Google is clearly the youngest firm among the leaders; it has surprisingly been less than a decade since Google’s IPO.
Most companies 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.”
A new kind of people managementThe 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 20th 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.
Shifting to data-based people managementThe 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.
Google co-counder and CEO Larry PageGoogle co-counder and CEO Larry Page
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 percent of corporate variable costs, so it makes sense to manage such a large cost item analytically.
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).