Eric Schmidt at the Management Lab Summit


Uploaded by Google on 02.06.2008

Transcript:

GARY HAMEL: There are not many people in the world who don't
need introduction.
But certainly Eric Schmidt is one of those people today.
I mean, Google is the it company, I
guess, at the moment.
ERIC SCHMIDT: As opposed to the IT company.
GARY HAMEL: Yes, as opposed the IT company.
It is the it company.
And so first, thank you Eric for coming.
And I know your days are long and hectic.
And to come and spend some time with a bunch of us egg
heads, and a few people doing real work, is
very kind of you.
I'm going to put a few questions to him, but I won't
be very long.
And mostly this is for us to have a conversation.
But let me throw out three questions and then
we'll open it up.
I guess the first question is--
obviously Google's a web-based company, maybe the first
almost purely web-based company.
That's where it makes its money.
That's its business model.
But how is the ethos of the web, its openness, its
transparency, the speed--
how has that shaped the way you manage, or Google is
managed, internally?
How do the internal management processes, the values, the way
decisions get made, the way projects get approved, the way
resources get allocated--
how has that been influenced and shaped by the kind of
ethos of the web itself?

ERIC SCHMIDT: First, thank you guys for having me.
I want to make sure everybody knows, we have two of our most
senior executives here in the audience, right?
Hal and Marissa over there.
So they're going to help me out if I get in trouble.

And I think these are interesting questions.
And it's interesting the way you asked the question as
though there was a list of the answers to such a question
rather than it's something that simply emerged.
And I think the first answer is that it emerged.
It wasn't planned.
And it emerged because people still thought they were in
graduate school even though they weren't.
They didn't understand that the company was different from
university.
And so many of the answers to this question have to do with,
if you take an academic culture and you try to apply
it to a business you get these outcomes.
So it's much simpler than it appears.
Now, the porousness is a characteristic of high
performing organizations today because smart people want to
work with other smart people, and they want to be informed.
And I think everybody here understands that the model of
governance has gone from
hierarchical to more empowered.
The problem is in a whole generation of managers don't
actually want to empower anybody.
So I have the benefit that no one lets me
do anything, right?
Because they're all busy doing their stuff.
And they'll say, well, maybe we will, maybe we won't.
And that's part of the culture.
We spent for years saying, well, we wanted this product.
Well, no one wants to build it.
You'd think we'd have some sway around here.
GARY HAMEL: You'd think.
ERIC SCHMIDT: And so you sort of give up.
And you say, well, the culture then defines the outcome.
And the culture is one around innovation.
And so the culture can be understood as a ship and
iterate culture with transparency for
what people are doing.
And that model scales pretty well.
It's amazing how many smart young people there are who
just want to keep doing stuff.
And we have a hiring process that really does bring in
people who really self-select into that group.
So it leads to lots of chaos, right?
And that's been well reported on.
But every once in a while it produces these amazing, just
amazing, achievements.
So I think that the culture of the web can be seen as this
enormously low barrier to entry to providing web
services, and so forth and so on.
The same dynamic is true.
I've always believed that people are the same,
regardless of generation, language, race,
culture, what have you.
They want the same things.
I suspect if you go to a quote boring old company, they also
want to be empowered.
But the culture just doesn't allow them to do it.
GARY HAMEL: So you said that, in a way, Google is modeled on
a university.
There's a lot of people who work here for universities and
a little worried to hear you say that, to me frank.
But, so, obviously there's some core set of values that
have been taken across.
That's obviously not the whole story.
But perhaps you could expand on that point a little bit,
and then talk maybe about some of the practical mechanisms
that tie Google together internally.
We all know that there's--
the span of control in Google is, I don't know, one
to 50, one to 60.
But it's something that's almost inconceivable in a
typical organization.
So what keeps these things from spinning out
centrifugally?
ERIC SCHMIDT: First place, if you have enough direct reports
you can't manage them.
That was the goal, right?
So it's all consistent.

Let's put it in context and say that almost all of these
decisions were made by the early founding team.
And the early founding team literally came from graduate
school and so forth.
And they're of that generation.
And I remember my first week coming in and listening to
this and thinking, we were having just wonderful academic
debate because every issue was debated as though it was new.
So it's easier to see it as, I'm coming in as a classically
trained executive.
There was an executive that I wanted to hire.
And I figured I was a CEO.
You could hire an executive.
And this particular executive was very, very talented.
Didn't know quite what to do with her.
And we had this discussion.
And everybody said no.
And I remember walking outside and looking at Susan Wojcicki,
who is one of the founding product managers, and looking
at her and say, why can't I get this fucking hire through?
And she looks at me and she goes, well, they treat
everyone that way.
It was as though the Borg was defining me.
GARY HAMEL: And you were used to being
everyone, is the problem.
ERIC SCHMIDT: That's right.
And so what I realized-- and the reason I tell you this
story is that it tells you that the culture drove the
behavior, and that I was simply one
of the other players.
And I can't now tell you what value I added or subtracted to
the culture.
But I know that I was inserted into it.
So this cultural notion really has driven--
Wayne Rosing, one of the early executives, used
to call it the Borg.
It just expands, right?
So I think as academics, those of you who are looking at
this, try to figure out the things that will scale to
arbitrary size.
Empowerment is one.
Communication is another.
And then a sense of how quickly you can move.
I can't characterize it more than that.
It does matter the people that you hire.
Larry one day said--
we're hiring all these people.
And I said, well, we are hiring all these people.
And Larry said, well, how do you know they're any good?
And I said, well, I think they're pretty good.
And Larry goes, well, why don't we
inspect all the offers?
Because hiring is how bad organizations get set, right?
Those people are hired one after another.
So he established a principle that we would look at each and
every one of the people we hired, which we do today.
Which is unheard of for a company of our scale.
And normally, basically, managers hire
whoever they want.
And they always hired their friends.
And you get this declining value curve.
Another example--
AUDIENCE: [INAUDIBLE]
ERIC SCHMIDT: Larry and Sergey and I. Yeah.
Every Monday we look at every offer
that goes in the company.
It's about--
AUDIENCE: The CEO level looks at everyone?
ERIC SCHMIDT: Yeah.
Every offer in the company.
We make somewhere between 60 and 100 offers a week.
We all do them on Mondays.
You get hired on Mondays.
You can show up whenever you want, but you
get hired on Mondays.
AUDIENCE: [UNINTELLIGIBLE PHRASE]
individually you're looking at--
ERIC SCHMIDT: We do paperwork and so forth.
Another example was--
again, this is my first six months.
So before I had shown up, they had decided to have management
which was a new concept.
Remember, we're in a university.
So there were five engineering executives
who had been promoted.
And these were perfectly nice people as far as I could tell.
So after a few months of having executives, Larry and
Sergey decided that they didn't like
having executives anymore.
So they decided to get rid of them.
And I said, first place, these are wonderful employees, and
saying, we need some executives.
Said, no, no.
We don't.
So they did what is called the disorg, where they literally
got rid of the management.
And everyone then reported flat to one individual, which
is about 150 people.
Because their standard was so high that they thought that
they weren't going to end up with this sort of--
because they picked the people who had some management
experience.
That was an interesting experience.
From then on, we hired people not based on any management
experience whatsoever because we figured it was
[? peasant. ?]
So the experience was negative, not positive.
Because if you came in with experience, you would apply it
to a cold models to new problems. So lots of
stories like that.
By the way, it takes founders, it takes courage, and it takes
youth to be very blunt.
GARY HAMEL: And maybe a blank sheet of paper in some sense.
ERIC SCHMIDT: Yeah.
And today, those are not reproducible.
But they were at the time.
GARY HAMEL: So let me just come
back to that one question.
So now, given that very broad span of control, given that
sense that-- kind of like talking to the dean, they let
you make decisions when they want to and everybody has a
pocket veto, what allows that to work?
I mean, where does the coherence come from?
Where does this sense of responsibility come from?
How do the key decisions get made?
ERIC SCHMIDT: There are a number of benefits.
One is that the laws do apply to every human, and so they do
have to self-organize around legal activities.
And I say that because you can imagine a situation which just
randomness occurred.
There's a set of things people can't do.
They can't violate the law.
They have to be properly-- and so forth.
And we tell them that.
And that seems obvious but it's worth stating.
Another thing has to do with the fact that there's a strong
shared vision.
And that strong shared vision is really about
innovation in the web.
And that's celebrated.
And that, I think, helps a lot.
And then the other thing, frankly, is we have executives
who've grown up in the company.
So they form that internal culture.

