Report on Google Strategic Audit

        The requirements of the strategic audit are fulfilled by this thesis in MNGT 475H/RAIK 476. Both the industry of technology and competitors of Google along with its position are discussed in it. It is an industry of red-ocean, thus it needs Google to keep on innovating for maintaining its competitive edge. Other than the summary of how Google is competing and its present strategies, alternative strategies are explored in this for Google to approach considering their threats, opportunities, weaknesses, and strengths in the industry. For an efficient strategy, contingency plan, potential budget, and timeline are involved in it.

Keywords: threat, opportunity, weakness, strength, brand, compete, and strategy

Background of Google

        Google, over the recent two decades, has expanded to a household name from just a little project in technology. Some main products of the organization include Drive, Cloud, YouTube, Ads, Maps, Search, and Android. With so many products, the firm has a stake in corresponding areas and markets: office suites, mobile, productivity suites, advertising, and search. It has more than eighty-eight thousand workers in more than seventy offices over the world and is innovating consistently (“Number of Google Employees 2017”).

History of Google

        Sergey Brin and Larry Page were acquainted with each other at Stanford University in 1995. Only a year later, the construction of search engine started from their dorms. It was renamed to Google after some time for reflecting their mission of organizing the information of world and making it useful and accessible universally. Andy Bechtolsheim in 1998 invested approximately 100,000 dollars in Google and using it, the first office was rented by Google in Menlo Park. Its history is unconventional with the very first sever being developed by Legos and the first Doodle notified users that staff was present at the Burning Man. Gradually, the organization expanded to be headquartered in California-Mountain View. 

Present Situation Google

         With the expansion of Google, it has reached a broad range of markets. As the brand was being diluted, Sergey and Larry developed Alphabet. It is Google’s parent organization, along with others like Fiber, Google Ventures, Next, and X among others. CEO is Larry Page while the president is Sergey Brin. But, at present, the CEO of Google is Sundar Pichai. The purpose of Alphabet was concerned with slimming down Google and separating organizations which are not directly associated with the mission of Google, permitting for a (Tweedie) scalable management. The organization is consistent in growing and had 110.9 billion dollars were its revenue in 2017 with an annual growth of twenty-three percent. 

        Although Google is bigger today in comparison with its founding, the same mission is still held by it. The vision of organization is all about providing access to information of the globe in just a click while its plan is diversification into different markets and products while impacting the society. Nevertheless, growth doesn’t come without problems and issues. Considering the fact that Google has yet to update its statement, the present strategy is not aligning with the mission. Growth never comes without issues though. In accordance, with Larry Page, impacting the society is primary objective of Google. It does not align with the organization mission of organization the global information. Due to it, issues could result.

Situation Analysis of Goggle 

        In accordance with the yearly report of Alphabet, consumer value is developed by assisting individuals in being online by changing digital experience to the necessities of new markets. It involves making sure that main products of Google are accessible in sectors which have connectivity and speed concerns. In costless services, the value is created which address every requirement of customer with easy and sleek interfaces.

        As the majority of products of Google are provided without any cost, its primary stream of revenue comes from Search Advertising, AdSense, AdWords, and Advertising made almost eighty-six percent of its revenue in 2017. Apps, hardware, and cloud offerings deliver additional revenue.

External Analysis of Google 

        It can be said that Google is present in a strategic combination of technology resources. It indicates that competitors of Google are Facebook, Microsoft, Apple, and Amazon. Amazon seems to compete with delivery, subscription video, home products, ads, and shopping while Apple is competing with Apple TV, Pixels, Android, and Chromebooks. Facebook appears to compete with apps and targeted ads while the last competitor, Microsoft competes with Drive, Search, and Chromebooks.

        Google can be effective due to its significant factors of success. Workers are permitted to innovate on paid time of organization, which allows them to build a reliable organizational culture. Companies are acquired which permit smart diversification and it acts in a timely manner. And it is constantly seeking new information for using it in innovative and creative ways.

        The abundance and quality of success factors lead to a well-developed competitive strategy. It is a globally recognized brand due to its speedy and accurate searches and calibre of related products. Thus, its strategy is stable in both advertising and search. It can also be said that the quality of moving forward increases with more search completion and purchased ads. The advantage of Google central to its use and availability of data. Although the algorithm of search is not patented, the code bulk makes it so strong that it cannot be replicated. Other than household products, the company has several patents on different types of products in R&D or Research and Development.

