Sample Essay on Strategic management in business using the case of Google Company

Strategic management in business using the case of Google Company

Introduction

Strategic management entails the actions that a company implements to see its goals and objectives achieved. The strategies relate to all the sectors in an organization that influence its success. In formulating effective strategic management actions it is important for an organization to clearly define its mission as it is the one that dictates the actions to be taken.  The company also needs to do a thorough and accurate environmental analysis on the factors that affect the success of the business within the internal and external environments. The analysis of internal environment entails looking into factors such as the economic situation of the country while internal factors involves analyzing factors such as the internal rate of return and the ability of the company’s management to drive the business towards success. Google Company is among the organizations whose performance over the years has been affected by the various strategic management policies implemented by the management. The company has implemented various strategic moves to boost its productivity over the years such as acquisition of Motorola mobility in 2012 that increased its revenue.

Technological advancement is among the factors that have contributed to the company’s success. However, even with the development in technology, the company’s success can be attributed to the grand strategies that it has implemented since 1998.  The primary products that the company sells are internet-related such as online advertisements and software.  The grand strategies that have seen the company overcome economic hardships in the environment are shape by the company’s mission to make the world’s information organized and enhance accessibility of such information.  The initial public offering that occurred about 11 years ago was a major boost to the company as it increased the return on investments for the company. The strategic acquisitions by the company have enhanced its productivity and profitability. The company makes more profits from its partnership with major electronics manufacturers such as Motorola Mobility.

Strategic issue

The competitive nature of the business world in the modern world necessitates formulation of sound business strategies failure to which the company cannot survive the stiff competition. Inefficiency in production and marketing of the products are the major factors that contribute to losses that lead to company’s failure. Both the external and internal environments of the business have the potential to influence its success.  For Google, most of the factors that have affected its productivity relate to its internal operations. The company has a wide range of products that includes operating systems and online advertisements. Over the years, the company’s growth and profitability can be attributed to online advertising only yet the company has a wide range of other products. This implies that the performance of the company’s products is uneven. There may be some products that are causing huge losses to the company. In the long-run, the unprofitable products may cause the company big losses. The amount used in maintaining the unprofitable products in the market could be channeled to other uses such as product research and development. Although the aggression of rival companies such as Apple has affected the profitability of the company, the lack of good market positioning of most of its products may be the cause of the market challenges. This paper evaluates the grand strategies that Google Inc needs to implement to secure a large global market share for all its products in the technology sector.

 

 

External environment

The success of a company depends on its ability to carry out its objectives in the most effective way by identifying the factors within its external environment that have strategic significance.  Analyzing the external environment helps the company to formulate the most suitable strategies to keep ahead of competition by evaluating the factors that make the level of competition. The analysis also identifies the market positions of the major competitors in the industry and by this the company can be able to strategize on the best market positions. It is also possible for the company to determine its chances of success in the market through the external analysis. It is therefore important for companies to carry out effective external analysis to realize their objectives.  External analysis relates to the industry where the company operates rather than the factors within the company.  The case of Google Company’s external analysis therefore is about the industry technology where the company operates.  The profitability of firms within an industry is determined by factors such as the level of competition that depends on the ease with which new firms enter the industry.

To assess the forces that influence the strategic choice of other companies to enter the industry one may use the Porter’s Five Forces Analysis. The external analysis is important in identifying the primary factors that affect the company’s ability to be competitive and successful. To evaluate the external environment of Google, the analysis discusses the Porter’s five forces theory to highlight the factors that have an impact on its profitability. The analysis highlights the key success factors that have an influence on the company’s competitiveness as well as the profile and attractiveness of the company in the industry.

 

 

Porter’s Five Forces Theory

The use of Porter’s Five Forces Theory in the external analysis helps in identifying the factors that influence the success of the organization and the extent of this influence. This is important as it determines the strength of the current position as well as the position that the company may be considering.  The forces determine the probability of new acquisitions and other business operations being profitable to the business.  The internet and computer software industry is attractive but success in the industry involves a lot of innovation and resources. These factors discourage small firms from venturing into the industry while the less efficient ones exit the industry due to high losses.

