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Alphabet was created in 2015 by restructuring Google to promote expansion into lucrative niches, as well as enhance the independence of subsidiary companies in their business operations. Alphabet acts as a parent company with the mandate of selecting directors, formulating strategies, and managing operations of various subsidiaries. The core activity of Alphabet is the provision of the Internet services related to online search and advertising because it generates about 86% of revenue (Johnson & Regner, 2017).
In its business model, Alphabet employs horizontal integration in the acquisition of companies across the world and venturing into new markets. Alphabet has gained over 150 companies, and the trend of acquisition continues to increase for the next decade (John & Regner, 2017). Acquisitions have significantly expanded market share, sales, and profitability of Alphabet. With the objective of coming up with strategic options, this case analysis assesses and evaluates Alphabet, identifies central issues, performs external analysis, and provides strategic options.
Company Analysis of Problems
Despite its growth and expansion, Alphabet experiences problems that threaten its competitiveness in the global markets. Restructuring of Google to form Alphabet is a notable problem because it did not address leadership challenges regarding managerial freedom. Johnson and Regner (2017) explain that the retention of Sergey Brin and Larry Page as chief executive officer and president of Alphabet, respectively, allowed the perpetuation of a laissez-faire approach to leadership. Another problem related to the leadership is the loose corporate structure that cannot amalgamate subsidiaries. Therefore, leadership with the same ideology and loose corporate are two problems that require effective management style, as a possible solution.
The declining proportion of advertisers who pay click-by-click is a significant problem that decreases revenues accrued from advertising. Technological advancements in the mobile industry have led to the emergence of smartphones, which allows customers to access the Internet without necessarily utilizing products of Alphabet. The increasing use of mobile applications is a problem that diminishes revenues from the Internet search.
Alphabet projected the demand for online adverts to increase from 6%; however, the problem is that a significant proportion of advertisers prefer television as their mode of advertisement (Johnson & Regner, 2017). Increasing competition in the video business is a prominent challenge because Amazon, Netflix, Facebook, and Twitter decrease the demand for YouTube services.
The advent of social media as an advertisement platform increases competition in the advertisement industry. Facebook offers stiff competition to Alphabet because it provides cheaper advertising spaces to customers. Inability to meet the needs of customers is a problem because Alphabet created Google+ as a social network that unifies diverse products. Despite its re-introduction as a platform for interest groups and collections of information, Google+ struggles to gain expected market share and compete effectively with other social media platforms (Johnson & Regner, 2017).
Although the focus on acquisition increases diversification, it poses management challenges due to reduced employees-manager ratio. Overall, overreliance on Google as the primary source of revenues makes Alphabet susceptible to technological changes in digital marketing. Diversification and innovations are possible solutions to these problems.
Company analysis identifies that Alphabet has numerous problems, which require effective resolution using economic resources, operational strategies, and management competencies. The analysis of Alphabet using value, rarity, imitability, and organization (VRIO) indicates that it is a highly competitive advantage (Ferreira & Fernandes, 2017). In the aspect of valuable resources, Alphabet has a powerful search engine that drives online advertisement and contributes most revenues.
Patented technologies related to cybersecurity, artificial intelligence, smartphones, cloud computing, and aerial vehicles are some of the rare resources of Alphabet. Superior and efficient infrastructure across the world is inimitable because it has grown and evolved over two decades. Restructuring of Google and acquisition of other subsidiaries enhanced the organization of Alphabet to perform its functions effectively.
The appraisal of Alphabet using the balanced scorecard with four components, namely, finance, customer, internal business, and learning and growth, reveals that its performance is effective (Table 1). The examination of financial effectiveness shows that Alphabet continues to increase its profitability despite growing competition and costs of operations. Alphabet has over 1 billion customers and an increasing number of shareholders, making it one of the attractive and valuable companies in the United States and across the world (Johnson & Regner, 2017).
The analysis of the internal business indicates that innovative products and efficient processes are drivers of effective performance of Alphabet. Learning and growth process of Alphabet is effective as it hires qualified and competent employees, nurtures innovative culture, and expands its infrastructure.
Table 1. Balanced Scorecard of Alphabet.
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Gap analysis (Table 2) of Alphabet based on suitability, acceptability, and feasibility (SAFe) criteria indicates that the strategy of restructuring promotes resolution of established problems. Restructuring is a suitable strategy since it enables Alphabet to optimize its strengths of dominating markets, leading in advertising, acquiring other companies, and streamlining its operations, as well as overcoming weaknesses of overreliance on advertising and low profitability of most products (Ferreira & Fernandes, 2017).
