Google Strategic Business Analysis

1. Introduction

Corporate strategy is described as “Corporate strategy is the decision-making pattern in a business that decides and exposes its goals, aims or goals, produces the key policies and plans for achieving those goals and defines the business scope to be pursued by the company, the kind of economic and human organization it intends to or intends to pursue and the nature of the economic and non-economic contribution which it intends to make to its shareholders, staff, customers and communities”(Andrews, 1994). Organizational success is determined by the internal strengths of the organization in which controlling, rationalizing and utilizing the available resources to achieve the maximum productivity and the associated organizational goals through competitive advantage are the predominant activities. Thus Google has the highly calibrated capital, trained employees and networks in the form of strategic intelligence about markets, finances, operations, techniques and HR management (Bruce, 2008). Google’s capacity building and enhancement strategies have known to be sound and its core competencies have been built around this formulaic strength-weakness determination paradigm. Despite this position of Google as a pioneer of costly-to-copy resource development processes still there is competition coming from rivals who have been able to imitate the same product by reducing its cost and using advanced technology, e.g. online interface related techniques. Still Google’s internal value chain is particularly stronger in comparison to most of its rivals because it has created a flexible strategic management structure, culture and appropriate leadership style.

Its strategic management culture has led to the recruitment, training and development of new executive leaders. Skills of those efficient executive leaders are determined by Google’s commitment to provide a good service to the community with specific emphasis on customer care. Google has been successful in adopting just the right type of technique in enabling internet surfers to interact in a highly volatile e-environment (Dozier & Scheff, 2009).

Google has been able to strategically push its product portfolio in the internet search engine market at a very competitive level. Competitive strength of the organization is determined by its corporate strategy including the marketing strategy. For example Google as a service provider would have to initiate its corporate strategy of satisfying the consumer with a range of services so that competitors would be compelled to match its own strength or adopt a different policy approach such as lower prices to attract customers (Sheehan, 2006). How best Google would be able to match its competitors in this environment of stiffer competition depends on the inner organizational strengths such as leadership style and motivation of staff.    

A business strategy of Google has acquired a new dimension with a set of priorities. It has being worked out to realign its strategic imperatives in corporate governance and VRIO framework with specific emphasis on achieving competition related long term objectives against the backdrop of stiffer regulations and competition. The strategic competition has compelled Google to adopt far reaching policy changes in both its operational strategy and the mission related corporate governance principles in order to achieve horizontal and vertical synergies which are associated with its organizational goals (Brynjolfsson & Urban, 2001). The strategic orientation of Google is heavily biased towards both the competition and customer satisfaction. Thus strategic orientation of Google is centered on competitors, the competitive environment and customer satisfaction or/and market penetration.

1.3. Problems Faced by Google  

• What’s the nature and extent of impact of the primarily and immediately relevant aspects such as organizational behavior of Google on the strategic orientation and positive organizational outcomes in business strategy?
• Thus how best its current strategic operational environment is geared to meeting the current challenges arising from the complex and diverse strategic competitive environment?
• How far have these implications impacted on its internal and external strategic environment?
• Why does Google strategically orient itself to facing the competition related outcomes while the primacy and immediacy of Google’s business strategy with reference to organizational culture, structure, leadership and/or management style is pushed in to the second place?
• How far and where do Google’s corporate governance principles and corporate goals become interdependent in the current strategically significant operational environment in relation to its business strategy?
• How best Google has been able to identify and target the major policy concerns of its competitors such as Yahoo, Microsoft and Amazon in its strategic policy formulation efforts?
• Do the above policy highly influenced on Google’s successful brand equity management policy to the average customer?

2. Overview of Google

   2.1. History of Google

Google was borne out of an eccentric idea of Larry Page and Sergey Brin in 1996.  At the time they were Ph. D. students   in the University of Stanford. Page was carrying out research into the possibility of connecting multiple pages on the internet as a single integrated operation so that an internet user might be able to seamlessly interface without being interrupted by the need to break away from one task to another. While algorithms involved were so intricate and highly advanced they knew that there was some hope in establishing the links across the net to overcome frequent disturbances in interface. Thus the technology that was borne out of this research effort served as the catalyst for the revolutionary future changes that began to unfold one after the other.  Despite the initial setbacks that they suffered, the project was a success.  The contribution that Brin made to the overall outcome is remarkable and even today internet surfers ought to be grateful to the pair of researchers for introducing a very complex digital communication technology to the people at an affordable price.

  2.2. Product and Marketing Strategy

Strategic orientation of the firm is based on its immediate policy focus such as the firm’s concern for competition related issues. In other words Google has been focused on the more pressing need to outdo rivals rather than being occupied with a strategic policy alternative to the unfolding other environmental pressures such as regulations. Thus product orientation strategy of Google was marked by an ever increasing tendency to identify existing vacuums and moving in there to obviate competition from rivals.

Similarly it was focused on the marketing strategy in the same vein to achieve what expansion into hitherto neglected mass market segments would afford it. In the process its marketing strategy was influenced by a number of variables that underlay its exhaustive approach to product placement. For example its marketing strategy was developed on the lines of a paradigm shift away from its competitors’ exclusive focus on aggregated synergies arising from gross revenues.

