When Google (GOOG) co-founder Larry Page replaces Eric Schmidt as CEO, he'll have a host of things to worry about: ad revenues, growth, Facebook, privacy concerns and just how to get the company's rebel groove back, among others. But first on his agenda will have to be reversing the flow of top employees out the door: Talent turnover is dragging the search giant down.

It might be hard for a Silicon Valley outsider to imagine, but lots of Google's most talented employees just hate working there, and the reason isn't as simple as one might think. In fact, Google's problem is a bit counterintuitive. After all, Google lets its people spend 20% of their time on projects that interest them. This sounds wonderful in theory -- and it's a practice that, for example, is cited as the way that 3M (MMM) invented its ubiquitous Post-It Notes.

But this practice also means that thousands of highly talented engineers work long hours on projects that never end up among Google's services, and if they do, they often don't turn into money-makers. In short, Google has more ideas than it can use. This can make people frustrated, and they leave -- often for Facebook, which is growing much faster and is now the first-choice employer for Silicon Valley talent.

Google needs a leader who can help it recover its status as the place to be. That may be an impossible challenge -- certainly it's one that Schmidt has proven ill-suited to handle. Unfortunately, Page -- who appears to be a cerebral man whose gifts lie in developing algorithms -- will need to demonstrate amazing people skills to pull it off. Unless he can develop a way to motivate the talent so it won't go to Facebook, Google's longer-term growth may be capped.

Google's Good, Not Great Value Quotient

I came to the conclusion that talent drain was Google's biggest problem last November. That's when I was working with students at Babson College to develop Google's Value Quotient (VQ): a 24-factor score that measures of how well companies follows seven principles -- including motivating people, innovation, and others -- which I developed for my book, Value Leadership.

Google's VQ -- based on my research and a somewhat subjective scoring -- earned 369 out of a maximum 420 points: 88%. That's good, but not great. Southwest Airlines' (LUV), for example, scored a 95%. And the reason that Google falls short is the way it manages people: Part of my struggle last November as we examined Google was to find any evidence that it promotes its talented people.

Here's a summary of how I arrived at Google's score of 369 (Google's score/maximum possible score):

  • Value human relationships: 51/60. Google does a mediocre job of rewarding talented people -- it seems to stack up talent without tapping fully its potential. However, it generally does well in implementing its "Don't Be Evil" philosophy;
  • Foster teamwork: 45/60. While Google employees work in small teams, teamwork is not rewarded;
  • Experiment frugally: 57/60. While Google has many great people coming up with good ideas, only Android has made a significant dent in creating a new service line beyond search;
  • Fulfill your commitments: 56/60. While Google has a code of ethics and accounts conservatively, it has slipped up in its China policy and with copyright issues -- such as GoogleBooks;
  • Fight complacency: 48/60. Google's acquisition strategy is mixed -- At $1.65 billion, it may have overpaid in 2006, but if YouTube really generated $1 billion in 2010 revenues, Google will probably get a good payback on its investment, and its growth philosophy is strong;
  • Win through multiple means: 56/60. Google maintains its dominance of search, but it hasn't succeeded in the social networking sphere; and
  • Give to your community: 56/60. Google.org makes many good investments, and local advertising contributed $54 billion to local communities in 2009.
Why do I think Google needs to improve the way it manages people. Here are three examples:

  • Detail-obsessed bureaucracy slows down product development. According to Wired, a lead visual design engineer posted a Goodbye Google blog because the detail-obsessed management was so focused on gathering data to justify minute design decisions that he was unable to deal with his frustration.
  • Low pay, inefficient hiring process, disappointing work environment. According to TechCrunch's reprint of a 2008 Google human resources private group, several employees complained of taking pay cuts to come to Google from places such as Microsoft (MSFT). There are also complaints about a very long hiring process and the disappointment at the gap between Google's reputation as nirvana for employees and its more ordinary bureaucratic reality.
  • Wasting the product of 20% self-driven time. Another comment from TechCrunch makes the point that Google people work extremely long hours on their self-directed projects and experience tremendous frustration when their work doesn't make it into Google services offered to customers.
To be fair, these comments may be sour grapes from disaffected employees -- but there's little doubt that Google is losing talented people. As The New York Times reports, that talent exodus is a critical problem for Google. The loss of Sheryl Sandberg to Facebook is one prominent example.

It will be hard for Page to do much about it, though. Talent wants to work for the hottest company, and while Google continues to dominate the world of search advertising, it has lost the battle for Silicon Valley primacy and, like Microsoft (MSFT) which was once king of the hill, might not ever get it back. Nor is it hard to envision the day when another company will replace the post-IPO Facebook as the place to be.

That doesn't mean that Google is a bad company, just that it's no longer able to translate all the good ideas its talented people develop into big, profitable growth opportunities.