Those are the normal answers.
I think what is most interesting about Google is
the way in which the culture is expressed is very difficult
to describe it.
But when you're in it, you know exactly what it is.
And it's very strong.
People talk about it as, don't do any evil.
And you can be serious without a suit and so forth.
But there's a very specific model that works.
Here's another example.
So Marissa comes in and says, we have too many projects.
And I go, what do you propose?
And so she says, well, we'll have a top 100.
And so I said, perfect.
It's a good idea.
So she does an analysis and we have 250 projects.
But we call it the
top 100 list. [LAUGHTER]
ERIC SCHMIDT: It's fine.
It's the top 100 list with 250 projects.
So I say, well, how would you propose to do this?
And she says, well, what we'll do is we'll rank them five
through one.
So we have too much stuff going on.
I said, OK, well, this is interesting.
So I said, why don't you guys run off and rank everything?
So they managed to rank everything except one project,
which I then artfully split in two and put in the two
different ranking points.
So that scale, the top 100 process, worked for a while
because everyone said, well, clearly we should have a
priority list. And clearly, we should share that.
So after a while, that broke down.
So I said to Larry, I need the tablets.
You need to go to the mountain.
You need to bring back the tablets.
And you need to present them.
And he said basically, no, he's busy.
Like, doing what, right?
GARY HAMEL: As a 767.
Come on.
ERIC SCHMIDT: What, are you busy, right?
So a week or two later, he stays up all night.
And he writes the tablets, which is a
very interesting talk.
And I didn't care what the talk would be.
I just wanted a talk.
So I said, present it and then call for self-organization.
So a combination of a priority list and a call for
self-organization because people want
to serve the company.
Worked pretty well.
Another example.
We didn't have a strategy because, again, the Borg is
moving forward.
It's just innovation, smart people, and so forth.

So I said, we should have a strategy.
We had no product road maps.
And I'm used to, as an executive, having multi-year
products shipped.
But I had no idea what we're going to ship.
But it was fine.
It was working just fine.
Don't complain, right?
So we should have a strategy.
I'm in Larry and Sergey's office at the time.
And Sergey has to run off to dinner.
And he's up to something.
So I said, Sergey, you only have five minutes.
Tell me the strategy.
He writes down the five things, right?
And runs out.
And Larry and I look at these five things.
We say these are brilliant.
We then spend an hour evolving them.
And then there are things like, that we'll only work on
problems that affect many, many people.
Large numbers of people.
That our advertising system is self-organizing in that it's
reasonably resistant to competitive attack because
it's an auction-based model.
Things like that.
Developers are key because we want to change the way in
which people build for the web.
And so then Larry then fills in all of the details.
Sergey, meanwhile, shows up
afterwards and says, beautiful.
And then we're done.
That's how strategy is done.
So we wrote that.
And so we had the combination of the tablets from Larry, and
the strategy document.
And that's what we communicated.

This works to a point.
I think it probably does not work now because the company
is simply too large.
And I'm not sure what we do next.
GARY HAMEL: And ultimately, not knowing Google's case--
but, ultimately, founders run out of vision.
It happened to Scott McNealy.
It happened to Michael Dell, it happened, you could
arguably, to Bill Gates.
So--
ERIC SCHMIDT: They're not done yet.
GARY HAMEL: All right.
We'll take your word on that.
Hey, last question before I--
We just--
ERIC SCHMIDT: They walked in one day.
And I said, OK guys, we're kind of bored.
What's going on?
And they said, well, we decided we have
to enter a new business.
I said, OK, that's-- they're always interesting.
They always have interesting ideas.
What is it?
Manufacturing.
I said, we're going to manufacture
computers or something?
He said, no, no, no.
We're going to manufacture refrigerators.
[LAUGHTER]
ERIC SCHMIDT: And I said, I'm not aware of any particular
strategic thing.
Well, we've been talked about using refrigerators and
general machinery, and connecting it to the internet.
And I said, well, OK.
And this went on for about 10 minutes.
And then I realized that they had spent the whole day
planning this as a joke.
[LAUGHTER]
ERIC SCHMIDT: So, you have to have a sense
of humor about this.
The good news is we're doing refrigerators.
GARY HAMEL: Now, there's been a lot of conversation today
about the role of the CEO.
One CEO here said, we really need to blow up the
office of the CEO.
I think by which he means that imperial sense of, here are
the tablets.
Here's where the [UNINTELLIGIBLE].
I mean, what is your role like as a CEO of Google?
How is it different than perhaps many of your peers in
other large companies?

ERIC SCHMIDT: The good news is it works.

The first thing to know is that I largely share power
with Larry and Sergey.
And we decided to just say that rather than sneak
around about it.
They own a third of the company, OK?
If you were the CEO and the two founders own a third of
the company, do you work for them or do they work for you?
Let's go through this a little bit, OK?
Any rational person walking into that, just be honest, OK?
Much better to be upfront, so we did that.
And the management team, as I described, has worked together
for a long time.
And everybody's used to a model which is pretty much the
wisdom of the crowds model.
And it goes something like this.
Every issue is debated.
There is no issue so small that you can't have a
debate about it.
And we'll debate it infinitely, OK?
Now, if you look at wisdom of crowds, the basic thesis is
that when you see a meeting, like we're sitting at this
table, and you're the person running the meeting--
a bit of background.
At Novell, we had this--
was called the culture of fear.
And I didn't invent this.
And basically what would happen is, everyone would sit
around the table and they would go, yes, right?
And then they would immediately leave the room,
and they would backstab each other.
And this was part of the pathology of the company.
So, clearly a bad model.
So, in our model, we want to get everything on the table.
So you have to basically, as an executive, you have to wait
until nobody is talking.
And then you have to find somebody who's a dissident.
And, inevitably, if you find one person who's a dissident,
there'll be another person who will join them and so forth.
You don't get a good decision until you get to that point.
So a part of my job is to get to that point.
So, one model that says is that the first thing is you
have to make sure you get disagreements.
Now, if that's all you do, you end up with a university.
GARY HAMEL: Back where we started.
Exactly.
ERIC SCHMIDT: And so, you have to do one other thing, which
is you have to have a deadline.
So I have two jobs.
One way to think about my job is I have two jobs, two roles.
The first is to make sure that every issue that's important
is really debated to find, not the common outcome, but the
best decision.
Which eventually smart people will get to after a lot of
give and take.
And the second thing is, to put pressure to make it happen
quick because business is speed.
So I think if you think of it in that context then all these
other arguments people make, and I've read them in
management books, they don't really matter very much.