Google’s option to handle customer relationships is a strong one as its technical capabilities have improved, such as identifying unethical practices, customer reviews, knowledge management and performance review greatly through tracking and retention of a loyal customer base (Moran & Hunt, 2008).

In the customer’s view these value changes have been immensely pleased by Google Calendar, Docs, Gmail, Friends, Blogger, Labs, Phone, Checkout and Google GEO-Maps, Earth and Local. The product and marketing drive of Google, on the other hand, has been characterized by its efforts to keep the business professional market to itself as the major destination along with current business strategies. They are treated to a highly comfortable experience. However its current product marketing drive is essentially determined by cost-cutting efforts. Google has built successful viral marketing strategies, word-of-mouth advertising and public relations to create the organization’s brand identity.

Marketing strengths of Google have been centered on going after customer-driven value creation efforts plus the cost-effective achievement of marketing synergies through an aggregation process that involves a series of customer-care points both within and without the organization. The internet search engine industry is governed by highly fluid demand-side dynamics (Singh, 2008). For instance demand factors such as consumers’ attitude changes have a big impact on search engines’ own marketing strategy. Going in a tightly competitive market to place products at a strategically advantageous level is a very difficult task. However, Google has adopted a very innovative approach to marketing through its existing network of operations. This is of strategic significance to its financial performance.

2.3. Google’s Financial Strategy

        Google’s financial metrics have been impressive over the years in comparison to that of Yahoo’s though these metrics have little value against the backdrop an ongoing global economic recession. Unlike Yahoo in particular and Amazon in general, Google has been placing its products across a broader market spectrum to achieve growth related synergies.

           Table 2.1: Consolidated Statements of Income Data: Year Ended December 31^st 2008

(in thousands, except per share amounts)
Revenues		$ 21,795,550
Costs and expenses:
Cost of Revenues		8,621,506
Research and development		2,793,192
Sales and marketing		1,946,244
General and administrative		1,802,639
Contribution to Google Foundation
Non -recurring portion of settlement of disputes with Yahoo
Total costs and expenses		15,163,581
Income from operations		6,631,969
Impairment of equity investment		(1,094,757)
Interest income and other, net		316,384
Earnings before income taxes		5,853,596
Provision for income taxes		1,626,738
Net income		$4,226,858

Source: Financial Accounts of Google, 2008

Figure 2.1: Consolidated Statements of Income Data

Source: Financial statements 2008/2009 (quarterly)

   Google’s consolidated financial statements for 2008 and 2007 show the company’s profits at $4.22 billion and $4.20 billion respectively. The profit margins for the year 2008 haven’t improved much, though in the same year its advertising revenues amounted to 97% of the total revenue of the company. Google’s strategic acquisitions of dMarc Broadcasting, YouTube and Postini  have helped the company to achieve significant revenues in operations.

However its operating costs also rose in keeping with the expanding operations.  They amounted to approximately $15.1 billion in 2008 and in $11.5 billion in 2007. Google’s data traffic acquisition costs rose considerably during the past few years. Basically data center operation costs are influenced by Research & Development (R&D) costs and cost of revenues increased by $1972.4 million in 2008 in comparison to 2007. R&D expenditure increased by $673.2 million while sales and marketing expenditure increased by $484.9 million. The latter expenses are attributed to the labor and facilities related cost and by $ 523.3 million.  General and administration costs rose by $523.3 million due to the increase in professional services such as legal cost and other labor facilities.

Table 2.2: Consolidated Statement of Cash Flows (in ‘000)

                                                                                           Year ended Dec.2008

Operating Activities

Net cash provided by operating activities                                     7,852,857

Investing activities                                                                

Net cash used in investing activities                                             (5,319,422)

Financing Activities                                                             

Net cash provided by financing activities                                          87,567

Effect of exchange rate changes on cash & cash equivalents           (45,923)

Net increase in cash & cash equivalents                                         2,575,079

Cash & cash equivalents at beginning of year                                6,081,593

Cash & cash equivalents of end of the year                             $8,656,672           

Source: Financial Accounts of Google, 2008

Table 2.3: Consolidated Balance Sheet

Cash, cash equivalent and marketable
Securities								15,845,771
Total assets								31,767,575
Total long -term liabilities								1,226,623
Deferred stock- based compensation								—————
Total stockholders’ equity								28,238,862
Source: Financial Accounts of Google, 2008

According to the Google’s Balance Sheet its total assets increased in 2008 up to $ 31.76 billion from $ 25.33 billion in 2007. Thus its liabilities increased from $ 2.03 in 2007 to $2.30 billion in 2008. Also Google’s shareholder’s equity increased from to $ 22.68 billion in 2007 to $28.23 billion in 2008. Its debt capital in 2008 was estimated to be $3.5 billion as against $2.6 billion in 2007.

As independent researchers have pointed out Google made use of these developments to project its outreach over the more significant market segments including those of the business professionals’ and the IT related services. Though the rising costs have dented its global operations and those of the US domestic market operations to a certain extent Google was able to add a vast array of additional services to the existing consumer packages thus enhancing value for its customers (Rutterford, Upton & Kodwani, 2006)..

