Google realises the core process is not search or innovation but hiring: Hayagreeva Rao

Interview with Atholl McBean Professor of Organisational Behaviour & HR, Stanford Graduate School of Business

Google is very careful to make sure bureaucracy does not get in the way of scaling up, Hayagreeva Rao tells Devina Joshi

What are the common traps to the concept of scaling up, when it comes to large organisations looking to enter new markets, for example?

One common trap for large organisations is that they seldom drop their tools when they scale up. What gets you from one to 100 does not work, when you want to get from 100-500, and in turn, what gets you to 500 won't work when you want to get 1,500. It is the same thing when you enter new markets. What allowed you to succeed in one market does not translate when you enter new markets. Walmart failed in Germany; it did not understand the German culture. An extreme example was that it trained its female employees to smile when customers walked in - this works in America, where there are specific norms that guide interactions with consumers. In Germany, when female employees smiled at male customers, the latter developed the wrong idea. By contrast, consider IKEA which realised that Chinese consumers did not want DIY (do it yourself) but instead wanted 'Do it for me'.

What are the ways in which start-ups go wrong when expanding operations? How does over-anticipating growth become a problem area? What would be your advice to them?

When start-ups over-anticipate growth, they overstaff. Imagine if you are a firm with 100 smart people, and you hire 400 more smart people. Two problems arise. One is that the 400 smart people have their own ideas, but you probably have to say no to them- this means you say no 400 times, and disappoint the new hires because you have limited resources and need to focus. The second is, it takes the new recruits two to three weeks to get trained and adjusted. So this means for a month, the ratio of unproductive people to productive people has increased.

Don't hire in anticipation, but hire in reaction and add people slowly. When you add people too quick, coordination issues arise - and the team scaling fallacy says adding people to software projects only adds to their duration. Beware of Conway's Law if you are a tech start-up: it says that the organisational structure of a firm is reflected in their software. For example, if you have four teams working on a compiler, they may design a four pass compiler.

How does an expanding company deal with the challenges associated with hiring heads for functions that never existed before?

Don't add heads of functions too quickly. For example, start-ups in Silicon Valley use a part-time CFO who comes once a week, and rely on a book keeper. They hire sales people first and then chief marketing officers. Early on, the CEO is the product manager and only much later do you add product managers who lead product changes. Pre-populating the C-suite too quickly adds to overhead and delay.

Hyper-growth spells the need for more hierarchy, more processes, more groups etc. With such rushed growth, how can a company pace itself correctly? Could you please cite an example of a success story?

They key in scaling is that leaders have three tools: an accelerator or gas pedal, brakes, and gears that can be changed. Leaders sometimes overuse the accelerator, and fail to use the brake or the gears. A great example of a firm scaling well is Google - it is very careful to make sure bureaucracy does not get in the way. Google has bureaucracy busters (forums for engineers to reduce rules, onerous approval processes and so on). Google's key is that it realises the core process is not search or innovation but hiring.

You coined the concept of scaling clusterfugs. Could you give some examples to explain the concept, and how companies overcame this problem?

My colleague Robert Sutton and I coined this fanciful term in our book, Scaling Up Excellence, to describe companies' screwed-up scaling efforts. Clusterfugs are caused by three 'I's, the first being 'illusion'. Decision-makers believe that what they are scaling up is far better and easier to spread than the facts warrant. Second is 'impatience' where decision-makers believe that what they are scaling is so good and easy to spread that they rush to roll it out before it is ready. Third, there is 'incompetence': decision-makers lack the requisite knowledge and skill about what they are spreading and how to spread it, which, in turn, transforms competent people into incompetent ones.

The CEO of a large growing company confided in me about the feeling he got when he walked into a room, realising everyone was a new hire, and thought, "Who the hell are these people?" In the rush to grow the company, he had become so far removed from the details of rolling out the scaling process he had lost sight of the 'glue' that would build the stamina to grow the company in the long term.

Enter the 'premortem' - the exercise of looking down the road of a project to see potential pitfalls, and how they could be handled or avoided.

What would be your advice to companies that have grown to a certain size and are now complacent about growing further?

Scaling is not about increasing the capacity of product manufacturing or growing production capabilities, but about transmitting the qualities of your own particular excellence. This was consistent, upbeat, undeniable theme that infused nearly every conversation I had with people about their scaling projects. Scaling is about continuing to move ahead: if the company can continue to instil commitment to excellence among employees, the sky's the limit.
SOARING HIGHER

• Rao teaches courses on scaling up excellence and HR for start-ups at Stanford Business School
• Some of the awards he won include the W Richard Scott Distinguished Award for Scholarly Contributions from American Sociological Association, and Sidney Levy Award for Teaching from Kellogg School of Management
• He holds a Post-Graduate Diploma from XLRI, India and a PhD from Case Western Reserve University