In a nutshell Google is RESTRUCTURING its business. Restructure basically means to “organise differently”. The new structure will be introduced in phases in the upcoming months.
As a result of the new structure Google will NO LONGER be the top dog company, this will be Alphabet. Alphabet will become the parent company and Google will become a subsidiary of Alphabet. Google will still own search, ads, maps, apps, YouTube and Android BUT many of its more “out there” ventures will join Google in becoming separate subsidiaries of Alphabet. For example Google X (the more experimental, top secret business e.g. self-driving cars and chip-embedded contact lenses), Calico (the company with the mission of tackling age and extended human lifespan) and Nest Labs (smart homes) will be transferred to the ownership of Alphabet to become independent entities.
So WHY would a company restructure its business?
Quite simply, to CLEAN UP. Restructuring is usually implemented when there are significant problems or risks in a company, which are causing or will cause some form of financial harm that could put the overall business in jeopardy. Restructuring is a form of risk management. The truth is, Google was housing a mixed bag of businesses which affected its accountability to and potentially its profitability for, its investors. A longstanding concern on Wall Street was the lack of transparency on how the Google businesses were operating. The crazy, loss-making experiments were seen as a costly distraction to the company’s highly profitable core search and internet advertising businesses. HOWEVER the new structure separates these unconventional business ventures from the safer, money-making companies, thus improving oversight and management which is good for investor relations. As Larry Page (CEO of Alphabet) stated in a blog post accompanying the announcement, “Our company is operating well today, but we think we can make it cleaner and more accountable”.
What can YOU learn from this?
As your business grows you will find yourself wanting to explore new avenues and take on new ventures, just like Google did. At this point your current business structure may not cut it, you may need to set up a subsidiary or two to manage risk and exposure. RESTRUCTURING enables you to tidy up your business by effectively allocating risk. This keeps your financial backers happy and in the long term this keeps YOU happy as you have the legal and financial FREEDOM to explore new things, just like Larry and Sergey!
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