Strategic Analysis Of Google: External And Internal Environment, Competitive Strategies
External Environment Analysis
This assessment task requires you to perform a detailed analysis of the Google case stud.You may supplement the knowledge gained from this case study with your own research on Google?
Strategic management refers to the strategic analysis of external environment and internal environment of an organisation that serves as a base for developing and retaining optimum management practices (Ansoff, 2007). It is a continuous process that helps organisations in development, implementation and evaluation if strategies and decisions in order to achieve desired organisational goals and performance objectives (Abraham, 2012). This assignment analyses the external and internal environment of Google and reviews its competitive strategies.
Google is a multinational corporation that specialises in internet-related services and products (Google Company, 2015). It was founded by two Ph.D. students of Stanford University Larry Page and Sergey Brin in year 1996. Google was initially known as BackRub that was started as a web search engine. Google has been able to capture a 70 percent of world’s internet search market share with Microsoft, Apple and Yahoo as its primary competitors in the industry (Steegle, 2013). In year 2014 Google has been listed as the world’s most valuable brand with Apple taking up the second position.
External environment or the operating environment of an organisation comprises of factors surrounding it, like conditions, events and entities that greatly influence its activities and decisions and help them identifying various opportunities and threats (Nilsson & Rapp, 2005). PESTLE analysis can be conducted to get an in-depth understanding of Google’s external environment.
PESTEL analysis helps analysing the macro environmental factors that affects Google’s overall operations. PESTEL is an acronym for political, economical, socio-cultural, technological, ecological and legal factors (Freeman, 2010).
Political Factors: It helps measuring the level to which government intervenes in the economy (Strategic tools: SWOT and PESTLE, 2009). It focuses on facts like labour law, tax policy, environmental law, political stability, tariffs and trade restrictions. Overall stability of the government greatly benefits Google’s overall profitability as a stable government facilitate business growth which in turn results in growth of revenue from advertisements for Google. Government do not pose too much identified laws on level of Information sharing thus common laws do not influence Google’s operations much. China however has laid restrictions on Google prohibiting them to operate on their terms.
Economical Factors: It includes factors like inflation rate, economical growth, unemployment, exchange rates and interest rates (Vermeulen & CurÈ™eu, 2010). Owing to its area of business Google is not very much affected by changes in economical factors. This is clear from the fact depicted in case study that in year 2009 Google’s financial performance in comparison to its competitors was shocking wherein it held first position in overall per share data and growth categories and second positing in overall profitability.
Socio-Cultural Factors: It includes factors like income distribution, population demographic, level of education and lifestyle change (Wittmann & Reuter, 2013). Change in social trends and culture greatly affects the demand of product/ services and overall operations of an organisation. Changes in social trends and culture within society have always benefited Google as it is referred to as a warehouse of knowledge and information.
Technological Factors: It includes factors like investment and level of research and development, technology incentives, automation and rate of technological change (Vermeulen & CurÈ™eu, 2010). Google is a technological company thus is greatly affected by technological factors which are its main competitive strategy. Technological innovation is the key mantra behind Google exceptional growth and the company spend spends most of its time and money on R&D activities.
Ecological Factors: It includes factors like climate change, weather, environment conservation etc. Google’s overall operations are not that much affected by ecological factors.
Legal Factors: Like any other organisation Google also has to adhere to basic laws like, employment laws, consumer laws, discrimination law, health and safety laws etc. Google has been awarded as one of the world’s best employers and best company to work with.
Porter’s five forces analysis helps in analysing the degree of competition within an industry and developing business strategy (Porter, 2008).
Threat of Competitive Rivalry: High
Google faces tough competition from four big companies Microsoft, Apple and Yahoo. Unlike Google these companies has diversified in several industries while Google’s area of focus just include Advertising, Search, Mobile and Apps.
Microsoft: Founded in year 1974 by Bill Gates and Paul Allen, Microsoft today is recognised as the world’s leader in software services and developing solution that help businesses attain their full potential. The company operates in five business segments namely; windows and windows live, server and tools, online services, Microsoft business and entertainment and devices. It has presence in 109 countries and has reported a sales value of $58.4 billion which is 243 percent of Google’s sales values.
Yahoo: Founded in year 1994 by Jerry Wang and David Flo, Yahoo is one of the recognised search engines and has reported sales of $ 6.5 billion which is 27 percent of Google’s sales values. Yahoo has its focus on four categories of business namely; integrated consumer experiences, applications, search and media products and solutions. Yahoo and Microsoft recently have agreed for a mutually beneficial relationship in order to catch up with Google.
Apple: Founded in year 1976 by Steve Jobs, Steve Wozniak and Ron Wayne adopted a hardware approach for market entry in contract to its competitor Microsoft. It has opted for geographic segmentation instead of individual subsidiaries. Apple’s main product offering include; Mac desktops, Mac portables, Music related products and services, iPhone and its related products and services, Peripherals and other hardware and Software service and other sales. Apple has reported sales of $36.5 billion which is 152 percent of Google’s sales value.
