Eric E. Schmidt: Legendary Business Leader

Abstract

Google Chairman and CEO Eric E. Schmidt embodies the ideal business leader in the digital age. The Computer Sciences PhD signed on with Google in 2001. Since then the company has experienced unprecedented value growth. Schmidt’s commitment to innovation is discussed herein, including Google’s 80/20 innovation model and 70/20/10 rule regarding management time allocation. Separating Schmidt from Google is difficult but Schmidt’s leadership is concluded to be worthy of the being called “legendary.” Criticisms of Google are explored, focusing on the possibility of future losses of human capital and technologies. Also, an overview of Schmidt’s career before Google as well as a brief list of accomplishments is provided.

Google: The Internet Juggernaut

Almost everyone who has ever been on the Internet is aware of Google. The digital goods and services company is the leading generator of on-line advertising revenue and has a 60% share of all Internet searches, done through their website (Doran, 2009). Founded in 1998 by two academics, Google has experienced consistent growth over the last decade. In 2001 Google founders Larry Page and Sergy Brin brought on board Eric E. Schmidt to helm the company as Board Chairman and then later as CEO (Google Management, 2009). In 2004 the company went public with an IPO of $85 per share. As of time of writing, Google shares were valued at over $400 per share (Google Finance, 2009).

Google Inc’s mission, as stated on their website (Company Overview, 2009) is “to organize the world’s information and make it universally accessible and useful.” Besides their comprehensive search engine, Google also has an on-line email application known as “GMail” and they recently released a mobile device operating system (OS) known as “Android” that has already been shown to work in small netbooks (Nystedt, 2009). Google provides all its services free of charge and uses targeted advertising to create revenue.

Eric E. Schmidt, CEO and Chairman of the Board, was recruited by Page and Brin from his position as CEO of global software giant Novell. Over the years Schmidt worked a number of jobs in IT. Before he was CEO of Novell Schmidt worked as Chief Technology Officer at that company. Schmidt has an extensive academic background. He earned Masters and Doctorate degrees in Electrical Engineering and Computer Science from University of California, Berkeley (Google Management, 2009). Based on estimates from financial statements released from Google, Schmidt’s net worth is somewhere north of two billion dollars, none of it inherited (La Monica, 2005).

Among the other accomplishments of Eric Schmidt include his election to the National Academy of Engineering in 2006, his induction into the American Academy of Arts and Sciences in 2007 and his chairmanship of the New America Foundation (Google Management, 2009). Schmidt has taught at Stanford University (2009) and serves on the board of trustees for Princeton University (2009) and at Carnegie Mellon (2009). He also serves on the Board of Directors for Apple Inc (Weintraub, 2007).

There might be some debate as to whether Schmidt can be described as a legendary leader at this point in his career. The title of “Legend” is normally given to talented persons beyond their prime or retired completely. Schmidt’s accomplishments so far show he is someone worthy of recognition and doubtless he will be considered a legend.  His innovative approach combined with his understanding of the fundamentals of business make Schmidt ideally suited for the new digital economy.  Globally aware, few CEOs are more prepared for the future than he.

Schmidt’s Leadership: Visions of the Future

An extensive interview with The McKinsey Quartlery (Manyika, 2008) gives us an idea of the depth and complexity behind Eric Schmidt’s leadership. The man is the quintessential intellectual with remarkable forward thinking abilities. From the interview, one of many available on the Internet, we see how Schmidt combines sound business practices, visionary leadership and a bit of prophetic futurism. Also apparent is Schmidt’s flexibility. He will drop an unprofitable venture remorselessly.

Schmidt believes, to better understand how business will change in the future requires looking at how technology will change the consumer.  Schmidt imagines personal devices similar to cell phones that will act as true personal assistants.  These devices, through GPS, will know where you are, what your appointments are, when you need to go grocery shopping and whether your friends are about to show up.  These devices will have near-infinite computing power and will become a dominant force in the lives of consumers (Manyika 2008, ¶5,6). Personal computers and the Internet changed the economy over the last several decades and now these new devices will change them further.

Beyond these personal devices there will be other changes. Schmidt says “everything will happen much faster. Every product cycle, every information cycle, every bubble, will happen faster, because of network effects, where everybody is connected and talking to each other…there’s a new generation who are growing up with this as the normal pace of their lives. They will develop the social norms. As leaders they’ll figure out how they want to organize their world.”  Schmidt is basically saying we will not see what these technologies will make possible until those who have grown up around digital networking take over the reigns of the economy. It is another example of the way Schmidt tries to see the business world moving.  At Google he is at the forefront of technological progress, yet even he finds this new reality bewildering at times (2008, ¶8-10).

