Inside Netscape, the Renaissance company
January 5, 1999
by Polly Schneider
(IDG) -- Inside the walls of Netscape Communications Corp., a visitor would never know the company has been through one of the roughest periods of its five-year existence.
Initially forced to turn its flagship browser into freeware and mired in the spotlight of the government's bitter antitrust suit against Microsoft Corp., Netscape is now preparing to be acquired by Dulles, Va.-based America Online Inc. in a $4.2 billion deal set to happen in the spring.
Yet the company's Mountain View, Calif., headquarters campus belies any sense of the turmoil that rages around it. Canine friends of employees cheerfully pop their heads over doggie gates (bound only by the "two poops and you're out" dictate) while their shorts-clad owners muse about "changing the world."
The culture at Netscape has not veered far from the idealistic and unfettered work habits of a bunch of computer hacks from the University of Illinois who worked around the clock to launch the company's first product suite in a mind-boggling eight months. It's that culture-as much as products or strategy-that will determine how Netscape fares in the future.
Mike McCool, who's been with the company almost from the beginning and who's one of its star software engineers, is well aware of the draw of the company's culture. McCool stays at Netscape because of the bright, motivated people the company attracts. At 1 a.m., there's usually someone there to bounce ideas around, talk code, discuss a problem. At Netscape, employees operate on some sort of buzz, even at the strangest hours.
Not that there haven't been bumps along the way. Netscape's attrition rate is roughly 20 percent, according to Kandis Malefyt, the company's senior vice president of people. But Netscape remains one of the companies defining the workplace of the future: fast, furious, nimble and exciting.
In Speeding the Net: The Inside Story of Netscape and How It Challenged Microsoft (Atlantic Monthly Press, 1998), authors Joshua Quittner and Michelle Slatalla suggest that Netscape's speed to market four years ago forever changed business practices in the software industry.
In just one year after its 1994 inception, Netscape had grown from a struggling startup to one of the hottest high-tech IPOs of the decade. After engaging in a browser war with Microsoft, Netscape had to enter new markets quickly. A year ago, for example, the company announced its intention to become a presence in the enterprise and e-commerce software and services arena.
The strategy seems to be paying off. In the fourth quarter of 1998, Netscape reported an encouraging 8 percent growth on revenues of $162 million, and its enterprise software business now accounts for 75 percent of earnings. Long term, the company has a good shot in the enterprise market because it can compete well on price, performance and support, says Michael Murphy, publisher and editor in chief of the California Technology Stock Letter in Half Moon Bay, Calif. And equally important, he adds, "They really, viscerally understand the Net."
The company's ability to respond quickly to market forces-call it renaissance, renewal or, in dire times, reconstruction-is why it's still around today. And it's an ability that companies in other industries would do well to emulate as the pace of business change-and the need to adapt accordingly-pick up. McCool himself wonders at the company's resilience. "I'm constantly surprised over the years how at times I thought we were doomed but then things panned out," he says.
The secrets to Netscape's survival lie in its corporate culture. Unencumbered by rigid schedules and policies, employees are free to come and go as they please or work at home if they like. In an environment where everyone is encouraged to contribute and have a voice, a sense of equality is pervasive. That sense is evident in Netscape's cubicle policy in which everyone-including President and CEO Jim Barksdale-works in one.
The company's dress code is succinctly explained by Barksdale on the new hire Web page: 'You must come to work dressed.' The company's environment is the ultimate expression of a casual, open-door culture, which keeps its people motivated and-more important, say company insiders-highly productive.
Netscape's permissive culture is not just an example of Silicon Valley excess. More than ever, how companies treat their employees will ultimately affect the bottom line.
"Retention is the key to economic success," observes Jeffrey Pfeffer, a professor of organizational behavior at Stanford University's graduate school of business in Palo Alto, Calif., and author of The Human Equation: Building Profits by Putting People First (Harvard Business School Press, 1998). Three forces heighten a focus on people: the growing importance of knowledge workers to profits, a strong economy that has driven down the unemployment rate to 4.6 percent and the boost in demand for products and services by aging, free-spending baby boomers.
The battle for staff is especially bloody in Silicon Valley, where the rate of attrition hovers near 30 percent by some estimates. Replacement costs can run as high as two to seven times an employee's annual salary, according to Roger Herman, a workplace consultant and CEO of The Herman Group Inc. in Greensboro, N.C.
For their part, employees today are after more than a paycheck, according to Herman. Values at the top of the list include meaningful work, independence, flexibility, a desire to learn on the job and a disdain for corporate hierarchies.
"There is less emphasis on pay today than ever," affirms Tim Garmager, principal and national practice leader for the Human Resources Strategies Group at Deloitte & Touche LLP in Chicago. In today's job market, employers need to look closely not only at the benefits they offer but at the culture they engender.
Power to the People
At Netscape, independence and a hands-off management philosophy are cultural hallmarks.
"There are a million interesting things to do here," says Tony Lincoln, an IS systems engineer who officially joined Netscape in early 1998 after a two-and-a-half year stint as a contractor at the company. "As a consultant, I always felt like I had freedom, but in reality I have more freedom here," he says. Lincoln echoes the sentiment of many Netscape employees who say the company allows them to direct their own careers and try new things.
Patrick O'Hare joined the company in June 1997 to manage the internal human resources Web site. With the help of another HR colleague, he redeveloped the site from scratch in two months.
Today the site is a full-fledged benefits, education and career management tool that-with 20,000 user sessions a month-is Netscape's biggest internal site. When O'Hare wants to make changes to a page, he doesn't need anyone's approval upfront. And when his daughter recently became ill, no one blinked an eye as he cut back on his work hours.
