Silicon Valley Management Style – The Good and the Bad

Rogers and Larsen found that the primary reason for the failure of high technology companies in Silicon Valley was poor management, as opposed to lack of capital, technical difficulties with products or poor human resources.  In turn, the successful firms were those in which senior management delegated authority and closely monitored all products and systems.

Many books and articles have traced the development of the “Silicon Valley approach” to management and the stories generally begin back in the 1940s and 1950s with iconic firms such as Varian Associates and Hewlett Packard (HP).  Important managerial characteristics of these companies included the removal of restrictions on pursuit of new ideas and innovations; employee participation in the company’s successes through the use of stock options, a strategy intended to foster cooperation and enthusiasm throughout the workforce; emphasis on teamwork; and the ability to manage rapid change.  A famous story, often retold, about the beginnings of Silicon Valley focuses on the decision in 1957 of eight employees of Shockley Labs to abandon the firm led by William Shockley, a Nobel Prize-winning co-inventor of the transistor, to form Fairchild Semiconductor to escape Shockley’s intense micromanagement and forge their own company based on “open communications, laissez-faire management styles, flat organizational structures, and generous distributions of stock options”.  Bernshteyn argued for the proposition that successful Silicon Valley firms operated under a non-traditional management style that fostered growth, creativity, innovation and employee retention and relied on a “bottom-up” approach that began with finding and hiring the brightest and most nimble managers and employees, finding the right place in the organizational structure to maximize their strengths and empowering those employees by avoiding excessive direction and rulemaking from the top.

HP is often held out as the premier example of the original Silicon Valley management style and the management philosophy articulated by the founders of HP, Bill Hewlett and David Packard, became known as the “HP Way” and has been described as including respect and trust for the individual, hiring the best people and matching them to the right job; contribution to the customer and the community, integrity, teamwork, innovation and continuous learning with the help of customer feedback.  Carly Fiorina revised and updated the HP Way as the “Rules of the Garage” in 1999 and admonished HP employees to believe they could change the world; work quickly, keep their tools unlocked and work whenever; know when to work alone and when to work together; share tools and ideas and trust their colleagues; set aside politics and bureaucracy; accept that it is the customer that defines a job well done; acknowledge that radical ideas are not bad ideas; invent different ways of working; make a contribution every day; and believe that together HP employees could do anything.

While the Silicon Valley management style has been widely praised, and attempts to emulate it have proliferated around the world, some have expressed concerns about some of the consequences of focusing too much on managing change through flexibility and embracing “lean and mean” resources management strategies.  Pfeffer, for example, began with the premise that the model of Silicon Valley management that had emerged by the early 2000s was based on four basic ideas: a “free agent” model of employment that demanded that employees look out for themselves and be prepared and willing to move on—change jobs—at a moment’s notice; extensive reliance on teams of outside contractors that could be expanded or reduced quickly and efficiently; use of stock options as an important element of compensation; and the belief that value to the organization was measured by the number of hours worked (i.e., working long hours was the norm).  He noted that companies built on these principles would presumably be well positioned to pivot quickly as their environments shifted; however, he suggested that the free agent mentality created excessively high turnover that was actually quite costly to companies in terms of having to recruit and train new staff, manage and minimize disruption to relationships with customers and other strategic partners and worry about whether former employees were using their ideas in new jobs with competitors.  Pfeffer also questioned whether outsourcing was conducive to building a sustained competitive advantage since a large portion of the knowledge generated during outsourcing arrangements resided outside of the company.

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