
Google's CFO Ruth Porat is pushing “creatives” to bring costs under control - prostoalex
http://fortune.com/google-cfo-ruth-porat-most-powerful-women/
======
cs702
Reading this reminds me of "The Elves Leave Middle Earth – Sodas Are No Longer
Free," by Steve Blank.[1] Here's the key passage:

" _...the new CFO got up to give her presentation – all kind of expected;
Sarbanes Oxley compliance, a new accounting system, beef up IT and security,
Section 409A (valuation) compliance, etc. Then she dropped the other shoe. “Do
you know how much our company is spending on free sodas and snacks?” And to
answer her own question she presented the spreadsheet totaling it all up.
There were some experienced VC’s in the room and I was waiting for them to
“educate” her about startup culture. But my jaw dropped when the board agreed
that the “free stuff” had to go. “We’re too big for that now” was the shared
opinion. But we’ll sell them soda “cheap.” ...

One day the engineering team was clustered in the snack room looking at the
soda machine. The sign said, “Soda now 50 cents.” The uproar began. Engineers
started complaining about the price of the soda. Someone noticed that instead
of the informal reimbursement system for dinners when they were working late,
there was now a formal expense report system. Some had already been irritated
when “professional” managers had been hired over their teams with reportedly
more stock than the early engineers had. Lots of email was exchanged about
“how things were changing for the worse.” A few engineers went to the see the
CEO. But the damage had been done. The most talented and senior engineers
looked up from their desks and noticed the company was no longer the one they
loved. It had changed. And not in a way they were happy with. The best
engineers quietly put the word out that they were available, and in less than
month the best and the brightest began to drift away._"

[1] [https://steveblank.com/2009/12/21/the-elves-leave-middle-
ear...](https://steveblank.com/2009/12/21/the-elves-leave-middle-
earth-%E2%80%93-soda%E2%80%99s-are-no-longer-free/)

~~~
ChuckMcM
I remember getting into a long discussion with an engineering director at
Google about "the entitled attitude" that engineers had. Their argument was
that money spent on "lifestyle perqs" was money not spent on better computers
or improved networking, or heaven forbid higher salaries where the engineers
could spend the money on something for themselves.

They weren't wrong. But at the same time, they really weren't looking at it
from the employee's perspective. Being a bit cheeky I mentioned that Google
could save lots of money if they stopped heating and cooling the buildings.
With the obvious counter argument that if the place was uncomfortable
"everyone" would leave. But that is just as wrong. Not everyone would leave,
only the people for whom working for Google wasn't as important as being
comfortable at work. There were plenty of people who would sit there
sweltering just to be "working at Google." And many of those people would do
great work and build great things.

But the _really_ good people, the people who constantly invent new things and
have the skills to communicate their ideas and get them implemented, those
people can work literally _anywhere_ and if they can do what they want to do
anywhere else, they will leave. So this "tax" of free soda and snacks is just
a cost of doing business. And if you look at the revenue per employee, you do
yourself no favor trying to maximize that number beyond the value that meets
your net income numbers.

The other thing that a number of middle managers miss is that once you are
paying a person more than their "wants" level, you get more loyalty and
commitment spending additional dollars on snacks and sodas etc than you do on
cash.

~~~
slgeorge

      But the really good people, the people who constantly invent new things and have the skills to communicate their ideas and get them implemented, those people can work literally anywhere and if they can do what they want to do anywhere else, they will leave. So this "tax" of free soda and snacks is just a cost of doing business. And if you look at the revenue per employee, you do yourself no favor trying to maximize that number beyond the value that meets your net income numbers.
    

Do you have any proof for this paragraph? :-)

I mean, demonstrate that there are 'really good people who constantly invent
new things' that are in some way better than other people.

I accept that it's convention (or touch stone) amongst SV participants and
developers on HN. And we all like to believe we're especially talented. But,
then if this is true it must also be true for CEO's right, there are some that
are 10x more talented and therefore they should get Y more salary etc.

I agree with your underlying point "it's a cost of doing business", but not
with your reasoning - to me the reasoning is that it's the social signaling
for the industry: if everyone else gave away free shoes then company X hiring
people has to do the same or be so 'different' in some way that it can go
against the grain. As you say everyone totes up the benefits/draw-backs of
their work place, team and tasks to decide if a role is good for them - I
think that's quite a messy process and more than simply to do with whether
there's free soda!

    
    
      >And if you look at the revenue per employee, you do yourself no favor trying to maximize that number beyond the value that meets your net income numbers.
    

