Market Dynamics: Innovation and the 20 percent solution

Market Dynamics: Innovation and the 20 percent solution

As IT budgets threaten to follow the same trend lines as financial markets, it's a natural impulse for managers to circle the wagons, concentrate on core projects and put off innovation for another day.

Natural, but wrong.

For proof, look at what happened after the Internet bubble burst earlier this decade. Sure, that tech bust pales in comparison with the current worldwide credit crunch in terms of overall effect, but if you consider the Internet sector alone, the money drought and corporate failures were pretty stunning.

So, how did Google emerge from that wreckage to become not another, but a multibillion-dollar company and the world's most influential Web brand? A key part of the equation has been constant innovation (either in-house or by acquisition). It's not easy to innovate when money is drying up all around you. But Google managed to do just that during those lean years.

One important policy has increased both employee satisfaction and innovation at Google: the "20 percent rule," which allows engineers to spend one-fifth of their time on corporate projects of their choosing -- creating something new or making something work better -- even if the project isn't part of their job descriptions.

For one day each week, Google's engineering staffers get to work on projects they think are important for the business, not what management has prioritized for them.

Before you scoff at that as a tech-bubble luxury that only an overstaffed company can afford, look at some numbers. Google's AdSense for Content was developed as an engineer's "20 percent time" project. Last quarter, Google generated more than US$1.6 billion in revenue from AdSense partner sites; that's almost one-third of the company's total revenue.

A few other companies have similar policies that have yielded noteworthy results. 3M's "bootlegging" rule allows research engineers to spend up to 15 percent of their time on projects of their choice. One well-known outgrowth: Post-it notes.

What the 20 percent rule has done at Google is turn a significant chunk of the company into something akin to a venture-capital innovation laboratory, but without outside funding to seed the work.

"There is a big difference between pet projects being permitted and being encouraged," Google software developer Joe Beda wrote several years ago on his blog. "At Google, it is actively encouraged for engineers to do a 20 percent project."

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