Threat of New Entrants: Low to Medium
New entrants face almost negligible barriers for entry into the internet marketplace. Also in case of search engine business software services are associated with no switching cost. Developing a better search engine is not at all an impossible task however it is not at all possible to beat or even match Google’s core competencies and financial position. Thus, Google face low to medium treat from entry of new companies.
Porter’s Five Forces Analysis
Bargaining Power of Suppliers: Low to Medium
Google is a big brand name and suppliers themselves want to be associated with it. As depicted in the case study Google make use of third parties to create applications that are outside the reach of their expertise. Google receives 20 percent of the revenue collected from such applications without allocating its own resources. However Google does feel some threat from big suppliers like Microsoft and Apple whose platforms and operating systems are used to support Google tool. A disagreement from their end can cause Google tool to become mal-functional.
Bargaining Power of Customers: Medium to High
Customer is at the heart of all business and corporate level strategies. All organisational strategies are formulated keeping in mind the needs of target customers. Though Google enjoys a high brand reputation and customer loyalty it still has to update its strategies and technologies to meet the changing needs of customers. Customers however cannot even think of a day without Google that has almost become a necessity. Google enjoys an internet search market share of 70% and it’s next to impossible for any other search engine to replace it.
Threat of Substitute Products: Medium to High
Google faces tough competition from three big players Apple, Yahoo and Microsoft; these companies also operate in the same segment as Google. They are equally strong in terms of innovation, technology and financial position. Though the threat of new entrants does not have too much effect on Google however it is well aware that creation of a similar product is not something that cannot happen. Google has to focus on continuous innovation which is not only important for survival but also for retaining its market position. It has all the necessary technologies to remain successful in this industry like storage, server hardware and bandwidth.
Google operates in four different segments each of which has its own set of challenges and competitors. In order to sustain in this competitive environment Google use differentiation strategy wherein it has developed different strategy to target different segments (Bonnici, 2011).
Search: Google believes that a perfect search engine understands and delivers what is exactly needed by customer. Google strategy to target this segment was to put complete focus on a developing product features instead of spending on marketing campaigns. A product that was user friendly, with global access, delivered useful commercial information, worked on multiple access platforms and resulted in considerable improvement of web.
Advertising: Google uses single overarching strategy to deliver useful relevant ads that are targeted and cost effective. AdSense and AdWords are Google’s main advertising products. Its advertising strategies restricts placement of ads between search results which greatly benefit end users.
Apps: Gmail and You tube are the most commonly and extensively used Apps of Google that is available free of charge adding to its brand reputation and goodwill. Google relies on outsourcing and strategic alliance strategy to involve third parties that use their expertise and resources to create applications for Google who gets a share of 20% from revenue generated from these apps without using any of its resources.
Mobile: Google witnessed exceptionally high growth in this segment owing to its open-source freely available operating system Android. Google has a unique product, pricing and distribution strategy for this unique product. It is a feature rich product that is freely available and open to source and are distributed to mobile manufactures free of cost rather they receive a share of revenue generated from advertising from Google.
Google faces tough competition from its four major rivals and in order to retain its position Google spend most of its operating expenses to perform research and development activities. It has made its advertising business as the main source of revenue. As all its products and services are virtual they do not involve cost of labour, warehousing, production and distribution thus limiting its cost of sale. In addition to its effective leadership Google owes its remarkable success to its capabilities in four major areas;
Web search functionality is recognised as an essential contributor in Google’s business and is an indispensable feature of the internet. It allows users to search in 130 languages and the company owns around 160 country/ regional domains that are localised.
Advertising sales accounts for 97 percent of its revenues. Google makes the ads unobtrusive so that they match users’ needs.
Google Apps comprises of a set of cloud computing tools that include Gmail which changed the face of online email by offering free email with 1 GB storage, Google docs which is a set of online editing tools that allows users to share documents with anyone such that documents can be edited by several users at the same time, Google Calendar, Orkut which is a social networking site, Picasa for photo editing and sharing, YouTube for video sharing and other such Apps.
Google’s entry into the mobile computing technology has lead to the development of Android operating system created by the Open Handset Alliance which is formed by grouping of 71 mobile and technology companies. Android is an open-source, freely available operating system for mobile phones.
Google currently faces three main challenges that are recognised as major driving forces of change. Firstly it needs to focus on how to manage growth of Android market. It has to devise sustainability strategies for growth of Android in the market, find out ways to monetise and take advantage of mobile computing, develop competitive strategies to increase sales of Android based handsets as compared to competitor products and how can it target and please wireless providers.
Secondly it needs to emphasize on how it can manage the escalating situation in China. It has to formulate strategies on how it should provide its contents to China without affecting its relationship with the providers of cellular phone services there.