The challenge here is that's exactly how FD's are incentivised (in the UK at
least). It's often a case that their bonus will be defined as a percentage
associated with cost saving or margin: it's effective as it gets one
department in the business focused on whether costs are delivering real value,
the downside is the one this article is talking about "knowing the cost of
everything and the value of nothing".

~~~
ChuckMcM
I have been thinking about the proof question. I've been around enough, and in
enough companies, to feel the truth of it is self-evident but the engineer in
me is always looking for ways to develop objective measurements.

So evaluating folks is one of the things we end up doing as managers (often
annually) and I look for people who have contributed to projects and those who
have both contributed and started new projects. People who suggest new
projects are often (but not always) less fearful about "rocking the boat" in
the sense that every new project suggestion is potentially a judgement against
an existing project. It is primarily their mental attitude that lets them
operate freely, and in doing so I have experienced people who contribute more
by inventing new things can communicating that to their peers. My hypothesis
is that this lack of fear is the same thing that moves them to leave when the
environment becomes less hospitable, they don't internalize that perhaps
leaving may not include arriving anywhere else. For folks who are afraid they
won't be able to find work again, they are unwilling to leave simply because
the working conditions have gotten less comfortable.

I feel I understand the mechanics that underlies the basic assumption but I
don't have a good way to prove it.

~~~
slgeorge
The macro question of how to (a) consistently support a high performance
creative environment, and (b) objectively measure the performance of knowledge
workers [0] must be the most significant challenge for leaders at all levels!

On performance measurement I agree - over time all managers build a nose for
it with some heuristics - if it quacks like a duck, walks like a duck etc etc.

I suspect that with high performers "class is permanent, form is temporary"
and this is why the challenge is how to create (hard) and then maintain
(harder?) a creative culture. Personally, I increasingly put more focus on the
way the individual interacts with the environment (and how the environment is
configured for them) for enabling high performance.

What I get from your comment is that you're looking for people who are willing
to be creative _and_ challenge existing solutions which I agree are two
hallmarks of challenger environments. I feel this is correct, but also have no
proof.

I find the 'free X' stuff trivial (and possibly a signal of entitlement) but
the underlying point is that touching anything that could negatively impact
the creative culture should be done carefully and after a lot of thought.
People always react with more anger to a minor thing being removed, than a
major thing being added.

Ultimately, if 'free stuff' is a signal of an environment that values
developers contributions less then there can be no surprise if developers
leave when the environment becomes less focused on enabling them. I think the
point you're getting at is that if the environment is less inclusive of
inventing new things/trying new things then a person whose driven to try new
things will inevitably move on to the next challenge. Again, I do sort of
agree but have no proof - I probably feel that people tend to be more sticky
due to human loyalty etc.

Moving on a bit from what you actually said ... I was picking at something I
thought you implied which was the existence of the "10x performer" and them
being able to pick and choose. This is something, I'm really cautious about. I
feel like the narrative of the 10x risks becoming a really negative one where
we're saying "there are rock stars that are 10x better who can pick and choose
and float to whatever the best environment is". Even if this is true due to
PR, I don't think this is objective reality. I see good people, and even great
people, but team performance is far more valuable to me than individual
performance and it's factors are complex. Even for personal performance
individuals do wax and wane depending on the project/culture/situation and the
idea of an order of magnitude of better performance(!) - I've yet to see it on
a consistent basis ... except for me of course!

[0] This forum is highly focused on developers, but I see the same pattern
across multiple groups, from UX/Design out to Finance/HR. We depend on
individual and team contribution, but at best find some 'objective' measures
for individual contribution and wholly flawed subjective ratings (ie
likeability ratings) for team contribution.

------
aaron-lebo
At Morgan Stanley from 1996 through 2010 and an executive during the banking
crisis.

I feel like that's gotta be simplistic and/or wrong because that's nothing but
red flags for me. Could someone correct me? Why should this not be concerning?
Those were some of the most predatory and poorly run companies in America at
the time.

~~~
refulgentis
The Big Short gets into why it's misplaced to blame the big banks for the
crisis, and calling them "predatory and poorly run" goes several unjustified
steps beyond that.

~~~
iaw
Where do you believe 'The Big Short' places the blame?

~~~
refulgentis
Mortgage lenders, like Countrywide, who were selling predatory crap to banks
that weren't questioning Countrywide enough, and had an unyielding faith in
house prices always increasing. More doofus behavior than knowing malfeasance,
at least, that's what I got out of the book? Clearly that's a minority
viewpoint, perhaps I should re-read it...:X

~~~
nl
I think the the more common impression from the book was that mortgage lenders
were incentived not to ask questions, and banks were more than happy to take
their offerings, repackage them, and resell them to dumb money.

