Case: Alphabet Inc.: Reorganizing Google: Case Synopsis: Co-founded by Larry Page and Sergey Brin in 1998, Google’s original mission was “to organize the world’s information and make it universally accessible and useful.” Over the years, Google has come to dominate that space, but the company has also diversified in numerous ways. Some projects and acquisitions were directly relevant to the company’s original mission, while other ambitious “moonshot” projects and acquisitions (for example, in health care, self-driving cars, and smart-home appliances) seemed to fall far from Google’s core competencies. Many analysts and investors questioned the heavy investments in R&D for these projects, especially since the lack of clarity in Google’s financial reporting on individual projects made it difficult to discern whether these investments were generating or would eventually yield any dividends for investors.

22 0

Get full Expert solution in seconds

$1.97 ONLY

Unlock Answer

In response to increasing pressure from investors and in the face of stagnant share prices, Google announced an unusual restructuring plan in October 2015. It created a new firm—Alphabet, Inc.—to act as a holding company for Google and quite a few other independent subsidiaries under the Alphabet umbrella. The businesses within Alphabet were organized into two reporting segments—Google (and related core businesses) and Other Bets—and each subsidiary was set up to run independently under the leadership of individual CEOs. Executive-level leadership and the board of directors remained largely unchanged, and investors’ shares of the former Google simply became shares in Alphabet, Inc.

Under the new structure, subsidiaries have been pushed toward greater accountability. The intended benefits of the new structure were to: enable each subsidiary to focus on its own mission, limit each subsidiary’s liability for the others’ debts, enhance greater transparency regarding cash flows and investments across the board, avert anti-trust regulation, attract and retain more entrepreneurial-minded talent, and pave the way for more strategic acquisitions. Investors’ faith in these outcomes coupled with increased revenues have led to an uptick in stock prices since the restructuring. However, several CEOs and other employees in the riskier “Other Bets” projects have since left the company, stating that the pressure to perform financially has eroded the spirit of innovation within their subsidiaries.

Analysts feel that the new Alphabet is still a work-in-progress, and criticism of the restructured company abounds, but there are already signs of a sharpening focus on growth from core competencies while simultaneously leaving room for more ambitious—or riskier—projects that require a longer timeframe to yield results.

1. How would you characterize Alphabet’s current level of diversification, and how did the organization achieve this? Do you think the firm is over diversified?

Exhibit 8
Alphabet Inc: 2015–2016 Quarterly Revenues
Q1 2015Q1 2016Q2 2015Q2 2016Q3 2015Q3 2016Q4 2015Q4 2016
Google segment revenues17,17820,09117,65321,31518,53422,25421,17925,802
Google operating income5,1886,2725,6086,9945,8076,7786,7447,883
Other Bets revenues8016674185141197150262
Other Bets operating loss(633)(802)(660)(859)(980)(865)(1,213)(1,088)
Amount in millions of US Dollars

EXPERT ANSWER

Alphabet Inc. is an American multinational conglomerate headquartered in Mountain View, California. It was created through a corporate restructuring of Google on October 2, 2015, and became the parent company of Google and several former Google subsidiaries. Its diversifications;

1. How would you characterize Alphabet’s current level of diversification, and how did the organization achieve this? Do you think the firm is over diversified?

1.) Alphabet has business diversification and introduction of new products and services in a regular manner. This constitutes the core of Alphabet business strategy (Google business strategy). Starting from the search engine business in 1998, the product portfolio of the company has been consistently expanded. Today Alphabet Inc. offers the widest ranges of products and services including self-driving cars, indoor and outdoor cameras, learning thermostats, and smoke alarms and even products to stop mosquitoes in their tracks. First mover advantage is the main Alphabet (Google) competitive advantage in relation to the majority of these products and services.