Google Inc. use of the BCG Matrix - Essay Example

Google Inc. use of the BCG Matrix This paper details a critical analysis of Google Inc. making use of the BCG Matrix as a tool for a critical audit en route to making strategy recommendations to grow the Google business moving forward. The paper presents an overview of Google and its core businesses, and goes on to undertake a strategic audit of the company making use of the BCG Matrix as well as the SWOT Analysis and the PESTEL analysis in a strategic audit aimed at identifying strategic issues facing the company and at making recommendations to get the company on a path to growth. The paper presents a critical analysis of the main issues that were surfaced in the strategic audit, and also undertakes a critical assessment of the BCG Matrix itself. The critical assessment of the BCG Matrix surveys various perspectives on concept, undertaking a comparison and contrast of those perspectives, and weighing in on the relevance of the BCG Matrix in modern times and in the present context of its use to undertake the strategic audit on Google. This latter exercise also looks at the suitability of the BCG Matrix versus other tools and frameworks for undertaking a strategic audit in general and for undertaking a strategic audit of Google (Taggart and Harding, 1998; Google, 2013; Reuters, 2013). Finally, the critical audit and the critical assessment of the main issues that were surfaced in that critical audit, together with the critical assessment of the BCG Matrix itself, are all used to come up with strategy recommendations for Google to grow moving forward. The idea is that the main issues that were surfaced in the critical audit are to be used as springboards for strategizing and plotting a course for growth for the company. The strategies coming out of this process are to be framed in terms of recommendations that are justified by the results of the preceding analyses, and done from the twin perspectives of concepts and frameworks used on the one hand and Google’s business perspective on the other (Google, 2013; Reuters, 2013; Smith, 2002; Spee and Jarzabkowski, 2009; Ioana, Mirea and Balescu, 2009; Doole and Lowe, 2008, pp. 282-283; Armstrong, 2003; Hall and Saias, 1980, pp. 160-161; Zeithaml and Zeithaml, 1984). II. Company Overview Google Inc. is a technology company that operates on a global scale. The company details itself as a firm that focuses on key business segments and areas of technology, and these revolve around search, hardware products, products for the enterprise, operating systems for mobile and other computing platforms, and online advertising. Google is present in more than 50 countries and territories, and reaches its audience through the use of 100 different languages around the world. The hardware business is primarily represented by Motorola, which caters to two distinct business segments consisting of the Home segment and the Mobile segment. Mobile is about mobile devices and corollary services and products tied to mobile. Android is the popular mobile computing platform that Google owns and licenses for free to device manufacturers. The Home business segment on the other hand keys in on digital television and the use of related access devices and services. Its Enterprise business consists in the provision of software platforms and services centered on Google Apps, Google Search, Google Maps, Google Earth, and a host of related platforms and cloud-based services that cater to vertical industries such as education, government, and business. The operating systems part of the Google business focuses on core operating system platforms in Android for Mobile and Chrome for other devices, together with online platforms in Google+, Google Play, Google Drive and Google Wallet. These latter products are cloud-based platforms for collaboration and for online computing. The search business is tied to its advertising platforms, and is one of the core businesses at Google, with the advertising business being concentrated on a number of money-generating platforms in the form of display advertising and AdWords, among a few others. Its key competitors in different spaces include Amazon, Facebook, and Microsoft (Google, 2013; Reuters, 2013). It is important to understand the fundamental business models that drive the Google business to be able to properly situate the use of the analytical models that are used for this paper, chief among them the BCG Matrix, with the PESTLE and SWOT analyses providing support and corollary inputs to a strategic audit that hopefully helps identify strategic issues as inputs in coming up with recommendations for putting Google on a sustained path of growth. That business model revolves around, in the main, the provision of search and the platforms that enable Google to serve that search service to billions of users. All of the services and products that Google serves up, from Gmail to Google Search to Google Apps to Android and its Chrome platforms can be seen as avenues for Google to continue to amass the following and the users for that search property, in order to amass the data on the way people use those services and better organize that data in the service of search. At the heart of that business model moreover is Google making use of search data and the way it is able to organize the information on the Internet to serve