Many at the banks seemed to know what was happening: remember how the price
wasn't dropping as fast as they expected? That was Goldman covering their
position and refusing to make the market at a reasonable price until they were
safe.

The dumb banks for burnt of course.

------
JamesBarney
I'm always very suspicious when a company saves easy to count money but pays
with hard to count costs. For instance Google just got a little less cool.
Everyone and their mother wants to work at Google, and the people who work
there love it, and believe in Google's mission. But as it turns into a more
standard profit-oriented company they will lose a lot of their kool-aid, and
the Google kool-aid is an asset they have worth many billions.

Unfortunately that asset isn't written down anywhere, and the books won't mark
down the capital loss from this depreciation. If they did, a lot of these cost
cutting measures probably wouldn't look so great.

~~~
centicosm
I think something like that might be accounted for as Business Goodwill on a
valuation ([http://www.valuadder.com/glossary/business-
goodwill.html](http://www.valuadder.com/glossary/business-goodwill.html)). It
would definitely be interesting to know if it is actually included in some
internal or public accounting valuation and if the accountants actually adjust
the values in some way as it surely has some impact.

~~~
JamesBarney
I think business goodwill is usually measured on the consumer side. And it's
usually something like brand recognition like Coca-Cola. I've never seen it
used to measure employee good-feelings/koolaid etc..

------
dgnnmdhn
Uh oh, it looks like the cult of shareholder value is about to claim another
victim. I wonder how long it will take for Google to IBM itself.

~~~
mcguire
Judging by my experiences with IBM, within 5 years, Google will be "focusing
on its core competencies" of advertising and will be cutting everything else
loose.

~~~
protomyth
It's especially painful when the company management misjudges their core
competency and cuts the wrong thing.

------
h4nkoslo
Besides the "cult of shareholder value", there is also an opposite fallacy
where the more difficult to measure a division's payoff, the more leeway they
have in blowing through cash. Many of the "moonshots" seem like the kind of
thing that sure, might have some kind of long-term payoff, but not necessarily
one captured by Google, or that justifies arbitrary levels of investment. A
company can survive such a tax even if it's negative payoff, especially if
other divisions are crapping gold bricks, but at some point you have to figure
out what your long-term expectation is and calibrate expenditures to that
level.

~~~
jjoonathan
Absolutely. Thanks for saying what nobody likes to hear. Markets consistently
undervalue research in the utilitarian sense, but I'm pretty sure they don't
undervalue it in the economic sense. To be clear, I think this is a
shortcoming in the economic notion of value, not in research.

> sure, might have some kind of long-term payoff, but not necessarily one
> captured by Google

That's the crux of it. It's not about unwillingness of companies to "think
big" and "take risks", it's not about a shrinking horizon of shareholder ROI
expectations, it's about the difficulty of capturing the value that gets
created. Economic value that can't be captured isn't economic value. Maybe
(probably, in this case) it's utilitarian value, but it's not economic value.

The notion of intellectual property was a valiant attempt to turn things
around, but it introduces so much friction and so many routes of exploitation
that it really hasn't changed the fact that on some level markets are
fundamentally incompatible with basic research -- which is why fighting to
fund it through the government is so important.

------
throwaway12522
[using a throwaway here to avoid offending anyone]

I actually think there's a LOT of fat that could be cut at Google without
affecting innovation. One person I know - I've literally never seen him
wearing a shirt that he didn't get for free at Google. I've seen people get
new Mac power adapters because the tech stop was closer than their desk.

These things are pretty small compared to salaries - and they do serve a
purpose - having to buy your own t-shirts and pay for your own gym membership
is a pretty good reason never to quit, but I wonder how much they foster a
culture of just throwing money at problems instead of innovating? I wonder how
much they make Googlers soft and entitled.

~~~
honkhonkpants
That seems like a funny place to start cutting costs. You can run Google's
datacenters for about 1 second on the same money as all those shirts.

When these people talk about cost they are talking about headcount.

~~~
throwaway12522
My point is less about the t-shirts specifically (as I said, it's a minimal
cost) and more about the company culture as a whole. If you can make a silly
request for an office fire pole and the company will give you a fire pole,
does that foster an attitude where you'll just throw more servers at a problem
instead of thinking hard about your systems, or an attitude where a cool
project will stay in development for a long time, even when the business case
for it stops making sense.

