How Google Works

Eric Schmidt, former CEO of Google, and Jonathan Rosenberg, who served as the company's senior vice president of products, draw on more than a decade of experience at Google to argue that the Internet Century demands a fundamentally different approach to business management. The book, published in 2014, is structured as a practical guide organized around the stages of building a successful company: culture, strategy, talent, decisions, communications, and innovation.

Schmidt arrived at Google in 2001 after leading Novell as CEO and working at Sun Microsystems and Bell Labs. Rosenberg joined in 2002 to run the product team. Both expected to impose traditional management discipline on a chaotic start-up, but they quickly discovered that Google's founders, Larry Page and Sergey Brin, had built the company on unconventional principles: hiring the best engineers, giving them freedom, and focusing on the user rather than on elaborate business plans. When Rosenberg presented Page with a traditional product plan, Page called the approach "stupid" (7) and told Rosenberg to "Just go talk to the engineers" (7). A July 2003 demand from board member Mike Moritz of Sequoia Capital to develop a plan to fend off Microsoft forced a compromise. The resulting plan contained no financial projections, market research, or product roadmap; it simply argued that Google should focus on users and build excellent products. Microsoft reportedly spent nearly $11 billion trying to compete, but Google's product-driven strategy prevailed, growing the company into a $50-billion enterprise.

The authors identify three converging trends reshaping business: ubiquitous information, global mobile connectivity, and cloud computing, which refers to the ability to access computing power and storage remotely over the Internet. Together, these trends make product excellence the decisive factor in success. Consumers have unprecedented access to information and choice, meaning companies can no longer compensate for mediocre products with marketing. Traditional management structures, designed to minimize risk by funneling decisions upward through hierarchies, are too slow for this environment.

At the center of the argument is a new type of employee the authors call the "smart creative": someone who combines deep technical knowledge, business savvy, creative energy, and a hands-on approach. Smart creatives differ from what management theorist Peter Drucker termed "knowledge workers" in 1959. They are not confined to narrow tasks, not limited in access to information, not averse to risk, and not quiet when they disagree. Attracting and empowering such people, the authors contend, is the primary objective of any business today.

Culture, they argue, is the foundation. One Friday, Page posted printouts of poorly targeted ads on a kitchen bulletin board with "THESE ADS SUCK" (28) scrawled across the top. By Monday, search engineer Jeff Dean and four colleagues, none on the ads team, had analyzed the problem and coded a prototype solution. Their insight about ranking ads by relevance became the basis of Google's multibillion-dollar AdWords engine. The authors stress that culture must be authentic, contrasting Lehman Brothers' generic mission statement with Google's "Focus on the User" value, which employees would revolt to protect. Specific cultural practices include keeping offices crowded to maximize interaction, building meritocracies that resist the "HiPPO" (Highest-Paid Person's Opinion), embedding an "obligation to dissent" (41-42), staying flat through a "rule of seven" requiring managers to have at least seven direct reports, and using Google's "Don't be evil" mantra as an empowerment tool that allows any employee to halt a questionable decision. Employees who lack integrity, whom the authors label "knaves," must be removed swiftly, while difficult but highly talented "divas" should be tolerated as long as their contributions outweigh the collateral damage.

On strategy, the authors insist that business plans must rest on technical insights rather than market research. A technical insight is a new application of technology that dramatically improves cost or functionality. Google Search was built on the insight that the web's link structure, formalized through the PageRank algorithm, could determine page quality. AdWords was built on ranking ads by relevance to users rather than by price alone. The authors warn that market research often produces incremental "me-too" products, citing Excite@Home's mistake of marketing broadband based on speed rather than the always-on connectivity users actually valued. They describe the current era as one of "combinatorial innovation," in which widely available components like open-source software and computing power can be recombined to create new inventions. Companies should optimize for growth and build open platforms, as Google did with Android, its open-source mobile operating system, though the authors note that Apple's contrasting closed model with iOS can also succeed when supported by rare technical insight and visionary leadership.

Hiring, the authors argue, is the single most important thing a leader does. They advocate committee-based decisions grounded in data rather than individual manager preferences, a process developed by engineering executive Urs Hölzle that for years culminated with Page personally reviewing every offer. Candidates should be evaluated for genuine passion, adaptability (what psychologist Carol Dweck calls a "growth mindset"), and character. The authors favor brilliant generalists over narrow specialists and illustrate the cost of rigid criteria with the story of Kevin Systrom, who was denied a transfer at Google for lacking a computer science degree. Systrom left and cofounded Instagram. Compensation should be disproportionate, rewarding top performers regardless of title, and retention requires keeping smart creatives challenged through new projects and career flexibility. The authors also offer career advice for individuals, emphasizing that choosing the right industry matters more than choosing the right company, and that data analysis skills are essential regardless of role.

The chapter on decision-making centers on Google's response to sophisticated hacking attacks originating from China in December 2009, which targeted intellectual property and the Gmail accounts of human rights activists. Google had entered China in 2004 despite internal disagreement; Brin, whose family had emigrated from the Soviet Union, opposed engaging with a censorship regime. The attacks shifted the calculus. Schmidt, who still favored staying in the market, focused on orchestrating a fair process rather than forcing his preferred outcome. Google disclosed the attack, stopped censoring results, and shut down search on Google.cn in March 2010. Broader principles include grounding decisions in data, surfacing dissent rather than accepting what the authors call the "bobblehead yes," assigning a single decision-maker to own deadlines, and holding daily meetings for critical issues. The authors also credit coach and mentor Bill Campbell as essential to their growth as leaders, noting that Schmidt initially resisted coaching but came to view it as indispensable.

On communications, the authors argue that leaders must route information openly, not hoard it. Google shares its quarterly board report with all employees, redacting only what law requires. Every employee posts OKRs (Objectives and Key Results), a goal-setting system introduced by investor John Doerr, who learned it from Intel CEO Andy Grove. The company-wide TGIF meeting features a system called Dory, where employees submit and vote on questions; the toughest questions rise to the top, and Page and Brin address them without cherry-picking.

The innovation chapter argues that the CEO must create an environment the authors call "primordial ooze," where ideas evolve organically rather than through bureaucratic approval. Google's advanced projects team, Google[x], applies a three-part test: an idea must address a massive problem, propose a radically different solution, and rely on feasible technologies. The 70/20/10 resource allocation rule dedicates 70 percent of resources to the core business, 20 percent to emerging products, and 10 percent to high-risk new ideas, protecting experimentation while forcing ingenuity through limited funding. "20 percent time" gives engineers freedom to pursue side projects, yielding products like Google News and Gmail's ad-matching system. "Ship and iterate" means launching products before they are perfect and using data to improve them, with marketing investment held back until the product proves itself. Google Chrome, for example, earned a marketing budget only after reaching 70 million users on its own merits. Failing well matters equally: Google Wave launched in 2009 but never gained traction, and the company announced its cancellation a year later (238). The team was not stigmatized, and the underlying technology migrated to other products.

The authors conclude by arguing that the global economy is shifting from an era dominated by corporations to one dominated by platforms, where buyers and sellers interact directly. Incumbents must choose between defending the status quo and embracing disruption. Schmidt's experience at Sun Microsystems serves as a cautionary tale: executives acknowledged they could not compete with lower-cost PCs, but no one acted, and Sun's market capitalization fell from $141 billion to a $7.4 billion sale to Oracle. The book closes with the optimistic assertion that somewhere, a team of smart creatives may be building the company that renders Google itself irrelevant, a prospect the authors find inspiring rather than threatening.