4 Ways Silicon Valley Changed How Companies Are Run

The digital transformation of the business world has created two major challenges for today’s incumbents — but they’re only aware of one of them. The obvious challenge is figuring out how to successfully incorporate machine learning, generative AI, and other powerful new technologies in ways that raise productivity, delight customers, and otherwise add value. Digital transformation also means rethinking strategies and business models to harness network effects, build platforms, and gain insight from the flood of data now available. None of this is easy work, and modern business leaders know that it requires their involvement. But as they lead their organization’s digital transformation efforts, they also need to prepare for another, more fundamental threat. Over the last 30 years, Silicon Valley has given the company an upgrade. To be more precise, a bunch of geeks concentrated on the west coast of the U.S. have experimented and iterated their way into corporate cultures that support innovation, agility, and execution simultaneously. This makes them formidable challengers to today’s incumbents, no matter what industry they’re in. And this is the second, even tougher challenge prompted by the world’s digital transformation: Every company needs to take a page from the geek playbook, or else fall behind. The Four Geek Norms The work “geek” has long described someone who’s really into computers and is something of a social outsider. A lot of people like that congregated in Silicon Valley in recent decades and became entrepreneurs. Over time they shifted their attention from bits to businesses: They got obsessed with the hard problem of running a company in a turbulent environment and embraced a set of unconventional solutions that I call “the geek way.” Despite Silicon Valley’s stereotypes, the geek way isn’t about arrogant white men yelling at their underlings. It is argumentative, but in an egalitarian way. It’s also freewheeling, fast-moving, evidence-based, and autonomous. And it can be applied anywhere, as the geeks’ recent successes in the entertainment, automotive, space, and defense industries show. The geek way is a novel approach to the oldest challenge of the business world: bringing people together in a way that continuously creates value. The key to doing this, and to creating and sustaining the geeks’ preferred culture, is to emphasize four norms: speed, ownership, science, and openness. Let’s look at each of them in turn. Speed Speed here isn’t a synonym for “velocity.” It’s not how fast people and projects are moving toward a finish line. Rather, it’s the speed of iteration: how quickly a team can create something that works in a meaningful and measurable sense, then get useful feedback on it. As Elon Musk puts it, “I have this mantra. It’s called, ‘If a schedule is long, it’s wrong. If it’s tight, it’s right.’ And I just, basically [go with] recursive improvement on schedule, with feedback loop.” Musk founded SpaceX in 2002. The company’s adherence to speed is visible throughout the development of its newest and biggest rocket, called Starship. This vessel’s mission is to take humans to the moon and beyond. Along the way, it will also put a lot of communications satellites and other payload into orbit around the Earth. But SpaceX didn’t work on Starship by creating a thorough overall plan and then sticking to it. Instead, it started building things, getting feedback on them, and making changes. The initial plan was for the main body of the Starship spaceship to be made out of a carbon fiber composite, which has an excellent strength-to-weight ratio. Within months, however, SpaceX announced that the Starship spaceship would be made out of stainless steel instead. The company had learned from its experiments with carbon fiber that although the material had some desirable properties, it took a long time to make each part, and more than a third of them had to be scrapped. The idea of a carbon fiber body was abandoned. Rather than seeing this switch as evidence of a flawed development process, SpaceX viewed it as proof that its process was working just as intended: The company was iterating quickly and incorporating lessons learned, even if these lessons were expensive. Ownership Compared to industrial‐era organizations, geek companies have higher levels of personal autonomy, empowerment, and responsibility, fewer cross‐functional processes, and less coordination. These companies instead emphasize the norm of ownership, or taking clear and sole responsibility for an agreed-upon goal. One of Amazon’s leadership principles is “Ownership,” but that hasn’t always been the case. As the company grew quickly after it was founded in 1994, it developed an elaborate and pervasive bureaucracy. All Amazonians knew about it, and no one liked it, but it seemed essential to coordinating the company’s innovation efforts. The bureaucracy administered the “New Proposed Initiative” (NPI) process. Four times a year any team with an idea for a new project would write it up in a short proposal that specified what it needed from other parts of the company. If the proposal passed two initial reviews, it went before the NPI final decision makers. The dysfunctions and disappointments of the