In 2001, Eric Schmidt joined a three-year-old company named Google. Now, after 13 years, a period of explosive growth at the search giant, the executive chairman and former CEO is taking a look back at what makes Google work.

When Schmidt and senior vice president of products Jonathan Rosenberg came aboard at Google, they anticipated being viewed as sages. But the "Internet Century" was taking over and old ways of doing business were becoming irrelevant. "We thought we knew everything about business management. We were wrong," Schmidt, Rosenberg, and director of executive communications Alan Eagle write in their recent book, How Google Works.

The barriers to entry that typically gave legacy companies and institutions an advantage over startups have dissolved. Today, the global market awaits anyone who has a great idea and can move quickly. Schmidt and his co-authors say the people with technical knowledge, business expertise, and freedom to experiment are the ones who will excel.

Companies that fail do so because of a flawed internal design. "The problem is, most companies today are run to minimize risk, not maximize freedom and speed," Schmidt, Rosenberg, and Eagle write. Inside such companies, "information and data is hoarded, not shared; design is a vestige of an era when failure was expensive, and deliberation was a virtue; decision-making power lies in the hands of the few."

To speed things up and continually make great products, companies need to adapt to the new age. Below, check out five pearls of wisdom from Schmidt, Rosenberg, and Eagle's book.

1. Great products win

Schmidt says that the days of the snake-oil salesman are over. Companies or bad actors cannot survive for long, thanks to a shift in power from companies to the consumer. "Companies can't get away with having crummy products, at least not for long," he writes. "For example, bad product reviews trump clever marketing. Today, great products win."

2. Build a culture that can scale

You can't trick the "smart creatives" into joining your company, but you need them to join your company to help build the foundation of a "creative environment where they can thrive at scale." Your culture needs to be a place they care about. This starts with mapping out as a group the things your company cares about and the way you work and make decisions.

Once that's settled, it's time to "live your own slogans," the authors write. Work in small, compact teams that "foster serendipitous connections." Organize the company around the most influential people whose "impact is the greatest." Grant decision-making power to employees by giving everyone a chance to be heard and to rally around the best answer.

3. Build a strategic foundation

Whatever you do, don't bring in your fancy MBA-approved business plan for implementation. When Rosenberg joined Google and announced that his first product was a business plan, Larry Page said it was "stupid." The Internet Century is too fast for an inflexible plan. You need to base your enterprise on a "strategic foundation," the authors say. "You can have a plan, but know that it will change, probably a lot. The plan is fluid, the foundation is stable." The three pillars of a solid foundation are as follows: "Create superior products based on unique technical insights; optimize for growth, not revenue; and know the competition, but don't follow it."

4. Be involved in hiring

To have a team of "smart creatives," you need to realize that hiring is the most important thing you do. You should delegate a lot of your responsibility, but do not put recruiters in charge of hiring. "Everyone--everyone!--should invest time in hiring," they write.

5. Allow for innovation

"Innovation can't be owned or ordained, it needs to be allowed. You can't tell innovative people to be innovative, but you can let them," Schmidt, Rosenberg, and Eagle write. As a rule of thumb, set audacious, unattainable goals and "fail well." When it comes to products and services, don't take your direction from the board or executives. "Listen to the lab coats, not suits."


For more from the book, flip through the slideshow below.

Published on: Oct 14, 2014