As long as that's how it feels, you're going to get the
best ideas.
People are going to really be passionate about-- or they're
going to get out, right?
And we'll go from there.
GARY HAMEL: Alright.
Let's have some questions.
AUDIENCE: Eric, I teach at a business school.
If you would be able to [? encompass ?]
[UNINTELLIGIBLE] year--
ERIC SCHMIDT: And by the way, so do I. So I actually like
business school.
AUDIENCE: And we use Google as a case study to teach about
different aspects of new styles of management,
innovation, and whatnot.
And I found that when I teach a case about Google to,
especially, executives from more traditional companies and
industries, the immediate pushback I get is, that's
interesting.
There's really nothing there for us.
This company is just too fundamentally different, DNA
industry, youth, whatever, from us.
And I have, up until now, tried to push back very hard
on that argument.
The more I listen to you, the more I'm convinced that
they're right and I'm wrong.
ERIC SCHMIDT: But even if they're right, it doesn't mean
you shouldn't try to teach them to do better.
Almost all of these people are struggling in cultures which
are dysfunctional.
Almost all of these people are in situations where the vast
majority of ideas are not surfaced and no
one listens to them.
And their employees quit and come work for us.
[LAUGHTER]
AUDIENCE: Are you optimistic that they can get closer to
where you are?
ERIC SCHMIDT: Of course.
AUDIENCE: OK.
ERIC SCHMIDT: It starts with listening.
It has to do with curiosity.

And there is a style that's involved.
And I think it can be learned.
And I think you guys are some of the top
teachers in the world.
You should be able to teach this.
I mean, if necessary it should be remedial.
Let's work on listening.
You learn more by listening than by talking.
It's a shock.

Yeah.
Stuff like that.
AUDIENCE: Eric, thanks very much for coming out.
We really all appreciate it.
I was in a conversation with someone last week.
Actually, a son-in-law who works for Adobe.
And he said that Google is facing a real challenge in
that it will only grow as the years go on.
And that's a brain drain with people that you all have
trained and brought up to a certain level.
And then they go off to some other start up, or they start
their own company, or so forth.
And of course this happened to Microsoft.
Huge, huge brain drain.
What are you all doing to try to keep these employees who've
really learned on your time and money and et cetera, and
where they've now-- because they've cashed in their
options, money's not really driving them.
They're looking for the next whatever to conquer.
What are you doing to help preserve your staff?
ERIC SCHMIDT: I'd like to quibble with the first half of
your question rather brutally, if I may.

When I was at Stanford Business School and they were
teaching me how to teach, one of the examples they used was
Andy Grove.
And Andy Grove--
you can't basically put up one slide without him attacking
every single premise.
And he starts at the--
GARY HAMEL: We have people like that here, by the way.
But keep going.
ERIC SCHMIDT: And by the way--
and he's very rough.
And it works because it forces people to really surface their
hidden assumptions.
I was very impressed with this technique.
Although I was glad I was not subjected to it when I was
that young.

And one of the things that we do at Google that, again,
these are things that can be easily copied, is everything
has to be based on some fact.
So we don't have an argument the way you phrased it.
We start with, what's our turnover?
Now, there is no question that there's a brain drain.
But what you said, your premise of your question, was
completely false.
It's mathematically not true.
It's just not true, right?
The number of incoming far exceeds the
number of people leaving.
The people who are coming in have higher or equal academic
credentials to the people who are joining.
They're at the same age as we hired and so forth.
They're better trained.
They're just as motivated.
In other words, if you think of it in that
context, it's not true.
Now, so I think a way of--
the question that I would ask in replacement is, I think
that's what you were trying to get to, is how do you deal
with these challenges?
Because there is some turnover.
The answer is that, fundamentally, people stay in
companies because they want to have an impact.
So every person who leaves the company either does so because
they made too much money--
and those people have largely, I think, left.
And I understand that.
They want to retire at the age of 30.
It makes no sense to me, but that's their life.

Or the more common case is that they're being mistreated
by management.
And let me give you an example of mistreatment.
If you go to a small start-up, you could do
whatever you want.
Whereas at Google, you have to deal with me, right?
So, am I the problem, right?
Is the culture the problem?
Remember, these are people who selected into the culture.
So it's probably not that.
It's probably something pretty local.
So every time we see somebody leave we say to ourselves,
what is the thing that they're able to do that they care
about that they can't do now?
There's a tremendous arrogance in business about the power of
executives over individuals.
And in high tech, and I think many of you--
I know Steve knows this very well because of the venture
firm she runs.
We treat the people as though we have the only asset.
Other companies say that.
But I deal with all these business people, especially in
private equity.
Some of you have spent some time with that group, and they
don't think of the people as the asset.
They think of the business or the cash flow or so forth.
Whereas we understand that in an innovation model, it's only
about the people and it's only about the innovation engine.
So I'm not sure I'm answering your question.
But I think it was important to say that whatever the
answer to your question is, it will be determined by whether
the innovative culture does scale.
There are many benefits to being in a large company with
a lot of money over a start-up that's going bankrupt.
And it may very well be that this Web 2.0 bubble that we're
in now will draw some people out of the company.
But bubbles eventually end.
And in any case, we've not seen a significant increase in
turnover ever.
So I don't know whether it's the free food, the culture, or
the smiling pictures of the founders, or whatever.
But people are staying.
AUDIENCE: I'm Keith Sawyer.
I'm a professor and the author of a recent book
called Group Genius.
I was at a conference at Harvard in December where Kim
Malone Scott was speaking about the lack of
management at Google.
ERIC SCHMIDT: She is the management at Google.
AUDIENCE: And she said there is no one in charge of
internet search.
But Marissa was introduced earlier today as being in
charge of internet search.
So I wonder to what extent there is or is not
management at Google.
ERIC SCHMIDT: I'd say that if there's a person in charge of
internet search, it would be Marissa.
[LAUGHTER]
ERIC SCHMIDT: What is Marissa's response?
I have a meeting once a week with Marissa where she talks
about internet search.
So are you in charge?
MARISSA MAYER: As much as I [? know what that is. ?]
[LAUGHTER]
ERIC SCHMIDT: Marissa's actually a very good example.
Marissa is particularly good.
She has a number of exceptional skills.
But one of them is she's very, very good at getting people
right out of your universities and getting them to be very,
very talented technical product managers.
She did this even when she was at Stanford
as a graduate student.
So it's a model that she pioneered in the company.
So she has this group of people that she invented that
she commands.
And they run around, and she reports on their activities.
And then we pontificate on whether we like them or not.
And within reason, then she goes back and shapes what
they're doing.
Is that a rough description?
MARISSA MAYER: Yes.

