Individual Case ch 10 due 11/28
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Individual work case solution and post your solutions here. No ppt in collectors for this one. Just process the case in all the preliminary steps up to the formal write-up. Informally discuss the case and answers to case questions here. Each student respond on at least 1 other student’s post for this discussion.
In the fall of 2015, Google unveiled a new organizational structure. Google created a holding company, Alphabet Inc., which offers overall oversight for the disparate collection of businesses the firm owns. The parent company is run by firm founders Larry Page and Sergey Brin and its Chief Financial Officer, Ruth Porat. Alphabet is using a hybrid SBU-divisional structure with the main SBU, Google, housing several core businesses, including its search business, YouTube, Android, and the Chrome operating systems. The businesses in the Google SBU accounted for nearly 90 percent of Alphabet’s $90 billion of revenue in 2016. Other divisions in the structure include Nest, a smart-home project division; Verily, a group working on health care and disease prevention; and GV, the firm’s venture capital arm. The structure also includes an incubator SBU, X, which houses the firm’s secretive “moonshot” projects, including Project Loon, a venture to offer Internet service in the developing world with high-altitude balloons; Project Titan, a drone delivery service; and ventures that are not yet publicly known. The hope is that once projects advance inside X and can stand on their own, they can be moved and become their own divisions, an action that took place with Waymo, Google’s self-driving car project in 2016.
Larry Page, Alphabet’s CEO, says he looked to Warren Buffett’s Berskshire Hathaway as a model for running a large, complex organization. His goal is to allow the different units the freedom to focus on their particular areas. Mr. Page wrote in his blog, “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related.” The new structure also allows the firm to more effectively control costs in the independent units, resulting in more constrained budgets in these units.
But the transition has not been entirely smooth. From outside, the firm has faced criticism that the new structure simply reinforced the view that it is investing in businesses far from Google’s core markets and into markets for which Alphabet’s core competencies are not well suited. As Brian Wieser, an analyst with Pivotal Research, stated: “just because they break out the data doesn’t mean they’ll stop making investments in things that are so far removed from the core business.” With the Google(x) businesses losing $3.6 billion in 2016, this criticism is unlikely to wane. The firm has also experienced leadership challenges. In the past, the founders, Larry Page and Sergey Brin, its chairman, Eric Schmidt, and Google’s CEO, Sundar Pichal, provided strong leadership to hold it all together. In building all of the operating units, Alphabet needs to develop management talent to run them. This appears to be a work in progress, at best, with one division CEO called “divisive and impulsive” while another has been labeled “mercurial.” The structure also makes it harder to coordinate activities across the different business units. For example, while Google was working to develop its home unit Alexa, Alphabet’s smart-home division, Nest, had signaled its intention to work with Amazon to link its smart-home products with Amazon’s Echo. This raised the potential of Alphabet divisions competing with each other.
What are the benefits and the costs of making this move? What are the long-run risks of this change? Do the benefits outweigh the costs?
Is Alphabet trying to build an ambidextrous organization? Should it be doing so? If yes, what actions can it take to build an ambidextrous firm?
Do these issues raise concerns about Alphabet’s business portfolio? Should the firm stay the course with the businesses it owns, or should it change? If it should change, how should it change?
Barr, A., & Winkler, R. 2015. Google creates parent company called Alphabet in restructuring. wsj.com (Links to an external site.). August 11: np;
Price, R. & Nudelman, M. 2016. Google’s parent company, Alphabet, explained in one chart. businessinsider.com (Links to an external site.). January 12: np;
Hempel, J. 2016. Google’s Alphabet transition has been tougher than A-B-C. wired.com (Links to an external site.). April 1: np; and
Fiegerman, S. 2017. Google’s moonshots lost $1 billion last quarter. money.cnn.com (Links to an external site.). January 27: np.