Characteristics of the Market Industry of Google Company - Case Study Example

Name Instructor Course Date Analysis Google Company Characteristics of the Market Industry An industry can be analysed for its attractiveness to an organisation or company based on a number of characteristics existing in the market. These could be competitive characteristics, organisational characteristics or any other feature that would best define a goods and service market. The key characteristics used to describe the market structure include the nature of competition and mode of pricing in the market. The market structure has a significant influence on the behavior of firms in the market. The market structure affects how firms price their commodities, and hence affect the supply of different commodities in the market. As competition increases, there will be a high supply of goods as more companies try to dominate the market (Tools, 2013, p. 1). The growth of a company’s sales over time is used to draw the life cycle of the company. The distinct stages of a company’s life cycle include introduction, growth, maturity, and decline. The company sales begin slowly during the introductory phase and then take off speedily during the growth phase. However, the sales level out during maturity before declining gradually in the final stage. Profits, in contrast to sales, continue to boost throughout the life sequence, as companies utilise expertise and economies of scale to minimise unit costs over time (Kulzick, 2000, p. 1). External Analysis Analysis of the company’s external operating environment is an essential component of the strategic management process of an organisation. The aim of the external analysis is to determine threats and strategic opportunities in the company’s operating environment that will influence how the firm pursues its goals. Three interrelated environments ought to be examined when carrying out an external analysis: the industry environment where the firm is operating; the national or country environment; and the broader macro and socioeconomic environment. Analysing the company’s environment involves an evaluation of the competitive structure of the industry, inclusive of the company’s competitive position and its formulation begins with an analysis of the forces shaping competition in the industry in which the company is based. The purpose of this assessment is to understand the prospects and threats facing the company and use the comprehension to identify strategic measures that will assist the company surpass its rivals. Opportunities arise when a company is able to take advantage of the conditions in its environment to implement and formulate strategies that will enable it become more profitable (Hill & Jones, 2010, p. 55). The External Analysis structure, also referred to as Porter’s five forces, is among the fundamental business models commonly used managements and businesses to describe the external operating environment of a company. The model developed by Michael Porter is applied in assessing market forces surrounding an industry and develop strategic recommendations. Porter’s structure models an industry to be influenced by five forces. Businesses seeking to develop an edge over their rival firms can implement this model to have a better understanding of the environment in which their firms are operating (Porter, 2013, p. 1). Figure 1. Porter’s Five Forces for Environmental Analysis. 1. Rivalry In the primordial economic model, competition between rival companies drove profits to zero. Though, competition is not sufficient, and companies are not ingenuous passive price takers, companies have opted for competitive advantages over rival companies. Rivalry among companies is measured by indicators such as Concentration Ratio (CR). A high concentration ratio characterises an industry with a large concentration of market shares held by the largest companies. A low concentration ratio signifies an industry characterised by numerous rival companies, and none of them has a significant share in the market. Low rivalry among companies in an industry signifies a disciplined industry. This discipline in an industry may result from the companies past competition, roles of leading firms, or informal compliance with the industry’s code of conduct. For instance, Google had in the long run been the sole provider computer services and gadgets. The entry of Apple with new software products such as iPads and iPhones was a great threat to Google. 2. Threats of Substitutes According to Porter’s model, substitute products refer to goods from other industries. A threat of a substitute exists when one product’s demand is affected by changes in price of a substitute product. The price elasticity of a product is usually affected by substitute products. With more substitutes available, the demand of products grows more elastic as customers have more customers have numerous alternatives to choose. Firms in an industry are constrained from raising prices of their products by the existence of a close substitute product. Apple developed new navigation and mapping services which were meant to replace Google’s ancient surfing methods. These developments were of much threat to Google forcing the company executives to ask its engineers to come up with new strategies to be competitive. 3. Buyer Power Buyer’s power is the effect that customers possess on a producing industry. For instance, when buyer’s power is immense, the relation of the producing industry is close to monopsony. Monopsony is a market where there are many suppliers with a single buyer. Under such conditions of the market, the buyer sets the market prices. In reality, such market conditions rarely exist, but often there are some asymmetries, that exist between buyers and suppliers. With the development of numerous internet service providers, people had freedom to choose a service of their choice, forcing Google, Yahoo, Face book, and other service providers to reduce their internet surfing rates 4. Supplier Power A producing company requires raw materials, labor, and other supplies to undertake its outlined function. This requirement results into the buyer to supplier relationship between firms that provide raw materials needed to create products and industry. Powerful suppliers can influence production of the industry by selling raw materials at an increased price to acquire some of the profits from the industry. Google being the chief service provider of internet services had more power in decisions concerning the industry. The company played a significant role in setting standard internet browsing rates, application of new software’s and products. 