Leading up to Google's first-quarter earnings report on Apr. 17, investors couldn't have been more bearish. They had knocked the stock down 35% since the start of the year, concerned that a weak economy would finally hurt the search giant's advertising business.
But Google defied skeptics–and the economic downturn–with a surprisingly strong showing that sent the stock soaring 20% the next day. More than anything, Google's continued prosperity is a testament to its ability to keep innovating, both in search and advertising operations and in new lines such as online office-productivity software.
In a recent interview, Chief Executive Eric Schmidt told BusinessWeek Bureau Chief Robert D. Hof how Google manages the tricky process of innovation.
Do companies have to manage innovation differently in a downturn?
Innovation has nothing to do with downturns. A hot product will sell just as well in a recession as it will in a nonrecession. Let's imagine that we invented a better advertising product for television. What would our revenue growth be for that? Well, you're into a $50 billion market, so it will be driven not by whether there's a television ad recession but by what degree we can get people to substitute [our product] for the other. The strong companies understand this, and during a recession, they invest.
Can other companies emulate Google's famous model of letting engineers spend about 20% of their time on projects outside their main job?
The story of innovation has not changed. It has always been a small team of people who have a new idea, typically not understood by people around them and their executives. [This is] a systematic way of making sure a middle manager does not eliminate that innovation. If you're the employee and I'm the manager, and I sit down and say, "Our product's late, and you screwed up, and you gotta work on this really hard," you can legally say to me, "I will give you everything I've got, 80% of [my time]."
It means the managers can't screw around with the employees beyond some limit. I believe that this innovation escape-valve model is applicable to essentially every business that has technology as a component.
Photo by Ana Nance.