Story:
Authenticity as Competitive Advantage

In the earliest days of the company — preceding capital, employees, or product — the founders committed to create an organization that would “succeed the right way or not at all.” To wit, this was a commitment about values, the principles that would govern the company’s behavior.

In contrast to the platitudes (typically overly numerous and abstract) that corporations would profess but cast aside when inconvenient, the founders aspired to establish a set of commitments which would prevail precisely when they required sacrifice of desirable things (sales, profits, market share, investor approbation, etc.). Moreover, these commitments would have to reflect and guide what everyone would actually do, not merely what the management team would high-mindedly assert.

Three values were selected to serve as a definition for “the right way”: integrity, rationality, and collegiality.  They are defined in Guidewire’s specific context and elaborated upon further below.

Integrity means to tell the simple truth and fulfill every promise the company makes. Because of the highly abstract nature of what they sell, software companies characteristically struggle with integrity — with enough time and wishful thinking, you can build anything!  (Indeed, software companies often lie to themselves, which is just as bad.)

Integrity has a number of pragmatic implications at Guidewire:

• Customer success is the non-negotiable top priority of every implementation project — trumping considerations of project profitability when difficulties are encountered.
• Customer success in the non-negotiable top priority of product development plans — trumping opportunities for market expansion or requests from prospective customers.
• In all customer relationships, the right answer is always the simple truth. No sale has ever been predicated on a misrepresentation of a product’s capabilities or a distortion of the true cost and effort of implementation.
• Employees are entitled to full transparency on the state of the business (consistent with the disclosure rules governing a publicly traded company).

These commitments are not without costs in the short- to medium-term, measured in years. The company has foregone numerous sales to less inhibited competitors (though these have generally returned to Guidewire or served as cautionary tales, in the fullness of time). An even more painful example dates to six years ago, when the company had to report to several early customers that there were structural problems in one of our products that would require 6+ months of re-design work. This news could have been delayed or papered over, since the architectural defect would have not been manifest for many months, but there was no hesitation on the course of action once the facts were clear.

Rationality means to assess the facts dispassionately and then determine the optimal course. This is contrast to the many irrational motivation which shape decision-making in organizations: the title/role/tenure of the deciding party, the desire to rationalize sunk costs, the indulgence in political theater between rivals, or wishful thinking. Less pernicious but even more common is the tendency of executives to over-value their own intuition and experience over analysis.

Copious research has documented that human reasoning is burdened by bias, inconsistency, innumeracy, and the tendency to apply convenient heuristics to complex questions. While absolute rationality is an unattainable ideal — especially given uncertainty and incomplete facts with which business people typically must work — there are many practical ways Guidewire has striven to promote rationality:

• Leaders model a norm of repudiating wishful thinking and dogmatism — and actively “call it out” when they creeps into discussion.
• Leaders also model a strong norm of reaching the right answer, not “winning.” Constructive dissent is protected and, indeed, highly encouraged. A rationally supported position will always receive a thorough hearing, regardless of the role of the dissenter or the provocation of the position.
• Decisions must always be accompanied by rational explanation and logic; role and authority are not adequate justifications in themselves. This can give communications at Guidewire a more elaborated or “inductive” quality compared to most businesses: facts and premises are spelled out before conclusions are drawn. Clear, cogent writing that persuades one’s colleagues is a highly valued strength at Guidewire.
• Past decisions are not second-guessed or blamed if they were rational at the time but proved to be suboptimal because of new information or bad lack. “Accountability” at Guidewire derives from having worked assiduously and acted rationally (and with high integrity), not merely from the “results.”

One consequence of the above is that important decisions at Guidewire are virtually always decided by consensus by all the relevant key parties. While consensus has a bad name in business because of an association with indecision or incrementalism, success of any course of action in a complex business such as Guidewire’s requires authentic and collective belief. Papering over dissent is usually a false economy.

Emotion plays a critical role in business — in persuasion, in motivation, in the will to persist in the face of daunting odds — and Guidewire has been no exception. The company’s commitment to rationality has been sorely tested numerous times. Many of these relate to software design, where structural decisions made at one stage in the product’s development lifecycle can have profound (and sometimes unintended) consequences for many years. On several key occasions, the decision was made to re-design deep attributes of our products’ architecture, not necessarily because of imminent disaster but in recognition that failure to do so would lead to unacceptable constraints years later. Because these decisions were undertaken with no near-term financial benefit (indeed, painfully the opposite) but have led to an especially robust and general product, they are a particular source of pride for the company. Outside of the product domain, many of the most important applications of rationality were not to pursue enticing opportunities in partnerships, expansion to new markets, launch of new products, or sales pursuits where we believed the prospective customer to have irrational expectations about how to achieve their goals.

The third value of Collegiality expresses the principle that Guidewire employees — from senior management to individual contributors — are a community of fundamentally equal professionals. This is not the platitude that people should be polite to their co-workers. Rather, it is an explicit contrast of Guidewire’s self-definition from that of other types of organizations — namely (1) a workforce divided between “labor” and “management”; (2) an “up-or-out” pyramid like banking or consulting firms; and (3) a cult let by a messianic CEO — while acknowledging that many successful companies are built on those models. It is an appealing aspect of enterprise software as a business that an organization can succeed as a professional community (perhaps unlike manufacturing, retail, and consumer service businesses of comparable scale).

The most obvious entailment of collegiality is that hierarchy is minimized, and organizational structure is employed instrumentally only for collaborative coherence and never as a reward for individuals, however high-performing. Further, management skill is treated merely as one useful skill among many necessary ones for the company to succeed, and consequently should not enjoy dramatically higher reward than others.  This entails that Guidewire has had a smaller complement of senior managers and a less top-heavy compensation structure compared to other software companies. Most importantly, Collegiality defines the very rationale for having managers at all: not to direct the behavior of subordinates but to ensure clarity of purpose and plan, and to create the conditions in which the right answer consistently wins within the team.

Other reflections of collegiality at Guidewire include:

• Trust of people to manage their time and whereabouts.
• Willingness of all managers to do “individual contributor” work, to “walk the walk.”
• Use of expressing commitment to one’s peers — to do a task, solve a problem, achieve a goal — as the dominant mechanism for accountability.
• Intolerance for abusive behavior, regardless of seniority or performance.
• Strong preference for internal promotion where possible.
• Explicit consideration of sustainability and employee well-being over the crisis of the moment.
• Careful management of titles to avoid superfluity and entitlement.
• No status privileges — e.g., everyone flies coach except where hardship or work necessity require otherwise.

These values — integrity, rationality, and collegiality — are interlocking: rational debate reinforces a collegial culture of highly intelligent people, as does certitude that one’s colleagues are equally committed to communicating the simple truth. And rational deliberation is much less effective if knowledgeable parties are excluded from discussion or if hierarchy structures whose judgment counts for more. The values’ mutually reinforcement, their tie back to the origins of the company, and the frequently reiterated commitment to them by Guidewire’s leadership team have all helped them endure over the years. Thus, to a great (though never perfect) degree they have been established as norms of behavior that shape Guidewire employee’s expectations of each other — an expectation that can be distilled down to the single question: is the right answer winning here? The three values express a deep consensus about what defines the right answer in a given situation.