Organizational Change

Prepared by: Saniya Safir

M.Com Semester I

Presented to: Sir Zeeshan Ahmed

Organizational Change

Acknowledgements

First of all, I would like to express my gratitude to my teacher, Mr. Zeeshan Ahmed, for his
guidance and expertise which significantly assisted in the planning and writing of this paper. I
am also grateful for the opportunity provided by the institution, Center for Information
Technology, Approved Study Center of the Allama Iqbal Open University, and for making
available the necessary resources and infrastructure to conduct the research and successfully
writing the research paper.

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Abstract

Organizational change is when companies transform their processes and environment in order to
achieve the short- and long-term goals. It becomes essential for large organizations to de-clutter
their structure when the subsidiaries tend to create hindrances in the policy planning and the
decision making process of the parent company. This was what Google did by creating a parent
company called Alphabet, and transferring all its subsidiaries under it, making itself lean and
focused on the main objective. This paper reflects on how Google transformed its puzzling
organizational structure to an uncomplicated one, making it easier for the people within the
organization and outside to understand the workings of the internet search giant, and how
successful have the co-founders, Larry Page and Sergey Brin, have been in bringing about the
change and managing it as well.

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Table of Contents
Introduction ..................................................................................................................................... 5

Practical Study ................................................................................................................................ 6

Data Collection Methods .............................................................................................................. 10

SWOT Analysis ............................................................................................................................ 11

Strengths ................................................................................................................................... 11

Weaknesses ............................................................................................................................... 11

Opportunities............................................................................................................................. 12

Threats....................................................................................................................................... 12

Conclusions ................................................................................................................................... 14

Recommendations ......................................................................................................................... 15

References ..................................................................................................................................... 16

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Organizational Change

Introduction
Organizational change is the process by which the managers brings about a change in the
business processes, structure, culture, and strategies. These changes also include the change in
the behavior of the employee in response to the former changes. It is an essential element of
growth seeking modern organizations. While setting SMART goals is necessary to assure
continued growth, it is also vital to update the structure, culture, and norms of the business to
ensure effective achievement of these goals. It gives an opportunity to the employees and the
management within any business to explore new vistas and to improve on their performance
through learning new skills and implementing them in the day-to-day business aspects.

Organizational change can be of mainly two types, incremental or transformational. Incremental

change focuses on bringing about change in slowly and gradually, usually taking one section of
the organization at one time. On the other hand, transformational change is about well planned
changes in the overall strategy or structure of the organization which then leads to multiple
changes on the grand scale in the organization. It can be in the form of transformation in
organizational structure, management culture and policies, strategy, personnel preference, and in
the overall working environment. It can take a long time for the business to carry out this change
and to effectively manage it within the entire organization. Some of the most applied modern day
changes have been towards making the organizations technology centric, customer oriented,
and/or capital intensive in the business processes. The type of change this paper focuses on is a
transformational change in the form of bringing in a decentralized structure and a deconstructed
product portfolio.

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Practical Study
On October 2, 2015, Google Inc. reorganized its various components and created a corporate
umbrella named Alphabet Incorporated. Alphabet works as a conglomerate combining various
business ventures, previously under Google Inc., listed as: Calico, DeepMind, GV, CapitalG, X,
Google Fiber, Nest Labs, Jigsaw, Sidewalk Labs, Verily, and Waymo, under its patronage. This
change was made to segregate Google to focus on the internet search engine market, while
giving independence to the subsidiaries. It offered more opportunities for growth and investment
seeking to the other brands working under Google and to bring them into the limelight. It also
availed transparency to the shareholders into the investment path that Google and in turn their
share was taking and how successful each venture was coming out to be.

Further, Larry Page, the cofounder and CEO of Google, took on the job of CEO of Alphabet,
while Sundar Pichai took his place in Google. With this change, Page intended to shift focus
towards innovation outside the Google sphere. One of the most difficult aspects of the
implementation has been finding new talents to take on the role of CEOs in the new subsidiaries.
This was made especially difficult when companies like Uber and Dropbox poached well trained
senior employees of Google for their executive posts, creating effective leadership challenges for
the companies.

Moreover, in the new structure, the main source of finance and investment within the
subsidiaries is Google. This means that the smaller companies will still rely on Google for their
allocations and it might still have potential control over the financial policies and decisions. It
affects the overall autonomy that the new executives will have in the company, and some might
even call it a façade to look autonomous. However, considering the financial state and revenue
figures in these offshoots since the reorganization, it might be suitable for the subsidiaries to
have a definite source of finance.

