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Google was founded in 1995 by Larry Page and Sergey Brin and it was the first popular search engine in the world. They created this search engine so that users can find any website or document on the web based on keyword or exact searches. Google provides free services for their users. Other than the search engine, they can also search books on Google Book Search, news on Google News, videos on Google Video (YouTube) and maps on Google Maps
Google has changed the way people look at and share information. This has made them a leading search engine on the web and a global technology leader. Back in the mid 90’s Brin and Page, Stanford University graduates, worked on developing this unique technology. Since then, Google has grown to become one of the most recognized brands in the world as well as one of the top Internet destinations. As of 2013, Google has 16800 employees working in more than 70 offices in more than 40 countries around the globe. Their headquarters is located in Mountain View, California, USA. Strategic management has many benefits to an organization. A company’s vision, mission and future goals are set from the strategic process. In addition, strategic management gives managers an advantage in allocating resources efficiently.
Moreover, these strategies help give the firm a competitive advantage in the market. Statistics show that, on average, companies using strategic management are more successful. This assignment will aim to clarify the concept of strategic management in the global sense as well as focus on Google’s strategic management. In addition, the report will identify and explain the internal and external environmental analysis of Google. This means, PEST analysis, SWOT analysis and Porters Five Forces will be explained in details.
Strategic management is defined as the process by which managers of the firm analyze the internal and external environments for the purpose of formulating strategies and allocating resources to develop a competitive advantage in an industry that allows for the successful achievement of organizational goals. Strategic management has an impact on initial goals, actions and recourses. Goals are set by managers to be completed within a certain period of time. Action plans must be clear to the group and they should start working on their targets accordingly. Recourses cannot be managed and allocated without proper understanding of goals and actions. Strategic decisions are taken by managers to help an organization reach its goals in the short term and long term development and future direction of the company. There are two processes that help the organization in evaluating their position in the market. Internal environment i.e. SWOT analysis (Strengths, weaknesses, opportunities and threats) is used to analyze the internal processes and structures of a business.
Its implemented after the external environment (PEST analysis) are analyzed and clarified. External environment processes include the porter’s five forces that analyze the nature and extent of the competition within the industry. Macro environment are the changes in the industry in regards to political-legal, economic, technological, and social systems. Google’s business strategy has been proven to show that they follow the strategic management process and they are extremely successful at it. High brand value, high market share and complete control over the market show that Google’s business strategy should be a role model to all other companies.
PEST Analysis of Google Inc.
PEST analysis is used to determine the political, economical, social and technological factors in an external environment of an organization. These factors affect an organizations activities and performances. After researching Google’s macro economical factors using the PEST analysis model, the following was concluded:
1. Political Factors:
Government stability is one of the major aspects in Google’s strategy. If the market is stable, governments help businesses and so these businesses advertise more on Google, hence, benefitting Google. In addition, most of the governments do not have identified laws for online information sharing, thus, giving Google the opportunity to manipulate laws. However, China has created a barrier for Google by adding regulations that forbid Google from operating on their terms. For example, according to UKessays (2013), “Chinese Government launched a surveillance system called Golden Shield for monitoring civilian use of Internet.” On a positive note, most of the political factors affect Google negligibly. Some of these factors are taxation polices, employment laws and environment protection laws.
2. Economic Factors:
Gross domestic products (GDP) have been on the rise since a very long time. They are increasing annually at the average rate of 3.20% reaching a high level of 17.20% at times. Countries like South Africa, India, China and United Kingdom have had increases in their GDP each year since the 70’s and this is a positive factor on Google. With the stable and continued growth of those countries, Google’s internal and external investments will always be high in numbers. Users search more; hence more advertisements are put on Google’s search engines. The amount of users around those counters can impact on Google positively and lead them to establish better services and more products for their users leading the it being a strength to Google economically. Interest rate can have a positive or negative impact on any organization. These impacts are decided depending on a company’s dealings. Google is a company that relies on investments, this means when interest rates increase gradually in a country, Google benefits. In UK, the rate average is set to about 8.2%, in USA it stands at 6.1%, in South Africa at 13.3%, in India at 6.6% and in China at 6.4%.