ERIC SCHMIDT: It's a huge amount of
human management, right?
And they're very young people.
But the product decisions are often made by a 22 year old,
which is a little frightening.
But they're the best choice.
GARY HAMEL: [UNINTELLIGIBLE PHRASE]
and then we'll come back over.
AUDIENCE: So while I have the mike, I'm going
to ask you two questions.
And both of them relate to your innovation portfolio, the
top 100 and however many you squeeze into that 100.
It's 250 or more.
So question one--
and this goes back to a conversation I was having with
Hal yesterday.
I think of the top 100.
At least from the outside, it seems like one out of the
entire portfolio is the big revenue generator for Google.
ERIC SCHMIDT: No.
AUDIENCE: So as I said--
ERIC SCHMIDT: But that's not true.
AUDIENCE: --from the outside.
So I just wanted the inside perspective on
how you think about--
ERIC SCHMIDT: What's interesting that she and I did
the top 100, and I try to think what is--
because I'm still trying to behave like a normal executive
in this culture.
So I thought, how would I articulate is the four or five
goals of the company?
What's the number one goal of the company?
It's end user happiness with search.
OK?
So what's the number two goal?
It's end user happiness with advertising.
OK?
What's the number three goal?
The construction of the Google network of partners to
effectuate the first two, OK?
What's the number four goal?
To grow and scale the business naturally as it grows.
So I announce this.
And everybody at Google said, brilliant.
And then I realized that, what's the job of a CEO?
Maximize shareholder value, maximize revenue, right?
None of the things that I'm supposed to be doing are the
goals of company.
So I came up with an excuse, which is I have the head and
the tail of the dog.
And who's wagging which, right?
So, I now explain myself by saying that you will
eventually get extraordinary returns for your shareholders
and maximize advertiser happiness if all
those things happen.
I'll give you another example.
There's a lot of business executives who get confused on
what the goal is.
And they think that shareholder value is the goal.
Shareholder value is a consequence of the goal.
A very good example of a positive example of this is
Rupert Murdoch, who people say--
and he's a very, very clever fellow.
And I had dinner with him, talk to him all the time.
He actually has a sense for what people want to read.
So everyone is consumed with his business practices, and he
did this, whatever.
But the guy knows what his audiences want, right?
He figures everything else will follow.
So why aren't all businesses run that way?
Because many businesses are not very consumer focused.
But if you're in a consumer business, you should be
focused on your consumers.
Put another way, you're in the magazine business.
It really doesn't matter whether your
advertisers are happy.
It matters a lot whether you have readers.
It's not a hard argument.
So the reason I repeat this is this seems so
obvious when I say it.
But if you put a little test in your brain, and when you're
watching a business ask yourself, are they in fact
maximizing the right thing?
In almost all cases, now that I apply this little test, I'm
pretty convinced that they're not.
AUDIENCE: [UNINTELLIGIBLE PHRASE]

ERIC SCHMIDT: Scaling the business.
So it used to be scaling $100 million business.
Then it was growing and scaling a $1 billion business.
Then it was growing and scaling
a $10 billion business.
The question of the size of Google is an interesting one.
So we had one off-site.
Companies like to have off-sites.
So we had one, and I had to have an off-site.
I had to schedule one.
I was the new CEO.
We had it at Quadrus.
A few locals know where that is.
And it was near my home.
And we scheduled it at 10:00 because we
don't start too early.
And the management at the time shows up.
Larry shows up roughly on time.
Sergey shows up late because he's
rollerblading into the meeting.
So the young founders of the time sit there and they listen
to all of this.
And we have a relatively normal off-site.
And then at 3 o'clock or so I said, well,
what do you guys think?
So Larry says, I've been working on my presentation.
And I said, what is your presentation about?
And he said, oh, it's the future of the company.
And I said, oh that's nice.
Why don't you share it to us?
So he goes, OK.
And he said, well, our goal is to be a $100 billion
corporation.
Now remember, this is a time when the company has no
revenue, is near is near bankrupt, and all that.
And I go, do you mean revenue or valuation?
And he goes, doesn't matter.
[LAUGHTER]
ERIC SCHMIDT: I thought there, and I go, I really made a
mistake joining this company.
The two founders don't know the difference between a $100
billion valuation, which could be a very small revenue
company that's highly hyped, versus a $100 billion
corporation with real revenue.
So Larry presents a strategy which can be roughly
summarized as, the space that we're going to be in, that
we're in, is going to be very large.
There will be at least one company that will be a large
company in it.
And the size of a large company in that space will
equal $100 billion of either revenue or valuation.

At the end I said, well, I don't think you guys--
and I got on the whiteboard and I wrote down the
difference between P/E multiple and so forth.
And Sergey looks at Larry and says, should we tell him we
were kidding?
Of course they understood it.
You had another question?
AUDIENCE: So, at the risk of abusing my ownership of the
mike, let me ask a second question.
And this has to do with--
I mean, I like practically everybody else in the room.
I absolutely love Google.
And there are many, many parts of the Google site which I
think are fantastic.
They're cool.
But I'm not quite sure that they intrinsically make the
world a better place.
For instance, the street level view of my house.
I think it's fine.
I really enjoy seeing it.
Here's the aside.
I'm part of a group called The Gene Partnership Project up in
Boston, where you're trying to essentially create a database
of personalized health records for the future of
personalized medicine.
Now, if I think about one company that could potentially
make that happen in the private sector, it's yours.
ERIC SCHMIDT: By the way, Marissa's actually doing that.
AUDIENCE: Yeah.
And I was aware of--
[INTERPOSING VOICES]
ERIC SCHMIDT: --shift her resources from Street View to
that project?
AUDIENCE: Yeah, exactly.
So I was wondering, how you think about allocating
resources for Street View, which is a
very difficult project.
ERIC SCHMIDT: Marissa, what is your response?
MARISSA MAYER: One, we are doing the health record piece.
So we launched it just last week.
And you can actually put your medical records online.
And we actually think that it's, really--
our mission is to organize the world's information and make
it universally accessible and useful.
And I think that both Health and Street
View fill those goals.
Health is really--
I mean, it's absurd.
I mean, I don't know how many people here have actually had
a chance to touch their doctor's chart on them.
Has anyone?
Right.
And I'm going on a trip this summer.
I needed to call around and figure out if I'm due for a
tetanus shot.
Took calls to four doctor's offices.
And I'm a healthy person, right?
It was just inordinately inconvenient.
So, I mean, I really think that it's important to--
in this day of information, it's unthinkable that this
information that'd be so useful to you, and could have
such an amount of good for you or for your family members,
lays outside of your reach.
So this is really about getting that information,
putting it in the user's hands where they can control it.
They can direct it.
They can get better health.
So we're really interested in that space.
And, again, it fits squarely into Google's mission.
And Street View, from our perspective, is really
fundamental.
It is, how do you physically find something, when you think
about what it could actually mean?
We had one of our PR executives who said--
last week she was late to a meeting.
It was raining out.
And she knew it's the restaurant
with a yellow awning.
She didn't have to get out of the block and go running down
the street, making her even later and showing up soaking
wet, right?
So you can actually physically know where you're going.
And now we're starting to see things like, what can Street
View do for driving directions?
What if you could actually be driven there on your computer
so you'd know exactly, I'm looking for a corner that
looks like this.
I'm going to take a right.
What if you do that?
Street View's a profound way of just finding something in
the physical world.
ERIC SCHMIDT: I forgot to tell you about the autonomous cars
that we're building that don't have drivers.
And they need Street View.
GARY HAMEL: With the refrigerators.
ERIC SCHMIDT: By the way, we actually are building the
autonomous cars thing.
I'm not so sure I'm happy with that.
But you never know.
With Android, there's a demo where Street View is actually
integrated with the GPS and the accelerometer in Android.
So you can actually see a replica of your world in front
of you using Street View.
And it is the exact vision that Marissa just described.
We don't know where it'll go, but it is--
she just gave the keynote at our developer
conference this morning.
And we now have published APIs for people to use the Street
View data to do interesting apps.
We have no idea what people will do with that information.
It's clearly very powerful.
Some more questions.
This lady here, and this gentleman.
Yes.

