The ability to create quality strategy forms the basis of every organizational success. Strategic creation and implementation shapes management and corporate successes with effectively formulated strategies being the essence of organizational profitability. Although scholars agree that the right strategy is not all that is needed for success (implementation is also important), it is nonetheless imperative and forms the foundation of the effective management process. The strategy must, therefore, be well understood by every stakeholder in an organization since in most cases; an organization operates and is aligned around its strategies. With the complexity of the global search industry, an in-depth study of Google.com Company’s formulation process offers a conclusive understanding of the organizational strategy creation process due to its multifaceted approach of wide-ranging theoretical prescriptions. Proper analysis of Google’s strategy creation offers by extension important insights on the denominators and underlying dynamics behind the contemporary global IT industry. Starting with a company summary, this paper critically assesses the strategic creation process for Google.com.
Classified as one of the five most popular sites on the internet, Google.com was visited by a unique user base of over 380 million visitors in May 2008. The company was started simply as a research project by two Stanford graduate students Sergey Brin and Lawrence Page in 1996. The two sought to develop a search engine that produced a better display for search results. The domain name, Google.com, was registered in 1997 and Google Inc. incorporated on September 1998. As the world’s leading search engine and one of the fastest and largest growing technology companies in the world, furthermore, it faces massive competition from companies such as Yahoo and MSN hence an analysis of how it formulates its strategies would offer further insights on what market is successful.
Google earned an estimated $3.64 billion from the United States online ad revenue, an estimated 69% of all paid search-related advertising. Its market cap has overtaken that of IBM and even Chevron with an estimated value of $132 billion. It has a surplus of over $7.6 billion all of which are lacking any defined usage, has its stock is predicted to reach $600 billion by the end of this year (2008) and is one of the top 10 web brands in the United States. The above summary is an indication of a model company, its success of which is attributed to its management, wide line of product, market domination, favorable financial position, favorable business strategy, strong competitive advantage, excellent organizational control, and innovative research and development strategies. How such a company formulates its strategies, in relation to the existing theoretical framework is a matter of natural interpretation.
How Strategy is created in Google
Google.com implements strategic planning as a deliberate process in which with the involvement of a wide range of stakeholders, top executives periodically formulate the firm’s strategy. Its strategic planning process is guided by its mission that in turn prescribes its objectives. Based on the objectives, the existing situation is analyzed leading to the strategy formulation, Battelle, (2005, p. 162). Based on a field review of its strategic creation process using Mintzberg’s Ten Schools of Thought, the configuration school, the only one classified under the integrative category, best describes its strategic creation process for Google.com. This is because the company’s strategy formation process over the years has been a transformative one. A transformative one as it has integrated the claims of other schools but at different processes in the organization, hence with a closer analysis of Google’s strategy creation process, elements of different schools of thought can be identified at different stages.
The situational analysis also forms a critical foundation of Google.com’s organizational strategy. The Environmental school is observable in this situation as Google has over the years implemented a cross-section of its strategies in reaction to prevailing environmental conditions. Google analyzes its external and internal environments thereby describing its strengths, weaknesses in addition to existing opportunities and threats. It is through the situational analysis that large amounts of information on the company are gathered and which forms the basis of strategy formulation. It is based on the formulated strategies that the implementation process occurs.
Strategic Ideas, tools and Techniques
Research by Kostrzewa, (2003, pp. 62) indicates that a closer analysis of the Google strategy creation process was in line with Mintzberg’s second category or the process-oriented schools. The school with the most evident correlation with Google’s strategy was the cognitive school. Google’s strategy is formulated around the basic strategic concept of quality, customer satisfaction, and growth and has over the years served to organize the framework for the management system of the company. It has further integrated performance management system which is considered important in the alignment of its operation around its strategy. These systems have been designed during strategy design processes in an attempt to promote Google’s products as unique.
Google, therefore, tries to create cognitive maps in which individuals have a global perspective of a Google world, a world exceptionally different from that created by other related companies similar products. As listed on the company’s website, Google’s operations have been guided by the philosophy of not settling for the best, Google, (2008. p. 1). Google’s mission is to be a world leader in information provision. This is to make information accessible and useful. It has displayed continued innovativeness with the introduction of multiple products into the markets. Certain products, such as Google Ad Sense, were without a doubt, a success for the company, advertisers and web owners in general, Lohr, (2007). All this is based on a strategy aimed at creating in potential client’s minds, an aspect of real or virtual reality.