~~~
crucifiction
as a thought experiment, Amazon is basically the opposite of the google
culture in this perspective (door desks, soda/food is not subsidized,
equipment is just barely enough, etc). now, this leads to lots of complaints
from a subset of engineers who do then go to google (or like) pretty quickly.
but Amazon does seem to be able to innovate (aws, kindle/fire, alexa) and
survive in very low margin businesses. google seems to have struggled to move
beyond search in any meaningful way.

~~~
maverick_iceman
_> google seems to have struggled to move beyond search in any meaningful
way._

Ever heard of Gmail, Chrome, YouTube or Android?

~~~
majewsky
I don't think the first two make any revenue, except in terms of data
collected.

~~~
honkhonkpants
I'm sure you don't believe that Gmail's revenue is zero.

------
protomyth
I am more and more convinced that software developers need people who used to
run tv shows (show runners) rather than people who worked for banks as
managers.

Also, what demented message does it send to your team that you trust them so
little that you need to delay surgery rather than let them handle something? I
regard this as a failure to lead or paranoia of others getting noticed.

~~~
Tade0
I'm curious about that showrunner bit. Would you like to elaborate?

~~~
protomyth
I think someone who is used to putting together a product using creative
people would do better as a manager for a software project than a person who
see all the developers as numbers or cogs.

------
js8
Ah, a "deletionist". A person who uses its own intelligence to justify what
other people can't do, rather than trying to be (IMHO) actually helpful and
using intelligence to figure out how to do stuff.

Every human institution seems to get overrun by those, eventually.

------
honkhonkpants
"her hiring package to almost $70 million."

Everything you need to know about cost cutting under Ruth Porat.

~~~
compiler-guy
The value of the company jumped sixty-billion dollars after her first earnings
report. So, roughly, in her first quarter at the company, she paid her entire
compensation package back to the shareholders almost 900x over.

Anyone with any stock in Google at that point would have been thrilled even if
she never accomplished anything else.

Seventy million was a steal.

~~~
VexXtreme
You have fallen victim to the outcome bias. It is a mistake to attribute the
quality of a decision to a specific outcome when the correlation between their
determinants is low or unknown. In layman's terms, you don't know that it was
her joining Google that led to this particular rise in Google's market cap. It
could have been any other number of factors. Even simpler, what you said can
be analogized to "I won the lottery while wearing this particular shirt, so it
must be my lucky shirt".

Furthermore, statistics show that there is a positive correlation between
companies rewarding executives in a bull market, and punishing executives
holding the exact same positions in a declining market, thereby making luck
and timing, not skill, a main determinant of who eventually makes money (the
correlation between how well a company performs and the perceived skill of its
executives was determined to be around 10-20%).

~~~
compiler-guy
One of the big questions when Pichette announced he was retiring was whether
or not Google would be able to find someone who had his level of skill. This
was factored into the stock price, which remained flatish or slightly down
from March of 2015 until Porat's first earnings report.

The market hates uncertainty, and priced that in. Google is famous for being
undisciplined and Porat's hiring dramatically reduced the uncertainty around
Google's discipline.

I don't pretend that it was all Porat that caused the jump (and you are
misreading--rather ungenerously--me by saying that I'm treating this like a
lucky shirt). But Google had no other step-wise jump like that in its history,
and no other tech company had a similar rise in roughly the same couple of
weeks.

The market was waiting to see what Google would do without Pichette. Porat
answered the question.

Compare GOOG to FB and APPL, and look at the five-year charts.

[http://finance.yahoo.com/quote/FB?p=FB](http://finance.yahoo.com/quote/FB?p=FB)
[http://finance.yahoo.com/quote/GOOG?p=GOOG](http://finance.yahoo.com/quote/GOOG?p=GOOG)
[http://finance.yahoo.com/quote/AAPL?p=AAPL](http://finance.yahoo.com/quote/AAPL?p=AAPL)

------
the_duke
Interesting article, interesting person.

I'm never quite comfortable with portraits that just sing endless praise and
are devoid of any kind of critical reflection, though (apart from the subtle
hint that her work takes precendence over her son).

BTW, I tried to look up Alphabets and Googles revenue/earnings by segment, but
the information out there is relatively sparse. Anybody have a good link?
(Apart from [1]).

[1]
[https://www.google.com/finance?q=NASDAQ:GOOGL&fstype=ii](https://www.google.com/finance?q=NASDAQ:GOOGL&fstype=ii)

~~~
theDoug
[https://abc.xyz/investor/](https://abc.xyz/investor/) May be of some help.

------
RandomOpinion
It was inevitable. These monopolies / near-monopolies seem to follow a
pattern:

-IBM was at its peak in the '80s before losing its direction and beginning layoffs and a long slow collapse, reducing it to its current state as a shadow of its former self.

-Microsoft was at its peak in the '90s before losing its direction and is now starting its collapse with major layoffs a couple of years ago.

-Google was at its peak in the '00s and is starting to lose its direction.

-Amazon is at its peak now in the '10s.