AUDIENCE: I don't know if it's a matter of semantics, or if
the culture of Google--
But each person from Google, yourself included, when
they've described it have described it as chaos.
I'm interested on how one achieves such incredible
superior performance from chaos?
ERIC SCHMIDT: Because you have smart people.
I mean, chaos is possible in every organization.
[LAUGHTER]
ERIC SCHMIDT: I mean, it really does matter who you
have working for you.
And what happens is the HR people always write, we value
our employees and so forth and so on.
It's all crap, right?
Basically, it's all about how do you go about bringing and
attracting and motivating the top talent?
And the top people want to work in creative
organizations.
It's true in many industries.

And they know where they want to work.

Yes, ma'am.

AUDIENCE: Hi, Eric.
My name is should Shoshana Zuboff.
I wrote a book called The Support Economy: Why
Corporations Are Failing Individuals and the Next
Episode of Capitalism.

That's that.
Important thing.
I went upstairs before you were coming, and to call home
and talk to my kids.
And my daughter got on the phone.
She's 15.
She's a genius.
She's an environmental activist. And the first thing
was not, how are you or what?
Mama, have you met Eric Schmidt yet?

I really don't believe she knows the name of a single
executive in any company on the planet except yours.

And when I was describing this meeting to her and what I was
coming to, and why was schlepping across the country
and all of that, it was when I mentioned you that the light
bulb went on.
And say, OK mom, you should definitely go.

So why is this?
Because she sits down--
ERIC SCHMIDT: I'm looking forward to meeting her.
[LAUGHTER]
AUDIENCE: She's a perfect employee for you.
But she's only 15.
She sits down at our kitchen counter.

Her goal is to solve the climate crisis.
And within a few hours, using Google, she has done literally
dozens of pages of research on how to make the climate crisis
the defining issue of her generation.
She has created a blog.
She's got all kinds of entries on the blog.
Before she's done in that day, she's got people from all over
the school, the community, and the country writing on the
blog with her.
And she's created a website.
And again, before she went to bed that night, there was
something posted on the website from
a student in Denmark.
All using Google.
I'm telling you this because you are an intimate part of
our family.

You are in our lives.
You're not only empowering the people who work for your
company and all the wonderful inspiring ways that you're
telling us about, but as you well know, you and Marissa and
everyone else, you're empowering millions of people
on this planet to do things that they never could have
dreamt of doing.
Not just the search, but all these other things.
OK.
Now, you're a publicly traded company now.
You inhabit the 20th century corporate form that is not
well known for wonderful treatment of its end users.
In fact--
and especially over the last 30 and especially over the
last, say, 15 years--
it's more widely known for ignoring, abandoning, and
betraying its end users and its customers, its consumers.
All those labels.

So when I think about Google, I think about a revolutionary
capability that is transforming at an intimate
level the lives of so many people on our planet.
But this revolutionary capability now colonizing an
old form, a form that has a lot of problems. A form that
some of us would argue, I'd be among them, is in demise, and
that has become part of the problem not part of the
solution, for people like my daughter and other people on
this planet who are hungry for empowerment and to be able to
live their life the way they want to live it.
GARY HAMEL: Can I turn that into a question?
AUDIENCE: I'm going to turn it into a question.
GARY HAMEL: Because we are going to run out of--
AUDIENCE: I'm going to turn it into a question, but I have to
have the preamble.
OK.
So the question is, how do you think about this?
Is this on your radar screen as a conflict?
Google going forth five years, 10 years, 15 years, we don't
know that Larry and Sergey are always going to be there.
We don't know that you are always going to be there.
Can you imagine yourself betraying these people?
How do you reinvent the form so that that's not a
possibility?
ERIC SCHMIDT: The good news is that I have a relatively
straightforward answer.
We understood the question that you asked, I think,
remarkably well.
And as part of our going public, we created a two class
stock system.
And the early employees, which obviously include the
founders, these executives, and a few others, have super
voting control over the company over any issue, not
just mergers and acquisitions, which is unusual.
In fact, it's not done anywhere else except for a
couple media companies.
And this has the effect that the current clowns running the
company can run the company without regard to street
pressure and without regard to, for example, what's going
on today with Yahoo.
And we put that in place precisely because we saw
ourselves in a 10 or 15 year time frame.
And there's a tremendous concern that the quarterly
pressures that are on companies is in fact causing
them to make short term rather than long term comments.
So we did incite that.
I'll give you one story about inspiration.
So every day, I get an interesting email or story
from somebody about the impact on Google.
Here's today's, OK?
Just randomly today.
We have an employee named Vincent who is in a
wheelchair.
He was injured, spinal cord accident, was tragic
things 28 years ago.
So it turns out that he decided to have the Google
Video people, who are very clever, do a video of him
using his wheelchair.
Because people, when they're injured, often don't know how
to effectively use a wheelchair.
And he is an engineer.
So you have to use your wheelchair optimally if you
live in it.
And so he put it on YouTube.
And he measured it.
And he has 100% of his audience watching it.
He is the star of the wheelchair generation.
And for him, that's the most important thing that's ever
happened to him.
It's more important than working at Google, more
important than his business success, because he has lived
through the grief and then the recovery.
And it's very hard to value that more
highly that he would.
So anyway.
GARY HAMEL: Another question?
Terri and then James.
AUDIENCE: [INAUDIBLE]

