April 2002 - Silicon Valley Management Style
The Silicon Valley Management Style
by Steve Towers
The Internet era brought with it distinct kinds of businesses. These technology and knowledge based businesses have in turn ushered in a new management style. The Silicon Valley Management Style — as it has come to be called — has its own set of priorities. To what extent is this style of management successful and applicable to the traditional kind of businesses?
The management style of the umpteen IT companies in the Silicon Valley is different from most of the old economy companies. Are there any lessons in management styles that could be learned from the Silicon Valley approach?
The Silicon Valley approach to management was born in companies such as Varian Associates back in the 1940's.
Varian Associates specialized in the development of medical linear accelerators for the treatment of cancer, a field requiring top-flight researchers with the latest technologies. Varian attracted the very best by forming a co-operative owned by its employees with stock option agreements.
This approach coupled with an environment where they could create without restriction spawned many important breakthroughs and won hundreds of innovation awards. Initially unprofitable, the company was sustained by its enthused employees who eventually went onto help Varian to become a world leader in the field with over 3,500 systems treating more than one million patients annually.
The founding team behind Varian included Edward Ginzton who became an active civic leader working with people such as David Packard and William Hewlett. The ideas born at Varian spread into other work environments and the community to become a way of life that characterized Silicon Valley.
The difference in style is typified by Hewlett Packard (HP), which in 1957 formalized a set of corporate objectives that encapsulated a new style of management focused on team work, ownership innovation and the ability to manage rapid change. Such approaches as Management by Wandering Around, Management by Objectives and Open Door Policy differed markedly from traditional top- down structured management approaches.
Leadership and innovation were actively encouraged. The people working in this environment in turn spread the new philosophy, sometimes termed the HP Way, throughout California to create the global center of innovation that today powers the computer industry. The HP Way embodies respect for the individual, contribution to the customer and the community, integrity, teamwork, and innovation.
The approach continues to evolve and inspire others. In December 1999, HP CEO Carly Fiorina rewrote the HP Way into 'the Rules of the Garage'. The new rules are a return to that original spirit of Hewlett and Packard who founded their company.
It is accepted wisdom that treating people well and making sure that they were satisfied and treated in a dignified way were positive things, but that wasn't always so. Silicon Valley Management (SVM) style led the way and continues to develop and exert its influence around the globe.
This model of doing business, which fosters a risk-taking culture where penalties exist not for failure, but for not trying, has created a breed of entrepreneurs who learn lessons quickly and create successful businesses. These businesses are 'lean and mean' such as Cisco and Sun Microsystems. Quick to adapt to the global downturn, Cisco has outsourced major components of their operation and is surviving to become stronger and more competitive than before. This ability to manage change through flexible and adaptive processes, people and systems is often seen as a model to replicate around the world. But is this sensible? Recent theorist thinking (Jeffrey Pfeffer, Sloan Management Review Spring 2001) seems to suggest otherwise.
The contention is that the SVM is built around four basic ideas:
Accordingly, perhaps SVM is only really applicable to new start-ups and fast moving industries?
Not so based on the feedback from the Business Process Management Group, which has undertaken several studies into effective business practices since 1992. It would appear that the theorists are focusing attention on an inappropriate use of particular technique or indeed the mismanagement of certain ideas.
It is rarely sensible to overwork employees for the sake of it. However, if you own a slice of the company and are highly motivated, your inclination may be to work that extra couple of hours to see your organization through a difficult time.
It is also important to remember that many of the Silicon Valley companies are actively involved within their communities. In some cases they represent the very hub of their neighborhoods with work and leisure going hand in hand as a way of life.
This isn't to say that SVM has all the answers. Indeed as with any approach to business, there isn't a 'one best way'. It is sensible to think through the challenges and opportunities and reframe them in the context of your personal and organizational needs.
Just as HP CEO Carly Fiorina is doing with the revised HP way.
What lessons can leaders and organizations derive from the Silicon business model?
Trust Your people
The HP Way, as described by David Packard, is built around the concept of trust.
Packard recalls an early pivotal event in the history of Hewlett-Packard when Bill Hewlett went to the HP plant one weekend, stopped by a company storeroom to pick up a microscope and found the equipment cage locked. He broke open the latch and left a note insisting the room not be locked again.
HP was not going to be a company that distrusted its employees. Packard concludes, "The open bins and storerooms were a symbol of trust, a trust that is central to the way HP does business."
Match the right people to the right job
The key to an organization's success, is matching an individual's skill and personality to the tasks required by the organization at the appropriate point in its life cycle.
To make the point, contrast the start-up phase of an organization — when what's needed is hands-on leaders who will roll up their sleeves— to the later stages — when you want executives who can stay above the fray and see the forest rather than the trees.
Hire the best
Silicon Valley's emphasis on hiring a diverse range of employees and searching for highly self-motivated people is key to the region's success and global reach.
Customer feedback serves as an important aspect to the learning process. In The HP Way, David Packard credits customer feedback with the success of HP printers.
Motivate by vision
The mindset has to be different from traditional, bureaucratic organizations, which view business as a battlefield, the corporation as a machine, management as control, employees as children, and change as pain. That old philosophy promotes motivation by fear.
Manage through processes
Provide a flexible and adaptive process model for your organization that can grow and evolve in response to your customers and market forces. Integrate the systems and strategy with this pro-active process management approach guided by your employees.
A look at the companies in Silicon Valley, provides an alternative organizational model to the traditional, hierarchical bureaucratic model. While not perfect, the new model offers lessons for the future.
Mentioned above is the evolution of the HP Way into the Rules of the Garage. Here they are in full:
"I believe that if you carry these rules with you on your journey, if you create an environment where people's hearts and minds are fully engaged, where strategy is ennobling, where great aspirations are powered by the desires of people to do something worthwhile, then you will have touched others you encounter on your journey." Carly Fiorina, President and CEO of HP, 2000
There are some predictable consequences that occur as a fallout of the Silicon Valley management style as brought out by Jeffrey Pfeffer in his "What's Wrong With Management Practices in Silicon Valley? A Lot", published in MIT's Sloan Management Review, Spring 2001. The author contends that the free agent mentality generates high turnover.
Statistics suggest that the turnover is more than 20 percent to 30 percent annually. The costs of such high turnover are spread over recruiting and training new staff, besides the implicit costs with the disruption to relationships with customers, who continually deal with employees in training. The fact that former employees take positions with the competitors only adds up to the woes.
The author contends that the idea of outsourcing everything is also not a good strategy. He argues as to what remains as the competitive advantage for a company whose core technology is in the hands of people with little loyalty, lesser commitment.
In addition, the fact that the help is temporary leads to high turnover. The compensation practices used by Silicon Valley's companies' also fuel the high turnover. Giving a signing bonus that vests over four years rewards people for leaving. After earning the bonus, they simply move to another company to collect another signing bonus.
© Copyright 2001 Steve Towers, used with the permission of the author. Thanks, Steve! Steve Towers is Chairman of the Business Process Management Group (BPMG) in England. If you'd like to take issue with, or agree with, any of the ideas in this article, please telephone contact Steve by phone at +44(0)121 711 7099, by email steve.towers [at] bpmg.org, or visit his website at http://www.bpmg.org
This article was previously published in the December 2001 addition of Analyst, the Institute of Chartered Financial Analysts of India (ICFAI) monthly magazine.
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Page updated: June 05, 2009
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