NPI process were instrumental in sparking a 180-degree shift at Amazon, away from trying to define and manage dependencies and toward trying to flat-out eliminate them. This was a shift from a culture in which management exercised a great deal of control to one in which management encouraged high levels of ownership, as epitomized by the idea of “single-threaded leaders.” Single-threaded leadership grew out of two-pizza teams, an earlier attempt to foster a culture of ownership at Amazon. These teams were small — ideally containing no more people than could be fed by two large pizzas — responsible for a clearly defined objective, like selling more shoes in Germany. They were conceived to be as autonomous as possible: The whole point was to minimize the amount of coordination and communication needed with other Amazonians, and the number of dependencies the team had with the rest of the business. Instead of starting from the assumption that important business efforts require a lot of coordination, involvement, and buy-in from many groups, two-pizza teams were born out of exactly the opposite assumption: that the more important an effort was, the more its dependencies should be eliminated (or at least greatly reduced) and the more the team responsible for it should be given sole ownership and complete autonomy As two-pizza teams were getting rolled out across Amazon, the company found that the ones that worked hardest early on to reduce their dependency on the rest of the organization were the most successful over time. As it became clear that some teams needed to be bigger than the two-pizza limit would allow, the phrase “single-threaded leader” became common, but the core idea remained the same: a strong sense of ownership within teams, and very little communication, coordination, or interdependence among them. Science The scientific method is an ongoing group-level debate governed by a simple ground rule: The debate is won by the party whose arguments are best supported by the available evidence — not seniority or charisma or past performance or rhetoric or philosophizing or appeals to tradition or aesthetics, but evidence. Not everyone likes this norm. In the spring of 2009, for example, Google’s visual design head Doug Bowman had had enough and quit his job. He liked his “incredibly smart and talented” colleagues, learned a great deal on the job, and would miss the “free food… occasional massage… [and] the authors, politicians, and celebrities that come to speak or perform.” But what he didn’t like and wouldn’t miss was having to justify all of his decisions with data. Rather than accepting the judgments of experienced design professionals like Bowman, Google instead followed a process he described in mechanical terms: “Reduce each decision to a simple logic problem. Remove all subjectivity and just look at the data. Data in your favor? Ok, launch it. Data shows negative effects? Back to the drawing board…” Like many others in his field, Bowman thought that this approach was fundamentally misguided. Coming up with a good design for a webpage or anything else was in his view an inherently subjective and creative process — one that relied much more on the arts than on science. Bowman gave a couple of examples of how statistics intruded on aesthetics at Google: “a team… couldn’t decide between two blues, so they’re testing 41 shades between each blue to see which one performs better. I had a recent debate over whether a border should be 3, 4 or 5 pixels wide, and was asked to prove my case. I can’t operate in an environment like that.” That environment was born on February 27, 2000, when a team at Google showed one version of a search results page to a randomly chosen group of visitors to the site, and a different version to a parallel group. This was the first known “A/B test” in the history of the Web. There have been countless millions since. As the 21st century progressed a culture of testing and following the data came to permeate decision making at Google, even for decisions in allegedly subjective areas like design. Hal Varian, the company’s chief economist, stressed that “We don’t want high-level executives discussing whether a blue background or a yellow background will lead to more ad clicks… Why debate this point, since we can simply run an experiment to find out?” In 2014 Google estimated that getting the shade of blue right via the kind of testing that Bowman disparaged had led to an additional $200 million per year in ad revenue. A/B testing developed passionate advocates because it showed that experts’ intuition about users’ preferences were often inaccurate, and sometimes just plain wrong. Experiments revealed that even experienced design professionals didn’t reliably know how people actually wanted websites to look or feel. Supporters of heavy testing came up with a dismissive acronym for relying on such people: it was decision making by HiPPO, or “highest-paid person’s opinion.” As Avinash Kaushik, a digital marketing evangelist for Google and one of the creators of the acronym succinctly put it, “Most websites suck because HiPPOs create them.” Openness The fourth and final geek norm is openness, which we can define as sharing information and being receptive to arguments, reevaluations, and changes in