AUDIENCE: So my question is-- we have probably a similar
challenge that you do of hurting the cats, where you've
got all this passion, all this smart people.
And they also are very passionate about their ideas.
And so how they're told their project isn't going to be
funded and how you decide what's going to be selected is
a huge issue from an empowerment--
so I'm curious how you've managed that, and not made it
top-down versus there is some understanding in the
organization that all projects are not going to be funded.
And we have resource constraints in any
organization.
ERIC SCHMIDT: Of course, we have the same problems. We do
very, very tough product reviews.
And this is something that we learned from Microsoft.
And there are a few things that Microsoft did well, and
that's one of them.
And we really, really get to the bottom of, is
this a great product?
And the typical cycle will be to be a product strategy
process and a meeting.
The technical executives are there, some of the key
technical people.
And they're very, very detailed.
Is this really going to work?
And they're often rejected based on the fact that they're
just not good enough.
It's rare that we cancel anything.
It's interesting.
Marissa's one of the people who, when she took over one
particular project working with me, said, this is not
going to work.
And she had the courage in the company to--
we seldom cancel anything, but it's rare.
And she's done it a few times.
GARY HAMEL: James and then Jeff.
James.
Alright, either way.
Alright.
AUDIENCE: So, obviously, I'm very interested in everything
you're saying about wisdom of crowds, personally, and the
bottom-up stuff.
But I'm also struck by the--
and I'm not surprised by this because I think one of the
reasons why it seems to work relatively well-- the
empowerment bottom-up model, call it that short hand--
is because Google is full of smart people.
So you assume that everyone at the table, when you're trying
to draw out the dissident opinions, is smart.
ERIC SCHMIDT: Can I just--
a principle at Carnegie Mellon used, that I put in place,
called the reasonable person principle.
It's a simple rule.
The other person in the company has to be assumed by
you to be a reasonable person even though you hate them at
the moment.
AUDIENCE: Right.
My question, I guess, is--
and you were talking about how important it is
to hire smart people.
Do you have any thoughts about how or whether you could make
this model work, the model that you use, in a company
where you're not hiring from the talent pool that wants to
work at Google?
I mean, let's just assume that the vast majority of people
aren't smart in the way that Google employees are.
But we still want to create organizations that get the
most out of those people and that actually tap the
knowledge that people have. I'm just sort of wondering--
ERIC SCHMIDT: In the first place, I don't want to sound
so arrogant that I think that the organization will be
successful full of the smartest and the brightest.
The fact of the matter is we have organizations that have
every kind of person.
But everybody wants the same thing.
They want to be heard.
So let's start with the fact that-- a typical example.
When I was a young executive at Sun, we did a deal with
AT&T. A series of deals.
And the executive that was at the time a very powerful
executive came to visit.
I was 30 years old or something.
And we're sitting around the room, and he basically stands
up-- and he's meeting with us.
And he gives us a short speech.
And his speech was so clear that he
didn't ask any questions.
It was further obviously that he didn't want any answers.
So we saw no particular reason, because we're arrogant
ourselves, to bother giving him any feedback.
So he got nothing out of the transaction because he
couldn't listen.
So independent of the specifics that we're talking
about, about the Google management culture, why don't
you simply work on listening?

There's this myth, and it's unfortunately--
the particular disease is the US presidency.
We want a president who is all-knowing and all-seeing and
goes to the mountaintop and makes a decision.
It's derived from our model of kings, right?
If you look at the math, and many of you have looked at
this, it produces bad outcomes.
You're much better off having a partnership, because the
partnership is forced to at least mediate each other.

GARY HAMEL: Another question?
Jeff, then Lenny.
AUDIENCE: Jeffrey Hollender from Seventh Generation.

As you know, and I think everyone in the room knows,
the impact and potential of the company.
I've always felt, and it's just my opinion, that the
notion do no evil falls short perhaps significantly so of
the potential and aspiration of the company.
And I'm just wondering, having lived with that for some time,
your reflection on that.
Is it right?
Is it--
ERIC SCHMIDT: It can be understood as forcing a
conversation.

Two examples.
If we have a policy of do no evil, then if somebody thinks
evil is occurring it forces a conversation.
Now, it's possible that your view of evil
and mine might disagree.
In which case, we'll have an argument.
And our argument will be followed in
the way that I described.
It'll be everybody in a room.
There'll be a big argument, some kind of a deadline.
Hopefully we'll get the right answer.
And in those discussions, everybody's appear.
Again, these are all things that can be
copied in other companies.
Another example is 20% time.
We have a rule, widely publicize, that engineers get
to do 20% of whatever they want.
Now, the good news about these engineers is they're not that
interesting, right?
They don't go off and climb Mt.
Everest as well.
Their interests are pretty narrow.
And so the 20% time, they tend to work in stuff that's in
their area of expertise.
And they invent stuff that we hadn't thought about.
So that's good.
But that's not the real reason 20% time exists.
The real reason is because it forces a conversation with a
manager who's over-managing.
So I come to you and I say, the project is late.
You guys have screwed up.
I'm my classic old management style.
And you can sit there and you can say, you know Eric, I'm
going to give you everything I've got 80% of the time.
[LAUGHTER]
ERIC SCHMIDT: Forces the dialogue.
It serves as a check and balance on this command and
control management that a lot of companies have.
AUDIENCE: So just as a follow up.

Five, 10 years from now what hope do you have, or what
aspiration do you have, for the effect that Google has had
on the world?
ERIC SCHMIDT: First place, I hope it's positive.
Information is powerful.
And the technology platform that the web has provided for
information is unprecedented.
We have example after example after example.
And all of you, and we, work in the
information economy, right?
A reasonable scenario over five or 10 years-- first
place, I hope the company does well.
And I hope that I serve it well in my role, and the
founders do, and the executives, and
so forth and on.
But the fact of the matter is, it's a system.
It's a system of innovation around this
web information model.
And what I hope will happen is that a set of new uses of
information will just naturally creep in your lives.
And all of a sudden, we'll always know
the answer to questions.
What you'd like to be able with Google is you'd like to
be able to say, what should I do tomorrow?
A reasonable question.
I'm always confused what I should do tomorrow.
And Google should be able to at least give me some
suggestions.
Seems reasonable, right?
Another one.
I've always wanted a product called the
paper lengthening product.
Submit a paper, make it longer.
[LAUGHTER]
ERIC SCHMIDT: And it's recursive, OK?
Another product I've always wanted is the product which--
and the code name we use internally is serendipity.
Basically, I'm typing and then it says what I should be
typing, OK?
And these are simple ideas.
Why don't computers do that stuff for me?
I mean, Marissa outlined the health vision.

