moved into the No. 3 position among the most valuable firms in the world. Google is clearly the youngest firm among the leaders; it has surprisingly been less than a decade since Google’s IPO.
Most on the top 20 market cap list could be accurately described as “old school,” because most can attribute their success to being nearly half a century old, having a long established product brand, or through great acquisitions. Google’s market success can instead be attributed to what can only be labeled as extraordinary people management practices that result from its use of “people analytics.”
The extraordinary marketplace success of Google (and Apple , which is No. 1 on the list) is beginning to force many business leaders to take notice and to come to the realization that there is now a new path to corporate greatness.
“New path” firms dominate by producing continuous innovation. And executives are beginning to learn that continuous innovation cannot occur until a firm makes a strategic shift toward a focus on great people management.
A strategic focus on people management is necessary because innovations come from people, and you simply can’t maximize innovations unless you are capable of recruiting and retaining innovators . And even then, you must provide them with great managers and an environment that supports innovation. Unfortunately, making that transition to an innovative firm is problematic because almost every current HR function operates under 20th century principles of past practices, efficiency, risk avoidance, legal compliance, and hunch-based people management decisions. If you want serial innovation, you will need to reinvent traditional HR and the processes that drive innovation.
The basic premise of the “people analytics” approach is that accurate people management decisions are the most important and impactful decisions that a firm can make. You simply can’t produce superior business results unless your managers are making accurate people management decisions. Many do argue that product, R&D, marketing, or resource allocation decisions are instead the most impactful decisions. However, each one of those business decisions is made by an employee. If you hire and retain mostly mediocre people and you provide them with little data, you can only assume that they will make mediocre decisions in each of these important business areas, as well as in people management decisions. No one in finance, supply chain, marketing, etc. would ever propose a solution in their area without a plethora of charts, graphs, and data to support it, but HR is known to all too frequently rely instead on trust and relationships. People costs often approach 60% of corporate variable costs, so it makes sense to manage such a large cost item analytically.
Another major problem in HR is its traditional reliance on relationships. Relationships are the antithesis of analytical decision-making. The decision-making “currency” for most business decisions has long been data, but up until now, HR has relied on a different currency: that of building relationships.
In direct contrast, Google’s success has to be attributed in large part to the fact that it is the world’s only data-driven HR function. Google’s business success should convince executives at any firm that wants to grow dramatically that they must at least consider adopting the data and analytically based model used by Google. Its approach has resulted in Google producing amazing workforce productivity results that few can match (on average, each employee generates nearly $1 million in revenue and $200,000 in profit each year).
HR at Google is dramatically different from the hundreds of other HR functions that I have researched and worked with. To start with, at Google it’s not called human resources; instead, the function is called “people operations.” The VP and leader Laszlo Bock has justifiably learned to demand data-based decisions everywhere. People management decisions at Google are guided by the powerful “people analytics team.” Two key quotes from the team highlight their goals:
“All people decisions at Google are based on data and analytics”
The goal is to … “bring the same level of rigor to people-decisions that we do to engineering decisions”
Google is replacing the 20th century subjective decision-making approach in HR. Although it calls its approach “people analytics,” it can alternatively be called “data-based decision-making,” “algorithm based decision-making,” or “fact or evidence-based decision-making.”
The people analytics team reports directly to the VP and it has a representative in each major HR function. It produces many products, including employee surveys that are not anonymous, and dashboards. It also attempts to identify insightful correlations and to provide recommended actions. The goal is to substitute data and metrics for the use of opinions.
Almost everyone has by now heard about Google’s free food, 20% time, and wide range of fun activities but realize that each of these was implemented and are maintained based on data. Many of Google’s people analytics approaches are so unusual and powerful, I can only describe them as “breathtaking.” Below I have listed my “top 10” of Google’s past and current people management practices to highlight its data-driven approach:
If you don’t work in a high-tech company, it’s easy to make the mistaken assumption that Google is a firm that you do not have to match. But the truth is that most of what Google does has very little to do with high technology. Google is essentially an advertising firm that relies on finding and classifying information to attract targets for its ads. It also focuses on the mobile phone because it allows more of its ads to be seen by its users.