Furthermore, another aspect of the change was the employees at Google, who got the news at the
same time the restructuring was announced to the world. According to a Business Insider UK
article [1], some employees reported drop in productivity to zero for an hour at least, due to the
confusion and uncertainty that followed the announcement. For the most part, this change was
eagerly accepted. There were, however, some elements within which were not as welcoming.

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Another Business Insider article [2]

reported some ex-Google employees stating, ‘Anytime there
was a change in senior management there was a reorg for the sake of a reorg’, citing political
motivations behind the frequent reorganizations, going as high as 6 times within 18 months,
rather than practical reasons that will benefit the business on the whole.

[3]
The following graph shows the total return on every $100 invested in the company for every
quarter from December 2010 to December 2015, in four different stock exchanges. The change
was brought about in the last quarter of 2015, i.e. between October 2015 and December 2015.
The effect of this change can be seen from the graph in the form of reporting the highest return,
going up to $260 for every $100 of investment, and the highest rate of growth as well, in the last
5 financial years.

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The graph below [4]

presents a picture of Alphabet’s stock in the year after the reorganization.
Entering the 1st quarter of 2016, there was a fall in the return, which continued to till the end of
the 2nd quarter. While it did recover in the 3rd quarter and reached $300 on the RDG Internet
Composite Index and about $220 on the NASDAQ Composite, the highest so far, the last quarter
of 2016 reported another decrease in the returns on the RDG Composite Index closing at $280
and the Alphabet Inc. Class A closing at $240, these being the main index which showed major
fluctuations.

[5]
The financials reported for the 2nd quarter of 2017 have seen a 21% increase in revenue, in
comparison to the revenue in the 2nd quarter of 2016, from $21.5 billion to $26 billion. However,
the operating income has seen an about 30% fall in these periods, from $5.9 billion in 2016’s to
$4.1 billion in 2017’s 2nd quarter. This was also reflected in the operating margin which went
down from 28% to 16%. These figures give a quantitative insight into the transition from Google
to Alphabet, as they represent the struggles that Alphabet has faced in terms of market

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uncertainty and investor uncertainty revolving around the transformational change, leading to
high ranging fluctuations in the otherwise steady stock trends

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Data Collection Methods

Data was collected over the internet, with the help of Wikipedia pages for Google and Alphabet.
Further, I did a study of the various websites of Alphabet Inc. and its related products, like
hooli.xyz, to give an overview of the product portfolio that Alphabet has created and the
diversity of the industries it has delved into. Additionally, articles published over the internet by
reputed news outlets and business journalists were another source of data. Financial data has
been collected and compiled from the financial statements published on the website of the United
States Securities and Exchange Commission, and the website of Alphabet Inc., sourced in the
reference section.

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SWOT Analysis

Strengths
1. Employees can acquire new skills and it gives space and opportunities for the employees to
grow in terms of knowledge and experience.
2. A changing environment gives way to innovation. Companies that change to grow on a
regular basis are more open to applying innovative ideas, leading to effectiveness and
efficiency in their business processes.
3. One of the biggest strength of the Google restructuring is the independence that it provides to
both the former subsidiaries to form their own identity. It will also free Google from being
tied down by the smaller companies who not always be as profitable as they aimed to be.
Further, the financial statements will now report Google’s performance separately from the
subsidiaries. This means that any loss from the smaller companies will not weigh down
Google’s profitability figures and will present an inviting sight to the potential investors.

Weaknesses
1. In some cases, change does not equal progress. This means that bringing change in the
organization does not always bring growth or any improvement in the processes of the entity
which could in turn bring efficiency in the system and the effective allocation of the business
resources.
2. Internally, the organization may face resistance to the change, in terms of the managers and
the employees. In organizations that have low employee turnover with employees working in
the same system for a long period of time, they may feel threatened or uncomfortable with
the oncoming change and may react with resistance to the change.
3. Within Google, even though the new structure liberates the subsidiaries, it will not give
complete financial authority to the subsidiaries. This might act as a weakness in attracting
new executives for the post of CEO in the subsidiary companies, as it limits the scope of their
authority.
4. If an organization carries out the change process on a regular basis, it may create an uncertain
environment for both the managers and the employees to function. Similar situation has been
faced by Alphabet, since the climate of frequent restructuring brings a self-created necessity
for change in the executives, to establish dominance and a modicum of control over the
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overall structure. This means that following the major restructuring into Alphabet, many of
the smaller companies within Alphabet may also face reorganizations. It may lead to
ambiguity and job insecurity in the employees and may affect their productivity and
motivation.