There are so many examples where the digital revolution,
the ubiquitous nation of information, the notion of
GPS, geolocation, these new platforms, really do create a
new set of apps.
Couple more.
Yes.
GARY HAMEL: Kevin, and then Lenny.
I'm sorry, Lenny.
ERIC SCHMIDT: We keep forgetting Lenny.
GARY HAMEL: Kevin and--
AUDIENCE: Oh, I'm sorry.
Well, Lenny.
GARY HAMEL: Do you have the microphone there, Lenny?
Yeah, I'm sorry.
Go ahead.
AUDIENCE: I have a question for you on what you think the
future of the media that has any intelligent discourses,
and the role that Google plays in that.
I'm a complete news junkie.
And I may be the last person on the planet who actually
reads newspapers and enjoys picking up a paper magazine.
But everyone I know in each of those businesses says their
business is completely dead with the exception of Tom
Stewart at the Harvard Business Review.
And I'm curious what your view is about how is that going to
evolve in a way that plays the important role that media does
in encouraging an intelligent conversation.
ERIC SCHMIDT: This is a crucial issue.
And here's an example where you have a confluence of
business models where the consumer goal is not
necessarily the same things as the business school.
Let me observe that people are consuming more
information now than ever.
And they're paying for it less than ever, OK?
Simple, easy to understand.
Things like the Harvard Business Review, The
Economist, magazines that are monthly, seem to be doing
generally quite well unless they're--
the more specialized the better.
There's something about that modality that works.
They can monetize.
They have good advertising.
The hardest hit as we all know are regional newspapers, who
lost both the value of advertising as well as
classifieds.
Now let me ask a question.
Anybody here read a newspaper this morning?
Show your hands.
OK.
Can somebody describe some of the ads in those newspapers
that you read this morning?
Anyone?
AUDIENCE: Yeah.
ERIC SCHMIDT: What's an add that you saw?
AUDIENCE: Bra ads.
For some reason, the New York Times--
[LAUGHTER]
GARY HAMEL: Yeah, yeah, Kevin.
AUDIENCE: Then why were you looking?

ERIC SCHMIDT: And by the way, I don't ask too personal a
question, but are you or are you not in the
market for a bra?
OK.
[LAUGHTER]
AUDIENCE: I am not.
ERIC SCHMIDT: Thank you.
This is a perfect example of an advertising having wasted
his or her money selling you a product which doesn't look
like you need.

I mean, therein you see the problem.
And it's a very difficult problem.
I think the future of newspapers, which has been
widely discussed and I've been to a series of
[? conferences-- ?]
it's really mixed.
Most of the newspapers seem to ultimately being merged into
larger brand companies.
Washington Post, that's true.
The Wall Street Journal is now really part of a
larger brand company.
And it may very well be that the brand, the consumer brand,
has such value that even though they're not very
profitable, so forth.
But things like the other regional newspapers, it's not
obvious where they're going to end up.
AUDIENCE: Would you mourn their loss?
ERIC SCHMIDT: Of course, because you always mourn the
loss of creative content.
AUDIENCE: What about the intelligent discourse
[UNINTELLIGIBLE PHRASE] ?
ERIC SCHMIDT: The problem is that we--
because everybody here is educated and, excuse the term,
relatively elitist in our views, it's very disturbing to
discover that, for example, Huffington Post, which has
actually got a lot of various voices, makes all of its money
from Britney Spears, right?
The average person is actually more concerned about her than
they are about the kinds of things that we care about.
And newspapers are always in approximation
between those two goals.
But with the internet, you can actually
sub-specialize, right?
And the fact of the matter is that this is a tension in
society and something which is not good.
So the fact of the matter is that this is a negative
outcome from the internet.
But I think the business outcome will be that there's a
value of the brand, even if it's not monetizable.
And those valued brands that are not monetizable.
will be combined with good businesses.
The organizations that have no particular value of the brand
and have high production costs and relatively little money
will go out of business.
And it's a terrible outcome.
GARY HAMEL: OK, Kevin.
And then I think that'll be--
I'll ask one more.
AUDIENCE: So, in your discourse and history of
Google's management style, you made it very clear that
there's been a historical evolution, that the things
that you were doing originally just ad hoc by the founders
has changed over time.
You're doing things differently as it scaled up,
and also as the environment changed.
And so what I'm wondering is if the rest of the way Google
does its actual products is very, essentially, engineered.
A lot of data testing.
A lot of A/B tests.
A lot of experimental approach.
And so as you are headed into maybe your third phase of
growth, into a new environment, into a new scale
of operation, are you doing experiments in terms of
management styles?
Or is it still you're just making up and doing whatever
opportunistic thing happens?
And where are you being inspired?
ERIC SCHMIDT: I wish I had a better answer than saying we
don't really know.
Google has never had a strategic
plan on these questions.
What Hal did is, Hal came in and serves as our chief
economist. And what's funny about Hal is that he's got all
of these young people who--
it's like having graduate students, except they're
working on the business problems of
scale of the company.
So that's an example where we went from just roughly
thinking it's going to work to the science
behind running the business.
And so it turns out that there's all these incredibly
brilliant mathematically inclined PhDs in economics who
are busy working on these questions.
So that's an example of an evolution of the model.
It's still basically Hal and me next to each other having
these conversations.
But the difference is now we have more rigor.
There are many, many examples where the company would do
stuff ad hoc where there are now
teams that do it correctly.
But the culture, the structure of the
company, has not changed.
I worry that we have to change it because we're now 20
something thousand people.
And there are issues around scaling human organizations,
even with such an attractive model.
AUDIENCE: So, everyone looks to Google as a model.
Is there any other place, other organization or company,
that you look to for suggestions and inspiration?
ERIC SCHMIDT: Mostly to negative examples.

There's not been a company that grew as quickly in the
human side and expansion side as we have, to my knowledge,
in US history at the rate in terms of head count and
globalization.
Maybe you know ones that I don't know.

One way to think about Google is we faced
every management problem.
We just face it faster.
And I can repeat the ten of them: employees vesting out,
management topping out, and the people that need to be
promoted, motivational thing, people having other personal
crises, lack of coherence, lack of time zone issues, lack
of communication, cross-product issues, platform
issues, platforms don't scale, shareholder issues, so forth.
And so we just face them all at once.

But we still face them.
So one way to answer your question is to say that the
future is ambiguous, and that the way you want to deal with
such ambiguity is to have the smartest people
working with you.
So what I try to do is I try to, to the degree that I can,
I try to anticipate the problem we're having.
And I try to say, OK, you guys.
You think you're so smart.
OK, what are we going to do about this?
And then that provokes the internal debate.

GARY HAMEL: So maybe last question.
John.
One last, and I'll follow up.

