Google's CEO, Eric Schmidt, discusses the Internet, business, and innovation with The McKinsey Quarterly.
On the long tail...
And, in fact, it's probable that the Internet will lead to larger blockbusters and more concentration of brands. Which, again, doesn’t make sense to most people, because it’s a larger distribution medium. But when you get everybody together they still like to have one superstar. It's no longer a US superstar, it's a global superstar. So that means global brands, global businesses, global sports figures, global celebrities, global scandals, global politicians.
So, we love the long tail, but we make most of our revenue in the head, because of the math of the power law. And you need both, by the way. You need the head and the tail to make the model work.
On transparency and the wisdom of crowds...
But it has a lot of other implications for the way corporations operate. They can't be as controlling. They have to let information out. They have to listen to customers, because customers are talking to them. And if they don't, their competitor will. So there's a long list of reasons why a more transparent company is a better organization.
There are many business models predicated on control. My favorite example is movie distribution windows. As a consumer, I want to watch the movie whenever I want, and on whatever medium I want. But the whole economic structure of the movie business, up until recently, was organized around distribution in a certain format, at a certain price, and then wait a while. But in the new world people won’t wait. A good example was the delay of the Harry Potter movie. The fans were fanatical, writing letters and calling private cell phones to overturn the delay. The industry has a fan base that they need to spend time thinking about.
There's a lot of evidence that groups make better decisions than individuals. Especially when the groups are selected to be among the smartest and most interesting people. The wisdom of crowds argument is that you can operate a company by consensus, which is, indeed, how Google operates.
On what companies need...
You need two things. You have to have somebody who enforces a deadline. In a corporation the role of a leader is often not to force the outcome, but to force execution. Literally, by having a deadline. Either by having a real crisis or creating a crisis. And a good managerial strategy is “let's create a crisis this week to get everybody through this knot hole.”
And the second thing is that you have to have dissent. If you don't have dissent then you have a king. And the new model of governance is very much counter to that. What I try to do in meetings is to find the people who have not spoken, who often are the ones who are afraid to speak out, but have a dissenting opinion. I get them to say what they really think and that promotes discussion, and the right thing happens. So open models, beyond input from outside, also have to be inside the corporation.
Encouraging this is an art, not a science. Because in traditional companies, the big offices, the corner offices, the regal bathrooms, and everybody dressed up in suits cause people to be afraid to speak out. But the best ideas typically don't come from executives. And, unfortunately, the executives don't agree with me on that.
Innovation always has been driven by a person or a small team that has the luxury of thinking of a new idea and pursuing it. There are no counter examples. It was true 100 years ago and it'll be true for the next 100 years. Innovation is something that comes when you're not under the gun. So it's important that, even if you don't have balance in your life, you have some time for reflection. So that you could say, "Well, maybe I'm not working on the right thing." Or, "maybe I should have this new idea." The creative parts of one's mind are not on schedule.