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Friday, January 31, 2014

Google Jettisons Motorola: A Jack of All Trades Is a Master of None

Managers tasked with the overall management of a company may thirst for additional lines of business, particularly those that are related to any of the company’s existing lines. Lest it be concluded that an expansive tendency flows straight out of a business calculus, the infamous “empire-building” urge, which is premised on the assumption of being capable of managing or doing anything, is often also in play. Interestingly, this instinct can operate even at the expense of profit satisficing or maximizing. In this essay, I assess Google’s sale of its Motorola (cellular phone manufacturing) unit.

Having acquired Motorola for $12 million, Google’s selling price of $3 million may seem to reflect negatively on the management at Google. However, Google arranged to keep some of the valuable patents, and license a few of those to Motorola. “Google got what they wanted and needed from Motorola—they got patents, engineering talent and mobile market insight,” Jack Gold, principal analyst at J. Gold Associates, explains.[1] His mention of insight is particularly noteworthy, as it pertains to the importance of innovation at Google.

Larry Page, Google’s CEO, provides us with the official rationale. “The smartphone market is super-competitive, and to thrive, it helps to be all-in when it comes to making mobile devices.”[2] Not being “all-in” implies that Google’s management would be too distracted by its main preoccupation (i.e., coming up with new software and related hardware) to concentrate on making phones better than those proffered by competitors in that manufacturing sector. Interestingly, Page omits at least two alternative rationales.
First, the quote says nothing about the institutional conflict-of-interest that is inherent in Google competing in the phone market against smartphone makers such as Samsung and HTC, which use Google’s Android operating system. Jack Gold points out that selling Motorola eases this tension.[3] 

That a conflict-of-interest is more serious than mere tension seems to have alluded the financial analyst; competitors are in tension, but this is generally accepted because the benefits to society dwarf the rather limited costs (e.g., by means of government regulation). An institutional conflict-of-interest, on the other hand, brings with it only a private benefit while the costs can be widespread. From a societal standpoint at least, we do not assess conflicts-of-interest based on a cost-benefit analysis. In fact, we tend to treat the sheer existence of the exploitable arrangement to be unethical. We need only look at the societal reaction in the U.S. to CPA firms pronouncing unqualified opinions so the clients would renew the firms for the next year, and the rating agencies rating tranches of sub-prime mortgage-based bonds as AAA because the agencies earn more if the bond issue does well. Yet, strangely, Larry Page made no mention of having expunged this problem.

Secondly, Page’s statement makes the point that the company’s main pursuits would be too distracting. Alternatively, he could have pointed out that manufacturing phones would likely become a distraction from Google’s main work. This rationale makes more sense, as distractions from an adjunct operation are less costly than those impinging on what the people at a company do best.

I submit that the assumption that a heavily ideational, future-oriented company can also be good at manufacturing is more costly than any prohibitive short-term financials. The search-engine-based internet giant strikes me as being oceans of time away from the banal world of manufacturing, even concerning those products such as cell phones and internet glasses that are related to the software advances.

Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, trying out a pair of Google "glasses" during a meeting at Google's headquarters. How might the innovation change war? If only it could be relegated to virtual reality .

Similar to leadership being forward-oriented whereas management encompasses implementation of existing strategies derived from innovations already part of history, Google’s forté in looking out on a horizon pregnant with practical possibilities not just to ride, but also to create the next wave in computer technology does not necessarily transfer into being good at managing a manufacturing process. Furthermore, any resources, whether financial or managerial, poured into the latter must come with an opportunity cost at the expense of the former. That is to say, opportunities would be lost in what the supervisory and non-supervisory employees at Google do best. Even hiring additional managers and labor with expertise in manufacturing would require time and money that could otherwise be devoted to inventing and mining practical ideas on the open horizon. At the very least, the “room addition” of operations could distract Google’s futurists from delivering yet another leap in technology that transforms the world in which we live.

Generally speaking, intensification can bring with it more fecundity than can expansion. The diseconomies of scale that come as costs rise disproportionately as a company’s administration and operations expand only worsen the plight of the Jack of all trades who is master of none by virtue of having a finger in many pies. What might a business calculus look like that is based on intensification? Amassing more and more charge in a well-fitting battery is doubtless very different than being oriented to spreading out across new lands while trying to conquer and hold them while protecting the home front and seeing that it continues to be productive. I suspect that the intensification instinct is more in line with profitability over all than is the power-aggrandizing urge of empire-building.

1.Alistair Barr, “Google Sells Off Motorola,” USA Today, January 30, 2014.
2. Ibid.