"A company's responsibility is to provide you with the stage and the props and let you do the acting," O'Hare reflects. "The tether is so loose on me here-it's a wonderful environment to have."
O'Hare believes that Netscape's relaxed work environment drives up productivity and creativity. Because there aren't layers of management and policies to work through, Netscape can "turn out products in a month," he says. "There is a high degree of trust here," says Richard Beal, Netscape's vice president of IS business applications. While that trust translates into a lack of bureaucracy, it nevertheless comes with certain expectations. Employees are accountable for their decisions and must be prepared to back them up with sound reasoning later in team meetings.
McCool says he is at once flattered and uneasy about the responsibility. "The decisions I was making today and yesterday will have a long-term impact on the client software," he reflects. Not everyone is comfortable with self-direction, and managers must consider that when interviewing job candidates who may have the skills but not necessarily the right mind-set. Explains O'Hare, "For some people, it's too chaotic."
Just as important as giving employees autonomy is helping them find new roles and challenges within the company. Beal oversees Netscape's 85-member IS business applications organization, a department that he proudly says has one of the lowest turnover rates at the company. Because IS plays the dual role of providing services to the business and testing new products before they go out the door, IS workers feel they have a big stake in the company's success. That stake translates into loyalty for Pamela Baer, an IS applications manager. Baer, who says she gets a couple of calls from recruiters a week, stays at Netscape because she continually works on exciting projects.
Learning is also a tenet of Netscape's culture. While the company offers a full range of training options, including an annual $6,000 tuition reimbursement, employees value the opportunity to expand their skills while on the job. Tim Kaiser, a software engineer and project leader, came to Netscape because of its reputation for state-of-the-art technology. In his first year, Kaiser worked on four different projects.
Beal is a believer in letting his staff move around-whether it's to a new project they're fired up about or to another position in the department. During a two-month period last summer, 10 percent of his staff changed jobs, and direct experience often isn't a requirement for a new assignment. One of Beal's engineers requested and was granted a transfer to a team working to build business applications with a product he knew nothing about.
Keeping projects afloat in this environment is a challenge, but Beal, an IS veteran of Apple Computer Inc., NEC Corp. and several other high-tech companies, says most organizations lose employees because they don't give them enough opportunities to try new things, take risks and make mistakes. "People stay here because they have space to operate," he says. At the same time, Netscape recognizes that some experiments fail and therefore doesn't punish employees for ideas that don't pan out, according to Beal.
Netscape's managers are aware of the vast choices employees have in the area. As a result, they are proactive in helping people identify new career paths inside the company.
To help employees understand what's going in other departments, Netscape holds quarterly "all-hands" meetings where senior managers talk to the entire staff about strategy and direction. Product development groups also hold open weekly meetings to share the status of products or a new technology. All these efforts are designed to foster a sense of community. "They really try to keep us informed so we feel like we're involved with the whole company," Kaiser says.
Providing employees with lots of services onsite is perceived by some as a tactic to encourage people to work more, yet Beal insists that isn't the case at Netscape. "The message is more that the company cares about you," he says. Aside from the standard package of health and vision benefits, Netscape has a program called Total Health and Productivity that aims to help eliminate some of the mundane hassles of life. Thanks to San Francisco-based services provider LesConcierges Inc., employees can drop off dry cleaning, hit the ATM machine, get an oil change, see a dentist or have a massage-without leaving campus.
LesConcierges also helps with any number of personal affairs such as planning a trip or ordering gifts. Parents can leave "moderately sick" children at a nurse-attended child care facility near the campus for $10 a day.
While long hours in Silicon Valley are the norm rather than the exception, time off is becoming a coveted form of indirect pay. After four years of full-time employment, Netscape employees are eligible for a six-week paid sabbatical. Managers like Beal who are concerned about the common problem of self-imposed burnout have to constantly remind overachievers (there are a lot of them at Netscape, he says) that vacations are a good thing.
"Netscape has made a concerted effort not to be a sweatshop," McCool says. After working himself to the bone on a project last year, McCool asked for a few months off. The company gave it gladly and helped him find a new position in the company upon his return. The company, he says, was "willing to go out of the way to make sure I was happy."
But let's get real. To keep skilled workers, companies will have to keep up with constantly evolving compensation trends. Incentive pay is becoming widespread for employees at all levels, not just top management. At Netscape, employees can earn bonuses based on individual or group performance, such as meeting new product ship dates. For senior executives, incentive pay programs run the gamut from 1 percent to 30 percent of annual salaries. In addition, a corporatewide bonus is paid out annually based on revenues per employee and customer satisfaction figures. All employees can earn raises during their annual reviews, provided they've been with the company for at least six months, and they may qualify for spot bonuses at their manager's discretion.
Change Is Good
Beyond all the perks-pets, bonuses, sabbaticals, flexible schedules-a top reason employees give for sticking around is the opportunity to work with really smart people. If smart folks like a challenge, Netscape has plenty to offer. Even with the recent deal with AOL, Netscape must reestablish confidence after a disappointing two years on Wall Street and losses of $88 million in the fourth quarter of 1997.
Yet even in times of turmoil, Netscape isn't reverting to restrictive management practices. And in that respect, the company may be on to something. A renaissance company is one that thrives on change and invention and gives its people the chance to be part of a bigger mission than punching the clock. Talented workers need motivation-bolstered by a feeling of team spirit and a sense of contributing-to get through the rough times.
McCool hesitates to predict what the future will hold for Netscape. But in 20 years, he imagines what the company's legacy could be. "I'd like to think that Netscape is the company that helped open the doors to the Internet and made it fun to surf the Web."
Senior Writer Polly Schneider can be reached via e-mail at firstname.lastname@example.org.
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