Case study – Google

Google case study

Google came into existence in March 1998 when two Stanford University students, Larry
Page and Sergey Brin, set up the shop in a friend’s garage to work on their big idea for a
search engine. Today, Google is one of the most admired companies in the United States of
America and, in 2009, appeared for the first time on Fortune’s list of most admired
companies in fourth place. According to several sources Google handles between 67 and 77
per cent of the internet search market in the USA.

In 2008 Google sold nearly $22 billion in advertising, more than any media company in the
world. Recent profits have been $13.17 billion on sales of $23.65 billion, with profit margins
of 27.57 per cent (the return on equity is just over 20 per cent). The firm has cash reserves of
over $24 billion. As a comparison the sales and profits figures for Yahoo! are $6.46 billion
and $4.19 billion, respectively; with profit margins of 9.26 per cent (return on equity is just
over 5 per cent). The firm is committed to sustainability and supports a range of ‘Green’
initiatives. In 2005 Google announced the launch of a new foundation, Google.org. The
intention was that 1 per cent of Google’s equity and profits would be used for philanthropy,
although this figure was cut back as a result of the global recession.

Google’s declared mission is to organise the world’s information and make it universally
accessible and useful. Consequently, the firm has used its profits to grow the business
globally as well as to finance the expansion of its services into a number of semi-related and
unrelated services. The firm operates in highly competitive markets prompting a senior
manager to state that competition is ‘a click away’. Certainly, Google has demonstrated the
ability to be competitive. The firm achieved competitive advantage between 1999 and 2001
because of its innovative and radically different approach to internet search and since then
has sustained its advantage by developing more products and online services, such as Google
Chrome and Gmail. The business model at the heart of this strategy is both simple and clever.
The model enables Google to provide a free product/service to one set of customers (i.e. users
carrying out searches) while making another set of customers pay (i.e. advertisers). The firm
enjoys considerable latitude in setting prices for key words.

Google has used acquisitions to diversify its interests. For instance, it now owns YouTube,
which is the largest online video site, and Motorola Mobility, purchased for $12.5 billion in
2011. The latter acquisition was intended to strengthen its Android operating system and
enable Google to expand into areas other than the smartphone market. The deal enabled the
firm to access intellectual property comprising over 17,000 patents (with another 7500
pending) and, in turn, potential access to even more customer information. Although Android
had secured Google a 43 per cent share of the global market in mobile phone operating
systems (June 2011) the firm still could not match Apple’s 40 per cent operating margins.

However, in the USA concerns have been raised about the firm’s market dominance, and
various antitrust investigations have been launched in the last three or four years. However,
Google has not been accused of anticompetitive tactics (unlike some technology giants in the
past) and none of the US investigations have been aimed at Google’s core advertising
business. It has been difficult to fit Google’s business model into current regulatory
frameworks in the USA. A recent ruling by the Advocate-General to the European Court of
Justice also suggests that it is brand owners, and not Google, who are responsible for
monitoring unlawful activities on the internet by competitors.

Until recently, Google’s strategy in China had provoked a great deal of criticism and adverse
publicity. China has been a problematic market for many Western multinationals. Concerns
have been raised since the 1990s, when China first opened its home markets to foreign firms,
about human rights abuses as well as a range of ethical issues around employee rights,
working conditions and environmental practices. Google had to decide if it was prepared to
operate in compliance with China’s censorship policies as a condition for expanding its
services/products into Chinese markets. Up to this point the firm had no physical presence in
China and its search engine could only be accessed through local providers (with the level of
server performance being very inconsistent). Google wanted Chinese consumers to be able to
access a high-quality service directly from the firm (i.e. Google.cn).

However, the firm’s decision to comply with China’s policies on censorship by filtering key
words provoked widespread criticism from organisations such as Amnesty International,
Reporters without Borders and Human Rights Watch. A number of stakeholder groups saw
this decision as a violation of Google’s core values of honesty, responsiveness, trust, and
‘Don’t be evil’ (all of which are set out in the firm’s own code of conduct). In January 2010
Google claimed that it had been subjected to cyber attacks intended to access the firm’s
software codes and the email accounts of human rights activists. As a result of these
violations of intellectual property, Google threatened to pull out of China unless the
government agreed to a new legal unfiltered search engine. In the meantime the firm decided
to redirect users in mainland China to its unrestricted site in Hong Kong. The Chinese
government condemned Google’s new stance. Given the Chinese market is expanding by 40
per cent per annum Google effectively made a high-risk strategic decision.

Google has been ranked as one of the very best employers in the USA on the basis of the
compensation and benefits it provides to employees. The firm proudly states: ‘We believe we
have created a work environment that attracts exceptional people. We know that people value
meaning in their work; they want to be involved with things that are important and that are
going to make a difference … Talented people are attracted to Google because we empower
them to change the world.’

