How Google Became the #3 Most Valuable Firm by Using People Analytics to Reinvent HR

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.”

Continuous Innovation Requires a New Kind of People Management  

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 20^th 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.

Why Firms Need to Shift to Data-based People Management Decisions

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.

Relying on Relationships in HR … Must Give Way to Data-based Decision-making

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).

How Does the Google People Analytics Approach Reinvent HR?

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 20^th 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.”

My Top 10 Most Powerful Illustrations of the “People Analytics” Approach

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:

• Leadership characteristics and the role of managers — its “project oxygen” research analyzed reams of internal data and determined that great managers are essential for top performance and retention. It further identified the eight characteristics of great leaders. The data proved that rather than superior technical knowledge, periodic one-on-one coaching which included expressing interest in the employee and frequent personalized feedback ranked as the No. 1 key to being a successful leader. Managers are rated twice a year by their employees on their performance on the eight factors.
• The PiLab — the PiLab is a unique subgroup that no other firm has. It conducts applied experiments within Google to determine the most effective approaches for managing people and maintaining a productive environment (including the type of reward that makes employees the happiest). The lab even improved employee health by reducing the calorie intake of its employees at their eating facilities by relying on scientific data and experiments (by simply reducing the size of the plates).
• A retention algorithm — it developed a mathematical algorithm to proactively and successfully predict which employees are most likely to become a retention problem. This approach allows management to act before it’s too late and it further allows retention solutions to be personalized.
• Predictive modeling — people management is forward looking at Google. As a result, it develops predictive models and use “what if” analysis to continually improve their forecasts of upcoming people management problems and opportunities. It also uses analytics to produce more effective workforce planning, which is essential in a rapidly growing and changing firm.
• Improving diversity — unlike most firms, analytics are used to solve diversity problems. As a result, the people analytics team conducted analysis to identify the root causes of weak diversity recruiting, retention, and promotions (especially among women engineers). The results that it produced in hiring, retention, and promotion were dramatic and measurable.
• An effective hiring algorithm — one of the few firms to approach recruiting scientifically, it developed an algorithm for predicting which candidates had the highest probability of succeeding after they are hired. Its research also determined that little value was added beyond four interviews, dramatically shortening time to hire. Google is also unique in its strategic approach to hiring because its hiring decisions are made by a group in order to prevent individual hiring managers from hiring people for their own short-term needs. Under project Janus, it developed an algorithm for each large job family that analyzed rejected resumes to identify any top candidates who they might have missed. They found that they had only a 1.5% miss rate, and as a result they hired some of the revisited candidates.
• Calculating the value of top performers — Google executives have calculated the performance differential between an exceptional technologist and an average one (as much as 300 times higher). Proving the value of top performers convinces executives to provide the resources necessary to hire, retain, and develop extraordinary talent. Google’s best-kept secret is that people operations professionals make the best “business case” of any firm in any industry, which is the primary reason why they receive such extraordinary executive support.
• Workplace design drives collaboration — Google has an extraordinary focus on increasing collaboration between employees from different functions. It has found that increased innovation comes from a combination of three factors: discovery (i.e. learning), collaboration, and fun. It consciously designs its workplaces to maximize learning, fun, and collaboration (it even tracks the time spent by employees in the café lines to maximize collaboration). Managing “fun” may seem superfluous to some, but the data indicates that it is a major factor in attraction, retention, and collaboration.
• Increasing discovery and learning — rather than focusing on traditional classroom learning, the emphasis is on hands-on learning (the vast majority of people learn through on the job learning). Google has increased discovery and learning through project rotations, learning from failures, and even through inviting external speakers like Al Gore and Lady Gaga to speak to their employees. Clearly self-directed continuous learning and the ability to adapt are key employee competencies at Google.
• It doesn’t dictate; it convinces with data — the final key to Google’s people analytics team’s success occurs not during the analysis phase, but instead when it present its final proposals to executives and managers. Rather than demanding or forcing managers to accept its approach, it instead acts as internal consultants and influences people to change based on the powerful data and the action recommendations that they present. Because its  audiences are highly analytical (as most executives are), it uses data to change preset opinions and to influence.

Google Is a Talent Competitor to Your Firm

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.

“We Could Never Do That” Guarantees That You Will Achieve Mediocre Results

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.

Continuous Improvement May Be the Enemy of Innovation

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.

Its Business Success Has Been Impressive

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.

• No. 1 in search world wide
• No. 2 in smartphone operating system sales (Android)
• No. 2 on the Fortune most admired firms list
• No. 3 on Fast Company’s most innovative companies
• No. 3 among the world’s strongest product brands
• Listed in the BusinessWeek top 50 performing firms
• Its amazing Larry Page was ranked No. 4 among CEOs by glassdoor.com

Final Thoughts

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.