Google's New Organizational Structure Preparation Review Five Elements of Organizational Structure. Your Assignment On August 10, 2015, Google announced plans for a new organizational structure that i
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By Alistair Barr
A t G o o g le , B re a th in g R o o m fo r N e w Id e a s
O ct. 1, 2015 3:54 p.m . ET
To see how G oogle Inc. C hief Executive Larry Page hopes to turbocharge a grow ing fleet of speculative projects
under a new holding com pany, look at N est Labs.
After G oogle acquired the m aker of connectedhom e devices for $3.2 billion in 2014, N est kept its ow n recruiters
and its ow n system for vetting job candidates, skirting G oogle’s fam ously deliberate hiring process. N est still
rents com puter servers from Am azon.com Inc., rather than use G oogle’s data centers. N est cofounder and
C EO Tony Fadell also curbed som e G oogle perks, such as free food, to m aintain N est’s scrappy vibe.
M r. Fadell and cofounder M att R ogers negotiated unusual autonom y for N est. N ow, as G oogle reorganizes and
creates a new parent com pany, Alphabet Inc., it is using N est as a m odel for running its other startup operations
— the “bets” in Alphabet— according to people fam iliar w ith the plan.
The restructuring separates G oogle’s core businesses— including Internet search, the Android operating system
and YouTube— from new er unrelated businesses such as N est, G oogle Life Sciences and Fiber, the fast Internet
service. M r. Page w ill rem ain C EO of the Alphabet holding com pany, but step back from running G oogle’s core
to oversee the other units, w hich w ill operate m ore independently.
A date for the new structure hasn’t been m ade public, but G oogle said it w ould start providing quarterly results
for the core and startup operations w ith the fourth quarter.
“If G oogle can deliver m ore broadly w hat it gave N est, that predicts success for the rest of the Alphabet
projects,” said M ax Levchin, a cofounder of PayPal H oldings Inc. w ho spent m ore than a year at G oogle after it
bought his social startup Slide in 2010.
U nder the new arrangem ent, the “bet” com panies w ill do their ow n hiring, w rite their ow n contracts and plan their
ow n m arketing cam paigns, w ith an eye tow ard m oving m ore quickly, the people fam iliar w ith the m atter said.
Executives at G oogle’s core businesses w ill focus on things like search and advertising and w on’t be distracted
by having to assess and approve the plans of Alphabet projects.
Executives got an unexpected glim pse of the new order on Aug. 11, one day after M r. Page announced the
reorganization.
As they convened to discuss one of the young bet businesses, Sundar Pichai, w ho w ill be C EO of core G oogle,
w asn’t there. The others w aited for a tim e, but then realized M r. Pichai didn’t need to be there. The m eeting w ent
ahead w ithout him , giving the incom ing G oogle C EO tim e for other priorities.
“It gets a little faster, m ore efficient and a little m ore independent,” said Andy C onrad, C EO of G oogle Life
Sciences, one of the bet com panies. “I act as a C EO of an independent com pany instead of a senior executive
w ithin a large com pany.”
That m ight seem like splitting linguistic hairs, but form er G oogle executives say new projects historically have
struggled to get resources, w hich flow to larger divisions that generate m ore revenue. Business units w ithin 1/18/2016 At Google, Breathing Room for New Ideas - WSJ
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G oogle com pete for talent, these people say, both in num ber of em ployees, and som etim es, for specific people.
D r. C onrad said he feels freer to m ake decisions w ithout considering the effect on other G oogle businesses.
“Sundar w ill act in the best interests of G oogle Inc. I w ill act in the best interests of G oogle Life Sciences,” he
added.
M any entrepreneurs believe “it’s easier to do their business outside G oogle rather than inside,” said M ax
Ventilla, w ho left G oogle in 2013 to found an education startup. “There’s a lot of red tape for head count and
m oney to get through at G oogle.”
Alphabet grew out of M r. Page’s concern that rising com plexity w as lim iting G oogle’s ability to expand into
potentially big sectors including transportation, health care and com m unications, said people fam iliar w ith the
reorganization.
In a 2012 conference call w ith analysts, M r. Page said G oogle aspires to spend 70% of its tim e, m oney and
other resources on core businesses like search, 20% on related new businesses and 10% on projects in new
areas. But, he added, “W e’ve really struggled to even have 10% on the speculative things.”
Alphabet w ill help M r. Page m eet this 10% goal, according to people fam iliar w ith the plan, though the increase
w ill likely be gradual. Longerterm , this w ill result in m ore and bigger “m oonshot” investm ents, som e of these
people added.
That suggests that investors, w ho cheered the Alphabet reorganization in hopes it w ould reduce G oogle’s
spending and boost profits, m ay be disappointed. In a recent note to investors, Bank of Am erica M errill Lynch
analyst Justin Post said there is a risk that spending “is about to accelerate under the new structure.”
N est has expanded quickly since joining G oogle, to m ore than 1,000 em ployees, from about 300. It acquired
videom onitoring and hom esecurity startup D ropcam for $555 m illion and developed a hom enetw orking
standard called W eave.
N est cofounders sought independence because they feared getting bogged dow n in G oogle’s bureaucracy. In
addition to its ow n recruiters and com puter system s, N est also kept its ow n legal and m arketing departm ents. Its
em ployees retained N est em ail addresses. N est has headquarters in Palo Alto, C alif., m ore than four m iles aw ay
from G oogle’s M ountain View cam pus. The division even had its bikes painted w ith N est’s light blue corporate
color, in contrast to G oogle’s logoechoing m ulticolored bikes.
“W e’ve alw ays been run very independently. Alphabet just form alizes that. It’s a great w ay to scale a com pany.”
said M r. R ogers.
W rite to Alistair Barr at alistair.barr@ w sj.com