Google’s new corporate structure solves two significant challenges for tech companies: continued innovation and talent drain.
Unless you’ve been living under a rock, you’ve heard by now that Google announced a sweeping reorganization of the company this week. Alphabet is the new parent company, with each of the individual businesses now operating as a series of subsidiaries, individually reporting to Alphabet CEO Larry Page.
Eighty-nine percent of Google’s $60B in revenue is generated by the search-driven advertising business, which is now run by the newly named CEO, Sundar Pichai, a Google veteran. The other subsidiaries; focused on robots, self-driving cars, helping to cure diseases, developing nanoparticles and extending Internet connectivity via balloons, will also each have their own CEO and management structures.
Google’s reorganization caught most people by surprise. There hadn’t been any public pressure from the investment community to reorganize the company, nor had there been rumors about management shakeups.
Google’s new corporate structure was driven by the need to solve two significant challenges for technology companies; continued innovation and talent drain.
Image via Android Headlines
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Throughout history, technology companies have struggled to continue the pace of innovation while also maximizing their current business models. New innovations can take up valuable management time, siphon off investment dollars and also create businesses that might disrupt the current business models of the company.
In the early 1980’s IBM clearly saw the dawning of the PC revolution, but given their strength in mainframe and large systems computing, as hard as they tried they culturally approached the PC business as an offshoot of their mainframe business, and ultimately ceded the innovation and leadership of the PC market to other companies.
In the early 2000’s, Microsoft clearly saw the dawning of the smartphone marketplace. Their approach put Windows as the operating system for mobile phones at the center of their strategy, which alienated developers and buyers and was ultimately unsuccessful.
With this new organizational structure, Larry Page is attempting to allow new businesses to develop without having to structure them based on the impact they may have on Google's core search advertising business.
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What fuels innovation is talent, and Google is in a battle to recruit and retain the best talent in the world. By creating subsidiaries, each with their own CEO and management structure, they create more opportunities for growth for internal talent and attract new talent to the company.
Google’s organizational model is not without precedent. The most obvious comparison is to Warren Buffett’s Berkshire Hathaway. The company wholly owns brands as diverse as Dairy Queen, Lubrizol, Fruit of the Loom, Helzberg Diamonds, Net Jets and BNSF Railway. Alphabet indeed.
Image via Daily Mail
The common thread here is that each of these subsidiaries of Berkshire Hathaway operate as autonomous businesses, each run by a CEO and management team, that report into BH CEO Warren Buffett. This strategy has served Berkshire Hathaway remarkably well through the years, growing the company into one of the top 5 public companies in the world. They have also been able to retain and attract top talent by creating more senior level positions across the broad and diverse conglomerate.
You don’t have to be running a company the size of Google or Berkshire Hathaway to apply some meaningful lessons from their organizational changes. Here are a few ideas:
- Continued Innovation. Create a focus on new product or process innovation in your company. Establish a portion of time that each of your leaders can work on developing a new product or service or substantially improve a process in the company, regardless of whether this is something that fits in their department or areas of expertise. Google famously established the “20 percent rule” that called for employees to spend 20 percent of their time working on something totally new. Several of the new organizations contained in Alphabet came directly out of this process.
- Talent Drain. Your company may not yet be in a position to promote up and coming talent. That doesn’t mean you can’t start getting them involved in understanding broader aspects of the business, however. Start a job rotation process with your key talent. Have them spend a small portion of their week with another department, function or division of the company, with the express goal of continuing their leadership development. Establish a leadership team where you share the total operations and performance of the company and include some up and coming talent. They will feel more a part of the senior team and derive a better understanding of your business and you’ll be developing talent as a part of the process.