Chapter 06 - Mini Case

Alphabet Inc.: Reorganizing Google

Group 8

Gaurav Agrawal

Ashutosh Dhanju

Hishila Tamrakar

Yuzen Amatya

Nirvana Shrestha

1. Describe different levels of diversification achieved using different

corporate-level strategies.

Diversification means expansion of business either through operating in multiple

industries simultaneously (product diversification) or entering into multiple geographic
markets (geographic market diversification) or starting a new business in the same
industry. At the business-unit level, diversification happens when a business unit grows
into a modern segment of the show industry in which the company is already doing
business. At the corporate-level, diversification happens when the diversified company
enters into business exterior the scope of the existing trade units. Diversification is
looked for to extend benefit through more prominent sales volume. Hence, it requires
cautious investigation before entering into an obscure market with a new product
offering.
The different levels of diversification achieved using different corporate-level strategies
are as follows:

1.Low level of Diversification-A firm utilizing low level of diversification uses either a
single or a prevailing business, corporate-level diversification strategy. A single-
business diversification strategy may be a corporate-level strategy wherein the firm
creates 95% or more of its sales income from its core business zone. Moreover, with
the prevailing business diversification strategy, the firm creates between 70% and 95%
of its add up to income inside a single business area.

2.Moderate and high level of expansion: A firm seeking after a moderate and high level
of diversification uses either a related compelled or a related linked, corporate-level
diversification strategy. A firm producing more than 30% of its income outside a
prevailing business and whose business are related to each other in a few ways uses a
related expansion corporate-level strategy. When the links between the diversified
firm’s businesses are or maybe coordinate (they use comparative sourcing, all through
an outbound process), which is related to obliged expansion strategy. In addition, the
diversified company with a portfolio of businesses that have as it were a few links
between them is called a mixed related and is utilizing the related connected
diversification strategy.

3.Very high level of diversification: A profoundly diversified firm that has no relationship
between its businesses takes after an irrelevant diversification strategy.It earns less
than 70 percent of its incomes from the prevailing business but there are no common
links between the SBUs.
2) Describe how firms can create value by using a related diversification strategy

Diversification Strategies are a firm expansion strategy that a firm recognizes when
launching a new product in a new environment. For example, when we think of
Samsung, we normally think of cell phones, but they now still make electrical
appliances such as refrigerators, televisions, mixers, and many other products. So,
electrical appliances became Samsung's new offering, and they were split into two
different markets. Firms may generate value by adopting a similar diversification
approach that involves organizational and corporate relatedness. Firms exchange their
operations between companies in organizational relatedness, and firms propose
opportunities for exchanging their core competencies in corporate relatedness. This
means that the organization will grow or broaden its capital in a way that will give it a
competitive advantage and bring value to its consumers. Often firms use a number of
similar diversification techniques at the same time to maximize profitability. This will
result in the development of scope economics, which is a way of sharing capital to
minimize costs. The technique also helps the company in acquiring substantial
consumer influence. When applied properly, such techniques are highly cost-effective
and vital to the performance of a company's activities.

3) Discuss incentives and resources to drive diversification.

Diversity can be defined as a corporate strategy for entering a new product or product
line, new service, or new market that contains virtually different skills, technologies,
and knowledge. It is a growth strategy that involves adding products, services, and
markets to a company's core business. It may also be pursued for value-neutral
reasons. Firms may choose to diversify even when the diversification does not add
value in a particular way. This is done due to the existence of incentives and resources.
The incentive to diversify come from two factors, they are:

Internal environment incentives: Some companies may diversify as a defensive strategy

to their uncertain future cash flow. The internal incentive also includes improving
performance, the pursuit to synergy and reducing the risk of the firm. Synergy is simply
known as the ability of two or more parts of an organization to achieve greater total
effectiveness together Synergies exist when the value created by the collaboration of
business units exceeds the value created by the same units working independently.
Companies may diversify to gain mutual benefits by adapting synergy. However,
synergy produces joint interdependence among businesses that constrains the firm’s
flexibility to respond. When a company can get above average or good returns in a
single business, there is little synergy. Incentives for diversification.

