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Sarah Cliffe
August 13, 2015
The announcement that Google would be reorganized into a holding company named
Alphabet has already been interpreted in multiple, often conflicting, ways.
Joseph Bower, a strategy professor at Harvard Business School, offers up the
simplest interpretation possible: The company s leaders are doing exactly what
executives have done, under similar circumstances, since the 1920s. In other
words, it s Management 101. What follows is an edited version of our
conversation.
HBR: As a student of corporate strategy, how do you interpret the move to
create Alphabet out of Google and its assorted businesses?
Bower: It s a simple, classic move. At a certain point, companies recognize
that they re in multiple businesses, and that they will be better managed if
they organize into business divisions, essentially. Alfred Chandler wrote about
this back in the 1960s and the 1970s; DuPont was one of the earliest examples
he studied.
It s a very sensible thing to do.
So will Alphabet be a conglomerate?
We don t know yet whether it will be a conglomerate or a multi-divisional
corporation. Brin and Page and the new CEO could adopt a holding-company
strategy: something like Berkshire Hathaway or Loews, whose businesses are not
really connected to each other. Warren Buffett doesn t move talent from one
company to another.
Or they could behave more like GE and choose to become a classic corporation,
where top management allocates resources cash and talent among the
different companies and supports a strong corporate culture.
Which direction makes more sense, from your point of view?
Either could work, and I don t think they know yet which is a better bet, so it
s just as well that they ve left it open. If it turns out that the people who
are good at search are also good at making driver-less cars, then maybe it
should be a traditional corporation. That would allow them to treat Google as a
cash cow pull cash out of that and into the more future-oriented businesses.
But you could make just as good an argument on the other side. If one business
is capital intensive and others are not if one business model is throwing off a
lot of cash today and another will take years to pay off they need to be
managed very differently.
How will this change affect Google s very talented and independent workforce,
in the near term?
That s a great question and my answer relates to what I just said about
different business models needing different management systems. If what it
takes to operate the businesses and make them successful are fundamentally
similar, then it will be helpful to have a unifying corporate culture so that
knowledge and learning get shared. But if they are really different, then any
attempts at corporate synergy will simply frustrate people. My guess is that in
businesses that depend on truly great creative talent, there are fewer
economies of scale or scope than one might think.
Take Harvard University. We have great centers of bio-genetic science in
several different schools. Would the institution be better would they be
better? if they were made to work together? I suspect not.
Is it unusual that the founders are still deeply involved at this inflection
point?
No, I don t think so. More and more, we re seeing that founders of successful
businesses like to stick around. Gordon Moore and Andy Grove were at Intel for
decades. And for all the talk about hyper-fast change, a lot of successful
companies tend to have very slow turnover at the top. Jeffrey Immelt is only
the thirteenth CEO of GE, I believe.
Do you think this move was in part a response to pressure from Wall Street?
I don t think it has anything to do with Wall Street. Google has two classes of
stock, so the founders can afford to ignore pressure from activist investors.
Basically, they can do whatever they want to.
These are smart people. They re doing what the business needs them to do.
Sarah Cliffe is an executive editor at the Harvard Business Review.