These numbers mean that companies in that region of the world will be able to take out loans and invest or support their company. The more companies have money, the more they will be willing to spend on advertisements; hence doing that through Google. This increases opportunities for Google in these markets. Inflation rate is a problem for the customers or buyers. However, companies benefit from it and it increases their overall income. In the past few years, USA, UK, India, China and South Africa have all recorded an average increase in inflation rate of 2.5-9.5% annually. This means that raw materials in these countries are becoming more expensive every year. This causes the companies to increase the prices of their products and getting more cash out of it. This causes Google’s advertisements to increase as well as the number of clicks for each ad. The result is more profits for Google from these countries.
3. Technological Factors:
In analyzing the technological factors affecting Google, the key aspects to consider are the level of basic infrastructure, rate of technological change, new discoveries and development, government spending on research, access to newest technology, technology incentives and technology legislations. Google is described as a technological company that helps innovate and improve the world with its new development. Technological factors play a major role in a company like Google and it is part of the company’s competitive strategy. Google is not only a search engine; it also provides many services, tools and products free of charge through www.google.com. Google’s IT infrastructure is a closely guarded secret because it is one of the company’s competitive advantages. Google has up to 450,000 servers spreads over at least 25 locations and it uses a customized version of Linux operating systems to give them control and flexibility in finding new discoveries.
The success of Google is mainly due to its innovative concepts and technologies such as Pagerank in their search engine, Adwords as advertising system, AdSense program, Gmail, Google Spreadsheets & Docs, Google Map, Google Froogle, Google Analytics, Google Desktop, Google Earth, Google Gear, Google Page creator, Google groups, Google talk, Picasa and more. All these services and tools are proposed for free with the aim to make a users life easier, efficient, practical and entertaining. In order to remain the best in the field of technology, Google has bought a great number of start-up companies (131) that allows it to benefit from the dynamism and creativity that these companies bring. These companies range in variety of fields such as security, advertising, video, file sharing, shopping, mobile technology and many more.
4. Socio-Cultural Factors:
Knowledge and information is a key factor of human development. Google is a leader of society that is more and more global because its mission is to organize the world’s information and make it universally accessible and useful to everyone. Socio-cultural factors for Google’s PEST analysis include traditions, values, societal trends, and society expectation of businesses. These society expectations can be grouped into: population demographic, income distribution, lifestyle change and level of education. Google is not limited to a certain demographic population; Google is a global company that offers global users with global services and global knowledge for free with only one condition of being connected to the Internet. Therefore there is no restriction on any specific demographic, culture or specific income distribution. This gives Google a very strong advantage in the market. Its tools are offered to everyone and hence anyone, anywhere in the world can advertise on Google and increase their profits. Majority of third world countries that are prevailing with extreme poverty have access to Google through their mobile applications. Google’s culture is to offer users access to the world through a simple finger tap and this information offered by Google does not have a culture or a tradition to follow. This information can be good and helpful to one person while useless or offensive to others.
This could be a negative aspect for Google. Google always strive to keep up with the social trends and lifestyle changes of its users in order to entertain and capture their attention with its services and tools while promoting customized advertisement. Google’s infrastructure is built to identifying its users’ trends and habits as well as the use of information to customize their search experiences with related results based on their habits and history. Google’s application memorizes all the data entered when searching for a something and saves personal information for 24 months. In reality, Google sells some information to advertising companies. Globalization of information has a negative impact on societies concerned about protecting their private data. Google has been highly criticized by Privacy International Association and accused of harmful acts towards people’s privacy.
In the sense of politics, the preservation of information could lead to Google having better relationships with countries who do not like their privacy being violated; hence, more business and profits. In regards to social factors, Google’s tendency to sell out their customers may harm some of them. At the moment, Google is surviving, but the human race is ever changing and if people are accepting the privacy violation now, they might not in the future. This could be a threat leading to a weakness in the future. Porters Five Forces for Google Inc.
Porters five forces is a key model when trying to determine an organizations opportunities and threats. It is considered to be a tool when trying to analyze a company’s microeconomics. This is the internal affair related to an organization. The competition and power an organization has or can have in an industry. Porters’ five forces are heavily used when someone wants to buy a company and needs to understand the market in which the company operates.