Moreover, restructuring is also suitable because it assists Alphabet to explore opportunities of diversification, acquisition, and innovation while managing threats of increased competition and declining revenues. Given that restructuring increased the independence of Google and other subsidiaries, it increased acceptability of Alphabet to shareholders and investors due to the clarity of financial reports (Johnson & Regner, 2017). Feasibility analysis shows that restructuring is a practical strategy because it requires additional resources, supplementary employees, and effective management.
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Table 2. Gap Analysis.
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The external analysis indicates that Alphabet operates in a volatile macro-environment that is subject to political, economic, social, technological, environmental, and legal factors. Political factors, such as taxation, trading barriers, and banishment, affect the growth and development of Alphabet in certain countries. Type of economic system, economic stability, business cycle, exchange rates, and labor costs comprise economic factors that have marked impact on revenues generated by Alphabet in various countries.
Since education level, culture, class, and attitudes are some of the social factors that affect the adoption and the use of Alphabet’s products, customer-centric diversification is essential (Manral & Harrigan, 2018). Technological factors, such as innovations, the Internet, and sources of energy, influence operating costs and competitiveness of Alphabet in the global market. The use of electricity in its servers and computers requires Alphabet to consider the use of renewable sources of energy in running its operations and activities to protect the environment from pollution and climate change.
Since Alphabet deals with patented technologies and private data, it is prone to violations of laws related to intellectual property, copyright laws, consumer protection, and privacy issues. Therefore, due to the volatility of the macro-environment and the acquisition trend of Alphabet, expectations of stakeholders have a signifficant influence on the strategic options.
Statistics show that Android is the dominant type of operating system in smartphones. A survey conducted in 2018-2019 indicated that most customers (72-78%) prefer Android phones while about 20% use iPhones (StatCounter, 2019). These statistics demonstrate that Google’s products dominate global markets with a considerable margin of competitiveness.
Strategy Evaluation and Recommendations
The analysis of organizational effectiveness reveals that Alphabet has a loose corporate structure and employs a laissez-faire style of management, which do not match requirements of its restructuring. Rodriguez, Green, Sun, and Baggerly-Hinojosa (2017) explain that transformational leadership inspires employees and creates a sustainable organizational culture that drives desired changes and brings about innovations. Hence, for effective management of an increasing number of subsidiaries, Alphabet needs to adopt a formal organizational structure and engage the transformational leadership style in managing its complex and expanding operations.
Gap analysis reveals that Alphabet has substantial challenges to overcome for it to achieve desired performance. Amazon, Facebook, Netflix, and smartphone companies threaten the competitive advantage of Alphabet for they create substitute products. Jayani Rajapathirana and Hui (2018) recommend the use of innovation as a strategic tool of improving organizational performance, as well as creating quality, attractive, and innovative products, which meet the diverse needs of customers. In this view, the use of innovation would enable Alphabet to optimize strengths, overcome weaknesses, explore opportunities, and diminish threats.
Given that Alphabet has focused on acquisition as a growth strategy, it experiences the challenge of overreliance on profitable subsidiaries to fund non-profitable ones. Bettinazzi and Zollo (2017) argue that the acquisition of related businesses attracts stakeholders and boosts organizational performance and profitability due to the pooling of experts. Thus, Alphabet needs to consider relatedness of companies it acquires in its bid to diversify products.
Bettinazzi, E. L. M., & Zollo, M. (2017). Stakeholder orientation and acquisition performance. Strategic Management Journal, 38(12), 2465-2485. Web.
Ferreira, J., & Fernandes, C. (2017). Resources and capabilities’ effects on firm performance: What are they? Journal of Knowledge Management, 21(5), 1202-1217. Web.
Jayani Rajapathirana, R. P., & Hui, Y. (2018). Relationship between innovation capability, innovation type, and firm performance. Journal of Innovation & Knowledge, 3(1), 44-55. Web.
Johnson, P., & Regner, P. (2017). Alphabet: Who and what drives the strategy. In G. Johnson, R. Whittington, K. Scholes, D. Angwin, & P. Regnér (Eds.), Exploring Strategy: Text and cases (7th ed.) (pp. 434-436). New York, NY: Pearson Education.
Manral, L., & Harrigan, K. R. (2018). Corporate advantage in customer-centric diversification. Journal of Strategic Marketing, 26(6), 498-518. Web.
Rodriguez, R. A., Green, M. T., Sun, Y., & Baggerly-Hinojosa, B. (2017). Authentic leadership and transformational leadership: An incremental approach. Journal of Leadership Studies, 11(1), 20-35. Web.
StatCounter. (2019). Mobile operating system market share worldwide. Web.