ALPHABET Harvard Case Solution & Analysis

ALPHABET Case Study Solution

Reason of Alphabet Reorganization, Its Purpose and Trade-offs

The primary reason behind Alphabets reorganization were as follows:

  1. The company has been facing issues for a long time in gaining the trust of its shareholders and that started to affect its shareholder value. As the first time response from the investors was very positive as the shares of Google Jumped by 6.2%. Therefore this reorganization would help the company gaining the confidence of its shareholders, while at the same time retaining its shareholder value which is very important for the company’s long-term sustainability.
  2. This would provide the autonomy to the each subsidiary, which will help them in taking effective decisions to target their specific customers and maintaining the customer relation in long-run.
  • This would provide the specific information to the shareholders regarding the performance of the particular subsidiary and also help the Alphabet in taking targeted actions in tackling with any potential issue.

The trade-off that the company would have to do while reorganizing its business structure would be controlling and managing the skilled workforce would become difficult because of diversion of company’s focus on various dimensions.

As Google is still consuming the 90% of total capital expenditure, this might still remain focus on Google and this might make it difficult for the Alphabet to reap the full benefit from reorganization.

Risks and Benefits of Greater Decentralization

There are various risks and benefits associated with the decentralization, as this provides various advantages to the company, while at the same time making it vulnerable to various threats. We will discuss the both in detail.

Risks

  • The major risk of decentralization is that, it would require a very strong and consistent communication bridge between the units, because now subsidiaries become autonomous and will take their decision, so this might astray the company from its primary objective.
  • As decentralization would increase the competition between the bets, where a manager would become more interested in growing its own subsidiary and become less interested in focusing on overall Alphabets vision and mission.
  • The Alphabet would require more staff to manage the coherence in operations and objective meeting of the each bet, because with the increase in share of each bet, the operations will become more diverse and complicated.

Benefits

  • The major advantage of decentralization is that it would help to company gain greater control over its other bet subsidiaries and this would also decrease the competitions between the units.
  • In addition this would making the each units and bets accountable for their actions and performance, which will add pressure on the management of each subsidiary to perform well.
  • This decrease the long chain of communication for tackling with any issues which need immediate attention. This would speed up the operations and help the company

Conclusion

Given the current market dynamics when it is very risky to rely on just one segment of the business especially for the technological firm operating in the market where various large firms are operating to with the vision to bring more technological innovations. At such time restructuring would be very beneficial for the company because this would help the units to focus on some specific objective and make the company sustainable in the long-run. Moreover, this would increase the effectiveness of the overall organizations as now Google and other bets would be able to better manage their resources and communicate effectively with their shareholders, this would recover the lost shareholder value in the past years.

Exhibit 1:

Alphabet Eyes New Frontiers Growth ChartsConsolidated
 20132014201520142015201320142015
Revenues
Google55,50765,67474,54118%14%100.0%99.5%99.4%
Other Bets123274482625%37%0.0%0.5%0.6%
Total revenues55,51966,00174,98919%14%100.0%100.0%100.0%
Segment operating income (loss)  
Google16,26019,01123,42517%23%29.3%28.8%31.2%
Other Bets-527-1,942-3,567269%84%-0.9%-2.9%-4.8%
Administrative costs and other miscellaneous items-330-573-49874%-13%-0.6%-0.9%-0.7%
Total income from operations15,40316,49619,3607%17%27.7%25.0%25.8%
Capital expenditures  
Google7,00611,1738,84959%-21%12.6%16.9%11.8%
Other Bets187501869168%73%0.3%0.8%1.2%
Reconciling Items165-715197-533%-128%0.3%-1.1%0.3%
Total capital expenditures7,35810,9599,91549%-10%13.3%16.6%13.2%

Note: This exhibit explains the growth of the variables and different variable as a percentage of revenues in the consolidated chart.............

 

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