2.4. Organizational Behavior, Structure and its HR Practices

      2.4.1. Organizational Behavior/Culture

Planning, leading, organizing and controlling are four function based approach to managing the work environment in a business organization. Those are considering as main functions that a manager has to perform in this business organization. The manager’s primary function is to determine the organizational goals that set out in the mission statement and the annual reports to its stakeholders (Girard, 2009). Google’s organizational goals have to be achieved by utilizing and organizing the available resources and combining them with employees by maximizing its output and minimizing its costs. Therefore the manager seeks to combine supplies and provisions and then integrate suppliers and creditors into the whole process of management. Next, he needs to adopt methods in order to build integrated networks or process for easy control and execution of strategy (Battelle, 2005).

Google’s organizational culture is essentially connected with leadership style. Leadership at Google is determined by its cultural diversity. The multinational workforce at Google requires such a democratic leadership style with a transformational approach.    Transformational leadership style places emphasis on collective responsibility and corporate goals such as corporate social responsibility, growth, stakeholder satisfaction and innovation. Internationally accepted HRM practices that are associated with culturally diverse staff have been fully implemented at Google and it has adopted such practices as Training & Development, skills reorientation, job enrichment, acculturation (or cultural assimilation), performance management and good compensation practices to retain the staff (Burke & Cooper, 2008). According to 2007 statistics there were 16,805 employees working at Google. 5,788 of them were involved in Research & Development (R&D), 6,647 were employed in Sales & Marketing, 2,844 were engaged in general & Administrative work and 1,526 employees were involved in Operations (Google Annual Report, 2007, www.google.org). In fact Google initiated some cultural diversity programs for the staff in its efforts to create an environment of inclusion and diversity for the employees of the company.

Organizational culture demands a degree of corporate responsibility towards meeting demands of the community. In other words organizational culture or and behavior is connected with the company’s competition policy of paying higher prices to sustain its supply lines disregarding the consequences of supplier behavior. Its organizational culture is customer-centric and employee motivating but nevertheless quality targets of some of its products are achieved at the expense of employee welfare (Weber, 2007).

   2.4.2. Organizational Structure of Google

Google’s organizational structure can be regarded as the best management structure comparing to other companies that democratically constituted. It has a flatter organizational structure with a shorter hierarchy which encourage for the interaction and communication between all levels of the employees. There is still a sound system of internal communication with quality circles being formed and well informed about decisions in advance.

Figure 2.2: Manager’s/Leader’s Competency-based Framework

Source: Writer’s own diagram

                Warren Bennis (1995) holds the view that less hierarchical more democratic institutions with the ability to adapt to the unfolding environment are the best. A competency-based contingency framework or model like this requires a series of sub-level functions or competencies to be outlined as of consequence though such heterogeneous elements which lie outside the functional domain of the manager’s/leader’s tasks could be avoided with convenience. For example Google’s manager’s/leader’s common competencies are always inclusively treated in the theoretical framework for the purpose of reference. This is illustrated by the above diagram.

2.4.3. Leadership style of Google

Leadership/management style is defined as the set of skills that individual leaders possess in the organizational context to lead his/her subordinates to achieve organizational goals within a pre-defined time-frame. Leadership style of Google is basically democratic and right now much attention is being paid to cultural diversity programs of an international nature. (Jackson & Smith, 2008).

                Thus relationship or transformational leadership theories focus on the positive links between the leader and his followers. Transformational leaders are able to inspire and motivate their subordinates in a manner that the latter would have all the freedom to achieve organizational goals performing on a team spirit. Since transformational leaders act in conformance with high ethical standards subordinates would have the potential to contribute towards organizational goals.

3. SWOT analysis based on Google context

SWOT – Strengths, Weaknesses, Opportunities and Threats – analysis is a technique that is utilized by writers to analyze the environmental factors, both internal and external, that impact on the performance of a business organization in a variety of ways (Dealtry, 1994). Google has been affected by its SWOT environment in its decision making and strategic operational environment, especially the competitive environment.

  3.1. Google’s Strengths

Strengths in this market environment are an internal organizational quality that enables the business to survive and compete against other competitors.  Google’s strengths, such as it’s a user friendly, secure website with modern technology, diverse and quality products, friendly and well trained staff, international HR and marketing practices and so on have strengthened its operational capabilities well. And also because of its economies of scale Google is increasing its sales in significant amounts each year.

Table 3.1: Search Growth for Top 5 search engines, Q1-Q2 2005

Search Engine	Q1 2005 Searches (000)	Q2 2005 Searches (000)	Percent Change
Google	5,737,097	6,088,343	6%
Yahoo!	2,576,473	2,798,123	9%
MSN	1,659,235	1,590,049	-4%
AOL	562,816	646,641	15%
Ask Jeeves	216,656	250,869	16%
Overall Total	12,263,765	12,849,121	5%

Source: Nielsen//Net Ratings Mega View Search, 2005.

3.1.1. Google’s strong product portfolio

Its current strengths are based on aspects related to a very strong portfolio of well known brand names like Google calendars, maps, videos, news, G-mail and YouTube and so on. Google has a strong and ideal portfolio of brands to penetrate and occupy new markets all over the world. For the attraction and retention of loyal customers, strong brand equity and product portfolio can be utilized. At the same time strong brands positively impact on product development and the development of new business opportunities. The following Table 4.1 illustrates how Google achieved its search engine related growth as against its nearest rivals.     As the above table illustrates Google’s strength in the early years lay in its relative popularity as an internet search engine that offered little diversity. Its market share in the year 2005 stood at 47% while its nearest rival yahoo had only 22%. These figures demonstrate that Google has been strategically orienting itself to meet competitor’s strategy including market access, niche market creation and diversification.