In this case, Google has an advantage as it operates regionally and has more than one supplier, if the relationship with one deteriorates the other can take its place. In addition, Google has eliminated competition by gaining the trust of Microsoft. All its tools are operated on its biggest competitor Microsoft systems. However, Microsoft and Apple could change their operating systems so that it does not support Google anymore leading to Google tools not working properly and causing a threat of forward integration. In this case, is it concluded that the supplier power is relatively low due to most of the information on the net being free.
Barriers to Entry
Niu, Zitong et al. (2012) defines the threats by explaining that in the search engine business, only hardware have switching costs while the service itself has absolutely no switch cost. In addition, Yahoo and Microsoft could stop using Google’s toolbars in their products and rather use their own. This and the fact that a better search engine could be developed and is not out of the question. However, all these negative aspects still do not change the high barriers to entry as all competitors in the market, especially Google, are in a very strong position financially.
In this type of rivalry, Zitong et al. (2012) mentions that brand identity can play a huge role in maximizing profits. Google has succeeded in this as their name “Google” has been added in dictionaries. Adding to advantages of Google, there are no defined government regulations as of yet and so political environment can easily be manipulated to satisfy their wants. Yahoo and Microsoft are the only other major players and market shareholders. Hence, there is a rivalry between these three players. However, the UN or countries could start making trade restrictions to avoid having an oligarchy. Moreover, rivals in the search engine industry have similar technology and IT specialists in these companies and all around the world are always trying to improve search engine technologies in order to get ahead of the best, Google.
Threat of Substitutes
No switch costs and buyers preferences to the faster/more accurate search engines are two of the threats Google face. In addition, users are demanding more and better services for free to be loyal to Google. Advertisement revenues depend completely on number of clicks on a certain ad. If the number of loyal customers decreases, the total revenue decreases. Moreover, intelligent employees are rare in the market and losing one to the competition could affect Google negatively. However, these are all threats that are not able to affect Google because as of now all search engines have similar functions and are not considered a substitute product.
According to Techwyse (2013), Google are the market shareholders. The pie chart below shows the market share as of July 2013.
Graph 1: Search Engines Market Share/2011
The graph shows that Google have more than 75% of the market. In addition, Google is bringing to their users all their demands and for free. In this situation, however, the buying power is medium due to high demand on search engines and due to users relying heavily on search engines in their daily lives. SWOT Analysis of Google Inc.
Google’s brand value stands at $55.317 million as of 2012 and they hold a high market share of 66% in the same year. These numbers, along with their various free services offered to customers, gives them a strong brand image that contributes to its strength. Google’s Strong financial position is shown in their yearly growth in revenues and cash flow. This strengthens Google because it attracts investors to invest in the organization. In addition, they have many products that are also considered as an asset. The following graph shows the revenue growth of Google between 2003 and 2007:
Graph 2: Google’s Revenue Growth
On the other hand, in 2012 97% of Google’s revenues come from Advertisement. The lack of income diversification is considered as a weakness. Moreover, Google’s faces many lawsuits and the cost of dealing with those suits is a weakness. Oracle filed copyright infringement in 2010 and MastersObjects vs. Google in 2011 are some of these suits. These cause a decresase in the financial power of Google as well as reduce firm value.
Google practices forward and backward integration of companies. This means that Google buys out and adds companies to their portfolio. In 2011 alone, the added companies stand at around 25. Also, Google has a huge opportunity of taking over the mobile advertisement market and they have already started by buying out Motorola Mobility.
The high intensity of competition from Yahoo, Microsoft as well as traditional advertisement agencies like TV, radio and newspapers is considered as a threat to Google. In addition, Google could face the threat of being out casted by countries due to privacy issues.
All in all, Google has won countless awards, has maximized on profits, improved services, introduced new developments, eliminated most of the competition and dealt with their weaknesses. It is safe to say that Google’s business strategy is sophisticated but has come out with fruitful results. Although the world is not perfect, Google has more strengths and opportunities than threats and weaknesses. This is even proven on the Internet as someone has joked about Google by saying: “Only thing Google has failed to do, so far, is fail.” (N/A)
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