How Google Became the #3 Most Valuable Firm by Using People Analytics to Reinvent HR

By Dr. John Sullivan (www.ere.net) consummated by Wendy van Ierschot (www.vanierschot.com)

Google has the only HR function on the planet that is managed based on people analytics was the
title of the article Dr. John Sullivan published on February 25, 2013.
If you havent seen it in the news, after its stock price broke the $800 barrier, Google moved into the
No. 3 position among the most valuable firms in the world. Google is clearly the youngest firm among
the leaders; it has surprisingly been less than a decade since Googles 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. Googles 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. Combined with perseverance in implementation.
Continuous Innovation Requires a New Kind of People Management
The extraordinary marketplace success of Google (and Apple [2], 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 cant maximize innovations unless you are capable of recruiting and retaining innovators [3].
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.
Why Firms Need to Shift to Data-based People Management Decisions and perseverance in
implementation
The 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 cant 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. 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% of corporate
variable costs, so it makes sense to manage such a large cost item analytically.
Now of course not all impact of people management investments can be reduced to a simple number
but we are way behind even in giving numbers to people management investments where they are
relatively easy to calculate. In one of our projects for universities it was known that a new hired
academic for a Tenure Tracki position (leading to a fixed time contract in 6 years time) was making an
investment decision of 300.000. Solid procedure, however, focusing on quality and outcome; for
example making sure that the engaged employees in the recruitment process are really well skilled in
making good recruitment decisions, was not at all a priority. Would we ever allow that in marketing
or finance decisions?

Relying on Relationships in HR
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, Googles success has to be attributed in large part to the fact that it is the worlds
only data-driven HR function. Googles 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).
Relationships are important in HR. Success of implementations directly correlate with trust & support,
given of course via human interaction. But to excel we must expand that with a datadriven approach.
How Does the Google People Analytics Approach Reinvent HR?
HR at Google is dramatically different from the hundreds of other HR functions that John has
researched and worked with. To start with, at Google its not called human resources; instead, the
function is called people operations. The VP and leader Laszlo Bock has justifiably learned to
demand data-based decisions everywhere. People management decisions at Google are guided by the
powerful people analytics team.. Two key quotes from the team highlight their goals:
All people decisions at Google are based on data and analytics
The goal is to bring the same level of rigor to people-decisions that we do to engineering decisions
Google is replacing the 20th century subjective decision-making approach in HR. Although it calls its
approach people analytics, it can alternatively be called data-based decision-making, algorithm
based decision-making, or fact or evidence-based decision-making.
Johns Top 10 Most Powerful Illustrations of the People Analytics Approach
The people analytics team reports directly to the VP and it has a representative in each major HR
function. It produces many products, including employee surveys that are not anonymous, and
dashboards. It also attempts to identify insightful correlations and to provide recommended actions.
The goal is to substitute data and metrics for the use of opinions.
Almost everyone has by now heard about Googles free food, 20% time, and wide range of fun
activities but realizes that each of these was implemented and maintained based on data. Many of
Googles people analytics approaches are so unusual and powerful; John can only describe them as
breathtaking. Below he has listed his top 10 of Googles past and current people management
practices to highlight its data-driven approach:
Leadership characteristics and the role of managers its project oxygen research analyzed
reams of internal data and determined that great managers are essential for top performance
and retention. It further identified the eight characteristics of great leaders. The data proved
that rather than superior technical knowledge, periodic one-on-one coaching which included
expressing interest in the employee and frequent personalized feedback ranked as the No. 1
key to being a successful leader. Managers are rated twice a year by their employees on their
performance on the eight factors.
The PiLab the PiLab is a unique subgroup that no other firm has. It conducts applied
experiments within Google to determine the most effective approaches for managing people
and maintaining a productive environment (including the type of reward that makes
employees the happiest). The lab even improved employee health by reducing the calorie