3.1.2. Diversity in Product Portfolio

Google has a good diversity in its product portfolio which is basically due to its recent acquisitions such as YouTube. This is coupled with its technology related diversity. Internet search engines are geared to meeting efficiency parameters in maximizing search results for the user. Thus diversity in technology permits the company to integrate the operational architecture related outcomes for the user. Failure to do so would amount to loss of business. Above all its well calculated moves in Mergers & Acquisitions (M&A) in the recent past have outdone the rivals. Besides this strength Google has also been strategically positioned in the internet markets throughout the world. Its current strategic operational strength lies in this latter capability built through sustained efforts over the years (Smith, Wiley & Williams, 2009).

3.1.3. Google’s Motivated Workforce

         Google has been riding the crest of internet search engine success partially due to the dedication of its technical staff. Though some critics have pointed out that the organization is losing its direction due to the essentially fluid inner organizational arrangements, many researchers have established a positive link between Google’s current level of success and the motivation of staff. This is true when the firm’s senior management stricter is examined closely. For example its senior management layers are thin and flat with departments organized horizontally. This enables better communication feedback from the lower layers of the hierarchy to the top management.

Figure 3.1: Google’s SWOT Environment

Source: Writer’s own diagram

3.2. Weaknesses

    3.2.1. Exclusive Dependence on Advertising Revenue

Exclusive dependence on advertising revenue might affect Google in the Google in the long run because its competitors have been able to diversify their product portfolios with remarkable success. Niche markets exist within mass markets and as a result successful competitors are able to identify them with the same degree of response that oligopoly firms in other industries show.

In fact a series of positive synergies achieved through these acquisitions have had a desirable impact on its global strategic operations ranging from North America to Europe.  It right now earns 38% of its total revenues outside the US. Along with the expanding global demand for internet search products and services, competition has also been growing. Thus exponential growth figures in demand have not exclusively favored Google only. They have equally well favored its rivals as well. Such outcomes produce a complex SWOT environment that in turn is underlined by organizational leadership, culture and structure.

 3.3. Opportunities

3.3.1. Acquisitions

Opportunities that are literally available to Google in the internet services market are many and varied. Especially its strategically important acquisitions have played a very big role in determining its success. In the first instance many of its opportunities arise from the very nature of the competitive environment. Opportunities that Google and other internet service providers have in the world today are basically futuristic and sales volume based. While the current trends illustrate the extent to which the global internet market has grown exponentially and will grow in the future there is also a question mark hanging over the industry’s own capacity to meet it. Google’s compound profit growth shows how better the company is geared to meeting this rising demand though.

3.3.2. Emerging Markets in India and China

Google has benefited from the emerging markets in Asia, especially that of India and China. The two countries’ total population equals around 2.5 billion. This is the economic reality and Google has much to gain from its expansion into this region. Consumers of digital communication products such as music downloads in these emerging markets tend to be more sophisticated. As such the company needs to recognize the emerging opportunities. The current trends in the market favor Google because the organization has acquired some significant strategic advantages against its rivals by way of product placement and diversity.

3.4. Threats

3.4.1. Microsoft’s Efforts to Acquire Big Companies

One of the greatest threats is the increasing competition against Google. A number of companies involved in internet search products and services compete with Google through their own strategic initiatives. Particularly Microsoft’s M&A activity has disturbed Google recently much more than anything else. Microsoft’s takeover bid for Yahoo is such an example. Similarly Amazon would not remain static over the years. It might try to make some strategically important acquisitions as well. Yahoo has defied successfully the takeover bid of Microsoft.

4. Google’s Competitive Environment & Analysis

4.1. Porter’s Five Forces Model

Porter’s Five Forces Model has been applied by identifying and assessing the industry environment in order to get detailed study on the supplier power, buyer power, competitive rivals, threat of substitutes and threat of new entrants into the market. And also Porter’s Generic Value Chain can be applied to identify firm’s ability to connect primary value chain activities with supportive services (Porter, 1998). Google has made use their strategies from those two models to gain better advantages when marketing its products to their worldwide market segments.  As the following diagram indicates are the Porter’s Five Forces and their strategic weight on the Google’s competition strategy.

• Bargain power of suppliers
• Bargain power of buyers
• Rivalry among competitors
• Threat of substitutes
• Threat of new entrants

Figure 4.1: Porter’s Five Forces

Source: mindtools

4.1.1. Bargain Power of Suppliers

The power of suppliers will affect the power of buyers by either increasing the prices or decreasing the quality or quantity of the products and services. According to the Porter’s theory, Supplier power refers to the degree of freedom that suppliers have over the firm which buys supplies from them. When the supplier power is high, which means that suppliers are able to create their products and services with high switching cost, it will be a threat to the buyers because they are forced to pay more (Sanderson, 2001).