direction. Openness is close to psychological safety, and close to the opposite of defensiveness. From Netflix’s earliest days, founding CEO Reed Hastings worked to create a culture of openness. The company’s “Culture Deck” presentation, posted online in 2009, outlines values such as “You say what you think even if it’s controversial” and “You are known for candor and directness.” In 2015, Hastings was convinced that it would not be a good use of engineering resources to build into the Netflix app the capability to download shows so that they could be watched later. As he wrote in a company-wide document: We are focused on streaming, and as the Internet expands (planes, etc.) the consumer desire for downloading will go away. Our competitors will be stuck with supporting a shrinking downloading use case for years. We’ll end up far ahead on brand quality sentiment on this issue…The [user experience] complexities of downloading are material for a one percent use case, so we are avoiding this approach. It’s our judgment call for utility against complexity. Even though Hastings and Neil Hunt, who was at the time the chief product officer, were against downloading, Todd Yellin, the vice president of product (who worked for Neil) still thought it might be a good idea. He asked senior user experience researcher Zach Schendel to conduct interviews about downloading with users of streaming services in the U.S., Germany, and India. It can be uncomfortable for a lower-level employee to take on an assignment that might reveal that their CEO is wrong. As Schendel put it, “I thought, ‘Neil and Reed are against this idea. Is it okay to test it out?’ At any of my past employers, that would not have been a good move. But the lore at Netflix is all about lower-level employees accomplishing amazing things in the face of hierarchical opposition. With that in mind I went ahead.” Schendel’s interviews revealed that in all three countries people frequently used the download feature on all streaming services that included it. In fact, the lowest percentage of downloaders Schendel encountered in his interviews wasn’t anywhere near Hastings’ estimate of 1%; instead, it was 15%. When Hastings and Hunt saw the results of this research, they realized that they had been wrong and changed course. Netflix now includes a download feature. Schendel gave a self-deprecating summary of his experience that illustrates the norm of ownership. “Let me be clear… I’m just some researcher. Yet I was able to push back against a strong and publicly stated opinion from the top leadership to rally excitement for this feature. This is what Netflix is all about.” The ‘Geek Way’ Works A few things should be obvious about the geek way. First, its norms reinforce each other. For example, the egalitarian debates that are central to science require openness; senior people can’t get defensive in the face arguments and challenges from junior colleagues. Science, in turn, is essential to the great geek norm of speed; fast iterations are powerful because each of them provides valid evidence about progress. And speed supports ownership. When important efforts are accomplished by small, self-directed teams it becomes easier to organize the rest of the company the same way. Speed, ownership, science, and openness, in short, work well as a team. Second, the geek way clearly brings risks and drawbacks. A norm of ownership means freedom from micromanagement, but it also often brings some degree of redundant effort and perhaps even chaos. Science is based on debate and argumentation, which can descend into domineering behavior and abuse. Not all customers want the frequent interaction and iteration that are inherent to the norm of speed as practiced by the geeks. And so on. Third, nothing about geek norms is particular to Northern California, or to hardware and software companies. Speed, ownership, science, and openness can be practiced in any region and industry. They can be adopted by any group of people who want to work together and create something valuable. Silicon Valley is home base for a bunch of overconfident and insulting “tech bros,” but it has also incubated something very different: a corporate culture that gives people voice and autonomy. It’s no surprise that this culture enables excellent performance. The geek way will continue to spread for the simple reason that it works better. Companies that matured during the Industrial Era have to throw away their playbook if they want to stand a chance against the business geeks. The idea that companies following the old playbook can fight back effectively by doing a major reorganization or acquisition, embracing a bold new strategy, or shuffling leadership just doesn’t hold water. Incumbents did all of these things over the past 20 years; they didn’t halt the geeks’ advance, or even slow it down much. Instead, many incumbents’ moves have left them somewhere along the a trajectory described by Bezos in 2016: “Stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death.” It’s high time for them to realize that the geeks have figured out a better playbook, and to start adopting their norms of speed, ownership, science, and openness.

4 Ways Silicon Valley Changed How Companies Are Run

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