Lastly it needs to focus on responding to customer queries regarding data privacy. It has to devise strategies that will help in further safe guarding user’s privacy. Google must maintain customer’s trust without which it will not be able to perform its business practices.
Internal environmental analysis includes review of organisation’s mission, overall operations and internal leadership/guidance (Web-books, 2014).
Google’s mission and vision
Google’s mission is to organise the world’s information and make it universally accessible and useful (Google Company, 2015). It wants to bring the world to within every customers reach through its search engine, apps and advertising and mobile platforms. Its mission speaks about its goals and gives it a platform to move ahead in future. It is not timeline thus reveals Google willingness to redefine limits of internet usage.
Google’s vision is to develop a world where technology does all the hard work and people do what makes them happy. They focus on building great things that do not exist (Carlson, 2013). The company aims at developing a technology driven world.
Google’s culture and leadership
As depicted in the case study Google fits into the hard working informal culture which is key factor behind his remarkable success in such short span of time. Google encourages high diversity of workforce which is a representation of globally diversified customers they serve. They have an open culture were all employees are encouraged to share their views and work they ways. They greatly encourage fun with work and their complete infrastructure supports this belief.
Google owes its grand success to its prime leaders Larry Page, Eric Schmidt and Sergey Brin. Effective leadership is essential for development of a company life Google (Dockery, 2011). They display use of transformational leadership style wherein they possess the inherit charisma to influence others and make them live by values that support their ideas and vision (Armstrong & Stephens, 2005). Their contribution is critical for the overall management of the company and they are the once who lead to the development of Google’s culture, technology and strategic directions. Larry Page is responsible for the company’s product development, day-to-day operations and technology strategy. Eric Schmidt is CEO of Google and is the person who scaled Google’s infrastructure, diversified product offerings and developed a strong innovative culture. Sergey Brin is Google’s president of technology and shares responsibilities with Larry and Eric.
Google’s Current Structure
Google displays a flat organisational structure with very limited hierarchies. This is clear from the fact that Googlers can ask all their doubts related to various company issues directly from top leadership of the company. Google is recognised as one of the most sustainable business of the world. Google’s sustainability practices helps it in retaining its competitive advantage in order to secure and grow its internet market share of 70%. Google’s competitive advantage is rooted from its ability to ‘leverage the power of free’. Continuous innovation is the key that helps it maintaining its top position in the internet industry. Google’s distinctive competencies help it remain sustainable and retain its competitive advantage. Google in comparison to its competitors has better products, strong and unique infrastructure, appeal for advertisers and high traffic thus setting standards that are unmatched by rivals. Google has all the technology necessary to retain its competitive advantage and market share.
Server Hardware: Instead on investing huge operating expenses on purchasing server hardware Google has built its own server hardware. It is occupies the fourth position among the list of World’s largest server manufacturers. The scale of their computing resource is unimaginably large.
Storage: Similar as the case of its server hardware Google following a different strategy of relying on high redundancy models that have low price with cheap individual drives that are most likely to fail.
Bandwidth: Google’s differentiation strategy again works well in this case; the company has purchases dark fibre in large scale which prevents it from making huge investment on purchase of Bandwidth. Google has future plans of making good investment on developing ultra fast fibre networks with an aim to redefine the competitive landscape of broadband America.
Google’s value chain analysis
Google’s value chain takes up a different structure as it does not produce physical goods. Figure below represents Google’s value chain.
Fig.1. Source: Ansoff (2007)
Google attracts high traffic of web-users to its search engine by delivering highly relevant search results. These same web-users are then directed towards its advertising partners by following ads that are unobtrusive and relevant. Google keeps a track of users by keyword association and search history in its apps like Gmail and YouTube through which it can predict their interest and accordingly delivery ads that are of interest to the user. This not only adds value for the advertising partners but also for the web-users who are directed towards sites that will actually benefit them.
The primary activities (Search, Advertising, Apps development and Mobile computing) performed by Google are greatly affected by support activities preformed by human resources and administration. Google employs more than 40,000 people in 70 countries. It encourages a diversified workforce who works in an open culture where innovation is the key to growth and overall success. They prefer smart working people which high determination and more ability than experience (Google Company, 2015).
Google has all the necessary technology to sustain its competitive advantage, it builds its own server hardware, relies on high redundancy models that have low price with cheap individual drives that are most likely to fail and hardly pays much for band width as it uses fibre optics based network ‘dark fibre’. It generates maximum revenue from its advertising business which is supported by businesses of other three segments.
Google should focus on market development strategies to take advantage of opportunities presented by developing economies of Middle East/ Africa and Asia Pacific regions. It should emphasize more on developing strategic alliances in such regions in order to benefit from knowledge of localised entities. Google needs to develop better and more focused marketing strategies to increase sales of Android based handsets. It should make efforts to negotiate with China so that they can enter into a mutually beneficial relationship. Google needs to emphasise on developing strategies that will help them guarantee web-users privacy.
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