intake of its employees at their eating facilities by relying on scientific data and experiments
(by simply reducing the size of the plates).
A retention algorithm it developed a mathematical algorithm to proactively and successfully
predict which employees are most likely to become a retention problem. This approach allows
management to act before its too late and it further allows retention solutions to be
personalized.
Predictive modeling people management is forward looking at Google. As a result, it develops
predictive models and use what if analysis to continually improve their forecasts of
upcoming people management problems and opportunities. It also uses analytics to produce
more effective workforce planning, which is essential in a rapidly growing and changing firm.
Improving diversity unlike most firms, analytics are used to solve diversity problems. As a result,
the people analytics team conducted analysis to identify the root causes of weak diversity
recruiting, retention, and promotions (especially among women engineers). The results that it
produced in hiring, retention, and promotion were dramatic and measurable.
An effective hiring algorithm one of the few firms to approach recruiting scientifically, it
developed an algorithm for predicting which candidates had the highest probability of
succeeding after they are hired. Its research also determined that little value was added
beyond four interviews, dramatically shortening time to hire. Google is also unique in its
strategic approach to hiring because its hiring decisions are made by a group in order to
prevent individual hiring managers from hiring people for their own short-term needs.
Calculating the value of top performers Google executives have calculated the performance
differential between an exceptional technologist and an average one (as much as 300 times
higher). Proving the value of top performers convinces executives to provide the resources
necessary to hire, retain, and develop extraordinary talent. Googles best-kept secret is that
people operations professionals make the best business case of any firm in any industry,
which is the primary reason why they receive such extraordinary executive support.
Workplace design drives collaboration Google has an extraordinary focus on increasing
collaboration between employees from different functions. It has found that increased
innovation comes from a combination of three factors: discovery (i.e. learning), collaboration,
and fun. It consciously designs its workplaces to maximize learning, fun, and collaboration (it
even tracks the time spent by employees in the caf lines to maximize collaboration).
Managing fun may seem superfluous to some, but the data indicates that it is a major factor
in attraction, retention, and collaboration.
Increasing discovery and learning rather than focusing on traditional classroom learning, the
emphasis is on hands-on learning (the vast majority of people learn through on the job
learning). Google has increased discovery and learning through project rotations, learning
from failures, and even through inviting external speakers like Al Gore and Lady Gaga to
speak to their employees. Clearly self-directed continuous learning and the ability to adapt
are key employee competencies at Google.
It doesnt dictate; it convinces with data the final key to Googles people analytics teams
success occurs not during the analysis phase, but instead when it presents its final proposals
to executives and managers. Rather than demanding or forcing managers to accept its
approach, it instead acts as internal consultants and influences people to change based on the
powerful data and the action recommendations that they present. Because its audiences are
highly analytical (as most executives are), it uses data to change preset opinions and to
influence.

Google Is a Talent Competitor to Your Firm

If you dont work in a high-tech company, its easy to make the mistaken assumption that Google is a
firm that you do not have to match. But the truth is that most of what Google does has very little to do
with high technology. Google is essentially an advertising firm that relies on finding and classifying
information to attract targets for its ads. It also focuses on the mobile phone because it allows more of
its ads to be seen by its users.
Even if you dont hire software engineers (less than 40% of Google jobs are in that job family),

candidates for every key support position that your firm has (in finance, accounting, customer service,
IT, statistics, sustainability, HR, social media experts, and most managers) can work at any firm in any
industry. A quick look at Googles job openings will show you that it hires in almost every field
including distinctly non-engineering professions like including nursing, automotive, sustainability,
entertainment, telephony, and advertising. Top performers and innovators now fluidly move between
industries, so if you think that the best candidates who are considering your firm wouldnt jump at a
chance to work at Google, you simply havent looked at the data. Its time for executives in every
major firm to realize that like it or not, you compete with Google every day for top talent. Google is a
talent magnet and if you dont match its recruiting capability, you will lose out on critical
innovators and top performers in every job family.
Once an executive realizes that Google is a direct talent competitor for top talent and innovators, they
often become almost instantly frustrated with their own firms conservative employer branding and
recruiting approaches. Google has been the No. 1 employer brand for all jobs (including college [4]
grads) for many years. If you want average workers, you certainly dont have to worry about Googles
recruiting power, but if you want the best, its time to act like it is your talent competitor in almost
every job category and location.
We Could Never Do That Guarantees That You Will Achieve Mediocre Results
Almost without exception when John presents the best practices of Google to executives or HR leaders,
they have an almost universally consistent response. The response is either We could never do that
or That would never fit our culture.
Johns first answer to those kinds of comments is that the best way to become a great firm is to act
like a great firm. By refusing to adopt bold people management practices, you are guaranteeing that
you will drive away the innovators. If you dont believe him, simply interview a number of innovators
and you will find that they insist and even demand to operate in an environment where the firm takes
bold actions, takes major risks, and provides innovators with the freedom and resources to innovate.
Innovators and top performers can and will gravitate toward companies and opportunities that they
see as a wow or start their own. If your culture wont allow bold and aggressive recruiting, retention,
and people management practices, change your culture and remove that roadblock to excellence. If
the speed of change within your firm is slower than the speed of change outside your firm, your firms
downward spiral is not far off. Also be aware that no top performer wants to work for a stagnant or a
declining firm.
Continuous Improvement May Be the Enemy of Innovation
Setting goals is critical to the success in any firm. However, some firms are now finding that wellintentioned 6 Sigma and continuous improvement goals may unintentionally be reducing innovation
and keeping your firm from being wildly successful. Googles CEO actually warns against continuous
improvement, and as a result, he has set the extraordinary target for his employees to create products
and services that are 10 times better than the competition. He further states that a 1,000%
improvement requires rethinking problems entirely, exploring the edges of whats technically possible,
and having a lot more fun in the process. Googles success has helped to prove that if you set your
improvement goals too low you unfortunately might actually hit them.
Its Business Success Has Been Impressive
As unique and impressive as its people analytics approach is, the real power of analytics is
demonstrated through the business results that it helps to produce. Google, in addition to being
among the top three in market value, has also produced these impressive business successes.