It appears that the firm favours ability over experience. The firm culture is characterised by
information and knowledge sharing, innovation and fun. This emphasis on fun is also
reflected in other aspects of the firm; for instance, the quirky way in which Google Chrome
was launched. This new product was announced through the medium of an online comic
strip. Yet Chrome represents a potentially fundamental shift in computing that could
challenge Microsoft’s market dominance. This is because the rise of broadband internet
access has created an environment where traditional software applications, such as word
processors or spreadsheet programs, no longer need to reside on a computer. Instead, they can
be run on the internet and the documents created can be stored on web servers so they can be
accessed from anywhere that has internet access. It no longer matters what operating system a
computer runs because all it needs to have is an internet browser and an internet connection.

At Google the HR function is referred to as People Operations. The Google socialisation

process starts at the recruitment stage. Employees are referred to as ‘Googlers’ and the firm
has a stringent recruitment process, involving a succession of (often lengthy and time-
consuming) interviews, designed to select the very best people: those that are highly
intelligent, extremely ambitious and are likely to demonstrate high levels of commitment to
the Google vision. School test results are still taken into account even when a candidate has
since acquired excellent work experience. The reputation of university attended is also very
important. However, these processes have been criticised as elitist. In 2009 The Justice
Department started to examine the hiring practices at Google and other technology
companies,

As an illustration of Google’s approach to compensation and benefits, the following were

available to employees at the Mountain View site, California, in 2007: free meals in the
canteen, paid sabbaticals, being allowed to bring a dog to work, free car washes and oil
changes, onsite childcare, a $2000 reward for referring new employees, free onsite
hairdresser salons. However, the recession saw a slowing down of business growth and the
firm decided to tackle waste with initiatives ranging from the replacement of refrigerated
bottled mineral water with filtered tap water in cups, and a 10 per cent reduction in the
quantity of food served on plates in the organisation’s cafes and canteens, to a 20 per cent
reduction in the cost of business travel, and a significant reduction in contract workers. The
organisation also demonstrated a more cautious approach to the recruitment of new talent.
Sergey Brin, co-founder of Google, also felt that these ‘austerity’ measures would help to
counter a creeping sense of entitlement that he had begun to notice among employees. The
firm also announced for the first time a decision to make Googlers redundant (a hundred
employees in a recruiting operation in Phoenix).

Some former employees have cited low pay (relative to competitors) as a reason for leaving
the firm. In order to improve senior managers’ understanding of how employees perceive
Google’s approach to compensation and benefits, the firm conducted a comprehensive
employee attitude survey (which had a response rate of 90 per cent). The stated aim was to
raise all salaries to a more competitive level. In the three months immediately following this
decision employee retention increased significantly. Employee attrition has also been the
result of key employees leaving to join another high-tech organisation (often newer and
perceived to be more nimble) or to set up their own businesses, while others have decided to
use their stock-options to take early retirement. Some employees have commented on the
lack of promotion opportunities (the organisation has a relatively flat structure).

As Google grew, the organisation introduced the concept of Objectives and Key Results
(OKRs) and this became an essential component within the Google culture: every employee
was required to set and obtain approval for quarterly and annual OKRs that were consistent
with OKRs at team or departmental level. As Levy observes:

Four times a year, everything stopped at Google for divisionwide meetings to assess OKR
progress. An outsider might have wondered if this were a sign of Dilbertization at Google, an
annoying program that diverted energy from real work. But Googlers didn’t seem to think so.
They saw the OKRs as data, a means of putting a number on the traditionally gooey means of
assessing performance. It was essential that OKRs be measurable.

(Levy, 2011, p. 163).

OKRs are made public within the firm via the firm’s internal website, MOMA. This level of
transparency reflects Google’s stated desire to maintain the small-firm culture of its start-up
phase (even though bureaucracy and defensive practices had been creeping into the firm and
management and employee activities that had once been regarded as fun were becoming
increasingly routine and less effective).

People Operations has shifted its primary focus from recruitment to keeping employees
happy. This strategy has hinged on the development of metrics that provide data on the
reasons for employee attrition. Analysis of various HR metrics in 2009 enabled the ‘analytics
team’ (within People Operations) to identify the Eight Habits of Highly Effective Google
Managers. This exercise was dubbed ‘Project Oxygen’ and involved statisticians collecting
data on 10,000 observations about Google managers from across 100 variables. These
observations were computer coded so that patterns could be identified. Inevitably this was a
very time-consuming process. The eight habits included: having a clear strategy and vision
for the team; helping your employees with their career development; and ‘don’t be a sissy: Be
productive and results-oriented’.
References

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