Supplier power is one of the factors that determine the competitive advantage of any business.  It indicates the extent to which the suppliers are able to influence the price level in the market. Some of the factors that drive the supplier power include the uniqueness of the products that influences their bargaining power. The fact that Google is a dominating firm in the internet industry makes the supplier power to be very low. Some of the suppliers such as mobile phone companies attribute their success to the company due to the android phone system it offers thus they may not have the power to go against it.  The other force is the buyer power that helps in identifying the ease with which buyers can be able to push the prices downwards.  This is not only determined by the number of buyers in the industry but also the cost that they may incur in shifting to the other company products.  If the buyers are few and very powerful they are able to influence the level of prices downwards as it is the case with Google. This applies to both the internet and the computer hardware products.

The buyer power of the company is not influenced by the number of buyers but the number of competitors in the industry who offer complimentary products.  For instance, the company faces stiff competition in mobile phone operating systems from companies such as Microsoft. The buyers have an alternative to choose from and this guarantees them power to influence the price of the products downwards. For the competing firms in the industry to win the loyalty of the buyers, they may be forced to drop their prices.

The other force that influences business success is the extent of competitive rivalry that entails the number and influence of the competitors in the industry.  An industry where there are few competitors offering different products is less competitive relative to one with many competitors offering similar products.  A company’s power in relation to competitive rivalry is determined by the actions of buyers and suppliers with regard to prices in the market. While buyers prefer low prices, the opposite is true for suppliers. The competitive rivalry for the company is moderate because although the company is faced with stiff competition in the computer hardware sector it enjoys a dominant position in the provision of internet.  The company has been able to influence the level of competition in the industry by implementing various grand strategies such as innovations that include Google Earth. The moderate competitive rivalry influences the decisions that the company can make over pricing, especially in internet provision services.

Threat of substitution is the other factor that determines a company’s competitive power. The force is affected by the ability of the buyers to find a different way of performing a task to yield similar results as it would be when a different method was used. The power of a company is determined by the extent to which substitution of its products is hard. Threat of substitution is one of the factors that contribute to success of Google because the threat is low. The company provides a unique and essential product, the internet that rival companies have not been able to provide. People use the internet in the modern days for almost all forms of business and social interactions thus it is unlikely that the company may face challenges in the product.

The other factor that determines the competitive strength of a business is the threat of new entry. New firms are attracted to an industry due to various factors such as the amount of resources required, the size of the market and protection of major technologies. The ease with which new firms enter the market influences the level of competition that in turn influences the level of price and demand in the economy. This is a major force that enhances the company’s success because there are high entry barriers that make it easy for the company to dominate in the industry. To effectively compete with the company a firm needs to invest heavily on network infrastructure. The diversity of the company’s products makes it hard for competitors to effectively compete with the company. For a company to compete with Google, it may need to develop better products than the existing ones.

Key success factors

The fact that the company enjoys dominance in the provision of internet is one of the factors that have led to its success. Dominance in the market implies that the power to make decisions regarding quality and pricing are majorly determined by the company. The other success factor is low product substitution with regard to internet services. The high demand for internet in almost all aspects of life makes it easy for the company to reap maximum benefits that the competing firms do not. The high cost of resources needed to establish a network infrastructure similar to or better than Google’s makes it hard for other companies to enter the industry thus reducing the competition and consequently increasing the company’s level of productivity.

 

Industry profile and attractiveness

The industry is highly attractive to the companies who seek to provide services that can effectively compete with the internet. This is because the internet is one of the products that enjoys dominance in the industry. For the companies willing to provide computer hardware, the industry is moderately attractive as the level of competition is a bit high compared to internet services. Such companies are likely to reap high returns from the industry if they provide products that are quite different and more appealing to the customers relative to the ones that are currently in the market.

