Google’s restructuring under a parent company called Alphabet came as a big surprise to almost everyone in the tech industry this week. The move offered endless opportunity for speculation and plenty of jokes as well. Most people theorized that the shift was designed to increase financial accountability for former divisions of Google (which are now parts of Alphabet), like Calico, which is figuring out how to make us live longer, or Nest, which is focused on the smart home.
Given that assumption, people have been wondering why some areas of the business that could have been spun off separately, such as Android or YouTube, remained part of Google. The basic reality seems to be that Google now includes everything that makes money from advertising, the massive revenue stream that’s helped Google stock deliver 16.6% returns since 2004.
Whatever the real reasons for the restructuring, Alphabet’s very existence is a reminder that there’s a serious need for integration in every aspect of business. In other words, if even one of the world’s most valuable companies has trouble organizing its many components, what does that mean for the rest of us, without multi-billion-dollar valuations? To help you make heads and tails of the rearrangement, we’ve come up with some “ABCs of integration insights” that the Alphabet move can teach us.
Align with a mission
Pretty much from the start, Google’s core mission has been to “organize the world’s information and make it universally accessible and useful.” Online search was fairly directly connected to that mission, but over the years, Google acquired or started more businesses – like the aforementioned Calico and Nest – that were less clearly aligned with the goal.
While Calico is working on understanding aging, it’s probably still a long way from making complex biological information “universally accessible and useful.” Likewise, Nest is building a great understanding of how people interact with their smart homes, but since only about 16 percent of consumers currently own smart devices, the utility of that data remains limited as well.
By focusing all elements of Google back on the core mission of organizing information, Alphabet empowers each of its components to create and work on their own mission, whether that’s understanding aging, sending people to the moon, or something completely different.
Integration insight: All the applications a company uses should be aligned with the company’s core mission. Design integrations with a mission, not a laundry list of applications, in mind.
Be like Buffett
“Conglomerates are generally considered less efficient than focused companies,” Fortune writer Stephen Gandel noted of the Alphabet move, acknowledging the major exception of Warren Buffett’s Berkshire Hathaway. If you struggle to find what GEICO, Dairy Queen, Wells Fargo, and IBM have in common other than being owned (in whole or part) by Buffett’s business, you’re not alone. But somehow the group of holdings has worked incredibly well.
That’s in large part because of Buffett’s famed value-driven investment philosophy, which focuses on finding and contributing to the true value of a company. This could take the form of financial value, or price. However, Buffett recognizes that unique management style, company culture, and countless other elements can all create significant value too. As a result, Berkshire Hathaway investors make it a point to act as partners who contribute insights that are designed to build the value of their portfolio investments over the long term, not just count profits today.
While only time will tell if Alphabet is at all like Berkshire Hathaway, AT&T or GE, the idea of investing for value is still fundamental – and reorganization may successfully refocus attention on the value of each component.
Integration insight: Create an effective integration by choosing endpoints that have real value for your company, and build on that value by learning how to use each component of the system to its fullest.
Choose an “Integration CEO”
Sundar Pichai’s star has been rising at Google for a long time. At the company since 2004, he helped build Chrome, Gmail, and Google Maps, took over Android in 2013, and was promoted to Product Chief in 2014. Now, he’s the CEO of Google, still under the direction of Larry and Sergey at Alphabet but finally with the power to run his own company.
Consensus seems to be that having Pichai as CEO will be good for Google. It allows a single smart person to fully focus on building Google as a business, without distractions from rocket launches or self-driving cars. While the latter activities are interesting, they’re not aligned with Google’s core mission – so the company needs to be run by someone who doesn’t have to think about them.
Ultimately, we’re not talking Hooli here – this is serious business. And Alphabet looks like it will be good for Google. Will the integration insights the reorg has provided be good for your business as well?