up targeted ads to users via its AdWords product. This is basically an advertising platform where advertisers target users based on certain key words that are used by users to search on the Internet, and which Google in turn use to serve up targeted ads for businesses that choose to associate their products and services with those keywords. This advertising platform drives a majority of its revenues and profits. Moreover, having near global monopoly in this business, it is able to accumulate the majority of profits. As users migrate to mobile to access the Internet, for instance, Google continues to have a stranglehold on search by dominating the platform in mobile with Android, and in so doing is able to continue to dominate search and search advertising in mobile via Google search in Android. All of its other products are given for free or nearly for free, including Android and all of its apps, to be able to sustain growth in advertising revenues and continue to dominate this business (Gurley, 2009; Crawford and Chau, 2013; Roche, 2013; BMI Matters, 2013; Shaughnessy, 2013; Itami and Nishino, 2010; Manyika, 2008). By way of summary, the following chart is a representation of the business model of Google (BMI Matters, 2013): Image Source: BMI Matters, 2013 III. Critical Assessment of Key Issues Coming Out of the Strategic Audit The literature makes several recommendations with regard to the action plans for different products in the BCG Matrix, and in the case of Google one can argue that the different products present different issues that need critical evaluation. The issue with the nature of Google’s business is that there is the perennial threat of disruptive technologies causing substantial dents in the fundamental business model of Google. In the case of search and advertising, which are its cash cow businesses, those businesses generate a substantial part of revenues, cash flow, and the contributions to the cash hoard, to the point where threats to those cash cows can mean a fundamental disruption in the viability and long-term prospects of Google itself In other words, the first issue has to do with the volatile nature of the business itself, as can be gleaned from the PESTEL and SWOT analyses as well. The second issue has to do with the over-reliance of Google on search and ad revenues to fuel its growth and to finance its forays into other businesses. The third issue related to this is the viability of its other businesses and products outside of search. Four, with the exception of Android and mobile, one can argue that its other products have questionable futures. Five, its cloud applications are promising, but it remains to be seen whether that star can translate to revenues in the long term, given the presence of competition. The literature encourages continued investment in this star quadrant product, alongside mobile, but there are issue relating to the savvy of competition, as well as patent issues in mobile, that can derail the ability of Google to convert these stars into cash cows. Again this goes back to the volatile nature of the tech business of Google and the presence of aggressive competitors such as Microsoft, Amazon, and Facebook Finally, the sixth issue has to do with the wisdom of Google’s investment in Motorola, which is a low-margin, low market share and high growth play within the BCG Matrix. Hardware is not a core strength for Google, and the presence of tough competitors that also use Google’s Android means that Google may end up burning cash flow to finance a losing proposition (Taggart and Harding, 1998; Google, 2013; Reuters, 2013; Smith, 2002; Spee and Jarzabkowski, 2009; Ioana, Mirea and Balescu, 2009; Doole and Lowe, 2008, pp. 282-283; Armstrong, 2003; Hall and Saias, 1980, pp. 160-161; Zeithaml and Zeithaml, 1984). IV. Critical Assessment of the BCG Matrix The BCG Matrix essentially maps the products and services of a firm based on a product life cycle and which considers the position of those different products and services in a matrix that has dimensions of market growth and market share. Those two dimensions determine the placement of the products into one of four categories in the four-quadrant matrix: star, cash cow, dog and question mark. In this four-quadrant matrix the quadrant that is characterized by high growth and high market share is called the star quadrant; the quadrant with low market share and high growth is called the question mark quadrant; the quadrant with the low growth and low market share is called the dog quadrant; and the quadrant with the high market share and low growth is called the cash cow quadrant (Taggart and Harding, 1998, pp. 569-570; Walton, 2007, pp. 264-66). The value of the BCG Matrix in exercises involving the crafting of strategy has been acknowledged in the trade and academic literature that compares and contrasts the worth of various such tools for strategy formulation. In other words, the BCG Matrix has yielded good results in terms of providing good inputs for strategy formulation in the field (Zeithaml and Zeithaml, 1984; Calandro and Lane, 2007). Hall and Saias (1980) notes that in any organization, managers in charge of products in different quadrants as defined in a BCG Matrix have different roles, and that those roles are tied to the prospects and cash generation or cash needs of the products. For instance, for product