4.1.2. Bargain Power of Buyers

When comes to the buyer power, it is perhaps the most effective force with far reaching consequences for the business that the company has to face. The power of buyers will affect the terms and conditions of the sales which is threat to the supplier industry. Due to the large number of alternative internet solution suppliers and substitute internet products, it has created more power to the buyers because most of the products are undifferentiated and with low switching cost.

4.1.3. Rivalry Among Competitors

Competition among the existing competitors in the industry itself is a most significant competitive force. Google has to face off competition from many rivals of whom Yahoo. Amazon and Microsoft are just a few. As already explained above Microsoft and Yahoo have become an effective force against Google.

4.1.4. Threat of Substitutes

Today there is large number of internet web service providers in the industry and customers can easily get the same product from existing search engines, sometimes with lower prices. Thus it’s a threat to Google. In the digital communication and web search engine industry numerous substitutes exist in the form of price competition and customers can switch on to the other substitute products if those items are able to satisfy the same need.

4.1.5. Threat of New Entrants

When entry barrier is becoming low potentiality of new entrants to the market is becoming high, because of that existing companies unable to maintain their position and attractiveness to its customers. Thus through differentiating the product Google can retain their customer loyalty and relationship with the suppliers where they can create some entry barriers for new entrants.

4.2. PESTEL Analysis Based on Google Context

PESTEL analyses have to be conducted against the current performances to determine the future possibilities. In the wake of political, economic, social and technological, environmental & legal developments that took place at the country level in particular and at the global level in general, it’s all the more imperative to focus attention on the recent and current developments at the company.

4.2.1. Political Influences

Finally those events with far reaching political undertones included Google’s independent stance that sought to distance Google from Microsoft and Yahoo. For example Google’s policy of encouraging freedom of googling was not acceptable to its rivals. The internet search engine market is highly susceptible to political influences such as global issues. For example the government in the state of Kerala in Southern India openly advocates the use of Linux as a free operating source. Linux does not essentially support some of the Google’s operational techniques.

4.2.2. Economic Influences

Economic influences assume a very formidable dimension again in the operational environment of Google. While cost cutting exercises were not feasible at the existing Google firm level, average and marginal costs could be reduced through expansion into the emerging markets. However, at the international level EU economic policies are more likely to affect Google’s operations than what happens within the US.

The global economic downturn has taken a very high toll on the internet search engine and digital communication industry. Economically, the depreciating US dollar was a positive influence on the internet search engines in the past. But it’s not so anymore. Because the US dollar has begun to appreciate against other major currencies and the global economic outlook seems not to favor the search engine   and digital communication industry right now, though market expansion programs of these big firms continue unabated.

4.2.3. Social Influences

Google has invested so much in public relations efforts and programs that act as catalysts in bringing about desirable outcomes in both corporate goals and competitive edge. Social factors like extraneous behaviors and religious/cultural tendencies have to be accommodated with multicultural staff. Google has employees from almost every continent in the world. That itself shows the extent to which Google has been able to gain some leverage in social influences over the business.

  4.2.4. Technological Influences

Technology plays a very pivotal role in the external competitive and operational environments of organizations. Internet search engines that use outmoded technology, is less likely to gain advantages in this sphere against their rivals. Google has not been behind Yahoo, Microsoft and Amazon in updating its diverse tools. The impact of technology on the strategic competitor environment has probably been the most obvious because it is technology that gave Google its head start over the rest of competitors. The ability of Google to put in place a spectrum of services seamlessly integrated in to the existing major functions is remarkable and is enabled by the complexity and diversity of technology. Communication technology has become more and more digitized. For instance Google has adopted a highly efficient service delivery system on a multi and single interface.

Figure 4.1: Google’s PESTEL Environment

Source: Writer’s own diagram

The user friendly technologies have had a far reaching impact on the recent organizational outreach to a variety of internet users across the world. For instance Google has the additional advantage of aggregated technologies coming from its recent spate of acquisitions. These acquisitions have helped the company to integrate an array of diverse internet search engine related services into its existing gamut of operations.

4.2.5. Environmental Influences

External environment of Google has exerted such great pressure on its operations during the past few years. The Google Membership Network is the most extensive of all such internet search engine related networks. As such bloggers and chatters have been organized into influential camps or groups that demand action by Google in respect of external environmental sustainability programs. Though Google has been successfully maintaining a neutral stance over the matter the issue has come to a very critical situation right now.

4.2.6. Legal/Regulatory Environment

       The regulatory/legal environment of the internet search engine and digital communication industry in the world has been influenced by a series of legislations including those passed by the United Nations (UN) organs. Actually it’s the EU and the US legislations that have impacted heavily on the organizational goals of these digital communication companies rather than those passed by the individual governments elsewhere. The US government’s enactments concerning the operations of these firms have affected Google as much as they have affected others.

4.3. Competition Among Internet Search Engines

4.3.1. Microsoft

There is very little difference between the Microsoft’s mission statement and that of Google’s mission statement. The mission statement of Microsoft is to “help people and companies around the world understand their full potential.” In addition the company has developed a system of values – “integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect” (www.microsoft.com). Microsoft’s emphasis on technology isn’t without its own detractors. For instance its technology is more or less becoming obsolete day by day due to the fact that its rivals are doing better in developing hybrid technologies.