Company situation

Analyzing the situation of a company is helpful to the organization as it helps identify the internal and external threats that may affect the success of the company. By identifying the company’s strengths and potential opportunities it is possible to formulate strategies that maximize the company’s profitability. Likewise, accurate identification of the weaknesses and possible threats that accompany faces helps in ensuring that the occurrence of the threat is minimal if it occurs at all and that the weaknesses are turned into strengths. Analyzing a company’s situation does not only help in identifying the strengths, weaknesses, threats and opportunities that a company faces but also the market position and competitiveness of the company’s products. The company situation is helpful in determining the stage of industry life cycle that shapes decisions necessary to ensure it survives in business profitably. This section describes the situation of Google Inc by using financial analysis and SWOT analysis. The financial analysis relies on the computation of financial ratios using the company’s past financial history. It also highlights the industry life cycle of the company.

 

Financial Analysis

Financial analysis is among the primary tools used by the company executives in decision making. Comparing the financial performance of the company over different financial periods helps in determining whether the company is progressing or not. The analysis also indicates the level of company’s efficiency and it may influence decisions such as amount of borrowed capital to use. Financial analysis is also important in warning the company about an undesirable effect that is likely to occur before it happens. This is important as it helps the companies define the most suitable strategies to avoid the adverse impacts of the threat.

Leverage ratios are important in assessing the efficiency of a company in use of debt financing. While additional capital that a company may source from outside is important in meeting its expansion strategies, it is important to consider the cost that may be associated with using such capital. The debt to equity ratio is among the tools that managers use to compare the company’s debt and equity. A high debt to equity ratio indicates that the company has lower level of shareholders’ equity than borrowed capital. In 2011, the amount of debt-to-equity ratio was 0.24, increasing to 0.3 in 2012. This implies that the stability of the business was higher in 2012 compared to 2011. The company is becoming less attractive for investors to put their money due to the increasing debt to equity ratio. The amount of dividends that the investors expect is likely to reduce as a result of the decreasing debt to equity ratio thus affecting the shareholder’s wealth.

Profitability ratios are also important in indicating a company’s performance using variables such as return on equity. It is one of the primary profitability ratios that assess the success of the company based on its financial records. The ratio measures the company’s power to generate revenue from the capital provided to it by the shareholders. It also shows the efficiency of the management in using the amount invested by the shareholders for the benefit of the organization. The return on equity level of Google Inc in 2011 was higher than in 2012 measuring 0.16 and 0.14 respectively.  This shows that the money invested by the shareholders was used more effectively in 2011 than in 2012. This implies that the efficiency of the management was not as efficient in 2012 like it was the previous year. It is an indication that the company’s profitability reduced in 2012 thus affecting the company’s worth.

Liquidity ratios are crucial in determining the company’s ability to meet its present financial obligations. One of the most efficient ratios that can be used in measuring the ability of Google Inc to meet its current obligations is the current ration. The ratio measures the company’s liquidity by including the assets and liabilities such as marketable securities and short term debts respectively. The current ratio in 2011 is 5.91 which is about 1.6 units higher than the rate in 2012. This indicates company’s current assets are able to finance its current liabilities. The lower rate in 2012 may imply that the company’s current assets may only be able to finance 1 out of every 4 dollars of the current liabilities.

Activity ratios help the company to assess the efficiency of the management with respect to control of expenses. Average collection period is an effective ratio in this category that may indicate the efficiency of the company’s management. When a company lends its products to the clients it is likely to stay for 54 days before the payment is made according to the Average collection period in 2012, which is 4 days more than the ratio in 2011. This implies that the efficiency of the management in converting credit into cash is reducing and it may have an impact on its ability to meet its financial obligations in the long-term.

 

 

SWOT analysis

The analysis focuses on the strengths that the company has with regard to its internal environment. Understanding a company’s strength is helpful in the formulation and implementation of strategies that maximize a company’s earnings. The other factor that the analysis considers is the weaknesses that have the potential to reduce the efficiency of the company. Once identified, the weaknesses can be turned into strengths thus increasing the company’s profitability and value. Another aspect that the analysis focuses on is the opportunities that are available within the company’s environment and have the potential to lead the company towards success. The possible threats that may affect the company’s performance are also discussed under the SWOT analysis.

