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Value chain analysis

Dynamics of strategy

WC: 1532

Introduction

Dynamics of strategic frameworks of businesses encapsulate complex patterns of actions. It intends to comprehend architectural frameworks and competitive dynamics. This report is an extensive analysis of resources and capabilities, strategic implementation and management preferences of Google Alphabet.

Task 1

Attractiveness of industry

Industry dynamics, globalization, risk, corporate social responsibility and ethics are the four key determinants of an organization’s attractiveness in the market (Fowlie, Reguant & Ryan, 2016). These are dominant and influential external forces impacting the magnetism of Alphabet Google. The corporation has effectually ventured into communication hardware and has amalgamated with the electronic manufacturer to establish itself as a leader in technology. Google follows a transitional approach as a result of which it accounts for 82% of mobile operating systems (Binns, Harreld, O’Reilly & Tushman, 2014). It effectively safeguards switching into new terrains. Google has effectively moved to mobile operating systems, mapping, and home automation and many more.

Google has effectually incorporated a dual-class structure for assisting Page and Brin in retaining control over the company by elevating outside equity capital. Globalization is a governing aspect in inflating organizational lucrativeness.  It is the interaction between economies of scale and scope, lowering the trade barriers and deregulations, cultural homogenization and robust international competition. Google has developed a global flexible platform which has assisted it in expanding overseas. Despite an elevating hype in the competitor's innovative products, Google’s search engine’s giant emergence in mobile devices via Android software stack and Nexus One globally has been effective in its process of capturing the market. Also, the organization has contributed around $165 billion of economic activity for the businesses in the year 2014 and 2015 across the globe (Binns, Harreld, O’Reilly & Tushman, 2014).

The attractiveness of Google can also be inferred from its ability in dealing with the diverse degrees of risk. Google has grasped the opportunities to sustain in the market it launched the Google Play services in the year 2012 by integrating the eBookstore, music and applications. The increasing tailoring of the queries with the apps can be a potential risk for the firm in terms of its share of the search market. However, it has overcome this risk by making sure that the robust voice-activated search technology is introduced. The company has also effectually mitigated stakeholder ethics by adhering to the Google Supplier Code of Conduct. With the increasing consensus of corporate social responsibility, businesses are inclining towards adopting practices that are environmentally beneficial and acceptable on the social grounds. Google reflects adherence with corporate social responsibility as its buildings have been provided with green certification status by LEED.

Competitiveness in the industry

Alphabet’s Google has the mission to efficaciously organize information and make it accessible for all the users across the globe. Google faces fierce competition in terms of online marketing from rivals like Facebook. This is the reason that the market share in terms of the advertising pie of Google is decreasing. The cost-per-click paid by advertisers of Google by 11 per cent between the year 2015 and 2016 (Van Alstyne, Parker & Choudary, 2016). Google has a monopoly of around 94 per cent in the market in terms of online search. This figure clearly indicates that the organization has effectually maintained a competitive edge. Yahoo is a competitor of Google as has secured the position of second largest search engine.

Being a media company AOL and internet pioneer, Microsoft's search engine is another technological giant. However, with the highest share, Google remains the leader in terms of search engine. After acquiring YouTube, Google has effectually placed it in the advertising domain which brought about 36 per cent increment in the advertising revenue in the year 2019. Google's rival in the smartphone industry Apple is continually enhancing its two-sided iOS. Google for maintaining its effectiveness in the industry makes use of the 70 per cent of the Android market and markets its three-sided Android platform. Its competitiveness in the market can be inferred from the fact that its Android platform has built-in innovation in the provider layers. This allowed its market capitalization surpass Apple's market capitalization in early 2016 (Gouri & Salinger, 2017).

Alphabet’s Google has cultivated a sense of trust among the customers as its Play Store has barricaded the entry of the low-quality applications. Match quality is an integral aspect of the market competitiveness of Google. If the match between the needs of the users and that of the producers is pitiable, then it subsequently echoes poor performance and market image. Google acknowledges the significance of match quality to remain ahead of its competitors. It hence, makes sure that the users’ clicking and reading are continuously monitored so that the customers’ search requests are fulfilled (Van Alstyne, Parker & Choudary, 2016).

Task 2

Analyzing resources

Resources audit

It is an analysis technique used to comprehend the current state of resources of an organization. It allows in acknowledging the resources present with an organization for disposal. Following is a resource audit of Alphabet’s Google:

Resources

Physical resources

Google has approximately 85 offices in around 40 countries. The major office is located in California which is known as Googleplex. Google has a high-capacity manufacturing plant in HTC in Taiwan which manufactures Pixel Smartphone (Prabhu et al., 2017).

Financial resources

Total assets of Google are 131,133,000,000 US dollar as of 2014 (Prabhu et al., 2017). The total revenue of the organization peaked up to 66,001,000,000 US dollar in the year 2014. The operating income of the organization the same year was 16,496,000,000. Its key revenue source is through advertising through the sites. 