5. Threats of New Entries and Entry Barriers In an industry, it is not only present rivals that pose threats to companies; the possibility of new companies entering the industry also influences competition. Theoretically, all companies are free to enter and exit the market. Moreover, if free entry and exist, then profits should be always nominal. However, in reality, industries have characteristics that protect the increased profit levels of a company in the market and restrain additional rivals from getting into the market. These restrictions are known as barriers to entry and are more than the ordinary equilibrium adjustments that sectors involved in the market make. Barriers to entry are exceptional industrial characteristics that define an industry. Barriers minimise the number of new firms entering the market and hence maintaining the level of profits for those in the market. Sprouting companies such as Facebook, Yahoomail, Apple and other software companes offered new threat to Google in the technology industry. These companies came up with improved services, cheaper rates and reduced operating cost services that compete with Google’s initial services. Evaluation of Attractiveness of an Industry A significant factor in realising the success and failure of a company involves selection of the right markets and niches to be undertaken by the company. It is essential to generate an optimal product mix that adapts to both the demand schedule and the properties and structural procedures of the industry’s environment. The company generates this mix from imitative product diversification steps such as venturing into existing markets, or by establishing innovations of products to the market. In both instances, the company has to evaluate the merits and hazards of the new product it intends to add to its production (Hoskissin; et al, 2008, p. 120). Several standard approaches on how to create a useful market evaluation procedure exclusive of the current product range have been developed to assist businesses venture into new markets. The essence of such approaches is to identify the key factors that are significant in estimating the future possibilities of profits in a market and to put more credence on these factors. A perfect example is the GE approach, where market attractiveness is defined as the weighted sum of market growth rate, overall market size, competition intensity, and historical profit among other factors. Competitor Environment The industry environment is a set of factors, which directly influences a company competitive actions and responses. These factors include the threat of new entrances, the power of buyers, the power of suppliers, intensity of rivalry amongst competitors and the threat of substitute products. Interactions among these factors determine the profit potential of an industry. However, the challenge is to identify a position within the industry where companies can favorably influence these factors or successfully defend them from being exploited. The greater a company capability to influence its industrial environment, the higher is its likelihood to earn returns above average. Understanding the company’s competitor environment goes together with the insights provided by analysing the industry and general environments (Cushman & King, 2001, p. 58). Figure 2. Components of a Competitor Analysis. Analysis of the broad environment focuses on the future while analysis of the industrial environment focuses on the conditions and factors that influence a company’s profitability. Investigation of the competitor environment focuses on predicting the competitors’ dynamic actions, intentions and responses in relation to the industry. In combination, the outcome of these analyses of the external environment influences the company’s strategic course of actions. A significant objective of analysing the external environment is to identify threats and opportunities. An opportunity is a condition present in the external environment which when exploited, helps the company realise a creation value. However, a threat is a condition that may thwart a company’s effort to realise value creation in the general environment. Critical to a useful competitor analysis is to gather information and data that will assist the company know its competitors’ intentions and have strategic future plan of course of actions to undertake. Competitor intelligence refers to the information and data the company acquire to understand their competitors’ objectives, capabilities, assumptions and strategies (Slater & Narver, 1994, p. 48). The first step in competitor analysis is to recognize the present and potential competitors. Two methods can be used to identify competitors in the market. The first step involves scrutinising the market from a customer’s point of view and then grouping all the competitors by the degree in which they contend to the buyer. The second method involves grouping competitors in accordance to the various competitive strategies in order to understand their motivation in performing their business (Hill & Jones, 2010, p. 64). Figure 3. An example of Competitive Analysis Microsoft Company reigns supremacy in Computer operating system software market with Windows and DOS. Microsoft has established its dominance in the industry following its superior research and marketing strategies as well as good partnership with leading hardware vendors producing personal computers. This has allowed Windows and DOS to become a crucial operating environment in most computers since they are used in most personal computers and are readily available in the market. Microsoft’s primary competitors are IBM and Apple. Both these companies have competing operating systems; however, they suffer a weakness that Microsoft has already exploited from them. Apple’s operating system for the Macintosh line of computers is constrained to only Macintosh type of computers, and hence it does not run most of the popular office applications that are accessible in DOS and Windows. IBM’s OS/2 operating system also exhibits the same problem (Silverthorne, 2005, p. 1). Microsoft navigated all its essential parameters including the volatility in the comprehensive economy of competition, technological break-through and market saturation to get its products in the market and also use the available resources to develop and acquire new technologies so as to meet the needs of their stakeholders effectively. Microsoft Competitive Strategies Microsoft succeeded in dominating the global software industry mainly by employing a leadership team filled with highly motivated, creative and talented managers who provided tactical linkage between the workers, leadership, and corporate strategy. All Microsoft employees understood that although knowledge and technology were essential, it was more crucial to know how to use these knowledge and technology to make money. In order to manage inventive people and technical skills in an effective manner, so as to produce new and improved products, Microsoft employed a unique team of workforce. This team established efficient specialties within the modular teams with overlying responsibilities. In addition, each product team had its product