In the 1990 film, The Hunt for Red October, Sean Connery’s Captain Marko Ramius informs his crew that he has written his political superiors to notify them of his plans to defect. His crew is outraged and terrified: angry that he revealed their plot without consulting them first, and frightened that the might of the Soviet navy would soon be focused singularly on sinking their sub.
Ramius’ explained himself by analogy. “When he reached the New World, Cortez burned his ships. As a result his men were well motivated,” he said.
With Google announcing a new corporate structure that will create multiple independent businesses under a new entity called Alphabet, it, too, has given its employees a new found motivation, if not a little bit of a knot in their stomachs.
That’s because with independence comes transparency and accountability. We’ll see how Google’s new parent organization shares the results of its businesses in its next quarterly earnings, but the move should give investors and employees a much clearer view of how well they’re performing. With the bright light of quarterly earnings announcements now shining on their results, Alphabet employees will have explaining to do if they fall short of the mark.
Google isn’t the first company to organize itself this way. Some have compared the new structure to Warren Buffett’s Berkshire Hathaway, which is a holding company for a diverse array of businesses ranging from insurance to furniture retailing.
I prefer a comparison to one of Google’s archrivals: Microsoft. The Redmond-based company breaks out results of its business units so that investors and employees know what each contributes to (or subtracts from) the total bottom line.
The analogy isn’t perfect. Compared to Microsoft, it is true that some (e.g. Google Maps, YouTube) of Alphabet’s businesses seem closer to its Google core DNA than others (e.g. drones, self-driving cars). Then again, Microsoft’s Xbox doesn’t have much in common with Azure. In any case, there’s no shortage of precedent for the move.
Regardless of how others assess Alphabet’s structure, (and some see it as a net negative), the move to more independent subsidiaries should bring more good than bad. Increased transparency, open competition for finite resources, and greater focus on their unique core propositions should result in either improved long term performance or an easier way for Alphabet to shed units that drag on overall results. Apple investors would love to know the sorts of things about iTunes, for example, that Alphabet soon will reveal about the likes of YouTube and Android.
That’s why the proper spelling of the word “motivation” in Mountain View is “Alphabet.”