Technological resources

The intellectual properties of Google form a significant part of its resource portfolio. The technological resources incorporate Multiple Database Indexing (Duhigg, 2016). Its technology employs collective intelligence and hence, frames a page’s significance. Its advanced technological interventions encapsulate machine learning, natural language understanding, computer vision and other fields of artificial intelligence. It makes use of PageRank technology which has altered the consumers’ way of surfing.  Google Home Hub is a new innovation of the firm introduced as a result of its effective technology smart-assistant-with-a-screen (Prabhu et al., 2017).

Human resources

Google ensures to lure the top talent in the firm; it employs a total of 114,096 employees (Duhigg, 2016). Apart from the operations management, development, marketing and testing team, Google also employs medical services and health care for ensuring the safety of the workforce.

Table 1: Resources audit

Value chain analysis and core competencies

This analysis is helpful in analyzing and evaluating the internal business activities of a firm. Google generates great value in its inbound logistics in comparison with the other activities (Bogenschneider & Heilmeier, 2016). The major business area of the organization is an online search. There are no inbound logistics costs associated with the online search. It provides accurate and precise content via its unique business model. It employs a comprehensive range of hardware, tools and technological equipment to conduct the operations. Though it does not reveal its inbound logistics and supply chain, it maintains a dedicated supplier platform. It ensures that the suppliers are able to submit the invoice for the payments and check the status of an invoice. Google is known for its technological capabilities in the advanced and general algorithm. Its value chain is reliant on its robust team integration to deliver the fine-quality products and services; such as it introduced Google Analytics after recognizing the need to maintain a track of the marketing campaigns and websites. URL’s number of Google +1s is closely associated with the search rankings as compared to any other factor (Bogenschneider & Heilmeier, 2016). Its sales are pre-dominantly conducted via the online channel. The core competencies of the firm incorporate scalable hardware structure and software engineering. It is grounded on the advanced technology applied in the search service, which makes it easier for the users to find any piece of information. Indexing technology, Google Mapping platform and Google ads platform are some of the other key core competencies of the organization.  

Resources’ imitability and capabilities

Google maintains the imitability of the resources by its intellectual properties (Van Alstyne, Parker & Choudary, 2016). These involve Duplicate Content Patents, Large File Space Indexing Patents, Modeling and Mapping Patents, Search Indexing Patents, Software Patents, Wireless and Mobile Patents, Security Patents and many more. Google provides the amenity of hosted data storage and assists in providing full data privacy to the customers. Its major commodity exchanges occur as a result of its high advertising market share.

  • Value

Google makes use of the human capital management data to ensure that the productive and innovative employees are retained in the firm. The organization consistently drives for inflating the value of Google ads (Bogenschneider & Heilmeier, 2016).

  • Rarity

No other competitors of Google are using data-based employee management in an extensive custom. Google is at front of the search engine race in providing the most relevant results which the other competitors such as Yahoo and Microsoft engine are unable to accomplish.

  • Imitability

The explicit system relied on the data-driven resources are intricate to imitate. The difficulty in imitation is also associated with monetary constraints (Bogenschneider & Heilmeier, 2016).  It will require the competitors to train the staff and build the software and imitate the system.

  • Organization

It is organized in such a way that it captures the maximum value. Parallel hierarchy is trailed in the firm; wherein different IT projects are handled by the respective project managers.

Task 3

Diversification strategy

Conglomerate diversification is a growth tactic that incorporates adding new services or product that are diverse from the current portfolio of services and products (Frank, 2018). This diversification strategy allows businesses to diversify in different areas which are unrelated to the current business operations (Kenyoru, Chumba, Chumba & Rotich, 2016). Alphabet employs this diversification strategy as a base philosophy for diversifying in different market zones. Alphabet's announcement is an example of the changing trend. The focus of alphabet is not radical; however, it trails conglomerate diversification stratagem. Alphabet focuses on internet-related services and products. The CEO of Google has also witnessed rising through the ranks of Google after joining the technology firm in the year 2004 (Bogenschneider & Heilmeier, 2016). This diversification structure is aimed at increasing transparency in the finances of the company. Google spends on the moonshots and it has become a matter of concern for its stakeholders. This shift is proving to be successful for the investors and the companies involved with Alphabet. The strategy trailed by Alphabet to ensure that the company becomes a safe place for conducting different experiments and diversifying in different market areas. Since there are different disparate ventures under Alphabet, it adopted this diversification strategy to ensure that the investors are communicated and well informed regarding spending and also controlling the finances in a proportional custom so that more independence is established in its own brands. Alphabet is evolving and the major objective is to become more assistive and allow the users to have a two-way ongoing dialogue with its subsidiary Google.

Structure of Alphabet

The equity of Alphabet is held by a subsidiary known as XXVI Holdings. It was announced that Google will be organised as a limited liability company. Under Alphabet, there are numerous other subsidiaries in which Google is the preliminary source of revenue. The Other subsidiaries held by Alphabet are CapitalG, Google Fiber, Jigsaw, Sidewalk Labs, X, Wing, Calico, DeepMind, Google Fiber and many more. The M-form structure of alphabet is helping the company to optimise its governance, human capital and process. Also, it is helpful in ensuring that strategic business decision making is fostered (Cusumano, 2016).

