Google Parent Moves to Boost Accountability

Business units, especially those betting heavily on risky projects, will be charged for using corporate services such as IT and recruiting.
Matthew HellerNovember 24, 2015

Google parent Alphabet Inc. is imposing a new financial accountability system on its startup-like subsidiaries, apparently reflecting the efforts of new CFO Ruth Porat to curb spending.

The Wall Street Journal, citing people familiar with the matter, said units such as Google X, Google Fiber, and Google Life Sciences will be charged for using corporate services such as computing, recruiting, and marketing and will be subject to strict internal auditing of expenditures.

The changes are part of Google’s transformation into a conglomerate, which took effect in August, and executives hope to make the exploratory “bet” companies “more accountable for their costs, which may lead to more caution on spending,” the WSJ said.

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Since joining Google in July, Porat has spearheaded a reduction in hiring and indicated that Alphabet would focus on “tight governance.”

“After a period of big expense build up, there was an appreciation that we needed to manage the cadence of spend,” she told investors in an October earnings call.

Under the new accountability system, Engadget reported, if the biotech research company Calico wants to make use of Google Cloud Platform, “it’ll have to pay Google at market rates. Likewise, if Google X wants to hire someone through Google’s recruitment system, or get some marketing for one of its projects, it will be charged for services rendered.”

“There’s no saying that any of the subsidiaries have to use Google services — they’re free to develop alternatives in-house if they feel it’s cost-effective,” Engadget said, adding, “‘Cost-effective’ is the key here: subsidiaries that were quite free to spend money pursuing an idea that may or may not pan out will now be more accountable for their expenses.”

Bidness Etc said the move will “facilitate self-sustainability” of Alphabet’s bet companies and “do not indicate that the company’s performance is poor.”

“The cautious spending and accountability is simply to ensure all money is spent wisely, allowing more freedom to subsidiaries in their operations,” it explained.