No. 1 in search world wide

No. 2 in smartphone operating system sales (Android)
No. 2 on the Fortune most admired firms list
No. 3 on Fast Companys most innovative companies

 No. 3 among the worlds strongest product brands

Listed in the BusinessWeek top 50 performing firms
Its amazing Larry Page was ranked No. 4 among CEOs by glassdoor.com

Final Thoughts
Google is a talent magnet firm and that is its primary driver of success, just like it is for the New
York Yankees in baseball and Barcelona in soccer.
It is wildly successful because it attracts and retains extraordinary talent, and it can expand and grow
because it can attract that talent in any new field or job family. As a result, the primary reason to copy
and learn from Google is that if you could successfully attract and retain the same caliber of top talent
and innovators that it does, your firm would also dominate not just your current industry but also any
industry or product line that you chose to go into. You should also consider the distinct possibility
that your firms low-capability people management practices are actually restricting your firm from
producing higher-margin products and services.
Unfortunately most executives (even those inside HR) are not aware of Googles analytical approach.
Once they understand the approach, however, executives quickly see the difference and they prefer
the analytical model because it matches the way that decisions are made in every other major business
function. Because Google has proven the business impact of reinventing HR, the time has come for
the last bastion of non-analytical decision-making (i.e. HR) to shift to a data-based model. You simply
cant improve what you dont measure, and so much of HR is poorly measured or not measured at all.
A remaining major problem is that many in HR are severely deficient in the areas of mathematics,
predictive analytics, and statistics, so they may not be capable of making the shift. Other HR
traditionalists (which there are many) may resist simply because they dont feel comfortable with
having what they do reinvented.
Look at the extraordinary success that both Google and Apple produced after they made the shift to
become innovation companies and talent magnets. Both have moved from literally nowhere in the
competitive landscape to market cap and product domination within the last decade. You could
assume that their success was based on their buildings and equipment and try to duplicate them.
However it wouldnt take long for you to figure out that rather than buildings or equipment, it is their
ability to attract and manage innovators. The game has changed, and it is no longer the largest or
oldest firms that win. Instead, it is the firms with the most innovators that win. And in the future, that
need for innovators will only increase.

Article printed from ERE.net: http://www.ere.net and adjusted by Wendy van Ierschot
URL to the original article: http://www.ere.net/2013/02/25/how-google-became-the-3-most-valuablefirm-by-using-people-analytics-to-reinvent-hr/
A good book to read: Investing in people the financial impact of human resource initiatives / Cascio
& Boudreau, December 2010, Pearson Education inc. ISBN 10-0-13-707092-6. Please email to
info@vanierschot.com for a powerpoint summary presentation.
URLs in this post:
[2] Apple:
http://search.ere.net/results/?cx=005106741110345417136%3Aav2yz16qqik&cof=FORID%3A9&ie=U
TF-8&q=apple&sa=Search+ERE
[3] innovators: http://www.ere.net/2013/02/18/hiring-a-targeted-innovator-requires-bold-approaches/
[4] college: http://www.ere.net/2008/10/27/the-google-recruiting-machine-rolls-on-withgoogle%E2%80%99s-college-ambassador-program/


i The tenure track system offers the recruited researchers a clearly defined career path
towards a professorship and enables them to devote their time to research and the
advancement of their fields.