Opportunities
1. Organizational change usually takes place when a company adapts to the new industry
trends. Such organizations are preferred by customers in the business markets, for it being an
evolving business catering to changing consumer and customer needs.
2. Change in organizations can also lead to a business reach out to a variety of diversified
markets and products. Just as the Google restructuring has given the opportunity to Alphabet
to expand smoothly into more diversified markets and product ranges.
3. With the help of changing strategies and structures innovation comes forward and can give a
competitive advantage to the company over the other companies in the market. In the case of
Google and Alphabet, with newer innovations coming forth, it will be smoother in the new
structure, to launch new subsidiaries for investing in each of those prospects, rather than
accommodating the reach out to the new markets within the same restricted structure. It will
also make mergers and acquisitions uncomplicated to carry out and tempting for the smaller
companies to become part of a strong yet autonomous structure.

Threats
1. As a resistance to change there can be an increase in employee turnover, which can result in
brain drain of trained and skilled employees from the company to its competitors.
2. It is possible that the applicable legislation and regulations within a country do not
accommodate for the kind of change that a company plans to bring. For example, if the
planned organizational change is in the production process, to shift energy source from
natural gas to coal, it might benefit the company, but it may go against the country’s energy
policies and laws. This could lead to fines imposed by the government and related
authorities.
3. In Google’s situation, while it gives freedom to the Alphabet subsidiaries to exist on their
own, it increases the threat of acquisitions. As they are not part of Google, individually they
will be worth less than the entire Google value, therefore easier to acquire by the

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competitors. Furthermore, with financial autonomy comes financial statement autonomy,

meaning that the financials of the subsidiaries will be presented separately from Google and
they will not be able to disguise any losses under Google’s profitability.

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Conclusions
Change is a part of the growth process of any company and once the change is implemented
comes the process of managing that change and making sure it is effective in achieving its
purpose. In October 2015, Google CEOs brought about a change which would organize their
structure by simplifying it and making it more flexible to allow each of its holdings to grow in
their own space and give the required space to Google to expand as well. In this change all of
Google’s offshoot projects were now a new company each in their own right working under the
parent-ship of a new company, Alphabet Incorporated, which also owned Google as one of its
subsidiaries. The most important job after the change was to find effective leadership in the form
of executives for each of these companies, which was made harder because of competitors
poaching the well trained and talented Google employees, leading up to the reorganization.
Another hurdle that the company has come across is the issue of the apparent financial
autonomy, which does not seem to be practically impacted as the smaller companies still look to
Google as their main source of financing. To sum it up, change in itself may not take as long, but
looking after it and making sure it does not fail is a long and winding task for the managers and
truly tests their skill and expertise.

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Recommendations
The main recommendation with respect to this process is to keep the employees informed of the
future prospects and major alterations through the formal channel. It creates uncertainty in the
staff if they hear news of focal changes that would most likely affect them as well, through the
grapevine. Due to this employee motivation falls and may result in high employee turnover
leading up to major business decisions. Additionally, when the employer keeps the employees
informed, it develops a relationship of trust and faith in the employee which gives them a feeling
of being important to the company and being valued for their services.

Another recommendation is to establish a focused strategy and claim the fiscal responsibility for
its projects. It is a random mix and match of ideas and products within Google, with no clear
strategy other than innovation and diversification. It makes the task of management of the
resources and the other factors within the organization much more difficult for the managers.

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References
[1] England, L. (2015, August 11). Here’s how Google employees are reacting to the huge
changes at their company. http://uk.businessinsider.com/google-employees-react-alphabet-2015-
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[2] Eadicicco, L. & D’Onfro, J. (2015, August 16). There's an internal joke at Google that sums
up the company’s big change. http://www.businessinsider.com/what-its-like-to-work-at-google-
2015-8

[3] Retrieved from:

https://www.sec.gov/Archives/edgar/data/1288776/000165204416000012/goog10-k2015.htm,
pp.20

[4] Retrieved from: https://abc.xyz/investor/pdf/20161231_alphabet_10K.pdf, pp.20

[5] Retrieved from: https://abc.xyz/investor/news/earnings/2017/Q2_alphabet_earnings/

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