Porter’s 5 forces as analysis helps in creating a clearer image of the present industry.

1. (Moderate) Competitive Rivalry of Google Strategic

        Currently, there several competitors in the markets of Google. The costs of switching are low for virtually almost every product, which means that loyalty is not enough. If a better option of search of email service is offered by some, it will be preferred by users. At present, the grip of Google on search market is quite strong, however, it is still attempting to maintain its hold along with their other units of business.

 2. (High) Bargaining Power of Buyers of Google

        Organizational revenue is made only a little by individual buyers, thus, have a little power or influence. In the industry of technology, there is always a new user available but advertising buyers have a significant power as they offer great revenue and can reach alternative platforms of ad if their requirements are not fulfilled.

3. (Moderate) Bargaining Power of Suppliers of Google

         There are numerous products developed by Google and they are available in different markets. Diverse materials make each product; thus it is comparatively simple for organizations to shift among suppliers. But some products like phones need some specific materials and offer power to suppliers.

 4. (Low) Threat of Substitutes of Google

         Today, there are only some alternative present technological products. Convenience and devices are ingrained in almost every single person, and they are sustainable options which can from substitutes. For Google, substitutes pose a great threat because it is quite simple to shift to competitors. However, it is not the same for the overall industry.

 5. (Moderate) Threat of New Entrants of Google

An analysis of issues of PEST that both the industry and Google are facing seems to round out the analysis of industry further.

 1.   Political: Overall, the industry is facing issues from the environment of politics. After the election of 2016, technological organizations came at the regulation risk and under fire. This directly influences Google and there is significant scepticism of the organization after it was fined by European Union for skewing the results of shopping. This will be leading to further regulations of large tech companies.

 2.   Economic: On an annual basis, there are numerous technology organizations which enter the industry. The shift to public from private influences several organizations on annual basis and influences competitors as well. For instance, a DPO was filed by Spotify instead of an OPO which has served to save them from a large sum of money. However, it will be negatively influencing banks. In the coming time, it is highly possible that other organizations will do the same time and change the industrial economic environment. But the condition of the economy is balanced, so individuals have the capability of spending money on both speciality products and shopping. This serves to contribute to a greater level of hardware purchase and ads sales

 3.   Physical/Demographic/Social Environment: Privacy and antitrust concerns are the largest in both Google and overall industry. This is associated with Political issues because of the likelihood of regulation as a consequence. Considering the recent events related to concerns of privacy, individuals are more hesitant in allowing organizations access to confidential information. For Google, it has significant implications since its targeting of ad is identified in personal information of user.

 4.   Technology: Currently, large threat is posed by ad-blockers to the firm. This application is becoming more popular and available to internet users. As advertising is the primary revenue source of Google, these applications negatively influence the organization.

         For concluding the external analysis, it is important to examine opportunities and threats of Google. Some prime treats which are being faced by the organization are regulation of government in preventing monopolies, anti-trust lawsuits, and ad-blocker applications. Other than these threats, there are several opportunities available to the firm as well. For instance, it involves market of smartphone, the likelihood of diversification into paid and new markets outside cloud computing and advertising.

Internal Analysis 

        The whole world knows Alphabet for owning a significant amount of money. It had approximately 152.5 billion dollars in 2017 as the overall shareholder equity, 40.3 billion dollars capital and common stock at the value of par. It also had 113.3 billion dollars in overall retained earnings. Comparatively low in comparison with earnings, the organization had 992 million dollars in comprehensive and accumulated loss. The organization, with this amount, is predicted to hold a little capital of debt, with almost 8.9 billion dollars of overall capital debt in 2017. It is almost 0.058 percent of shareholder equity to debt. It indicates that debt has an insignificant role in the capital structure of the firm. Alphabet as of 2018 March 24 had 612.39 billion dollars of capital structure.

        The net equipment and property of Alphabet after depreciation was worth 42.38 billion dollars in 2017. Moreover, its physical asset was buildings and land worth 23.18 billion dollars (Analysis of Equipment, Plant, and Property). Office complexes and data centers build a great number of physical assets of the firm. Meanwhile, 19.45 billion dollars were owned by Alphabet in the form of overall intangible assets and goodwill in 2017. It can be said that goodwill is when an organization buys another for a large amount, and it involves employee quality relations, patents, customer base, and value of name (Disclosure of Intangible Assets and Goodwill). For the value of resources as human capital, there is no available figure but it is the most significant asset of Google. In the absence of 88,000 employees, salespeople, and engineers, the firm would not be capable of keeping up with competitors and innovating.

