STRATEGIC MANAGEMENT

When it launched on the US stock market in 2004, Google set up a two-tier board of directors - a model that is rare in the USA although common in some European countries. The advantage for the founders, Larry Page and Sergey Brin, was the additional distance it placed between them and their shareholders, and the increased managerial freedom it offered to them to run their company their way. Google was proud of its laissez-faire approach to management, as explained by former CEO Eric Schmidt:

"Google is run by its culture and not by me. It's much easier to have an employee base in which everybody is doing exactly what they want every day. They're always excited, they're always working on whatever they care about ... But it's a very different to the traditional hierarchical model where there's the CEO statement and this is the strategy and this is what you will do. We put up with a certain amount of chaos from that."

At the same time, Google operated a rigid system for recruitment. They could afford to be choosy, as 100 applicants chased each job. Engineers had to have at least a Masters degree from a leading university, and pass a series of assessment tests and interviews. These selected for a psychometric profile of 'googleness'.

In October 2015, Google was restructured and named Alphabet, a holding company that included the Google search company and a range of other businesses. The company had acquired over 150 companies, spending around $23bn since its IPO in 2004. This included companies like YouTube, Android, Doubleclick and Nest. Besides all these acquisitions, Alphabet also included the semi-secret research and development facility Google X, focused on robotics and artificial intelligence including the company's driverless car. Larry Page became the CEO of Alphabet and Google co-founder Sergey Brin President, and senior VP Sundar Pichai became CEO of Google. As Larry Page argued,

"This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main internet products contained in Alphabet instead. Good examples of this are our health efforts: Life Sciences (works on glucose-sensing contact lens) and Calico (focused on longevity). Fundamentally, we believe this allows us more management scale, as we can run things independently that aren't very related. Alphabet is about businesses prospering through strong leaders and independence."

Analysts were somewhat sceptical as to whether the restructuring would solve the challenges the company faced. Influenced by consumers' shift to smartphones with harder to see lower-priced ads, the amount advertisers were prepared to pay click-by-click had been falling. In addition, people didn't perform searches on mobile phones to the same extent as on computers. Furthermore, advertisers had not shifted their television ad budgets to internet and YouTube at the pace anticipated. YouTube accounted for about six percent of Google's overall sales revenue in 2014 and had about one billion viewers, but no profit. In addition, Facebook and Twitter, which regularly send traffic to the site, were building video offerings themselves. Amazon and Netflix were other contenders in the online video business. The rise of Facebook was a third challenge, especially since Google's response in Google+ had failed to gain momentum and by 2015 was slowly but surely being dismantled.

It seemed that the formation of Alphabet was a way to make each business able to operate more independently. This could possibly help the company focus on the search- and advertising-related businesses without being distracted by all their other businesses and vice versa. The change also made the company's structure clearer to investors as the company would report core Google business results separately in earnings reports. It allowed any newly acquired businesses to be developed more independently from Google's search businesses, but still within Alphabet. Critics, however, suggested the looser corporate structure raised the question of why Alphabet's collection of businesses belonged together if all they shared were the group's ample money and ambition.

(viii)Discuss what form of corporate portfolio is formed in Alphabet, and the implications for (i) types of business that make up the portfolio, and (ii) skills and characteristics at the head office. (5 marks)