Outside of the new pace of life, other cultural factors at work will change business. The Internet, while it allows for greater access for all, will lead to a higher concentration of public attention on fewer and fewer brands, businesses, celebrities and others. This fact is counterintuitive but Schmidt is convinced of its truth.  Instead of regional or national “superstars” there will be global superstars.  This he considers is the paradox of the information age.  The barriers to entry are so low anyone can become an Internet celebrity or digital inventor but the nature of this access will entice people to follow fewer things collectively (¶12-15). To deal with this fact, Schmidt believes businesses need a strong “head,” a single champion product or service that provides something either better, cheaper or faster than the competition.

 Because of the Internet, Schmidt feels corporations have to let go of some control.  Information will find its way out to the public. There will not be many secrets in the digital age, and they will be short lived.  It will also be harder to hide negative feedback from customers from becoming very public very fast. Corporations have to yield to their customers and listen to their needs and thoughts.  The Internet forces corporations to be more transparent.  The Internet also levels the playing field for competitors in terms of “distribution, branding, money and access.” Businesses who fail to realize these new laws are bound to fail (¶ 22-24).

Along with Schmidt’s visionary ideas one also finds a sober and able businessman.  Schmidt notes that digital goods have no marginal distribution or manufacturing costs.  Since prices tend to decline in mature businesses until they are equal to the marginal costs of creating the goods, digital goods will have to be available for free.  Schmidt suggests other ways of making digital goods profitable and is always looking for new ways to make profits but those methods will never include forcing customers to pay for digital goods (¶17-18).

Schmidt believes in the wisdom of crowds and runs Google by consensus.  In order to make this work, Schmidt recommends using strict deadlines to create a crisis (in the absence of real crises) and to encourage dissent and disagreement.  Schmidt seeks out people who are silent during meetings hoping to encourage those who disagree to speak out. Only by doing this can all the important information be released and the right decision made (¶ 27-28).

Three Keys to Google’s Success: Innovation, Innovation, Innovation

Google obsesses about Innovation.  It is the key to their plans for continued growth. Schmidt believes innovation only comes from the luxury of being able to think of a new idea and pursue it. Thinking of new ideas requires freedom from thinking about other obligations. With this is mind Google has their engineers spend about 20% of their time, or a day a week, pursuing new ideas in small and undirected technology teams. Schmidt believes thinking outside the box requires the absence of managerial oversight.  Schmidt also uses acquisitions of small companies to supplement their in-house innovation. In his words, “small companies often have the great new ideas” (¶ 33-34).

Schmidt is skeptical of the 9 to 5 model of business.  Because business has gone global, a business leader must be willing to act 24 hours a day.  There is no way a CEO can afford time off. Balancing personal lives and business is impossible.  Executives must love the constant intensity or else they will never rise to the top.  Considering Schmidt has a wife and family, this was an eye opening revelation of the sacrifices a CEO must make to his company (¶ 30-31).

Since innovation is the key to Google’s success, everything Schmidt does revolves around creating more innovation. Without it, Schmidt believes there is nothing to prevent another company from overtaking Google as the king of digital information.  Innovation is systematically encouraged at Google at all levels throughout the organization, including management (¶ 36). At Google, management follows the “70/20/10” rule where seventy percent of their time is spent on core business projects, twenty percent is spent on projects related to the core business and ten percent is spent on projects unrelated to the core business (Battelle, 2005). Schmidt, in order to remain true to the 70/20/10 rule, actually divides these projects into different rooms and tracks his time spent in each of the rooms.

Another key to success are Google’s employees. Google actively recruits recent Ph.D.’s and Ph.D. candidates. All 1,900 Google employees are researchers and developers in addition to their regular duties. Where other companies will keep their research departments and core businesses separate, Google places all their Ph.D.’s in the rank and file of the company. Workers at Google enjoy a company devoted to benefits (Stross, 2004). They also enjoy an informal company culture where employees have access to gyms, massages, pool and ping-pong tables, well stocked snack rooms and other recreational amenities (Google Culture, 2009).

Google’s aggression in hiring highly educated, creative and intelligent people goes against nearly a century’s worth of business convention. During the roaring twenties a businessman wrote an infamous article in The American Magazine (Anonymous, 1924) about the case against hiring “brilliant” people. His argument: creative individuals lack initiative to make their ideas work, they don’t finish the projects they start and they think too big. Google does the exact opposite, encouraging their workers to think big and pursue those ideas on company time. It is possible aversion to hiring highly intelligent people is not traditional. A humorous anecdote from Mark Twain, where a sea captain relates his experiences with a well educated but nascent sailor, suggests this attitude might not have been widely held before the Anonymous businessman wrote his piece (Twain 1877, ¶ 27 ).