Even if you don’t hire software engineers (less than 40% of Google jobs are in that job family), candidates for every key support position that your firm has (in finance, accounting, customer service, IT, statistics, sustainability, HR, social media experts, and most managers) can work at any firm in any industry. A quick look at Google’s job openings will show you that it hires in almost every field including distinctly non-engineering professions like including nursing, automotive, sustainability, entertainment, telephony, and advertising. Top performers and innovators now fluidly move between industries, so if you think that the best candidates who are considering your firm wouldn’t jump at a chance to work at Google, you simply haven’t looked at the data. It’s time for executives in every major firm to realize that like it or not, you compete with Google every day for top talent. Google is a “talent magnet” and if you don’t match its recruiting capability, you will lose out on critical innovators and top performers in every job family.
Once an executive realizes that Google is a direct talent competitor for top talent and innovators, they often become almost instantly frustrated with their own firm’s conservative employer branding and recruiting approaches. Google has been the No. 1 employer brand for all jobs (including college  grads) for many years. If you want average workers, you certainly don’t have to worry about Google’s recruiting power, but if you want the best, it’s time to act like it is your talent competitor in almost every job category and location.
Almost without exception when I present the best practices of Google to executives or HR leaders, they have an almost universally consistent response. The response is either “We could never do that” or “That would never fit our culture.”
My first answer to those kinds of comments is that the best way to become a great firm is to … “act like a great firm.” By refusing to adopt bold people management practices, you are guaranteeing that you will drive away the innovators. If you don’t believe me, simply interview a number of innovators and you will find that they insist and even demand to operate in an environment where the firm takes bold actions, takes major risks, and provides innovators with the freedom and resources to innovate. Innovators and top performers can and will gravitate toward companies and opportunities that they see as a “wow.” If your culture won’t allow bold and aggressive recruiting, retention, and people management practices, change your culture and remove that roadblock to excellence. If the speed of change within your firm is slower than the speed of change outside your firm, your firm’s downward spiral is not far off. Also be aware that no top performer wants to work for a stagnant or a declining firm.
Setting goals is critical to the success in any firm. However, some firms are now finding that well-intentioned 6 Sigma and continuous improvement goals may unintentionally be reducing innovation and keeping your firm from being wildly successful. Google’s CEO actually warns against continuous improvement, and as a result, he has set the extraordinary target for his employees to create “products and services that are 10 times better than the competition.” He further states that a … “1,000% improvement requires rethinking problems entirely, exploring the edges of what’s technically possible, and having a lot more fun in the process.” Google’s success has helped to prove that if you set your improvement goals too low … you unfortunately might actually hit them.
As unique and impressive as its people analytics approach is, the real power of analytics is demonstrated through the business results that it helps to produce. Google, in addition to being among the top three in market value, has also produced these impressive business successes.
Google is a “talent magnet” firm and that is its primary driver of success, just like it is for the New York Yankees in baseball and Barcelona in soccer.
It is wildly successful because it attracts and retains extraordinary talent, and it can expand and grow because it can attract that talent in any new field or job family. As a result, the primary reason to copy and learn from Google is that if you could successfully attract and retain the same caliber of top talent and innovators that it does, your firm would also dominate not just your current industry but any industry or product line that you chose to go into. You should also consider the distinct possibility that your firm’s low-capability people management practices are actually restricting your firm from producing higher-margin products and services.
Unfortunately most executives (even those inside HR) are not aware of Google’s analytical approach. Once they understand the approach, however, executives quickly see the difference and they prefer the analytical model because it matches the way that decisions are made in every other major business function. Because Google has proven the business impact of “reinventing HR,” the time has come for the last bastion of non-analytical decision-making (i.e. HR) to shift to a data-based model. You simply can’t improve what you don’t measure, and so much of HR is poorly measured or not measured at all. A remaining major problem is that many in HR are severely deficient in the areas of mathematics, predictive analytics, and statistics, so they may not be capable of making the shift. Other HR traditionalists (which there are many) may resist simply because they don’t feel comfortable with having “what they do” reinvented.
Look at the extraordinary success that both Google and Apple produced after they made the shift to become “innovation companies” and talent magnets. Both have moved from literally nowhere in the competitive landscape to market cap and product domination within the last decade. You could assume that their success was based on their buildings and equipment and try to duplicate them. However it wouldn’t take long for you to figure out that rather than buildings or equipment, it is their ability to attract and manage innovators. The game has changed, and it is no longer the largest or oldest firms that win. Instead, it is the firms with the most innovators that win. And in the future, that need for innovators will only increase.
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