Introduction
Millions of capital investments are channeled into the world economy every year as companies expand their operations. However, these expansions come with strategic issues and risks in their wake. Google, a giant technological company, is one of the organizations that encounter significant strategic-related problems resulting from its reincarnation decision. This paper provides a comprehensive assessment of Google’s corporate strategy and identifies its strategic problems. It also proposes a feasible solution that could be adopted by the organization to gain a competitive edge within the marketplace. Refocusing its strategy can help the company reclaim its brand image.
Key Issues
Google’s leaders created Alphabet to expand into areas outside its traditional core value proposition. The company’s vision was to create value outside its conventional information technology (IT)-related operations. They envisioned using the company and resources to make positive changes to the world. However, Alphabet could not address critical questions posed by the business community. Google, Alphabet’s subsidiary, generates almost 86% of the company’s revenue. This situation led to queries on Alphabet’s core value proposition and how it planned to generate its revenue independently. Since its inception, Alphabet has been diversifying, although it lacks a clear strategy.
The company also faces other strategic issues, including ethical issues and degradation of human resource practices. For years, the company has faced legal and regulatory pressures for violating antitrust and data protection laws. Typically, the company uses defensive strategies to protect its market position. Defensive approaches refer to the techniques used by a company to block competitors from entering its market or imitating its products. A company deploying defensive strategies can protect its market position but at the same time risk violating antitrust laws.
For example, Google created the “InPrivate” functionality in their chrome browser. The feature required chrome customers to use the operating system, an act that would eliminate Microsoft as a viable competitor. Purposefully creating a feature that limits customers’ choices is a violation of the antitrust law. The company has also faced legal sanctions for violating data privacy and protection laws. Google collects and stores customer’s identifiable data (location, age, names, address, etc.), purchasing behaviors, preferences, and mail messages. Although the company claims it uses the data to personalize Ads and improve user experience, it also risks people’s privacy.
The third issue with the company’s strategy is the deterioration of the infamous informal HR practices. In fact, these practices are part of the company’s core value propositions. However, since the inception of Alphabet, Google’s employee size has been growing, consequently demanding a centralized and formal approach. The company’s employee size increased significantly from 16,805 to 88,110 in less than a decade (Grant 2018, p. 25).
Employees within the company are at liberty to select their leaders and switch teams without the HR department’s permission. However, Google discourages structured responsibilities, formality, and hierarchical authority and privileges. According to Schenkel and Brazeal (2016), this kind of flat organization structure creates a conducive environment to nurture self-efficacy and motivation to pursue desired outcomes. However, the diversification strategy adopted by Google Inc. threatens its current organizational structure’s efficacy; its present-day employee size demands a centralized and formalized administration unit or management.
Solutions to the Distinguished Issues
Ethical Issues and HR Management
The organization can solve the ethical issues impacting its functionality by developing and enforcing well-informed informed protection procedures and policies. The procedures should focus mainly on safeguarding the organization and consumers’ data across the data lifecycle. A study conducted by Jeong and Kim (2020) showed that effective information protection policies improve adherence to data protection and privacy laws. The company can still retain its decentralized government even with its large employee size. A study conducted by Andrews (2017) showed no relationship between organization size, social capital, and decentralized decision-making. With capable leadership and management, the company can still effectively operate under decentralized governance.
The Solution to Alphabet’s Unclear Strategy
Without a clear strategy, a company lacks identifiable objections and direction. A straightforward business approach provides an organization with the focus and vision it needs to achieve its corporate goals and plans. Alphabet has an unclear corporate strategy and has failed to differentiate itself from Google. Alphabet needs to determine whether it needs to specialize or diversify. Companies diversify for three significant reasons: growth, risk reduction, and value creation. Collectively, these goals aim to create and maximize shareholder value.
Michael Porter described three primary tests used to determine whether a company’s diversification will indeed generate shareholder value. The tests include the attractiveness test, cost-of-entry test, and better-off test (Grant, 2018). Loosely translated, the attractiveness test aims to establish whether the industry to be entered is attractive. Alphabet is trying to enter a market using a strategy that differs significantly from its traditional model. Schommer et al.’s (2019) study showed that when firms diversify into unrelated business lines, their diversification’s marginal benefits reduce and their performance declines significantly. Based on the argument presented above, Alphabet’s strategy to enter the life sciences and healthcare industry may be considered unattractive and unprofitable.
An industry’s attractiveness is not enough to ascertain whether the company’s diversification will create value. The cost of entering the business may cancel out the industry’s attractiveness. The better-off-test – the third test developed by Michael Potter – is the ultimate diversification assessment; it is the most pertinent test for Alphabet’s situation. It is instrumental in ascertaining whether incorporating two or more businesses within a single organization will generate any profits.