manager, who had marketing skills to provide technical assistance to their users and analyse customer feedbacks. In addition to price reductions on volume purchase and pre-installed contracts, Microsoft created a competitive market strategy known as applications bundling. This application featured the integration of commonly used desktop applications, business spreadsheets, computer graphics, data management, and electronic mail onto a single package sold at only $250. The retail price of each of the products sold independently was about $300. Lastly, when one computer operating systems controls more than 80% of the PC market, independent companies writing PC user programs find it lucrative to develop products that will be compatible with the system. Then if, resources and time permit, the company can then develop applications for the competing systems. Microsoft’s window is so much dominant in the computer market that many software development companies do not write OS/2 and Mac OS applications for their products since their market share are too small to necessitate the effort. Both IBM and Apple have continued to have problems in getting independent software companies to write applications for their OS. Companies that provide OS with limited applications also find it difficult to sell those systems to their users. By early 1990s, the commotion of the computer industry had grown to be intranet and internet. Intranet is a secure and privately owned model of the internet for companies. With the sudden popularity of the Internet multi-media, Main Street, emergence of Fortune 500 proprietor firms, and the World Wide Web, there was an increase in computing on these networks. The internet/intranet had turned out to be an inexpensive though powerful alternative form of communication, and an alternative competitor to the conventional computer setups. The rise of internet and intranet generated dramatic realignments of the market shares threatening all the accomplishments Microsoft had already achieved. The intranet and internet popularity was forcing conventional computer industries such as IBM, AT&T, Microsoft, and Hewlett Packard to rethink their basic assumptions of conducting business. Meanwhile, companies previously out looked as niche players such as Oracle Systems, Netscape, Sybase, Sun Microsystems, and Novell had increased their sales and stock value in the preceding years. This led the CEOs of some competing computer firms to refocus their entire efforts on the internet and intranet to make them network centric and catch the tidal change in the industry. The analysis of Microsoft reveals that the company relied primarily on a continuous improvement business approach. The company appeared to adopt an innovative export processing strategy involving continuous improvements from seamless integrations and upgrading of formerly developed products. Thus, apart viewing the continuous improvements and innovative strategies as unique approaches, they could also be integrated to capitulate sustainable competitive advantage (Slater & Narver, 1994, p. 52). Another example of competitor to Goole in the internet search engine is Yahoo. Both Yahoo Search Market (YSM) and Google’s Adwor providesearch advertising that allows their advertisers to bid on spaces identified with keywords and close search results. The reason behind the development of cut-throat competition lies within their different network connections and business philosophies. Yahoo strategies lean more towards being a media company other than a technology investor. Their key focus has shifted handling partnerships with advertisement companies. Google, on the other hand, focus on individual potential skills. They rely on their engineers to come up with new innovative thoughts for the company. Google’s key focus is innovation and technology, and its staff is well aware of the fact that they ought to stay innovative so as to remain competitive. Google, recently acquired YouTube in an attempt to increase its advertising market. It is also enlarging its boundaries and upping the ante in an effort to be more competitive than other Internet Search Engines. Conclusion The external environment faced by a company together with its business unit’s influence the strategy to be employed, the strategy’s value, and the performance of the company. Environmental analysis for that reason is not a passive exercise, but is an active and crucial input to strategic development, assisting the company in identifying attractive prospective and make decisions on how and where to compete. The drivers of change are mostly the external factors that affect the company. However, as the worldwide economy crossed the new century, numerous changes begun to take place on the multiple fronts. Some of these amendments made traditional business tools and models be outdated, altering the rules for existing competitors while challenging the presumptions of others. Strategic development requires a company to understand the critical variables that are changing, the pace by which these changes are occurring, and their possible impact to the company. Managers need to pick the essential variables that affect the company or business in order to be competitive in the external environment. They also need to forecast and estimate the pace and nature of the environmental changes to be able to determine the right cause of action to employ when faced by a problem. Finally, managers should estimate the potential impact of these changes to the company. Some changes may have a significant effect to the company while others may not. The company should allocate its environmental resources towards changes that have a significant impact on the company’s strategy and a high possibility of occurrence within a relative time zone (Hill & Jones, 2010, p. 68). References Donald, P. Cushman., & Sarah, S., King. (2001). Excellence in Communicating Organizational Strategy. Albany: State University of New York Press. Hill, C. W. L., & Jones, G. R. (2010). Strategic management theory: An integrated approach. Boston, MA: Houghton Mifflin. Michael, E., Porter. (2013). The Five Competitive Forces that Shape Strategy. Retrieved from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1. Mind Tools. (2013). Porter’s Five Forces: Assessing the Balance of Power in a Business Situation. Retrieved from http://www.mindtools.com/pages/article/newTMC_08.htm Raymond, S., Kulzick. (2000). Market Characteristics. Retrieved from http://www.kulzick.com/mrktchar.htm. Robert, E., Hoskisson, Michael, A., Hitt., & Duane Ireland. (2008). Competing for Advantage. Mason, OH: Thomson/South-Western. Sean Silverthorne. (2005). Microsoft vs. Open Source: Who Will Win?. Retrieved from http://hbswk.hbs.edu/item/4834.html. Stanley, F., Slater, & John, C., Narver. (1994). Does Competitive Environment Moderate the Market Orientaition-Performance Relationship? Journal of Marketing, 58(1), 46-55. Read More