How Companies Have Sex

Picture the headquarters of Sun Microsystems: a campus basking in the California sun, a few blocks off Highway 101, at the shallow end of San Francisco Bay. Nestled in a corner office, deeply buried in the complex of discreet low-rise buildings, Eric Schmidt, Sun's chief technology officer, is leaning back in a plush executive chair. Eric is thinking about sex. A smile is on his lips, and a deep, satisfied light radiates from his eyes. He has grasped a liberating truth: sex -- not microchips and software -- is the key to the future of business.

Eric Schmidt's job at Sun is to spawn and nurture new businesses. For Eric, organizational sex is a rich, vibrant topic. His days are often spent in flirtations -- and sometimes full-fledged assignations -- with new companies and their founders. What he tries to do is create a union of the fertile ideas of rebels and visionaries and the organizational DNA of Sun.

What is organizational DNA? It's the stuff, mostly intangible, that determines the basic character of a business. It's bred from the founders, saturates the early employees, and often shapes behavior long after the pioneers have passed on. Organizational DNA influences the innovations to which people commit themselves: Will they work together to create better French food or fresh software? It determines what sorts of leadership and values are likely to emerge: Will the company be autocratic and bureaucratic, or ad hoc and libertarian? An organization's DNA helps determine its "pluck coefficient" -- that is, how well people deal with threats and crises, and how they seek to grow. Little understood, organizational DNA is of vast importance. Which is why Eric Schmidt is so intent on delving into its workings.

Schmidt has approached the DNA question by becoming an expert on how companies have sex. In biological evolution, the capacity for sexual reproduction developed as a response to harsh and fast-changing environments. The companies Schmidt works with face similarly brutal business environments. Sex is all about mixing up the DNA from two parents to spawn something new. By mingling genetic characteristics from two distinct mates, sexual reproduction allows more radical genetic experiments. It's about creating new organisms that have the potential to grow in directions unknowable to either progenitor; it's about enabling new and potentially more adaptive characteristics to be invented more quickly.

There was a time when most organizations had sex with only themselves: think of it as asexual organizational reproduction. Not surprisingly, the children varied little from their parents. Early in this century, for instance, General Motors learned how to make car companies that were superficially distinct yet fundamentally similar -- focusing Chevy on middle-class families, Cadillac on established high rollers, and Buick on the upwardly mobile. This strategy worked well, as long as the auto market remained stable. But when new species moved into the market from Europe and Asia, the environment plunged into rapid and continuous transformation -- leaving poor old GM genetically disadvantaged. In response, GM tried a little sex -- coupling with Toyota at the NUMMI plant in California and with the United Auto Workers at the Saturn facility in Tennessee.

In the new economy of fast companies, a diversity of sexual experiments tends to beat self-fertilization and local intermarriages. Just as your parents' Oldsmobile is unlikely to be appealing today, a knockoff business model is unlikely to succeed. The name of the game is combining organizational DNA in unique and inventive ways, creating new organisms that (at least some of the time) will find ways to adapt to the new environment. That's why Schmidt is overseeing continual crossbreeding at Sun, hoping to produce a few promising enterprises.

Schmidt's prize-breeding success to date is JavaSoft, developer and licenser of Java, a new software language especially suited to the Internet environment. Most people have heard of Java; few know about its mixed genetic heritage. In 1990, Sun allowed five engineers with experience in computer workstations -- Sun's traditional product -- to begin learning about Sharp's Wizard and other personal digital assistants. The engineers began the genetic experimentation, looking for ways to crossbreed the two talents. Nothing commercial came of it. After two years, the group turned to interactive television as fertile territory and brought in new members with experience in media and communications -- a shot of new DNA.

Many months and many experiments later, there was still no market success. But by 1995, the Internet provided a new market environment. The technology crossbred into Java proved a perfect ecological fit with the technology convergence on the Web. Java and JavaSoft, transplanted into the new soil, proved wildly successful.