The company has managed to remain competitive through multiple acquisitions of popular competitors. To the present, the company has acquired more than 30 companies since its inceptions, a strategic step interpreted as creating a competitive bias towards the cultural school since most of the acquisitions have been largely popular websites on the cultural domain thereby. This is advantageous to the company as it gives it a more culturally inclusive appearance. Some of the acquisitions that have been instrumental to the growth of the company include the 2003 acquisition of Applied Semantics Inc. which enabled them to develop an advertising campaign that has earned them billions of dollars in advertising revenue to the present.
The 2006 acquisition of Writely, an online processing firm led to the development of Google docs which since its inception in 2006, has seen a rise in its revenue. Google further acquired YouTube, in 2006 for a record $1.6 billion which has seen it dominate the online video industry. All the listed acquisitions in addition to its renowned status as a world leading free provider of search engine have provided Google with a platform for creating an impression of a collective and cooperative organization, hence the support of the cultural school in its strategy formulation.
Although individual approaches can be identified in Google’s strategy creation processes, a rather integrative approach, combining several approaches have been Google’s key success secrets as it has managed to constantly transform it by subscribing to ideal strategic and timely changes. The Company has made efforts to acquire competitors in a bid to remain competitive in the global IT market. An example is the 2007 acquisition of DoubleClick, an advertising competitor for a record $3.1 billion. It also acquired Tonic Systems which enabled it to acquire the capacity to convert Microsoft PowerPoint files into HTML and PDF documents. This boosted its competition with Microsoft which had gained a considerable market base based on its Microsoft Office product. Furthermore, this integrative and constantly changing approach can be viewed in Google ability to offer a wide range of products a reflection of its technologically sound and alert team of innovators. Continuous intensive research is undertaken in the Google laboratories, online text locations or in the Google.com website itself. Products are generally of high quality and utility.
Google strategic priority is the integration of desktop and internet search yet its biggest competitor is Yahoo followed by Microsoft, Ask.com and American Online respectively though on the variety of Google’s products and services, it is difficult to exactly determine its competitors. Yahoo provides similar products such as e-mail services, maps, financial analysis, advertising, search and yahoo toolbar but still, its products are not similar in many ways to those of Google. Google’s strategy to provide unique services thereby attracting specific clique of individuals has largely paid off.
For example, comparing Microsoft to Google, Microsoft offers to search and other few online services similar to those offered by Google through its main line of business is the design and sale of software and operating systems. Competition comes into focus due to the recent launch of Google Docs & Spreadsheets and Google Gears, presentation software that challenges the dominance of Microsoft Windows. In terms of Sales, Products and Geographical distribution, Google accounts for over 50% (Estimated 58.4%) to be exact of market share in nearly all its products. By market share, Google beats its competitors by far. With the stated estimated market share of 50%, Yahoo, Microsoft, Ask.com and AOL each have an estimated market share of 28.5%, 10%, 5%, and 4% respectively, Khaki-Sedigh, & Roudaki, (2003).
Elements of the entrepreneurial school are also observable on Google’s organizational strategy. A considerable proportion of the company’s control has also been governed by the solid executive control with the focus being given to chief managers led by the company’s top executives. There has been the rewarding of the well-performing management team since 2002 with the managers who are underperforming being demoted or reshuffled hence a general focus on management. The organization has also adopted the clan control mechanism. Although Google’s employees have many things in common the company has continuously emphasized visionary leadership.
They share many values, expectations and goals hence tend to work in harmony with one another; a harmony created by the aspect of strong visionary leadership. This has been displayed in the less formal approach in which the Google team approaches issues. The intergraded approach used by Google has ensured greater cost savings, increased efficiency, better product quality, enhanced customer service and a happier cohesive workforce who work in harmony to produce positive results; hence although its strategy is based on the cognitive school, the entrepreneurial school is certainly considerably evident on its strategy formulation process.
The company has had a rather integrated approach to achieving in its strategy formulation process; applying both bureaucratic, market and clan control mechanisms. Google has a board of governors and a core management team together with specialized well-documented rules and regulations implemented through a formal authority that serve to guide employee performances. This bureaucratic type of approach has been applied mildly and has served to regulate Google employee’s behavior thereby leading to better results, limited budgets, better performances as displayed in statistical reports and employee performance records.
