Google (NASDAQ:GOOG) (NASDAQ:GOOGL) has traditionally expanded its labor pool at such a rapid pace that an entire movie, The Internship, was made in which VInce Vaughn and Owen Wilson's characters won positions at the company through an intern competition.
Though those jobs were, of course, a work of fiction, the company does have a tradition of growing its workforce in a somewhat undisciplined manner. Google added 2,435 employees per quarter in 2014, according to The Wall Street Journal (may require subscription). That number dropped to 1,819 in the first quarter of 2015, which may be a sign of things to come.
The search giant has a new chief financial officer, Ruth Porat, who joined the search leader from Morgan Stanley where she gained a reputation for fiscal control and reducing expenses. Porat, who has only been on the job since May has already begun examining its costs, revenue, and accounting systems, the Journal reported.
What is Porat doing?
In essence the new CFO has undertaken the task of bringing some discipline to a process that previously lacked it. In the past, various teams within the company operated with the assumption that they could add staff each year.
That has changed and now executives are allocating new hires based on the company's strategic priorities and, to an extent, which business units are doing well. The changes pre-date Porat according to the paper, but it is her task to continue to build the system,
Since late last year, many Google teams have had to submit plans describing how additional employees will produce specific business objectives, such as increased revenue or more users.
In a broad sense, the headcount at Google+, which can kindly be called "struggling," was capped while Nest -- seen as a huge opportunity for growth by company leaders -- added staff, people familiar with the process told the Journal.
Porat speaks for the first time
While Porat may be charged with instilling financial discipline at the company, her first appearance at an earnings call revealed that no massive changes have taken place yet. In fact, expenses increased in the second quarter of 2015 and that is largely due to new hires, she explained.
The increase in operating expense versus 2Q 2014 primarily reflects R&D expense attributable to increased hiring of engineers and product managers. Headcount increased 18% versus last year and 3% versus 1Q 2015 with total headcount at quarter-end of approximately 57,100.
But while the numbers are up year over year, Porat did subtly give herself some credit for a drop in quarter-over-quarter spending.
The deceleration in year-over-year growth and decline in quarter-over-quarter operating expenses reflects in part discipline in expense management and in part lower legal expenses than in comparable periods.
Porat won't be cutting off Google's employee growth nor will she necessarily be slowing down how much it spends. Instead, it will be her job to help the company focus its expenditures to areas with the highest potential returns.
It's about discipline
In some ways, Porat has been hired to be the grownup in the room. Her job isn't to stop Google from being Google; it's to bring some discipline to the process. She said as much when answering a question late in the earnings call.
It's about prioritizing our investments and ensuring that we're being efficient and effective with our spend. To be clear, the priority is revenue growth and we have a breadth of opportunity, but pursuing revenue growth is obviously not inconsistent with expense management.
And so as I noted we're just starting the 2016 budgeting process. In my experience the best way to slow the rate of growth in expenses is to work closely with business leaders really anchored in data, so together we can identify ways to prioritize resources and really continue to extend the discipline that we've talked about.
Porat won't be taking the Googliness out of the company -- she'll just be installing some checks and balances. It's a necessary part of moving from a startup mentality to being a mature company that Google is long overdue to implement.