These strategies have worked so far. Over half of Google’s new product releases comes from the undirected research teams (Mayer, 2006). This fact makes it clear that learning how to keep talented employees in the organization should be a primary focus for Google. In order to accomplish this, Google decided to solve their human resources issues in their own inventive way by creating an algorithm that predicts what employees are likely to leave and when. The algorithm is based on several surveys among Google’s employees (Morrison, 2009). Much of the specifics of the algorithm remain a secret, but already it has helped Google identify employees in danger of quitting.

From all these strategies it is not surprising that Google purposefully avoids traditional models of corporate culture. To Schmidt, the classic divisional structure, where an autonomous unit led by a single leader focuses on one project or mission, prevents collaboration.  A shared “Value Culture” built on informal ties between stakeholders allows the company to self organize and solve problems.  Avoiding divisional structure also keeps in check the natural growth of bureaucracy (Manyika, 2008, ¶ 42). So far this has worked, but one wonders if Google goes too far in their focus on innovation.

If nothing else, bureaucracies provide stability. Traditional corporate culture models preserve successful ideas and reduce downside risk. One critic suggests Google’s 80/20 and 70/20/10 rules may very will be the downfall of Google. Encouraging so many innovative ideas will inevitable lead to some good ideas going undeveloped (Cringely, 2007). Eventually, people at Google who believe in an idea that is not being developed will decide to strike out on their own. Considering the large number of intelligent, educated, creative and motivated individuals working at Google, the risk of losing human capital is high if these criticisms are valid.

Another question one could raise about Schmidt’s leadership involves the fact Google throws away a day a week on undirected projects. While this habit fuels the innovation Schmidt relies on for growth, it is still a day a week where resources are not being used on core business processes. This allocation of resources works fine during good times as long as some innovation is actually produced. If this rule fails to produce any innovative ideas during scarcer times it will likely mean the end to Google’s solvency.

Google: The Global Competitor

  From the global perspective, Schmidt realizes the economy has gone international and only companies who are prepared for fierce competition will survive. To cope with these facts Schmidt has made decisions to make Google better at international business. Google employs a small army of lawyers. The complexity of international law requires nuanced knowledge of local laws to avoid costly run-ins with the law. Having a large number of lawyers with different expertises allows Google to avoid getting into problems.  Running afoul any government can create substantial losses.  Despite the expense having lawyers on staff must place on Google, Schmidt clearly sees it as necessary. (Manyika,¶ 45-47).

Google also is looking beyond simple acquisitions to global partnerships to buoy the company’s success. A few years ago Schmidt joined the Apple Board of Directors. The partnership between Apple and Google created a lot of speculation and a flurry of theories but so far nothing big has yet fermented.  There were concerns about anti-trust violations when Eric Schmidt was seated on Apple’s Board but nothing has come of this either.  Speculation has focused on the integration of Google’s applications like Google Docs with the Apple OS (Weintraub, 2007).  Despite the lack of tangible achievement, the partnership between Apple and Google shows Schmidt’s abilities to forge strategic business partnerships across the globe.  Other examples include the partnership between NASA and Google to incorporate surface photos of Mars and the Moon into Google Earth (McCarthy, 2006) and the partnership with university libraries, like at University of Michigan (2009), to create a card catalog of every book known to exist available through Google Books.

Conclusions

It is hard to separate Schmidt from Google; Larry Page and Sergy Brin still play large leadership roles in Google. But some things are apparent about Eric Schmidt. He is a thinker. He has a lot of ideas and he is always on the lookout for more. Schmidt is also very forward thinking. Making money in the now is simply not enough for Schmidt. Google is a company focused on developing new information technologies. The end result has been so far, so good for Schmidt despite how his ideas verge on the fantastic; he has the imagination of a science fiction writer.

Schmidt balances his visionary leadership by being a competent and down to earth businessman. He proves a CEO can be fundamentally sound while still focusing on innovation. Schmidt is also a great planner. He always has a strategy for Google. His constant focus on the future and the changing nature of business prepares Google for anything. Schmidt is perhaps the greatest practitioner of “thinking outside the box” as Google has always been willing to go against traditional business doctrine when necessary.

In short, it is hard to find many faults with Eric Schmidt. Despite all his successes, the body of his work may still lie ahead of him. Rumors put Schmidt as one of the frontrunners for the new position of technology czar President Obama intends to create (Langley & Vascellaro, 2008). Because of his achievements in expanding Google from an Internet search engine to on-line services innovator he should be considered a legendary business leader.

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