According to Grant (2018), a robust competitive advantage makes an industry’s unattractiveness, e.g., low profitability, irrelevant in the long run. Therefore, if Alphabet’s diversification strategy brings a competitive advantage to the business, it would be okay for the company to venture into the healthcare and life-sciences industry. Its competitive advantage would counter the unattractiveness associated with entering an unattractive market.
However, business experts argue that creating value is not an adequate justification to diversify. Michael Goold and associates posit that a parent company must always add value for itself and its subsidiaries (Grant, 2018). From this perspective, Alphabet should have parenting value to support Google and its other businesses. Currently, Alphabet does not have the parenting value because it depends on its subsidiary company, Google, for revenue generation. Alphabet’s strategy must also have parenting value to have a competitive advantage.
Case Study Questions
Google’s Corporate Strategy and Vision
Google’s corporate strategy is diversification; it pursues unrelated diversification. Other strategies include talent or skill management (HR practices and teams), acquisition, decentralized governance, and design simplicity (Grant, 2018). Google’s vision is “to provide access to the world’s information in one click” (Grant, 2018). On the other hand, Alphabet’s envisions utilizing technological innovations and its related resources to generate positive impact to world, particularly in fields not related to the Internet. Its corporate vision is to utilize strong leadership to allot resources for supporting its business operations.
Porter’s Tests
Porter’s better-off test can determine the strategy’s competitive advantage. The main question to guide the better-offer test is whether the company will be better than before diversification. The company also needs to establish synergies or linkages that exist in the core business and new business. According to Michael Porter, a corporation should only diversify if it brings a competitive advantage to the new company or the new business offers potential for significant corporate advantage (Grant, 2018). From this perspective, it can be argued that Google Inc. has a competitive edge within the marketplace due to the value it generates for Alphabet and other businesses. It has the scope economies, including tangible and intangible resources for supporting other businesses.
However, Alphabet does not independently bring value to its other businesses because it depends on Google for its resources and capabilities. Google Inc., Alphabet’s subsidiary company, generates 86% of its revenues. A business expert states that Alphabet is “… a company running in different directions all at once… and Google’s identity has become muddled” (Grant, 2018, p. 56). Therefore, it can be surmised that Alphabet does not offer a competitive advantage to its subsidiaries because it relies on one to generate revenues for its business ventures. A strategy that has a competitive advantage should, at the minimum, have organizational and general management capabilities to transfer and support its other businesses (Grant, 2018).
For example, Apple’s (parent company) capabilities in product development have allowed the company to diversify from computers to watches, tablet computers, MP3 players, smartphones, etc. (Grant, 2018). Alphabet should have the same capabilities to deploy to its other business ventures. Fortunately, the scope economies are not its sole competitive advantage source. The company can obtain the qualifications by selling licenses or charging third parties that visit their website.
Threats Faced by Google
Google’s diversification has resulted in stiff competition from multiple fronts, threatening its position in the market. A study conducted by Felix and Maggi (2019) showed that stiff competition increases capital investment and adjustment costs. The cost of entry significantly influences a firm’s chance of diversifying and entering new markets. Furthermore, the enterprise cannot operate as a quasi-autonomous company due to the stiff competition it faces (Grant, 2018). Moreover, the uncoordinated diversification approach implemented by the organization minimizes its likelihood of succeeding. According to Grant (2018), several studies have established that unrelated diversification is a guaranteed path for a firm’s failure. Coupled with the fact that the company lacks clear strategy, Google is likely to lose its marketplace position to its rivals.
The Need to Refocus
From the above analysis, it is evident that Google needs to refocus its differentiation strategy. Its acquisitions are creating costs instead of adding revenue. The company has acquired over 200 companies since its inception in 2015, making it difficult for it to integrate its culture into new businesses (Kreiser et al., 2021). The company should consolidate and focus on strengthening its core business model. It should also aim for specialization and bringing synergy to its subsidiary companies.
Google’s Delineation of Its Corporate Boundaries: Recommendations
Google should delineate its corporate boundaries and invest in its core value propositions. The organization should invest resources into its value propositions or areas with positive net present value, such as search engines and paid listings. According to Stancu et al. (2020), value propositions are a competitive advantage source and can enhance a firm’s competitive advantage. By focusing on its value propositions, the company will reinforce its strengths and stick to its corporate vision. I would recommend against investing in healthcare and life sciences as a core value proposition. The company can still make a positive impact in these industries without having to change its business model. For example, it can invest in them as part of its research and development (R&D) activities or corporate social responsibility.
Conclusion
The case study assesses whether Google should scale down its ambitions and draw boundaries around its corporate strategy. This study proposes that Alphabet needs to refocus its strategy from unrelated differentiation to specialized differential to attain competitive advantage. It should invest in its core value propositions, and retain decentralized governance to maintain its innovative culture. The company should also implement and enforce effective data protection policies.
References
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