~~~
asdfologist
Where do you get the idea that Google peaked in the '00s? Their net income has
been rising dramatically every year (2015 more than doubled 2009):

[http://www.statista.com/statistics/266472/googles-net-
income...](http://www.statista.com/statistics/266472/googles-net-income/)

I think people are conflating "a company at its peak" with "shiny new company
that is the center of media hype", which are completely different things.

~~~
RandomOpinion
Microsoft's income kept rising steadily through the '00s too and look at where
they are.

~~~
jacques_chester
I'd trade places with Microsoft.

Earning $16.7 billion on $85.3 billion in the 12 months to June 2016 sounds
like a pretty sweet deal.

------
paulddraper
> In short, the hoodie honeymoon phase is over.

I've used Ruth's favorite search engine to find "hoodie honeymoon phase" ...
but I get nothing.

What does this mean?

~~~
Gigablah
Surround it with quotes. You'll get the article.

~~~
paulddraper
Hm, true. Thanks :D

------
cbanek
This reminds me of some of the cost cutting at Microsoft in the late 00's.

One of the classic anger points was the free towel service. There were showers
in some of the buildings, and towels were provided for free for employees to
use (and leave there in a bin).

Management said they could save a huge amount of money by getting rid of the
benefit, and that most people don't use it. The amount of time spent on
backlash emails was probably more than that.

But it does seem inevitable that companies will go down this way as they age.

------
mark_l_watson
I totally enjoyed that article. I am a Google fan, worked there as a
contractor for a while and really enjoyed the way the company was run,
infrastructure, and work.

But, but, but... Google does have long term problems having a one-pony
business. They really do have to win big on at least one 'Other Bets.' I am
not a Finance person, but I think I understand how Facebook earns a lot of
money long term, but in contrast Google's ad business does not look as good in
the future of 'mostly mobile devices.'

------
blackbagboys
> Instead of going under the knife, she went to her office, arm in a sling.
> Porat refused painkillers, saying they would impair her > judgment, and put
> in two long workdays before the Tuesday morning call.

> “Ruth is the only person who can deliver bad news to me, and I’ll still like
> her,” says Jeff Immelt, CEO > of GE

These people are insane. Keep personalities like this far away from your life.

~~~
wtbob
> These people are insane.

No, not really. An earnings call for an enterprise that large is worth many
human lives (at the standard rate of about $2 million, which is itself derived
from both people's own insurance choices as well as court-case awards); part
of what someone at that level is paid to do is to put her company (and the
well-being of the millions of people with a stake in it) above herself, and
Mrs. Porat did that.

~~~
lfam
$2 million (or whatever number) may be the standard rate used to compensate
others for a lost life, but does anyone willingly sell their life for $2
million?

I think there is a difference between how we try to compensate for the loss of
something irreplaceable (a life) or disincentive negligence, and the price of
something bought and sold.

~~~
sa46
Isn't life insurance fraud by suicide selling your life for a chance at money,
usually much less than $2 million?

~~~
jonathankoren
Obviously not, because you're not dead.

~~~
mvid
Life insurance fraud of killing yourself and making it look like it wasn't a
suicide in order for your beneficiaries to get the payout. You would very much
be dead.

~~~
majewsky
Okay, let me assume that this is even a thing (I don't know, but you seem to).
There are still two fallacies in trying to equate the lost life against the
payout:

1\. The person committing the suicide and thus the fraud would not be weighing
his life against the money, he would be considering the well-being of his
beneficiaries instead, and deciding that their well-being is worth more than
his life.

2\. He cannot reasonably control the payout of the life insurance. Anything
beyond a certain mark (maybe 2 million $) would raise a lot of eyebrows in the
insurance company.

------
ben_jones
Theirs a scene in Mr Robot where a junior executive at E-Corp bragged about
getting a blow job from an executive recruiter on a tennis court on one of the
Google campuses.

That scene resonated pretty deeply with me. All large corporations have much
more in common then they do apart, including for the most part the same needs,
desires, objectives, tactics, etc. They all pull from the same pool of
Harvard, Stanford, Yale, whose pedigree of professors-to-influential-people
would be incredibly fascinating in its own right.

That said I've longed learned it's pointless to try to predict the doom of
companies. Just try not to get burned by the inevitable fall out in whatever
form it may take...