AUDIENCE: You guys have been an up and comer.
You've had wonderful media coverage, and of course has
been contrasted with Microsoft as the villain.
ERIC SCHMIDT: So what's wrong with this?
[LAUGHTER]
AUDIENCE: Nothing.
But I sense that it's beginning to change, that I'm
beginning to see more and more negative
articles about Google.
And do you guys have a strategy or proactive way to
deal with that?
Envy begins to seep in as you begin.
You're getting on top.
And as you get on top, you begin to get
attacked, and the negative--
ERIC SCHMIDT: That's actually been true for a long time.
We were fortunate that when we were not public, we could hide
because nobody knew how well we were doing, although people
suspected it.
But once we went public and with all the attendant hype,
the secret was out.
One way of thinking about the press is the
press starts here.
It's the clock model, basically.
You're up and coming.
You're exciting.
You're incredibly interesting.
You're dominate.
You're arrogant.
You're a disaster.
You're all screwed up.
Then there's an opportunity for resurgence, OK?
AUDIENCE: Where are you on the clock?
ERIC SCHMIDT: Well, we believe we are between 6:00 and 7:00.
And we furthermore believe we will be there,
essentially, forever.
And the reason is actually very simple.
As long as we're gaining share, which we are globally,
we become too powerful.
And one of the roles of the press is to keep people from
becoming too powerful.
And that's a very legitimate role for the press.
I'm not criticizing it.
It's a reason why our country works and the
fourth estate exists.
And I admire it and I'm happy to be part of it.
So we understand that that's the cycle.
They also get tired of writing articles about the food.
You just literally get tired of writing the
nice pleasant articles.
There must be something wrong with the company.
And there certainly are examples.
The question is whether it matters.
Remember the four things I said?
End user satisfaction, end user satisfaction with ads,
building the Google network, and growing and scaling the
organization.
It clearly affects me, OK?
So, an example would be that we went public.
And we had had generally good and mild press.
And during the time when we went public, we were not
allowed to talk to the press under this various quiet
period rules, from April to August in 2004.
And we had the worst press we'd ever seen.
Articles about the idiots that we were.
And literally just name calling and so
forth and so on.
And I was very worried that this would affect our brand.
And we tracked user traffic.
And user traffic exploded, went straight up.
AUDIENCE: As long as they spell your name right?
ERIC SCHMIDT: That's right.
So it does appear that there is, within some limits and
obviously there's some things that you shouldn't do, that
the criticism of the incumbent can in fact making the
incumbent stronger.
It certainly helps us understand how we're viewed.
Another example, since you were kind
enough to mention Microsoft.
It's always a good example for me because I've competed with
them so many years.
Their high point or low point, depending on your view, with
in 1997 prior to the trial.
And during the trial they lost something which is very hard
to get back, which is this sense of the
American success story.
And if you remember Tom Brokaw's interview with Bill
Gates in the early--
1994, 1995, wandering around, talking about the king of this
enormous enterprise and so forth and so on.
The press was largely fawning.
If you go back and you reconstruct the errors that
they made, and I obviously believe that there were many
which ultimately resulted in a conviction, there were signs
all along the way.
And I lived there.
And there were many subtle things that they could have
done differently, which in sum, in my view, would have
avoided the loss of something which is very, very important,
which is the image of the brand.
So one of the things that I do worry about, to try to give
you as crisp and honest an answer, is, are those signs
out there now and are we listening?
And we can debate that.
But that's what we talk about.
GARY HAMEL: So maybe--
[INTERPOSING VOICES]
AUDIENCE: So you're conscious of it.
So your conscious is probably less of a problem.
ERIC SCHMIDT: Well, we have to act too.
GARY HAMEL: So I guess maybe the last question is--
we hope you have a long and continued career at Google.
But if for some reason--
ERIC SCHMIDT: I have 16 years to go.
GARY HAMEL: 16 years to go.
If for some reason tomorrow you ended up running Boeing or
running Motorola or running a company that faces a
difference--
I mean, very complicated products, highly
interdependent, suppliers all over the world.
ERIC SCHMIDT: So, we have all of that.
GARY HAMEL: So what part of the
Google model would translate?
I mean, what would be the first thing you'd do in your
first 100 days as a CEO if you were a much more traditional
company with all the legacy that they have?
ERIC SCHMIDT: Well, the first. It's easier to talk about it
from my experience at Novell.
I went to Novell thinking Novell was a growth company.
And I was wrong.
It was not a growth company.
It was a different kind of company.
And I did all the things that you do in a growth company.
And it didn't grow because it wasn't a growth company.
It was a mature business.
So the first question I would always ask if I were
parachuted into another company, aside from why did I
leave, is, what is the nature of the business?
Is it really growing?
How do we really make money here?
And I think the role of a CEO is to be honest with that.
Many of the large businesses are really relationship
businesses with the government.
It's really about hiring people who are connected to
the government.
And that's, on the margin, how you get your revenue.
Other businesses are not really about innovation.
They're about capital management.
And the airlines business is a hopeless business.
I have no idea how to solve that.
It's always my worst example.

What you want to do is you want to figure out, are you in
a business that fundamentally has high capital costs and
high increasing costs, and less therefore profits, or do
you have a business where you can get economies of scale
from capital investment?
So you start going through those sorts of questions.
And you have to be honest. And I can tell you in my
experience, having parachuted in, the people who you work
with won't tell you the truth because they don't know.
So the single most important thing that you can do, and I
suspect those of you who are able to do consulting and so
forth are probably in the situation, is try to
understand how the business actually works as opposed to
what the people are telling you.
And Google, for example, we have a wonderful sales force.
And we say it's the greatest sales force in the world.
By the way, every company says it has greatest sales
force in the world.
I can tell you the way we make our quarter is we control the
dials on our advertising system.
Sales guys have relatively little to do
with making the quarter.
They're very important because they cause the
order book to be filled.
But we can decide whatever numbers we want per quarter
just by changing the dials of our advertising system.
It's very important to know that.
Another example.
97% of our revenue comes from text ads.
I love text ads, right?
If 97% of your business is in a business, you
better love it, right?
When I was going to become CEO of Novell, I wandered around
and asked for CEO training because I figured all these
people know something.
And everyone was very kind.
So Bill Gates told me, you should spend 80% of your time
on 80% of your revenue, right?
Perfectly reasonable.
See, it's very easy, it's very, very easy as an
executive to get confused.
Like this press question.
Does it really matter, right?
Now, it obviously matters to me.
But does it really matter?
Because the way you lose your job as a CEO is revenue and
earnings growth.
AUDIENCE: It can demoralize your organization.
ERIC SCHMIDT: But it's fine to have a demoralized
organization as long as you have a high stock price and
make a lot of money.
My point is that it's very, very easy.
Everybody always has all of these arguments.
The easiest way to lose your job as a CEO is to have
revenue going the wrong way.
So when I started at Google I said, we have a
very simple rule here.
We're going to have absolute profits are going to increase
every quarter.
I'm not talking about growth rate.
I'm talking about absolute profits.
Very simple.
We'll figure out a way to do that.
Go work on that.
Because it seems to me that as long as absolute profits are
growing, it's very hard to complain.
All we're arguing about then is growth rate.
Because I've been on the other side.
And so I think when I think about--
I'm trying to give a sense of color.
The businesses that you're describing are
either growing or not.
They either have capital available for them to invest
or they don't.
They either have these structural
impediments or they don't.
They often waste a lot of money on things that aren't
very important compared to the things that I said first. And
I think the most important job of a CEO is to know the answer
to that question.
And then the test of you as a CEO is whether you can
maneuver through the culture.
At Novell, I had an employee meeting in Utah.
And this very nice lady came up and introduced herself and
said, I was just [? in ?]
[? the ?]
[? company ?].
What do you do?
Oh, I'm the fleet manager.
And I said, oh, we have a fleet.
A fleet of what?
Cars.

Again, it's amazing what you learn.
We got rid of the cars, but--
AUDIENCE: [UNINTELLIGIBLE PHRASE] is you
shouldn't have introduced yourself.
[LAUGHTER]
ERIC SCHMIDT: Anyway, you get the idea.
GARY HAMEL: All right.
Thanks, Eric, very much.