Figure 4.2: Microsoft Cooperation Financial Statement: Jan2008-Jul2009

Source: Microsoft’s Annual Report-2008/09

            Microsoft’s strategic expansion policy is shaped by similar M&A tactics used by Google though its acquisition bid for Yahoo failed due to resistance of the Yahoo management. It regards Yahoo as a company with a modern face (El-Erian, 2008). Though Yahoo has some specific advantages in market share growth and internet search engine related advertising and content creation, it basically lacks a resource base as that of Google’s. Microsoft has been seeking to place itself in between Google’s high profile marketing success and Yahoo’s divisive policy approach. However it must be noted that Microsoft’s current operational strategy is focused on challenging Google while Yahoo is considered to be lacking in many performance related competencies. Critical success factors or competencies like the firm’s ability to respond to market volatilities arising from the current economic downturn are determined by the internal factors.

Microsoft’s financial statements are not the surest indicator of the company’s success or failure. In the first place the company’s success is based on a few products such as Microsoft Office System, Xbox 360 platform sales, Windows Server & SQL Server and licensing of Windows Vista. Its critical success factors cannot be determined in the absence of a much broader comparative analysis involving internet related services including content generating activity and advertising. In comparison to a profit figure of $ 14,065 million in 2007, the company made profits amounting to $ 17,681 million in 2008. This is substantial enough against the backdrop of the current economic recession.  This success is further dwarfed by the increase in operating costs to $ 37,928 million as against $32,598 million in 2007. Stakeholder’s equity was $ 36,286 million in 2008 compared to $ 31,097 million in 2007.

 4.3.2. Yahoo

The mission statement of Yahoo doesn’t adequately capture its overall operational parameters.  The statement reads “Yahoo! powers and delights our communities of users, advertisers, and publishers – all of us united in creating indispensable experiences, and fueled by trust”(www.yahoo.client.shareholder.com).. Yahoo’s chat community membership is growing daily through a highly powered multifaceted mail and interact network of services.

Yahoo’s performance during the last three years shows that the company has been a considerable challenge to both Google and Microsoft. Its strategic positioning efforts in up market segments such as online information sharing and music file downloading have helped the company on a large scale while there is very little by way of extra costs being incurred. Thus it has successfully moved into some highly promising market segments on the online business sphere. The latter strategy is focused on directly targeting potential customer bases of Yahoo’s rivals. According to independent research analysts Yahoo’s current operations are focused exclusively on competitors market niches such as Google’s online music file sharing business segment which necessarily expands at a rate that has little parallel elsewhere.

Yahoo’s profit in year 2008 is & $ 424.30 million and it was $ 660 million in 2007. According to Yahoo’s geographical business operations, in the US revenue increased from 68% in 2007 to 72% in 2008, representing a growth in revenue figure of 3% because the international operations involving advertising in its properties experienced a decline.   International revenue decreased approximately by 10% in 2008. Almost 95% of this decline was registered in the marketing service revenues.

Figure 4.3: Yahoo inc. Financial Statement: Jan2008-Jul2009

Source: Yahoo’s Annual Report-2008/09

            Yahoo was actually faced with structural problems during the period under review though it successfully obviated the strategic moves of its rivals, especially that of the Microsoft’s hostile bid to acquire it. Its financial services and domain hosting services have been on par with Google’s and have been received well by consumers throughout the world.

  4.3.3. Amazon

The mission statement of Amazon is “To build a place where people can come to find and discover anything they might want to buy online” (www.samples-help.org.uk/mission-statements). Its vision is “to create the earth’s most customer-centric company” (www.phx.corporate-ir.net).

Because of their brand loyalty and the greater degree of customer service Amazon is encouraging to existing customers to repeat their purchase. Comparing to Yahoo and Microsoft Amazon as a search engine is far behind with its limited products and services. Because of the current and potential competitors, Amazon had to respond continuously to these technology changes and innovations on a cost effective and timely basis.

Figure 4.4: Amazon.com inc. Financial Statement: Jan2008-Jul2009

Source: Amazon’s Annual Report-2008/09

        According to its financial statements, Amazon experienced an increase in profits of $ 169 million in 2008 in comparison to 2007. Revenue increased by 29% in 2008 while it increased by 39% in 2007.  Changes in currency exchange rates had impacted favorably on its net sales during the year 2007. Amazon has categorized their business operations in to two segments i.e. North America and international. In North America it has achieved a growth rate of 26% in 2008 and 38% in 2007 while internationally growth rates were 33% and 39 % respectively. Amazon’s total operating cost in 2008 amounted to $ 18,324 million while in 2007 it was estimated at $ 14,180 million. Amazon had $ 8314 million worth assets in 2008 while in 2007 they were worth $ 6485 million. The company successfully reduced its long term debt from $1282 million in 2007 to $409 million in 2008.

5. Porter’s Value Chain Model

Porter’s (1985) value chain analysis involves primary activities, such as inbound logistics, operations, outbound logistics, marketing and sales and service. As Support activities includes procurement, Human Resource Management (HRM), technology development and the firm’s infrastructure. Porter placed equal emphasis on all activities though it’s not a secret that different managers have different approaches to it. Some of them believe in only a few variables to bring about success while others adopt a holistic approach by encompassing all of them into a systemic equation.

Value creation efforts across a number of market-centric variables including external value chain management by Google would enable it to achieve low operating costs.  Thus market outcomes such as a persistent rise in sales volume would enable Google to add incremental values to its different product portfolios (Harvard Business School Press, 2009).

