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The ABCs of the Corporate Perspective
Welcome to Google, Inc.’s newest invention, Alphabet. Google's creation of the new corporate entity to restructure has led many people to wonder why Google would do such a thing. Google’s co-founder and the new CEO of Alphabet, Larry Page, explains the move as having to do with the firm being an unconventional company and “not [intending] to become one."1 In fact, however, the move by Google is quite conventional and even predictable. Let’s explore why.
Alphabet was created by Google’s top executives as a way to better manage its growing stable of businesses, including its profitable and iconic search business. Google is now and for some time has been a multi-business company, extending beyond its core area of search into arenas like healthcare, driverless cars and drones. Some years ago, Apple, Inc. dropped the word “Computer” from its corporate name; Starbucks dropped “Coffee” from its logo. Proctor and Gamble is made of several divisions representing brands like Tide and Pampers. The classic multi-business company is General Electric, which over the years has been in all kinds of different businesses.
All these multi-business companies have structured and restructured to more effectively manage and operate their separate businesses. Larry Page and Sergey Brin correctly recognized that Google had become more than or different than what it started as, and this restructuring — as Harvard strategy professor Joseph Bower claims — is a “simple, classic move” that corporations have been making for well over 50 years.2
There are several reasons for this:
First, this type of restructuring allows for better focus at both the business and corporate levels. As CEO of the old Google, Page’s focus was likely too diffuse in terms of managing the search business and trying to manage the corporation. The thinking required from the business and corporate perspectives is very different, and under the new structure he and others can focus on the corporate questions and issues, while allowing new Google CEO Sunder Pichai to focus on Google the business to maximize its effectiveness and efficiency.
The corporate perspective is about positioning the company into the future. This includes “rigorously handling capital allocations” and determining what businesses fit inside the new corporation. This implies that the new company will act much more like GE where independent businesses report up to corporate and the company orchestrates markets and creates capabilities that support its businesses. As Freek Vermueulen asserts, a common pitfall for people in charge of a company or business unit is being so busy they do not have adequate time to think, especially strategically. The new structure will give Page and his executives valuable time to think about corporate questions, like “Why do we still do things this way?” and “What are the long-term consequences of our actions?3
Second, with multiple businesses, the corporate perspective demands that support functions be aligned effectively. In Google's former structure, the support for the expanding set of businesses likely became very difficult, especially with diverse businesses having very different support needs. For example, the so-called moon-shots Google is known for are early plays in the business life cycle and demand very different management related to proof of concept. Now, with these different businesses separated into more independent units, they can more likely be managed according to what is specifically needed, whether it be creating market demand, controlling costs, or protecting market share.
Importantly, with Page and others now clearly in a corporate role and not trying to manage both the company and the businesses, they can ask the question “What does not fit?” While individually, any business can be attractive for various reasons, the idea of fit dictates finding businesses that benefit from being together. A business unit leader is not worth his or her salt if they do not aggressively pursue getting and retaining customers profitably. Google executives are now, however, in the “business” of assessing what fits in the Alphabet universe of businesses.
It will be the executive team’s job to figure out what Alphabet corporate domain will be, and what determines fit. Are they going to be a conglomerate of unrelated businesses or more of a classic corporation with more related businesses? Can they build a set of systems and processes that can effectively and efficiently support these businesses to ensure survival of the whole enterprise?
Only executives untethered from the day-to-day management of single businesses and the demands of planning and executing business strategies can pay proper attention to these critical corporate questions. The creation of Alphabet and the restructuring that has resulted at Google may only be remarkable in that the founders themselves – not someone outside – made the change. The restructuring itself is a common business practice and done for sensible, good business reasons.
1“G is for Google,” Google Official Blog, August 10, 2015, by Larry Page
2"Google’s Alphabet move is reorganizing 101,” Harvard Business Review Blog, August 13, 2015, by Sarah Cliffe.
3“5 strategy questions every leader should make time for,” Harvard Business Review Blog, September 3, 2015, by Freek Vermeulen
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