Over the past twenty years the United States has enjoyed successive booms of light, clean, "interesting" industry. First came semiconductors (epitomized by Intel), then personal computers (Apple and Compaq), and then software (Microsoft). Until recently the Internet and communications in general were booming, epitomized by Amazon.com and AOL. Next up: further pharmaceutical and biotech wonders.
During those twenty years the prevailing way of talking and writing about business achievement shifted in a correspondingly light, clean, interesting direction—with less emphasis on details of production and distribution, and more fascination with the "culture" of a company as the root of failure or success. For a long time I happily went along with this trend, both in what I chose to read about companies and in what I noticed and sometimes wrote about them. But as I've watched the ups and downs of the Internet-and-venture-capital complex that is based in the San Francisco area, I've started to have some doubts.
It isn't often that one can trace a decades-long intellectual shift to a single book, but in this case the connection is inescapable. The change in business analysis began with In Search of Excellence, by Thomas J. Peters and Robert H. Waterman Jr., which was published in 1982 and has sold some three million copies since. Although the authors had both been consultants at McKinsey & Company, the book they wrote departed radically from the dry, sanitized tone of most consulting documents. Peters and Waterman identified forty-three large American companies that exemplified "excellent" practice; they told real stories, with real names and dates and inside details, to illustrate how those companies made their choices and did their work; and they extracted eight broad themes that, they said, distinguished a successful company, whether it made blue jeans (Levi Strauss), airplanes (Boeing), or candy (Mars). Some of these themes, such as "a bias for action" and sticking "close to the customer," have become such staples of discussion about business that it's startling to realize that the terms were coined only twenty years ago.
There were many reasons for the vast ripple effects of the book, including Tom Peters's tremendous gifts as a proselytizer and a showman. Journalists took naturally to the concept and message, which resembled and seemed to validate what journalists themselves do. We have long been accustomed to judging, say, a government agency or a political campaign by details of its "culture"—how committed underlings are to the larger goal, how much time and energy power struggles consume—and the book suggested that we could look at companies in a similar way. I first read In Search of Excellence after an unforgettable business-reporting experience. I had spent a week in Detroit, in midwinter, listening to auto-company executives snarl about labor and labor leaders snarl back—and then I went to Silicon Valley. There, in the balmy sunshine, I interviewed people at Hewlett-Packard and Intel and the relatively young Apple. They were full of theories about how every member of a company had to share in its success. At General Motors, Roger Smith, the head of the company, worked in an enormous top-floor office with knee-deep carpeting; at Intel, Andrew Grove and Gordon Moore, two of the company's founders, toiled in cubicles alongside everyone else. No wonder these new companies were thriving! When I came across Peters and Waterman's book, soon afterward, I felt as if I'd found the explanatory key to what I had observed.
It's hardly the case, of course, that other means of business analysis have disappeared in the years since Excellence was published. The business pages still contain articles about distribution issues and product placement. The rise of spreadsheet programs in the mid-1980s inaugurated the age of "quants" (analysts who judge companies strictly by the numbers), and vastly more-powerful computers have since made the financial markets quant heaven. But the cultural approach still plays a large role in the way in which people write about business and, even more important, the way in which many people in business understand their companies and themselves.
Links to related material on other Web sites.
"Interview with Google's Sergey Brin" (Linux Gazette, November 2000)
The transcript of an interview with one of Google's founders.
"The Anatomy of a Large-Scale Hypertextual Web Search Engine" (Computer Networks, 1998)
The original academic paper by Larry Page and Sergey Brin proposing their new "Google" search system. Posted at Stanford University's Web site.
Nowhere has this been truer than in the Internet economy—and nowhere are the limitations of the cultural approach more evident at the moment. I was reminded of this late last year, when I visited the headquarters of Google, the designer of the hottest Internet search engine. At a time of general gloom amid dot-com start-ups, many of which were going under, Google was a cheerful exception. It was founded in 1998 by two graduate students at Stanford, Larry Page and Sergey Brin, who set up operations in a friend's house. (They moved some desks and computers to the garage and took pictures of themselves working there, so that they could claim to have started the company in a garage—the tech world's equivalent of "born in a log cabin.") By the end of last year the company had nearly 200 employees, conducted 60 million searches a day, and was winning every award in sight for the precision, speed, and convenience of its searches. It even claimed to be close to making money, by licensing its technology to others and by selling ads.
To visit Google's headquarters, in a modest office park in Mountain View, was to take a trip down memory lane. The Googleplex, as it is known among employees ("Googlers"), is the best extant example of what the outside world thinks a dot-com should look like—and is the way scores of companies did look back in the palmy days of early 1999. An on-staff masseuse. Saunas in the men's and women's bathrooms. Lava lamps everywhere, in the bright primary colors of the Google logo. A celebrity chef making free meals all day long—yellowfin tuna and five-spice tofu for lunch the day I was there.
What struck me most was the way Google executives explained the loving and lavish atmosphere—as a crucial component of the company's success. We need to make it feel like a family, they said. We want smart people to want to work here. Google's culture makes Google strong.
I'm sure these things do have an effect—but perhaps not to the degree the Googlers believe. It's conceivable that the food and friendliness helped to attract the engineers who refined Google's search technology. The heart of that technology, though, is what Page and Brin designed in their friend's house: a far superior tool for indexing and finding information on the Web, compared with what AltaVista, Yahoo!, and others had devised. Google's system for locating information combines several well-established search techniques, such as keyword indexing, which finds occurrences of particular words or terms, and the use of a directory to organize information into an encyclopedia-style taxonomy, with its own new methods. The most important is a sort of reputational ranking, which evaluates information on a Web site according to how many other sites include links to it and how important and reliable those other sites are. Thus, unlike the many start-ups whose "innovation" was simply a different business model—Let's sell toothpaste, but on the Internet!—Google had an innovation, rooted in new technology, that constituted a genuine change from what was available elsewhere.
In addition, as Larry Page was careful to point out, the company has been frugal about expenses that have undone other start-ups. For instance, although numerous Internet ventures have spent millions of dollars on TV ads and other "branding" efforts of questionable effectiveness, Google has never bought a big, showy ad; it arranges its publicity through barter. To cite just one example, Google runs Web searches for The Washington Post's Web site; the Post runs print and online ads for Google.
Over the past three years more or less every start-up has said the same thing Google has about the role its corporate culture would play. We'll succeed because our people can bring their dogs to work. We'll succeed because they love our beach parties and trips to Yosemite. We'll succeed because we bring them free dinner every evening and outfit each office with an Aeron chair. Most of those companies eventually failed—and even when they were succeeding, the reasons had less to do with corporate culture than with fundamental economics. What really gave the dot-com start-ups their pizzazz in 1996 and 1997 was not the coolness of their founders but the piled-up stock-market gains from the previous few years. Venture capitalists had to put that money somewhere, and the Internet was the most attractive place. What kept the boom going for a few more years was not the presumed brilliance of twentysomethings with a vision or the atmospheres they created but an optimism among money managers about how much room there was for another AOL or another eBay—that is, another company that could define and then dominate a market niche. The bubble burst in the middle of last year, when the money managers decided that there were not enough niches available, at least not at the moment, and that the cost of finding them was too high. The yellowfin in Google's cafeteria was an emblem less of success that came from a pampered, happy work force than of the pampering and happiness made possible by success.