Google to Alphabet, Acqui-hires, and Occupational Licensing
Several articles have been published recently that raise interesting questions. These articles touch on a few different topics, but all inspire deeper thoughts about innovation and the way people and companies engage. All three, explicitly or not, have implications for entrepreneurship and the future of innovation.
Dynamic Capabilities and Managing Human Capital by Aaron Chatterji, Arun Patro
Recently, I wrote about acqui-hires, a method of larger companies poaching talent by purchasing a startup. These young, sometimes struggling companies have founders and engineers (acquihires are predominantly found in the tech industry) with unique, irreplaceable talent that these larger companies crave.
In this article, the authors provide a rare, academic examination of acqui-hires from a dynamic capabilities framework. While the data available is not powerful nor rich enough to conduct sophisticated statistical analysis, Chatterji and Patro do examine some of the motivations a firm would have to engage in an acqui-hire (in this case, Facebook).
The three categories of motivations the authors provide are strategic, innovation-driven, and product improvement. Each of these categories still falls under the category of a talent acquisition.
Strategic: For strategic acqui-hires, the talent is brought in to improve or contribute to the firm’s corporate strategy. The talent sought after are usually managers, and the strategy generally surrounds the core product. But Facebook’s founder Mark Zuckerberg also heralded this kind of acquisition as a way to recharge the entrepreneurial energy that these types of companies exemplified when they were young, growing companies.
For me, this kind of acqui-hire borders on the most anticompetitive, as it is not hard to imagine an industry giant seeing an opportunity to buy a potential competitor with promise when that young company has less leverage.
Innovation-driven: When the acquired companies provide a service that the larger firm could not currently perform.
Product Improvement: Where the new talent acqui-hired enters with the specific purpose of solving an existing problem with the core product.
The authors here do a good job of explaining how Facebook benefited from each of these types of acqui-hires. When companies use talent to innovate and reach their potential, instead of clutching on to what they already have and using resources to stunt competitors’ progress, acqui-hiring works as an efficient reallocation of resources.
Alphabet and Google by Tyler Cowen
Speaking of companies that are working to reach their potential, Google made the announcement last week to create Alphabet Inc., an umbrella corporation that will house all the different projects and companies that previously identified within Google. This is a fascinating effort by the leadership of Larry Page and Sergey Brin to reorganize the corporate structure.
In the article, Cowen discusses the research of so-called conglomerates, or large corporations that housed smaller companies whose product or focuses were weakly related or not related at all. He seeks to answer the questions of will such a process leads to more innovation or less? Will this reorganization into a conglomerate allow Page and Brin to put more resources to their most innovative projects?
This is the bet Page and Brin are making, believing that its previous structure of Google representing the entirety of their projects did not allow for the best allocation of resources to the projects and companies that matter most to them personally.
Trends in Occupational Licensing and Best Practices for Smart Labor Market Regulation by Betsey Stevenson and Jeff Zients
I have written before about how occupational licensing is a policy area where states have the potential to directly increase entrepreneurship. Licensing’s benefits to the public outweigh its costs most when it is applied to professions that have grave costs when service quality is uncertain. But the policy has been extended to a number of industries where the barrier to understanding the quality of service ex post is much lower. This blog post from the White House Council of Economic Advisors (CEA) summarizes a CEA report on occupational licensing and its economic effects, taking into account the variety of populations who can be hurt by unproductive occupational licensing policy. The purpose of states reexamining their licensing policy is not to enable entry into professions where public health and safety is at risk because unqualified individuals are able to practice, but to provide more opportunities for economic mobility through entrepreneurship. While some are valid, appeals to public safety generate increased licensing, which closes off potential occupations that can help individuals lift themselves and their families out of poverty to economic growth. This is why a careful consideration of the costs and benefits of licensing is so important for states to undertake.
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