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claeshag

Facebook, show me the money! Time will tell but I am not convinced that the Facebook threat to Google is not a hype with Facebook apparently valued at a P/E ratio of over 100 now? See http://moneymorning.com/2011/01/14/goldmans-facebook-deal-highlights-the-dangers-that-wall-street-is-creating-for-main-street/. The author only mentions one employee that went to Facebook so how big is the drain really from a 20000+ employee company to a 1700+ company that has not released their true earnings yet to the public??

Sure Facebook will get ad revenue but so far I have only seen ads for single hookups, keeping young treatments, massages, etc. on my Facebook page that I believe most of Facebook's users are using instead of search. How many people go on Facebook and search for a product, subject, etc.? I tried searching for "best laptops" and got Dell, etc. ads with a few better results at the bottom through Bing! I would much rather go to Google and get a more complete search for most of my searches unless I was looking for information about a person. Of course I can post something about "best laptop" with my friends on Facebook but I don't think many of my friends are going to post me back the results that I am looking for in a laptop (maybe I have the wrong friends?)? Maybe if I asked my friends what the best current movie is I would get more answers? So I believe most people would rather go to Google for 99% of their searches which leaves Facebook with the ads for singles, etc. which can't possibly bring in as much money as a Google searches can I would think, or am I wrong? Further, Google will fight back and make their searches even better as they have already done to keep ahead of all the competition, not just Facebook. People get so hyped up about that Facebook has more clicks but when you find out they are telling friends they are going to the mall, how do you monetize that?

Further, Google has and will expand into other areas besides PC search with the Android system/mobile search and apps, communications, Google Maps/Places with local business listings, browser, application software and an operating system to compete with Microsoft, YouTube monetization, acquisitions, etc.. They have also put up resistance towards the Chinese regime's suppression of human rights/free speech to the chagrin of Wall Street to show that there actually are other values in life othter than money!

I am sure Facebook will do just fine but will it really be the money machine that Google has become and will continue to be?

January 21 2011 at 5:37 PM Report abuse rate up rate down Reply
DELILAH

SPEAKING FROM SOMEONE WHO HAS RECENTLY BEEN FORECLOSED ON, I HAVE FOUGHT WITH CITIMORTAGE FOR 5 YEARS WHEN THEY BOUGHT MY MORTAGE FROM MY PREVIOUS LENDER. THEY TOLD ME THAT I WAS BEHIND. I SENT THEM 5 YEARS OF BANK STATEMENTS WHERE I HAD PAID ONLINE AND BANK OF AMERICA CUT THE CHECKS TO THEM. I SENT ANY MONEY ORDERS THAT I HAD RECEIPTS FOR PAYMENTS. THEY THEN CAME BACK AND WANTED COPIES OF THE CANCELLED CHECKS FROM BANK OF AMERICA. $$$$$ COST TO GET FROM THE BANK ALONG WITH THE TIME TO GET THEM... I FINALLY HAVE GIVEN UP AND THEY TOOK THE HOUSE. IT WAS NOT WORTH THE LOSS OF SLEEP, RAGE, CRYING OVER, THERE ARE OTHER HOMES TO NEST IN.

January 21 2011 at 4:40 PM Report abuse rate up rate down Reply
bfpowersjr

Mr. Cohen: My problem with Google have been privacy concerns. I hope my interaction with AP and WSJ may have obviated these concerns(?).

January 21 2011 at 4:17 PM Report abuse rate up rate down Reply
1 reply to bfpowersjr's comment
bfpowersjr

Sorry... Mr. Cohan.

January 21 2011 at 4:19 PM Report abuse rate up rate down Reply
waltor

This article seems to be more about the author justifying his VQ analysis than defending his theory of a flailing Google. Everyone wants to kick you while your on top and that is where Google is right now. Remember that Google, not facebook is a key player in Phone operating systems (android), communications, search engines, geomapping, data collection, browser creation, hardware production, etc. They are also the only company of their size and power that seems to have a well defined moral compass.

Facebook is a very good product with great potential, but they are as of yet no Google. Time has a place for all ideas and all will come and go, but as for now, I think Google is doing fine.

January 21 2011 at 2:08 PM Report abuse rate up rate down Reply
jpc66chevelle

Maybe all those selfindulgant brainiacs should go do something importmant for the US and join the military or Peace Corp for a couple years and then rethink things a little. They're disappointed. Boo Hoo.Get a grip on life people. Those jobs could be outsourced too you know. What a bunch of cry babies. " I don't feel important."

January 21 2011 at 12:36 PM Report abuse +5 rate up rate down Reply
nannyfive5

I do not find Google information to always be accurate. I never trust Google until I have done more research.

January 21 2011 at 12:02 PM Report abuse +1 rate up rate down Reply
good mourning

i dont like google for the reason it retains information on searches indefinatly . i wouls rather use anouther search engine or if shopping buy it at a store . i know some people dont mind being followed but it creeps me out . wheather its in my car or online is the same to me .

January 21 2011 at 11:54 AM Report abuse rate up rate down Reply