Wednesday, November 16, 2011

Google’s Motorola Mobility Purchase and Organizational Agility

Donald Sull’s article Competing Through Organizational Agility in McKinsey Quarterly mentions three types of organizational agility: strategic, portfolio, and operational. I evaluated Google's August 2011 $12.5 billion purchase of Motorola Mobility (MMI) and identified how two of the concepts, strategic and portfolio, may apply to the situation.

The official press statement of the acquisition indicates that purchase of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.

Of the acquisition, Larry Page, CEO of Google, stated, “Motorola Mobility’s total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers.

Given the official statements regarding the move, which type of agility - as proposed by Sull - can Google’s move then be categorized? The following are arguments for both strategic and portfolio agility.

Strategic Agility: Sull defines strategic agility as “spotting and seizing game-changing opportunities”. The argument can be made that miscalculation about how to capture value in mobile computing forced Google to be strategically agile. Horace Dediu argues that Google made a big bet investment in its Android mobile software; that smartphones and tablets were sufficiently mature and thus could be built in a way that did not require Google owning all points of the value chain. Licensees quickly adopted Android to the point that it achieved nearly 50% share in smartphone shipments by early 2011. However, Google promptly realized that it was increasingly difficult to ensure that Google's revenue-generating services were properly "flowing" to the end users. Consequently, in Sull’s words, Google used strategic agility to “spot” and “seize” “the opportunity” to get a hold of a vehicle through which it can create and sell integrated products and build showcases that demonstrate the value of its services.

Portfolio Agility: Sull defines portfolio agility as “the capacity to shift resources—including cash, talent, and managerial attention—quickly and effectively out of less promising business areas and into more attractive ones”. It can be argued that Google’s move is a portfolio agile attempt to “shift resources” to adopt a more Apple-esque “integrated platform” strategy. Financially, the MMI acquisition one is Google’s largest deals ever (Sull’s “shifting of…cash and…managerial attention”) – 4 times their previous deal with DoubleClick and more than 8 times the deal with Youtube. Yet, analysts like Ram Ramdattan assert that though it appears Google overpaid ( a 63% premium for Aug 12th closing price) for MMI, it was actually a sound financial decision if Google is truly committed to shifting from their existing “free cash flow rich” search business to the “whole integration” (design, supplier management, pricing and marketing) strategy .

Given these arguments, the question I propose is: What type of Sull’s identified “agilities” is Google using in its acquisition of Motorola Mobile? Or, can Google’s decision be viewed as incorporating multiple types of agility thus heeding Sull’s warning that “overreliance on a single type of agility can be dangerous”?

Sources:

Sull, Donald. “Competing Through Organizational Agility”. McKinsey Quarterly. 2010 #1.

Google Press Release. “Google to Acquire Motorola Mobility”. Google. August 15, 2011. http://investor.google.com/releases/2011/0815.html

Dediu, Horace. “Google's Strategic Mistakes Drove Motorola Buy”. Harvard Business Review. August 16, 2011. http://blogs.hbr.org/cs/2011/08/googles_strategic_mistakes_dro.html

Ramdattan, Ram. “Google buying Motorola mobility- Smart deal but is it a smart strategy?”. Plan on Paper. August 16, 2011. http://www.planonpaper.com/2011/08/16/google-buying-motorola-mobility-smart-deal-but-is-it-a-smart-strategy/

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