managers that are managing cash cow products, it naturally follows that the main management goal is to maximize the cash generation and to limit investments to grow further market share, because in part such investments may only yield negligible returns given market dominance, for instance (Hall and Saias, 1980). The literature on the other hand provides good examples that leverage the use of the BCG Matrix in the analysis of product portfolios for different kinds of companies and for different kinds of products and services, with good results that lent themselves to being used to further optimize product portfolios and investment decisions (Smith, 2002). The same good results in the analysis of services in industries that are related to materials sciences also yield conclusions as to the effectiveness of the BCG matrix for such purposes and attest to the flexibility of the matrix to be adapted to various business and academic contexts (Ioana, Mirea and Balescu, 2009; Taggart and Harding, 1998). On the other hand, literature also exists where studies take the stock version of the BCG Matrix and modifies that matrix to suit specific contexts, with varying results with regard to the quality of the analysis and the usefulness of the outputs for strategic and other business purposes. In this same literature, a comparison of the BCG Matrix versus other strategy tools yields insights into the relative ease with which the BCG Matrix can capture complex organizational realities to aid in strategy work (Spee and Jarzabkowski, 2009). There are studies too that detail the use of the BCG matrix to effectively introduce new products to compete with market leaders (Coomasaru, Day and Lee, 1996). The literature, meanwhile, has made some generalizations into the nature of products and services, as well as organizations, that fall within the different quadrants of the BCG Matrix. Here by organizations is meant the organizations that make products that fall into different BCG Matrix quadrants. To illustrate, industries, firms, and products in the dog quadrant struggle to remain profitable and do so by trying to optimize operations and to find ways to improve the management of the firms. Cash cow products and the companies that make and manage them are said to be in mature industries where little action takes place. Question mark products are characterized by high growth and low shares, and investments are risky and large, and are therefore high risk propositions that can drain company resources substantially. Stars on the other hand have the capability to become cash cows, and as such rightfully deserve the investment by an organization to make sure the transition to cash cow is successful. That said, products in the stars quadrant are subject to intense competition and as such carry risks as well (Ioana, Mirea and Balescu, 2009). The recent nature of the academic studies considered in this critical assessment attest to the relevance of the BCG Matrix to modern contexts. Not only are they being judged as very useful in strategy work, the BCG Matrix has also been increasingly used in conjunction with more modern tools and perspectives in general business research, and with more modern data and more modern corporations, to the point where one can say that the BCG Matrix does remain relevant. Its wide application and its flexibility to be used in various contexts, with other tools and with different kinds of data and products and services, mean that the BCG Matrix is also useful in this present paper, for use to do a strategic audit of Google. The strategic audit and the subsequent analysis therefore proceeds with this vote of confidence for the relevance and usefulness of the BCG Matrix (Smith, 2002; Spee and Jarzabkowski, 2009; Ioana, Mirea and Balescu, 2009; Doole and Lowe, 2008, pp. 282-283; Armstrong, 2003; Hall and Saias, 1980, pp. 160-161; Zeithaml and Zeithaml, 1984; Taggart and Harding, 1998; Itami and Nishino, 2010; Manyika, 2008) V. Recommendations for Growth A straightforward application of the BCG Matrix tells us that Google’s growth strategic options lie in concentrating on its stars and in its cash cow businesses, while minimizing risks associated with continued investments in dog and question mark plays. The analysis tells us that those latter product and services plays revolve around Motorola, and even its social media platform Google+, even as its cloud and mobile computing platforms show promise as growth and profit stars that have potential to catapult Google to high growth regimes moving forward. Motorola is problematic because it s not a core strength for Google, and it is furthermore in a business that is in competition with the very players that are currently making Android shine in the international market, namely the vendors who make devices making use of Android. On the other hand, the high-growth nature of the hardware business coupled with low returns means that Google may have to invest substantially to generate the scale and to be able to compete with other hardware manufacturers, and yet in the end realize small profits or losses from all of that investment and effort. Clearly in this space there are no prospects for the kinds of margins and scale that Google is able to generate from its search businesses. One way to grow is to divest from Motorola and divert resources and energy to its star quadrant