What's Wrong With Management Practices in Silicon Valley? A Lot.

To prevent high turnover, burnout and loss of employee commitment, learn to avoid four practices that are undermining some high-profile companies.

Everyone seems enamored of Silicon Valley. It has certainly spawned much new technology and created vast wealth. As a consequence, many executives visit Silicon Valley companies, read books about them and seek to copy the Valley’s approach to management. But as high-tech commentator Esther Dyson has perceptively noted, although Silicon Valley is good at generating new technologies quickly, it has been much less successful in building sustainable organizations or in using sound management practices. So, before you rush to copy the Silicon Valley approach to management, a word or two of caution seems in order.

Silicon Valley’s Approach to Management

What is Silicon Valley’s approach to management? In general, it encompasses four practices. First is the free-agency model of employment, featuring relatively little commitment on the part of companies to their people or vice versa. Individuals are expected to watch out for themselves (the term at Sun Microsystems is “career resilience”) and move on at a moment’s notice. Labor mobility and limited attachments are expected and accepted.

Second is the extensive use of outside contractors, even for hardware and software development. The Valley may be the home of the virtual or almost virtual company.

Third is the use of stock options as an important form of compensation. Stock options are used even by companies in relatively staid industries, such as the manufacture of tamper-evident bottle caps. If the company is located in San Jose, California, it feels obliged to offer options as part of the pay package.

Finally, long working hours are typical. Indeed, they seem to be a badge of honor. The feeling is, if you aren’t working constantly, you must not be essential to the success of your enterprise — a suspicion that is hard on the ego.

The Consequences

There are predictable and observable consequences for each of the four practices. The free-agent mentality, for instance, generates high turnover. Estimates range from 20% to more than 30% annually. The cost of recruiting and training replacements is enormous, particularly when combined with less direct costs: the productivity costs of positions going unfilled; the disruption to relationships with customers who must continually deal with employees in training; the costs to the product-design and development functions as knowledge walks out the door. And then there is the cost of building up one’s competition, as former employees take positions with established competitors and startups.

But isn’t high turnover inevitable in high-technology companies? In a word, no.