Google seeks R&D success

19 August 2011

MOUNTAIN VIEW: Google, the online giant, is combining a unique corporate structure with rigorous measurement and a test-and-learn philosophy to drive successful innovation.

Patrick Pichette, the company's CFO, said its aim when developing new products is to create something that could reach 1bn consumers, be it, Chrome, Android or Google Wallet.

He told McKinsey: "The challenge is in the planning. How do I feed the winners and hold back on the ones who aren't performing the way they should? They shift a lot."

Google employs a quarterly review process for all products based on three "beacons", firstly assessing performance in the last 90 days, and projecting figures forward over the next 90 days.

Secondly, it undertakes longer-term analysis, often looking two years ahead, about the trajectory of its various services, to ensure the correct investments are made in the necessary infrastructural and technical support.

The third "beacon" described by Pichette is Google's positioning in the broader market, for example if a rival has initiated a major acquisition, or if its own new products are reshaping internal and external trends.

"These beacons are very tactical and short term, with financial and operational metrics always running, and always viewed in the context of a shifting strategic landscape," Pichette said.

When assigning and redistributing resources - from engineers to actual funding - Google's corporate model, which is not divided into distinct business units, helps mitigate against the threat of inertia.

"Once a company has business units, managers tend to take ownership of these units' resources," Pichette said. "When we sit down to do these allocation reviews, we're all one team with our Google hats on, and the question is what's winning."

Another advantage possessed by Google, and other firms in the digital space, is that R&D frequently does not require gambling an enormous sum of capital and then integrating a new asset.

"That's the beauty of innovation; you can do trial and error so many times or launch and iterate or release in beta. If something sticks, then you keep it going," said Pichette.

"Today, every day, 15% of the queries we get at Google are completely new ... How much would a person pay for the perfect answer? These are the degrees of freedom available to Google to continue to innovate."

Data sourced from McKinsey; additional content by Warc staff