When Google restructured into a holding company called Alphabet, analysts reported it would encourage innovation with its various subsidiaries. However, some observers questioned whether the reorganization made sense as Alphabet faced some struggles.
Juan Alcacer, Raffaella Sadun, Olivia Hull, Kerry Herman
Harvard Business Review (717418-PDF-ENG)
July 26, 2016
Case questions answered:
- What could be the various reasons for Alphabet to own a widely diverse set of subsidiaries under a single corporate structure? What benefits stem from this arrangement? What are the costs?
- What could be the best way to decide on the role that Alphabet (Sergey, Brin, and Porat Team) could set for itself relative to the operating subsidiaries?? What could be the key criteria (or objective measures) that will rate their performance as a parent?
- Comment on the various forms of organizational structures that Alphabet could choose for its conglomerate business. Which seems to be the most effective? Why?
- Are the “dual-class shares” holding structure of Alphabet appropriate for governance? What are the benefits? What are the drawbacks?
- Design the list of Financial metrics and Operating metrics required to review the performance of each operating unit. Include periodicity of review, qualitative and quantitative measures that capture key business drivers and outcomes, and an overall portfolio performance grid.
- How should capital be allocated and rebalanced across the business units to optimally maximize the overall Alphabet returns on capital?
- How should Alphabet process new requests for capital from the operating units for Mergers and Acquisitions?
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Alphabet Eyes New Frontiers Case Answers
1.) What could be the various reasons for Alphabet to own a widely diverse set of subsidiaries under a single corporate structure? What benefits stem from this arrangement? What are the costs?
Alphabet is designed to protect Google’s ability to innovate and retain its most distinctive characteristics.
The restructuring wasn’t about cost-cutting their way to greatness. It was about ensuring that they have the same very detailed, disciplined approach to looking at the growth and expenses, making choices in order to optimize while still supporting revenue growth.
The separation between search, Alphabet’s main business, and other companies would provide the company with a “safe place” to carry out experiments. Thus, the new structure would enable the company to be “an accelerant” for entrepreneurship.
A lot of that is about giving them the autonomy to operate within this larger family of Alphabet. It allows them, on the one hand, to have maniacal focuses within businesses. At the same time, they can continue to plant the seeds and really nurture those next engines of growth so that they’re not dealing with this question of incrementalism leading to irrelevance.
Google’s whole motivation for creating the Alphabet holding structure in the first place was to force more financial discipline on its various ”moonshots” and other businesses, like Nest, that didn’t fit neatly into Google’s core focus.
The benefits of this arrangement are:
The creation of separate bet companies would reduce competition for talent and funds between units. It would help allay the market’s fears by streamlining operations and providing investor visibility into the operations of Alphabet’s new ventures and acquisitions.
It would also help Alphabet prove to investors that it can deliver profits even as it explores new markets and avenues for future profits.
The move also lessens the glare of antitrust scrutiny on Alphabet. This is because each company within the Alphabet umbrella makes products for a different industry.
Bunching all of them together under the search engine umbrella would have invited greater attention from regulators due to the unique nature of Google’s business.
The reorganization would allow the company more management scale. They can run things independently that aren’t very related.
Alphabet won’t have any consumer-facing role itself. Instead, it exists almost as an anti-brand designed to give its subsidiaries room to develop their own identities.
However, this arrangement would cause Alphabet to face a problem as to how much freedom, money, and time to give internal start-ups. It is a possibility that this strategy would empower divisive leadership.
2.) What could be the best way to decide on the role that Alphabet (Sergey, Brin, and Porat Team) could set for itself relative to the operating subsidiaries?? What could be the key criteria (or objective measures) that will rate their performance as a parent?
Alphabet should be focusing on…
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