Large market share is one of the strengths that the company has in the industry.  It is estimated that about 67% of the internet users access it through personal computers at home while 97% of the individuals using mobile devices use the company’s products.  The company has been in the industry for a long time thus it has adequate experience that acts as an incentive to the company. It has customer experience since 1998 and this enables it to identify the needs of the customers easily, a fact that enhances the quality of its products. The company’s financial strength has enabled it to expand its product line and have product developments. The company is able to undertake successful product developments through innovations that are as a result of the research funded by the company. With inadequate funds, it would not be possible to conduct the research.

Too much reliance on online advertising is one of the primary weaknesses of the company. To succeed in the modern business world, it is important for an organization to diversify its portfolio. The main risk with relying too heavily on the online advertisements is the possibility of similar products. In case the threat of substitution increases, the company may incur huge losses.  The slow growth of the market of personal computers may reduce the revenue generated from the search engines. This has a negative impact on the profitability of the company in the long-term. Some of the company’s products are not very profitable such as the acquired Motorola mobility company.

Although the weaknesses of the company threaten its growth, there are opportunities that it can exploit to make hug return and realize long-term growth. The main product that earns the company a good profit is online advertising and the company can make even more profits from the advertisements. The increased number of mobile phone users is an opportunity that the company can use to develop mechanisms through which mobile phone users can access a wide variety of advertisements.  The company can increase the number of patents it has by increasing acquiring companies that have patents such as the case with Motorola.

The threats faced by the company have the potential to reduce its profitability thus it is crucial for the company to take the most suitable action to avoid the adverse impacts of the threats (Gamble & Thompson,  2009). The increasing number of consumers who browse using their mobile phones is among the major factors that threaten the company’s growth prospects. This is because if the reduced number of searches using personal computers thus reducing the company’s profitability. The stiff competition that the company faces from Microsoft is another threat that is likely to reduce its market share with time. Most of the company’s revenue is generated through online advertisements, an indication that the other products are not as profitable.

 

 

Industry life cycle

The analysis on industry life cycle helps in identifying the most appropriate actions that an organization should take to ensure it achieves the desired growth rate. From the case study of Google Inc, it is evident that the company is at the mature phase of industry life cycle. This is because it faces stiff competition yet it still has its sales level higher than the competing firms such as Microsoft.  The company’s growth rate is not accelerating as the case would be if the industry was at the growth phase. The company is also experiencing reduced profitability in the current years due to increased competition as it is shown by its profitability ratios. These are the features that show it is in the mature growth phase of the industry cycle.

Recommendations

Strategic issue

The company needs to implement sound generic and grand strategies that address product development and innovation so as to survive on the highly competitive market in the technology industry.  Going by the profitability ratios, it is evident that the company needs to look into the factors that are slowing its growth rate. Some of the possible reasons for the reduction in the level of the company’s profitability include stocking of poorly performing products. The fact that the company relies too much on the revenue generated from online advertisements indicates that the other products do not perform as good. It is possible to have the unprofitable products contribute to the company’s success effectively by formulating and fully implementing the most suitable strategic management actions.

Strategy recommendations

Generic and grand strategies are some of the tools that can be used to enhance the performance of company’s products. Generic strategies are useful to the company because they help in ensuring a higher level of competitive advantage. The company may need to implement cost leadership as a generic strategy to increase the profitability of the non-performing products in the company. Cost leadership entails using strategies such as reduction of costs to increase the profitability of the products.  The strategy increases the number of customers because by reducing the costs of production the company is able to focus on other aspects of marketing such as product development. This may be done by reducing the number of employees involved in sale of the products so as to develop the few employees to maximize their potential.  Cost leadership may also entail reducing the amount of commodity prices so as to secure a large market share. The company may need to reduce the price of mobile phone software because this is a product that is faced with stiff competition. The reduction of prices may appeal to the many internet users who use mobile devices thus increasing the level of the company’s profitability.

Grand strategies that the company may need to implement are essential in enhancing its strengths. Concentric diversification is among the factors that may lead to the company’s success by ensuring that it acquires companies that are related to it in terms of products and technologies used. One of the main aims of grand strategies is to increase the efficiency of the two companies by combining their power. It is thus important to choose companies that have the capacity to enhance each other’s success. Companies with similar features face the same challenges.