Google was ranked as the best company to work for in the 2006 survey by the Fortune magazine in 2007, Fortune, (2007, p. 1). The assertion of power school is therefore evident in Google’s strategic formulation as the company has managed to properly manage its employees. It has succeeded in creating a generally good working environment for all its employees through some critics see this as making them lose a considerable proportion of daily tasks. It has been characterized by offering its employees a large degree of freedom thereby tapping their creativity towards the improvement of both its products and services. Hence the assertions of the power school are evident in its strategy formulation.
According to Battelle, (2006, p. 99), Google’s strategies have been guided by its desire to increase profitability through the increment of sales while maintaining or reducing the cost of goods sold. Estimates show that Google’s net income grew from $100 million in 2002 to $ 3.077 billion in 2005. Its cost of goods sold was generally constant being maintained at approximately 40% of sales. On common base analysis, Google had a 2,412% increase in sales in the five year period between 2002 and 2006 with a net income increment of over 3,088% within the same period, Battelle, (2006, p. 99).
This effective strategy formulation process has resulted in considerable cash surplus resulting from balances in short and long-term investments. Google has neither short nor long-term debt through the IPO offered an increase in capital surplus in 2004. With the continued rise in its share prices, Google’s capital surplus has continued to rise over the years furthermore being a service-oriented company, Google has no looming inventory. On the basis of ratio analysis, Google’s sales increased from 1.2 in 2002 to 29.05 in 2006. Over the past five years, Google has had more money at hand than they know what to do with, an attribute that has been seen on its rather many strategic acquisitions furthermore Google’s profit margin fluctuated between 2002 and 2003 but increased steadily to an estimated 60.2% in 2006, an aspect attributable to its effective strategy formulation process, (Johnson, Scholes, Whittington, (2008, p. 4).
Driven by large revenues from advertisement, Google.com has invested massively in its Research and Development Budget. Its research findings are a critical component of its strategic formulation process. Varied sections of Google have had different approaches to attaining solutions to various world problems such as new technological advancement, pharmaceutical research, and online advertisements, Pringle, Allison & Dowe, (1998, p. 379). Google has invested massively in research and development though it was not classified under the top ten R&D spenders until 2007. This followed from massive increments in the company’s spending on Research and Development when spending increased by over 73% to a record-breaking $2.1 billion in the year 2007 compared to the budget in 2006. Since 2007, it is estimated that Google’s R&D spending has stayed above 13% of its total revenue which is a representation of more than double the amount spent prior to the year 2002. Massive research is being undertaken on how Google can enter into other business projects such as Android, TV Ads, and other projects to further boost its growth.
Summary and Conclusion
As a result of its advanced strategy formulation process, its better display of search results, the simple approach that was incorporated in the searching process, Google has grown in popularity and acceptance the world over. Presently, the company employees are in excess of 10,000 people from all the continents of the world. It is the largest company offering Search-related advertising yet Search Related advertisement is the fastest growing of all the online ad businesses with an estimated annual growth rate at 41%, Pringle, Allison & Dowe, (1998, p. 378)
Although Google’s strategy creation results from consultation of wide-ranging stakeholders in the organization, stringent rules aimed at protecting some of its products and services are still prescribed by its top management. For example, in 2005 the top management introduced a trend that required all Ad Sense members to sign a gagging clause. The clause has restricted web owners from unfairly benefiting from the proceeds gained from advertising. Google has been continuously innovative, being innovative and the first to implement its strategies. For example, it was the first company to implement the Ad Relevancy strategy, a strategy that ensured it provided broad matching on all search terms. It further went ahead to set a system in which a single price was set on all ads, Moran, & Hunt, (2006, p 22).
Conclusively, although the execution is more important, good vision evident in the creation of effective strategies are the primary essentials to management success. The strategy should be understood and interpreted in terms that are understandable and that can be acted upon. With a strong reputation and familiarity, good speed in its search procedures, user-friendliness in its product output, relevance in ranking of its search results together with technologically advanced additional services which are multidisciplinary in nature, available multiple opportunities seen in the ever-increasing online advertisement, higher usage volubility as it gains more customer base across the global domain, and the introduction of new products, Google will surely continue to dominate the market for certain undefined periods of time. Definitely, Google Inc. has been a role model to technological businesses and still has great potential as a company.
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