Figure 5.1: Porter’s Value Chain Model

Source: writer’s own diagram

The above diagram, Figure 7.1, shows how Porter’s Value Chain Model can be constructed to achieve an integrated whole in all relevant variables.

5.1. Primary Activities

Inbound logistics includes all materials delivered by suppliers. Google has successfully adopted a supply chain management network in which supplies are sourced within a certain geographical limit to minimize costs. Similarly they are procured from a core group of very competitive bidders. Low operational cost at Google has particularly been associated with break-up of operations into manageably smaller sizes.

Outbound logistics involve such activities as the delivery of the final product and other associated processes. In other words, effective outbound logistics involves selling tickets to potential customers and delivering service volumes. Marketing and sales have to be pitched higher in order to create awareness among potential customers. Google has done both remarkably well though its marketing and sales efforts have been lacking in regenerating sales within the shortest possible time gap. For instance the new customer in the internet observer would have qualms about searching Google at the second time also.

After sales services and other associated services with product delivery at Google have gone a long way to reduce costs. For instance complaint handling system is well maintained though numerous complaints about Google’s service quality are registered by customers on blogs    (Victor, Pine, Boynton & Luftman, 1996).

5.2. Secondary Activities

According to the Porter there are other supportive activities also. Procurement of supplies involves a lot of planning activities. Google has successfully been procuring quality supplies at much lower prices for a long time though rivals are not far behind. However, Google’s HRM function which occupies a very important place in the whole value chain management process. Google has been careful enough not to strain its staff at each level of operations. On-the-job Training and Development of skills at Google is one of the highest in quality and the scheme has produced some of the finest people in the industry. Google’s efficient staff considered to be reducing its costs to a certain level and its competitive advantage has been sustained through good HRM practices.

Modern technology matters not only in fast service delivery but also in communication practices (Teece, 2009). Google is a super brand with modern technology as the basis of service provision. Technology advantage of Google lies in its strength and the company has acquired a good reputation for it. Finally its infrastructural facilities such as corporate governance capabilities, financial management, planning and control procedures and processes and corporate strategy are all well managed and coordinated though some shortcomings still persist.

6. Strategic Business Analysis

6.1. Corporate Strategy of Google

            Strategic processes and systems within the organization involve all management functions and corporate decisions (Grouw, 2008). Google would have to initiate its strategic functional processes and systems in keeping with its own strategic competitive environment as determined by SWOT and PESTEL analyses. For instance internal organizational arrangements for communication, quality management, internal value chain management, employee relations, HRM function, budgetary control, cash flow management, motivation and so on will have to be aligned with organizational goals. Google would have to take into consideration the competitive environment and available strategic choices.

While strategic market orientation is determined by its own internal strengths, strategic product orientation comes from selling branded and patented products. Strategic marketing capabilities coupled with brand loyalty of customers, help Google to position themselves in the internet search engine market at an advantageous level vis-à-vis their rivals who might lack such capabilities.

Product dimensions such as comprehensiveness & relevance, objectivity, global access, ease of use, useful commercial information and multiple access platforms give an added value to it in the eyes of the potential customer. Google which consists of strategic marketing and overall corporate strategies would be able to enhance those values through better customer relations (Schumacher, Thomas, Mack & Bell, 2008). Social and interactive appeal of the product plays a very significant role here as consumers tend to associate brand with product quality. Brand dependency is probably the most inescapable outcome related to this strategic approach.

Basically competitive strength of the organization is determined by its corporate strategies including the marketing strategy.  For instance Google would have to initiate its corporate strategy of satisfying the consumer with a host of innovative and interactive services and benefits so that competitors would be compelled to match its own strength or adopt a different policy approach such as lower prices to attract customers

Google today is operationally successful in managing its critical success competencies including the corporate goals such as shareholder value and resource sustainability. Porter’s five forces model adequately demonstrates Google’s highly strategic competitive capabilities (www.theregister.co.uk). For instance the company concentrates on a few high stake core competencies such as the achievement of space time defined organizational goals including profits and sales volumes. Advertising revenue of the firm kept on increasing faster despite the global financial downturn. Google’s corporate strategy can be divided in to four segments as follows.

Figure 6.1: Google’s Corporate Strategy

Source: Writer’s own diagram

6.2. Growth Strategy

6.2.1. Mergers & Acquisitions (M&A)

Google’s M&A activity is centered on achieving growth synergies including diversification of portfolio investments and strategic competitor oriented acquisitions. Most of its recent acquisitions and mergers have produced good marketing and financial synergies. The current global trends in digital communication and internet search engine industry favor the aggregation of seamlessly integrating interface technologies and the ease of operations. Thus Google acquired a strategically significant operational dimension in its global growth strategy.

            Google’s recent acquisitions point towards one of the major policy shifts of the company. For instance the expansion strategy of Google was initially underlined by a great desire to overcome competition. But nevertheless in the recent years the company has been influenced by a number of other factors such as the emerging markets’ potential for integrated service expansion and domestic (US) competitor environment’s growing density. As against these developments Google has strategically placed itself at an advantageous position by integrating assets of the acquired firms in to its operational environment rather than resorting to asset stripping practice. The company made several acquisitions such as Double Click (online advertising), On2 (video compression), TNC (weblog software), Ominisio (Online video) in 2008-2009. As of August 2009 Google has acquired 54 companies. The following diagram illustrates how these acquisitions enabled Google to increase its revenue, though the net income did not improve much between 2007 and 2008.