As a part of the restructuring, most of the subsidiaries were moved from Google to Alphabet which narrowed down the scope of Google. Alphabet has strong brand recognition. Google search engine has accorded popularity to Alphabet which Alphabet can sustain for a long time apart from Google, AdSense and Chrome are also popular products under the portfolio of the business unit. It is structured in such a way that it is financially strong and its revenue has appreciably elevated from the year 2013 to 2017 (Bogenschneider & Heilmeier, 2016). The global presence of Alphabet is its major strength and is becoming a leading brand in the information technology industry. It has effectively brought diverse market-leading products from the smartest search engine, browser and promotional platforms together.

Rationale for diversification strategy and structure

Alphabet has adopted conglomerate diversification strategy because of the fact that it diminishes the risks associated with the investment (Frank, 2018). This structure can ensure that a capital market within the group is sustained and is allowed to promote the growth of the conglomerates (Nejadmalayeri, Iyer & Singh, 2017). This structure is adopted by Alphabet because it allows the business to grow by acquiring companies whose shares are having more discounts, thereby, allowing the chance of more growth in earnings. It provides a chance of expanded customer base and elevated efficiency for which Alphabet is established. The rationale behind incorporating the Conglomerate diversification strategy by Alphabet is also intended to ensure that its subsidiary Google’s expansion into different domains, outside advertising and search is logically and easily promoted (Chaganti, 2019).

It attempts to ensure that Google becomes a technological conglomerate in a steadier custom. It is effectively employing the Blue Ocean strategy to accomplish mastery overexploitation of the new market and create new demands. The key advantage of choosing the diversification strategy is also the fact that it is diminished with the speed of mutual funds. If the investors invest in mutual funds; then they can directly diversify the investment without having to invest in a single place. It fosters the investment of the investors and hence, is a good strategy for a group like Alphabet. It follows the M-form structure which is a quite popular corporate structure and is also associated with power because usually, the conglomerates buy businesses at quite leveraged rates. After Google restructured under the parent company Alphabet, its capital has risen by around $200 billion dollars which is about double of its total value.

The products of Alphabet have remained the same as before, there is no breakout new hit in terms of the commercial, legal or political realm (Harris, 2016). Alphabet's corporate structure is quite appealing to the investors as it easily sorts of risk versus rewards. The reason for adopting a new structure is the fact that it will accelerate Google to continue pursuing its long term initiatives increasing the transparency in terms of management of the core business. The primary benefit of a new structure is that there is increased visibility. It has made it easier for the business to stress on the visibility and transparency of the search business model, another benefit is that as a separate business, it will be easier to contain the other moonshots and focus on them. Also, about the other moonshots, the investors were not sure about Google tunnelling cash from the search business to the unchecked long-shot ventures. With the Alphabet model, this issue is eradicated.

Conclusion

This report has brought forward a coherent picture of attractiveness, resource analysis, organizational structure and diversification stratagem of the organization.

 

 

References

Binns, A., Harreld, J.B., O’Reilly, C. & Tushman, M.L. (2014). The art of strategic renewal. MIT Sloan Management Review55(2), 21-23.

Bogenschneider, B. N., & Heilmeier, R. (2016). Google's Alphabet Soup in Delaware. Hous. Bus. & Tax LJ16, 1.

Chaganti, R. R. (2019). GE and Alphabet: A Tale of Two Conglomerates. Rutgers Business Review4(1).

Cusumano, M. A. (2016). Is Google's alphabet a good bet?. Communications of the ACM60(1), 22-25.

Duhigg, C. (2016). What Google learned from its quest to build the perfect team. The New York Times Magazine26, 2016.

Fowlie, M., Reguant, M., & Ryan, S. P. (2016). Market-based emissions regulation and industry dynamics. Journal of Political Economy124(1), 249-302.

Frank T. R. (2018). Alphabet’s Google. Mc Graw Hill Education. Retrieved from: https://hbsp.harvard.edu/product/MH0055-PDF-ENG?itemFindingMethod=Search

Gouri, G., & Salinger, M. A. (2017). Protecting Competition versus Protecting Competitors: Assessing the Antitrust Complaints against Google. Criterion J. on Innovation2, 531.

Harris, M. (2016). Secretive Alphabet division funded by Google aims to fix public transit in US. The Guardian27.

Kenyoru, D., Chumba, G., Chumba, S., & Rotich, S. (2016). Effect of Product Diversification on Financial Performance of Selected Banks in Kericho Town. European Journal of Business and Management8(22), 126-134.

Nejadmalayeri, A., Iyer, S. R., & Singh, M. (2017). Is there an optimally diversified conglomerate? Gleaning answers from capital markets. Review of Quantitative Finance and Accounting49(1), 117-158.

Prabhu, A. V., Crihalmeanu, T., Hansberry, D. R., Agarwal, N., Glaser, C., Clump, D. A., ... & Beriwal, S. (2017). Online palliative care and oncology patient education resources through Google: Do they meet national health literacy recommendations?. Practical radiation oncology7(5), 306-310.

Van Alstyne, M.W., Parker, G.G. & Choudary, S.P. (2016). Pipelines, platforms, and the new rules of strategy. Harvard business review94(4), 54-62.

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