products namely mobile and its cloud computing platforms and products (Google, 2013; Reuters, 2013; Smith 2002; Spee and Jarzabkowski, 2009; Ioana, Mirea and Balescu, 2009; Doole and Lowe, 2008, pp. 282-283; Armstrong, 2003; Hall and Saias, 1980, pp. 160-161; Zeithaml and Zeithaml, 1984). On the other hand, another way to view its continued presence in the product categories that are not promising is that there may be losses associated with not being present in those product categories. For instance, the investment in Motorola may offset some of the patent weaknesses in Android. Android is a star product, and therefore the Motorola investment is not a black and white poor decision. For Google+, again there may be costs in not being present in this space, especially with the presence of Facebook threatening to disrupt Google’s advertising business. On the whole, therefore, one can see that the very volatile and disruptive nature of the tech business means that the product portfolio of Google is not easily managed. The BCG Matrix has this limitation that its results need to be tempered by market realities such as those that have been described here. The wise recommendation is to consider divesting in Motorola, with the caveats relating to the specific market realities described here (Taggart and Harding, 1998; Arthur, 2013; Worstall, 2012; Google, 2013; Reuters, 2013; Smith, 2002; Ioana, Mirea and Balescu, 2009; Hall and Saias, 1980, pp. 160-161; Zeithaml and Zeithaml, 1984). References Armstrong, J. S. (2003). Discovery and communication of important marketing findings: evidence and proposals. Journal of Business Research 56 (1). 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BCG Matrix Analysis Information Implication Question Marks Motorola, hardware Hardware is low margin   Low market share in a cut throat industry     Can be a drain on profits Dog Emergent platforms such as Google Glass Low shares, low growth   Google+ New platforms are untested     Business model can be tied to search Cash Cow Search and advertising platforms (AdWords) Strong position   All other properties tie to search     Near global monopoly, growing business Star Mobile platforms including Android, cloud Continued investment benefits search   Traction around the world   Mobile computing = large investments     High investments = high returns Input sources: Gurley 2009; Crawford and Chau 2013; Roche 2013; BMI Matters 2013; Shaughnessy 2013; Taggart and Harding 1998; Itami and Nishino, 2010; Manyika, 2008 B. PESTEL Analysis Information Implication Political Presence in global markets Different markets have different risks   Political stability in key markets e.g. US     Low impact on Google business Economic Global growth sustainable Google business to benefit from growth   Different regions grow at different speeds     Opportunities in fast-growing markets Social Presence in many countries Growth opportunities in social media   Google is a ubiquitous social tool Global acceptance of Google search   Google+ as social media tool Opportunities to leverage brand Technological Innovation in mobile Opportunities to extend search   Social media innovation Opportunities to grow ad revenues       Environmental Ecological impact of tech Issues with eco footprint of Motorola   Global warming         Legal Patent litigation for Android Issues with continued dominance in mobile    Patent issues can derail mobile growth       Input sources: Gurley 2009; Crawford and Chau 2013; Roche 2013; BMI Matters 2013; Shaughnessy 2013; Google 2013; Reuters 2013 C. SWOT Analysis Information Implication Strengths Search, R &D, mobile platforms Google business model sound   Large profits and cash Sustainable revenues from ads     High growth with mobile Weaknesses Motorola not profitable Some investments are questionable   Hardware is low margin Vulnerabilities in hardware space     Drain on resources Opportunities Social media is growing Opportunity to grow Google+   Opportunities to innovate     Acquisitions Threats Threats from search alternatives Facebook can threaten ad business   Facebook as ad platform Bing can erode Google monopoly in search   Microsoft products e.g. Bing   Input sources: Gurley 2009; Crawford and Chau 2013; Roche 2013; BMI Matters 2013; Shaughnessy 2013; Google 2013; Reuters 2013 D. Porter's Five Forces Analysis Information Implication Competition High. Intense in mobile, search and social media, as well as the cloud Need for constant innovation       Bargaining Power of Suppliers High, given that customers are locked in to sets of services provided by Google, and Microsoft. High switching costs Incentive to drive revenues up from locked-in customers       Bargaining Power of Buyers Medium. Switching costs exist, but can be managed Suppliers need to constantly focus on customers to avoid switching     Threat of New Entrants Low, given the large investments needed to compete in search, mobile and social media platforms Power concentrating on the few players already in the space         Threat of Substitutes Medium, given the constant innovation and influx of new services and ideas Need for constant innovation in key areas such as search and mobile           Input sources: Gurley 2009; Crawford and Chau 2013; Roche 2013; BMI Matters 2013; Shaughnessy 2013; Google 2013; Reuters 2013; Porter, 2008; Porter and Millar, 1985 Read More