Figure 6.2: Google’s Revenue & Net Income Growth Over the Past three Years (in US$ Millions)

Source: Google’s Financial Reports, 2007 & 2008

6.2.2. Emerging Market in India & China

There is a significant boom in internet search engine market in India and China. As one of the leading internet service providers, Google has been able to grab the opportunity to exploit its market position to enter into the internet search engine market in India and China. Thus the intensity of competition is so high in internet search services and products segments. India and China have a combined population of 2.5 billion, i.e. almost half of the global population.

Conclusions

The strategic business environment of Google has been transformed in to a more complex and diverse phenomenon with its independent approach to managing an internationally diverse strategic operational environment. As the strategic analysis shows Google has been highly affected by a variety of internal and external operational environmental influences. However its strategic environment as divided in to product and marketing strategy, competition strategy, growth strategy and financial strategy indicates that the organization has been faced with many constraints.

Despite these constraints in its organizational environment, Google has successfully initiated some far reaching policy related outcomes. For example, Google’s advertising and marketing strategy has been directed towards achieving a range of positive synergies related to M&A including development and competitive capabilities.

Google’s competition strategy is basically related to its product and marketing strategies. For example the company has been geared to meeting the contingency requirements of an expanding market arising from the very complex industry culture. Amazon, Yahoo, Microsoft and a number of other competitors have been aggressively seeking to place their products in diverse market segments across a range of product categories while Google has basically believed in placing its products in mass market segments with a strategic focus on M&A related synergies.

The existing internet search engine industry along with many possibilities of digital communication has been growing only in some market segments. For example Google has sought to diversify in to many market segments as one of its strategic marketing initiatives. But nevertheless its rivals have concentrated more or less on capturing niche market segments form others. This difference in approach between Google and its rivals underlies the very evolutionary process of the industry.

In the absence of empirical evidence this research essay primarily depends on the theoretical and conceptual research already carried out by other researchers. The lack of empirical evidence relates to the strategic market expansion or growth theories. For example though Google has relied on M&A related growth there is very little evidence to support that such acquisitions helped Google to identify the existing demand vacuums because the company grew with a singular emphasis on advertising revenue rather than any other source of revenue. In fact 97% of its total revenue earnings in 2008 have come from advertising and advertising related activities.

Google has had the distinct privilege of being the pioneer of many sophisticated techniques though the company is a relatively newer phenomenon. This paper has focused on the Google’s a priori and a posteriori strategic corporate identity and its structural parameters in investigating the impact of Google’s evolutionary process of strategy and policy related developments on its current strategic orientation, in the larger context of digital communication internet search engine industry. Thus the focus of attention particularly assumes a significant dimension against the backdrop of Google’s strategic operational and competitive environment. This research effort has identified a significant positive correlation between the growth trajectory of the digital communication and internet search engine industry and the positive organizational outcomes at Google, viz. corporate governance, strategic market, product and competitor orientation and above all better financial performance. While strategic strengths of Google have been noticed to have a positive impact on its corporate goals there has also been a regression between its management structure related constraints and the overall responsibility delegation and motivation process. Further this analysis has identified the existence of a dynamic convergence between Google’s strategic corporate governance – leadership style, organizational structure and culture – and the mergers & acquisitions (M&A) policy.

Learning Outcomes

• This comprehensive study has been focused on the corporate strategy of Google with emphasis on the attendant learning outcomes such as the degree of convergence or/and divergence among a selected number of performance related variables of the company. Thus Google’s strategic competitor and market orientation policy related outcomes have been analyzed to produce a series of correlations and regressions between and among these variables. More specifically the learning outcome associated with Google’s strategic response to the competitor’s rivalry shows that Google has been relatively more aggressive in M&A related growth process. This is not going to help Google much in the future because rivals such as Microsoft and Amazon have already adopted a similar strategy.
• In the internet search engine and digital communication market the degree of convergence between strategic corporate response to the external SWOT environment of threats and opportunities and internal policy reorientation is basically determined by a combination of endogenous and exogenous variables. Endogenous variables such as the company’s financial strength, product diversification, organizational structure, leadership/management style, organizational culture, corporate governance initiatives, HRM practices and so on have played a very significant role in determining organizational outcomes. This is particularly true in the case of Google’s own uncertain management structure. It is here that Google has to be wary of future strategic planning.
• On the other hand exogenous variables such as the competitor’s response to new product launches and external market opportunities such as the depreciating domestic currency are particularly noteworthy in the larger context of Google’s own competitive strategy. While Google didn’t place much emphasis on creating niche markets, there was ample opportunity for it to do so. However the real threat to Google’s operations came from rivals like Yahoo and Microsoft that sought to generate volumes across a broader range of digital and internet based communication products. One of the most important learning outcomes of this study is that Google is less likely to be able to overcome stiffer competition coming from smaller and medium scale portals that have identified thousands of niche market possibilities in technology centric user interface segments such as music, films and video flicks.

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