External environment incentives: External diversification occurs when a firm looks

outside of its current operations and buys access to new products in markets. Such
laws provide incentives for different companies to diversify their businesses. These
laws increase market power. These include conglomerate diversification. These
incentives facilitate mergers and acquisitions. External incentives include anti-trust
regulations and tax laws. Anti-trust regulations regarding mergers and acquisitions can
slow down the process of diversification. Widely dispersed organizations have
relatively lower performance levels than their competitors. Unpredictable cash flow is
another type of incentive that should be diversified by the organization. Diversification
to other product lines leads to better cash flow for the organization. It also reduces the
level of risk involved. Reducing business risk is another area of ​potential diversification.
When two businesses tend to work together, it is very important that they create a
synergistic effect. Synergies occur when both companies can sum the value of their
business as expected. This situation mitigates the risks associated with individual
businesses.

Previously, google’s shareholders were only google’s shareholders but now they are
Alphabet shareholders which means they will get a return on Alphabet's overall results
but not just google’s. Google’s restructuring into Alphabet has lowered the possibility
of the company being combined in the future. The unrelated diversification aids
Alphabets in having companies that work on potential ventures in various structures if
these projects fail, they are combined with similar projects under Alphabet alone. This
prevents efficiency from leaving the company. Overall, the competitive advantage
grows as performance and productivity improve, allowing companies to earn a higher
than average return.

4) Describe motives that can encourage managers to over diversify a firm.

Increased compensation: Through over-diversification the company may generate

more and more revenue which will enable them to increase the compensation level of
their employees resulting in better employee satisfaction and increased level of
motivation. All such factors will enhance the performance of the overall organization
and increase the competitiveness of the firm.

Reduction of managerial risks: If the firm gets over diversified, it eventually reduces the
managerial risks involved. This happens because the risk gets divided among all the
businesses that form a group for diversification. It has another added benefit that with
over-diversification they get to explore more and more markets. This leads to more and
more ideas from businesses coming in.
The desire for increased compensation and reduced managerial risk are two motives
for top-level executives to diversify their firm. In slightly different words, top-level
executives may diversify a firm in order to spread their own employment risk, as long
as profitability does not suffer excessively.

Discussion question:
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?

I would describe Alphabet's current level of diversification as positive. Google achieved

its Alphabet by creating a subsidiary. This level allowed Google to move into areas
outside of internet search and marketing, making it a technology company. The
company is putting its efforts into many other areas such as broadband, video ads, and
digital content. It has also evolved into an e-commerce company. The e-commerce
plans have made Google services evolve from traditional to innovative popular
services. It has also made it more convenient where online stores are always available,
allowing customers to visit stores with ease. Yes, Google is over-diversified as its
portfolio has expanded too much. Here, the management needs to monitor and review
the investments frequently.

Executive management is the internal governance mechanism that heavily influenced

the company's top executives to restructure the company and create a new parent
company, Alphabet. As mutual revenues were under an investment style, investment
costs and threats increased. This required constant monitoring and review of
investments. With the introduction of innovations, the marketing opportunities of the
company grew through the website. With a management team, the activities within the
company are steered in the right direction as the executives and employees are on
their toes to achieve the goals and ensure success, eliminating the fear of failure.

The type of structure used by the new Alphabet, Inc. is divisional. Each division is
placed as its own brand, for example, Nest, Access, and others. The separate division
provides the company with flexibility, the absence of bureaucracy, and efficient ways of
communication between employees and senior management. Each division has its
CEO, but not its own operation.
● Results of the restructuring
● More money
● More revenue is likely to be acquired.
● Increase in employee retention
● Employees need to have a positive attitude when they are hired.
● Stronger team
● As the market might become more complicated, a strong team is needed.
● Diversity hiring
● Managers would need to eliminate unconscious bias which can be secured
through individual hiring.

The structure supports the plan. When a company changes its policies, it must also
change its structure to support the new plan. If these activities do not work hand in
hand, the company will be thrown back on its old plan. Changing the structure after a
new policy is in place is a way to increase efficiency, encourage collaboration, build
new departments, and reduce costs. The different departments will have their
operations affected as they will not be allowed to work alone. I think Alphabet will
respond by giving this organization permission to use its most important resources and
help the company achieve its goals.

I would characterize the level of entrepreneurship within Alphabet as supportive and

engaging, creating an environment conducive to growth. Clear goals and a creative
mindset are some of the examples of Google showing an entrepreneurial mindset and
appreciation for its customers. It has a clear goal to organize the world's information
and make it accessible and useful to all customers. Through the creation of the
alphabet, it has developed a creative mindset for growth and development.

Yes, investors should support this type of project because business is about risk and
making money. Investments ensure that investors take control of their financial security.
With the advancement in technology, investing in bold, risky projects is currently a
no-brainer as it makes investors and businessmen feel more secure. With the
advancement in technology, more customers can access supplies.