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4 Ways Silicon Valley Changed How Companies Are Run

The need to Innovate for Impact and the Digital Transformation has created major challenges for enterprises — but in many cases they’re only aware of a few of them.

The obvious challenge is figuring out how to successfully incorporate AI, XR, ML and other powerful new technologies in ways that raise productivity, delight customers, and add value. Innovating for Impact and Digital Transformation also mean rethinking strategies and business models to create new capabilities and value, harness network effects, build platforms, and gain insights from the flood of data now available.  Since this requires new thinking, forward looking leaders know it requires their involvement – if the goal is to meaningfully improve outcomes, significantly grow opportunities / relevance / revenue / profits, better position the organization to attract and retain top talent, evolve the business model, etc.

And to successfully lead their organization’s innovation and digital initiatives, there is a need to fundamentally change the approach to effecting change.  This stems from several decades of numerous Silicon Valley based companies changing who and how decisions are made which has resulted in a new modus operandi in organizations – large and small. To be more precise, entrepreneurial, technology oriented people concentrated on the west coast of the U.S. have experimented and iterated their way to new corporate culture for innovation, agility, and execution – simultaneously. This makes them formidable challengers to established organizations and existing markets.  With the increasing presence of technology in society, rising User expectations, new opportunities, the options and low barriers to entry to create and monetize new value, etc. – the business landscape has changed.  For established enterprises, the new norm requires adapting to this new mindset and environment with a new playbook – or – run the risk of becoming irrelevant and the eventual demise of the organization !  

Since this is not where anybody wants to go, there is little choice but to develop the mindset to Innovate for Impact and be good at Digital Transformation – if the goal is to meaningfully improve outcomes, expand opportunities, create significant new value and wealth, etc.

Interestingly the new norms originated by “Technology Oriented People” (TOP) with a new vision having an entrepreneurial persona, and good at creating new value. With many of these people located in Silicon Valley, over time they expanded their competencies from bits to business to be better at effecting change and positioning their company to succeed, being good at monetizing new value, attracting, retaining bright and ambitious people, etc.

In the way of insight, TOP in Silicon Valley are argumentative, egalitarian, freewheeling, fast-moving, evidence-based, value autonomy, encourage learning, trying new things, etc.

The key to doing this is having a culture that emphasizes – Speed, Ownership, Science, and Openness as the new norms –

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. An example of this is Elon Musk says “If a schedule is long, it’s wrong. If it’s tight, it’s right and make recursive improvement on schedule, with a 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 as intended by iterating quickly and incorporating lessons learned. And the greater the expense or risk, the quicker you need, learn and iterate !

Compared to industrial-era organizations, TOP lead companies have higher levels of personal autonomy, empowerment, responsibility, few (if any) cross-functional processes, and less coordination. These companies instead emphasize “ownership” and taking responsibility for agreed-upon goals.

An example of this is Amazon. When the company grew quickly after it was founded in 1994, it developed an elaborate and pervasive bureaucracy. Everyone knew – and no one liked it – but it seemed essential to coordinating company initiatives.

With a “New Proposed Initiative” (NPI), 4 times a year a team with an idea for a new project would submit a short proposal that specified what was needed from other parts of the company. If the proposal passed two initial reviews, it went before the NPI final decision makers.

Overtime, the dysfunction and disappointments of the NPI process were instrumental in a 180-degree shift, away from trying to define and manage dependencies to eliminating them. This was a shift from a culture in which management exercised a great deal of control to encouraging a high level of ownership (as epitomized by “single-threaded leaders”).

Single-threaded leadership grew out of two-pizza teams — ideally containing no more people than could be fed by two large pizzas — who were responsible for a clearly defined objective, (ie: selling more goods in a region). They were as autonomous as possible: since the point was to minimize the amount of coordination and communication needed with other people, 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 – the more important the initiative, 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 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.

The scientific method is based on decisions being made with data as evidence — not seniority, popularity, charisma, past performance, rhetoric, philosophizing, tradition, aesthetics, etc.

An example of this is in the spring of 2009, Google’s visual design group changed from accepting the judgments of designers to a process that “Reduced 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…”

That environment was born on February 27, 2000, when a team at Google showed one version of a search results page with different colors of blue to a randomly chosen group of visitors, and a different version to another 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 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 decision making by HiPPO – the “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.”

The fourth new norm is “Openness” – the sharing of information and being receptive to challenges, reevaluations, and changes in direction (the opposite of defensiveness).

An example of this is in the early days of Netflix, 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 document –

“We are focused on streaming, and as the Internet expands, 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 environment 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 openness and ownership. “I’m a researcher, 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.”

A.  The norms reinforce each other. For example, the egalitarian debates that are central to science require openness – with senior people not getting defensive in the face arguments and challenges from junior colleagues. Science, in turn, is essential to speed with fast iterations to provide 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, are a team.

B.  Thinking differently whereby ownership means freedom from micromanagement – even with some redundant effort and uncertainty, with discovery and science based on debate and sometimes argumentation, the need is to manage the situation to avoid descending into domineering behavior and abuse.

C.  Speed, Ownership, Science, and Openness can be practiced across geographies and industries, plus be adopted by those who want to collaborate to create something valuable. And as we have learned, Silicon Valley has incubated something very different – a corporate culture that gives people voice and autonomy to –

  • encourage excellent performance
  • better manage change
  • reduce risk
  • make innovation more rewarding

The TOP style will continue to spread for the simple reason that it’s a better way of working. Companies that matured prior to the digital era have to update their playbook – if they want to win going forward. And recognize the old playbook of doing a major reorganization or acquisition, embracing a traditional strategy, or changing leadership aren’t effective anymore.

This is summarized by Jeff Bezos, (the original founder and CEO of Amazon) who said in 2016 – “Stasis – followed by irrelevance – followed by excruciating, painful decline – is followed by death.” In the end it’s about having a better playbook with the norms of – Speed, Ownership, Science, and Openness.

In closing, if interested moving to this model to make innovation more rewarding and  improve outcomes, please contact the author or CAIL.

Dec 15, 2023      AndrewMcAfee / CAIL      905-940-9000