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.

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.
Learning Objectives
• Describe different levels of diversification achieved using different corporate-level
strategies.
• Describe how firms can create value by using a related diversification strategy.
• Discuss the incentives and resources that encourage diversification.
• Describe motives that can encourage managers to over diversify a firm.
• Explain the popularity of merger and acquisition strategies in firms competing in the
global economy.
• Discuss reasons why firms use an acquisition strategy to achieve strategic
competitiveness.
• Explain the use of three internal governance mechanisms to monitor and control
managers’ decisions
• Describe how corporate governance fosters ethical decisions by a firm’s top-level
managers.
• Define organizational structure and controls and discuss the difference between strategic
and financial controls.
• Describe the relationship between strategy and structure
• Explain the use of three versions of the multidivisional (M-form) structure to implement
different diversification strategies.
Strategic Issues and Suggested Discussion Questions
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?
2. In the years leading up to 2015, which internal governance mechanism most heavily
influenced Google’s top-level managers to restructure the company and create a new
parent holding company, Alphabet?
3. Briefly explain what type of structure the new Alphabet, Inc. is using, and describe four
of the six specific outcomes top-level managers and analysts expected from this
restructuring.
4. How has the relationship between structure and corporate-level strategy at Google
changed over time? How have these transitions affected the organization, and how do
you think Alphabet will respond to the new structure in the future?
5. How would you characterize the level of corporate entrepreneurship within Alphabet?
Name several examples of how the firm exhibits an entrepreneurial mind-set and creates
value for customers.
6. Google, now Alphabet, is known for sponsoring quite a few “moonshot” projects, which
are bold, risky, and typically expensive explorations into innovations that will hopefully
generate value-adding products and services but that may or may not pay out in the long
run. Should investors support this type of project? Why or why not?