The core competency of the firm depends on its capability of innovating consistently and changing. In accordance with CIO, Ben Fried:

         The capability of changing is critical in staying competitive. Actually, Google is concerned with practices being held that they have days of bureaucracy buster. Workers from the organization determine sectors were bureaucracy has crawled into the organization, they are noted, and projects are planned for destroying them.

        Unique competencies of the organization which assist them in changing are that new employees are hired by them constantly form different backgrounds and are treated well. Public stances are taken by them on issues which attract the support of public, and they also obtain organizations which would prove to be beneficial for advancing forward.

        Overall, main strengths of the organization come from their capability of generating traffic of users, the data and information that they collect, their name of brand, and also the fact that they are the basic method of s4earching for the majority of people. But the falling advertisement prices and dependency on advertisements for revenues are a significant weakness. In addition, their reputation among small companies that are competing with it is yet another weakness along with the privacy and security concerns.

Strategy Objectives of Google 

Objectives and Goals of Google 

        The new strategy of Google should be focusing on bringing in high margins of profit. Moreover, privacy concerns should be appeased by them and decrease the significance of ad sales and utilization of confidential information for profit.

 Criteria of Evaluation of Google

 On the basis of 3 criteria, evaluation of strategic alternatives will be carried out:

 ·     Sustainability: Is it addressing prime constraints and opportunities faced by Google?

·     Acceptability: Is it meeting stakeholder expectations? Can the risk level be accepted? Are expectations being met by the return rate?

 ·     Feasibility: In practice, would the presented strategy operate efficiently? Is it capable of being financed? Do skills and people exist or is it possible to obtain them? 

Alternatives of Strategy 

Cloud Computing as the Center of Focus of Google

        The industry of cloud computing is growing at a significant speed and it has the potential of increasing revenues while advancing forward. Google, in this strategy, would be pulling resources from advertisements and focusing them on building and expanding Google Cloud.

·     Sustainability: From the dependence of Google on advertising and appeasing the public, the strategy would be moving away. The market of cloud computing has a growth rate of seventy-five percent and growing in this area would permit the firm to be active in competing with Microsoft Azure and Amazon AWS. It has the potential of high-profit (Columbus).

·     Feasibility: It is a realistic plan: but a great change in structure is involved in it. At present, all the sale efforts of Google are directed towards advertising so the requirement is concerned with large changes in the organization. Significant resources and cash are owned by the firm, which indicates that it is possible to shift but it would be costly.

·     Acceptability: Actually, with the working of strategy, it would be meeting the expectations of both the public and investors. But it seems to have a high level of risk because it needs such significant changes in the organization. No doubt, it is a tough sell because investors would not prefer taking a risk at such a great level.

Concentrate on Android Advertisements

         If the organization shifts its focus from ads to ads of mobile on the operating system of Android, the organization could obtain more advertisements in front of even more users. Considering the fact that it is an operating system of Google, it does not have to offer a part of the profit. Additionally, more users of Android exist compared to iOS users.

     Sustainability: Any weakness of Google is not addressed by this strategy but the opportunity is utilized by it offered by the market of Android and the strength that the organization has with its capabilities of ad targeting.

     Feasibility: Numerous people are hired by Google every single day, hence rather than funneling them into the present teams of ad, it would be easier to develop different teams which specialize in advertisements of Android. It would require little changes in the organization but it is feasible.

     Acceptability: The strategy is not radical and it would be a simpler sell form the viewpoint of risk but there are less opportunities for growth in this sector, hence that could make it tougher. Considering the fact that there is little space for profit, it would not be considered as appealing by investors.

Transform Pixel into a Luxury Brand

An exclusive reputation should be created around Pixel for appealing to the market of iPhone more. Although the market is small, the income bracket is higher and has space for profit. Thus, the firm can start changing its attention from ads.

 ·     Sustainability: The prowess of existing ecosystem and brand of Android is utilized by this proposal. It is also a little change from weaknesses of user and market data.