The acquisition of Motorola mobility would probably be more profitable if the two companies dealt in similar products.  This is also a way of reducing the level of competition in the market by combining the strengths of the competitor to the company’s.

Objectives

Evaluating the effectiveness of the implemented generic and grand strategies is crucial to attaining a high competitive strategy for the company. Reduction of the cost of production is crucial to achieving efficiency in production. The effectiveness of this strategy can be indicated by comparing the performance of the employees before and after the reduction. The company should ensure that the remaining employees are well equipped to execute their jobs effectively. They should be regularly supervised to ensure that their performance is consistent with the company objectives. Reducing prices to achieve cost leadership should be evaluated to ensure that the company does not incur losses. This should be done by comparing the sales volume of the products in question over the past period of time before and after the price reductions. Concentric diversification may be successful by ensuring that the companies to be acquired have similar features with Google in terms of products.

Strategic justification

Cost leadership is an effective generic strategy and it is likely to address the strategic issue more effectively than other means such as product differentiation. The company’s main challenge is not uniformity of the product since some of the products such as online advertising are unique thus no need for the differentiation.  Although differentiation may seem irrelevant to the internet products, the other products such as mobile operating systems may need to be differentiated due to the increasing level of competition. Cutting the costs of production is an effective way because the amount that the company saves may be use in other development initiatives such as market research and development.

Concentric diversification is also a main tool that can enhance the company’s effectiveness. It is more suitable in addressing the strategic issue faced by Google compared to other grand strategies such as conglomerate diversification that focuses mainly on the profitability of the venture. Acquiring a firm with similar features makes the running of the company easier due to experience in handling similar companies. Although acquiring a company based on its profitability may make the running of the new business hard, it is a good way of diversifying a business portfolio. It is crucial to operate in a business environment that does not have high risks and diversification is one way of spreading these risks. If an industry is affected by any economic or political forces, the company can always rely on the other company in a different industry.

References

Gamble, J., & Thompson, A. A. (2009). Essentials of strategic management: The quest for competitive advantage. Boston: McGraw-Hill Irwin

Appendix

  1. Porter’s five forces theory

Threat of entry of new competitors (low)

 

 

 

 

 

 

Bargaining power of suppliers   (low)                            Competitive rivalry (moderate)                   Bargaining power of clients  (high)

 

 

Threat of substitute products (low)

 

Analysis of the theory

  • The low threat to entry of new competitors affects the success of the company positively as it reduces the level of competition thus giving the company a dominating position in the technology industry.
  • The low bargaining power of suppliers makes the company a leader in decisions such as pricing.
  • The moderate competitive rivalry reduces the power that the company has over pricing and marketing of the products but it still has power over the internet services.
  • The high bargaining power of the buyers pushes the products prices downwards due to reduced cost of shifting to other products.
  • The low threat of substitute products reduces the competition due to uniqueness of the product.
  1. Financial ratios
  2. Leverage Ratios

Debt to equity ratio= Total liabilities/ Total equity

2011 – 14429/ 58145=0.24

2012 – 22083/71715=0.30

  1. Profitability ratios

Return on equity= Net income/shareholder’s equity

2011- 9737/58145= 0.16

2012- 10737/71715= 0.14

  1. Liquidity ratios

Current ratio= Current assets/ Current liabilities

2011- 52758/8913= 5.91

2012- 60454/14337= 4.21

  1. Activity ratios

Average collection period= (accounts receivables /sales) x360

2011- 5427/37905= 50.4

2012- 7885/50175= 56.5

  1. SWOT analysis
Strengths

·        Large market share

·        Wide experience in customer service

·        Financial stability

 

Weaknesses

·        Overreliance on one product

·        Slow growth of personal computers market

Opportunities

·        Increase in number of internet users

·        Obtaining patents by acquisition

Threats

·        Stiff competition from Microsoft

·        Unprofitable products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Balance score card