 ·     Feasibility: Although organizational shifts will be required by it as this proposal is not cutting all connections with advertisements, it shouldn’t be too large. It can be said that the biggest obstacle emerges from altering Pixel brand’s image. Currently, it does not have a luxury image, thus image and price-point will have to be increased by the brand.

 ·     Acceptability: Actually, it is possible that stakeholders would accept it. An opportunity would be provided by it for increasing profit while altering from dependence on data of users. Both public and investors are appeased by it. 

Recommendation of Strategy of Google

        The best option for Google is to compete against the renowned brand Apple in the market of the phone. This way, the lowest risk is posed while an opportunity is provided for profits.

Financial Reasoning of Google

        Only in 2017, sales of iPhone reached 217 million (Sales of Apple iPhone by 2017-2007). With such a higher tag of price and sales, 59 percent of gross margin was possessed by Apple. Considering Pixel, in 2017, its sales reached 3.9 million with almost 25 percent as gross margin. Evidently, the market of the luxury phone has a space for higher margins. It is a market where Apple dominates it, and internationally, Oppo and Huawei dominate it. As Google is already recognized, this financial opportunity could prove to be effective.

Strategy Levels of Google

 1.   Strategy of Enterprise: Develop a usable and intuitive phone which is appealing to all users and help them in finding information.

 2.  Inter-Organizational: Fight in phone business with Apple.

 3.  Corporate: Step away from sales from advertisements and turn Pixel into a brand of luxury phone.

 4.   Business Unit: Products should be sold on the image of product. At present, Pixel has a body of plastic-coated aluminum. Although functionality is improved, it decreases its beauty.

 5.   Operational/Functional: The brand is sold by marketing as competitive and high end while a product is created by software and hardware that is capable of competing at that standard.

Plan of Implementation

December 2018

May 2019

        Users have tested the functional prototype. Software’s beta version is being both tested and developed consistently. Some resources of sale from advertisements have shifted to Pixel for coordinating with vendors. Marketing plan is finished now.

December 2019

        Software is deprived of all kinds of bugs and Google employees are dog food testing it. Campaign of marketing is being developed and the point of price has been selected. The campaign of something big is arriving has been launched.

March 2020 

        Re-releasing phone to checkers for fixing all the identified bugs. The last model of phone is finished and specifications have been sent to suppliers. 

May 2020

        New Pixel should be launched at IO of Google and start running a campaign of marketing for it.

        Nationally, vendors should begin receiving the phone.

 June 2020 

        Globally, Pixels should be sold in stores. Be consistent with the promotion of phone on marketing mediums like online platforms and television.

Projected Results and Resources of Google

Capital

     101.7 dollars are owned by Google in cash which will help in funding the development and research of new pixel. Currently, the organization has a development and research budget of 14 billion dollars, thus it will be right where funds arrive from. Considering the fact that this has already been developed into their budget, it would not have a significant effect on their ratio of shareholder equity to debt.

Balance Statement Pro Forma of Google

In millions, the following numbers are listed. In this sheet, assumed are phone’s retail cost and cost of production of 250 dollars on each Pixel

 Plan of Contingency of Google

         If recommendations don’t work, Google will end up losing almost $20 billion from just sales. Thus, it would not be obtaining a portion of the money which has been spent on development and research, marketing, sales, and production. Google would have to offer more money for phone development than a simple Pixel. In luxury market, if it is not effective, price can be dropped by Google to Pixel’s standard price.

        Major concern is that users of iPhone would not be shifting to Pixel even if better or same quality is provided. People are trapped by Apple in its atmosphere, thus it will be tougher to make them switch to this phone. Since it is a market of red-ocean, users have to be poached by Google from other companies of phones.

Conclusion on Google Strategic Audit   

         Ever since it has been founded, Google has significantly expanded. With an annual expansion rate of 23 percent and 110.9 billion dollars of revenue in 2017, Google is actually one of the prime players in the industry of technology. Considering recent events with the data exploitation of Cambridge Analytics, organizations like Facebook and Google are being enveloped by fire for their utilization of data of users. Ad business of Google brings almost 87 percent of annual revenue in but it depends on data of users for targeting. Recognizing this public distrust, the organization should be pursuing strategies which are detracting from ads business and increasing sales. The organization has sufficient cash for venturing and experimenting into different businesses. For Google, the future is significantly bright, particularly if its prime threats and weaknesses are addressed by it.

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