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The Impact of Corporate Culture on the Growth and Profitability of IT Companies: The Case of Google| 7
In today's global economy, companies from different industries are trying to create a unique competitive advantage to stay in business and maximize their shareholders' equity. In doing so, companies should analyze their largest expenses and try to minimize these costs while utilizing their resources in order to make the most from these expenditures.
The largest operating expense in U.S. companies is salary. To maximize this expenditure, businesses should devise ways in which to motivate their employees to be more productive. Controlling employees to come to work is easy, but how can companies motivate their employees to work to their full capacity? One way in which this can be accomplished is by creating a suitable, attractive, and tension-free working environment for employees. In doing so, companies can create a strong corporate culture which could offer a competitive advantage. As an example, Google has become one of the largest IT companies in the world in fewer than two decades from its establishment. Not only has Google grown to be one of the largest IT company in the world, it has also developed unique and innovative products, a high job growth, and a secure position as one of the top five companies for which to work. Google has managed to achieve this not only by developing appropriate business strategy, but also creating a strong corporate culture that concentrates mainly on employees and customers. In this research, I will try to analyze Google's achievements. I will conduct a small survey to examine the adaptability of Google's flexible corporate culture in IT companies located in Utah.
Statement of the Problem
The old saying, “You can lead a horse to water, but you can't make him drink” may hold true for employees as well; you can make employees come to work, but it is not easy to make them work to their full capacity. Companies may use different methods to control their employees to make them work to their fullest working capacity, but this does not always succeed.
To understand employees' work satisfaction and engagement in their work, it is useful to analyze a survey conducted by the Gallup Management Journal (GMJ) (Houser, 2009). The GMJ surveyed U.S. employees to understand how engaged they are in their work and their attitudes toward their managers. According to the study, there are three types of employees:
1. Engaged employees: Those who work with passion, motivation, and have deep feelings toward their company. These people are the ones who move the organization.
2. Not-engaged employees: Those who are physically present in the company but mentally absent. These employees are not motivated, and they don't care about their company. They come to work simply to put in hours. The survey refers to them as “walking through their workday.”
3. Actively disengaged employees: Those who are not only unhappy, but they express their unhappiness in different ways. They may undermine what their engaged coworkers accomplish.
The study results showed that 26% of respondents are engaged in their work, 56% of the respondents are not engaged in their work, and 18% of the respondents are actively disengaged in their work. The following chart illustrates the finding of this study.
The respondents of the survey were asked if they would fire their manager, given the opportunity. Respondents indicated that 24% would fire their manager if they were given the chance. Of this number, 6% of those respondents were engaged in their work, 23% of the number were not engaged in their work, and 51% of the respondents were actively disengaged in their work. Therefore, less engaged employees tend to dislike their managers, and would fire them, given the opportunity.
According to the study, this lack of productivity costs companies billions of dollars. Approximately 24.7 million employees age 18 and over are actively disengaged; this represents 18% of the total workforce. From 2000 to 2007, actively disengaged employees in the U.S. cost the country's economy from $334 to $431 billion every year in low productivity.
The Cost Of Disengagement
In this study, I will analyze the different reasons why employees are disengaged from their work, and I will suggest recommendations to solve this problem by taking as an example a successful company in the U.S.
Purpose of the study
Today, different companies are trying to find a unique competitive advantage. One competitive advantage that was overlooked for many years is an attractive organizational culture. Not only will a superior organizational culture help in attracting and retaining the best employees, it can also be used to create a loyal customer base.
In this paper, I will investigate the organizational culture of Google, Inc. in the information technology (IT) industrial sector. I will analyze how Google has capitalized on its organizational culture to become one of the largest search engines and IT companies in the world. I will conduct a small survey on organizational culture on IT companies located in Salt Lake City, Utah to determine useful recommendations by analyzing the results of the survey and comparing these to Google's organizational culture.
Before analyzing organizational cultures, it would be beneficial to answer some questions as to why this topic was selected as well as other related issues.
Why I Focused on Organizational Culture
Many companies have tried to come up with a competitive advantage to maximize the shareholders' profits. For years, an attractive corporate culture was not considered as vital to the success of an organization. Unlike external factors of business, which are not directly controlled by organizations, corporate culture is an internal environmental force which can be manipulated by organizations in their favor.
Why I Emphasized the Employees
Employees are the executers of the plans and strategies of the organization. Most companies consider employees as their asset, but, in my opinion, employees are much more than this. According to a study conducted by the United States Census Bureau, companies' largest operating expense is salary. (U.S.CensusBureau, 2000) (See charts below). By taking care of their employees, organizations can get the best results from them. The following charts show the breakdown of operating expense for different industries in 1997 as it was studied by the U.S. Census Bureau under the Economic and Statistics Administration in the U.S. Department of Commerce. Even though, this study was conducted more than a decade ago, I have included it, because I believe it shows the general trend of the breakdown of operating expenses within U.S. industries.
Merchant wholesale companies have five major operating costs. Of these, payroll was by far the largest operating expense. If payroll expense and fringe benefits, which are operating expenses toward employees, are combined, more than half of the total operating expenses go toward employee salaries.
The breakdown of operating expenses of retail trade has the same tendency as that of the merchant wholesaler. In fact, the only difference is that the expenses for rent by retail trade businesses are a little bit higher than that of the merchant wholesaler.
The breakdown of operating expense for business services, which include IT industries, shows a larger expense toward employees. Payroll, consisting of 51% of total operating expense, contract labor, consisting of 5% of total operating expense and fringe benefits, consisting of 8% of total operating expense makes up a total of 64% of the total operating expense.
The breakdown of the operating expenses for legal services follows the same trend as for business services.
The following chart compares payroll expenses of different sectors of business
According to the above chart, business services, health services and legal services pay the highest portion of operating expenses to payroll. Clearly, if companies are paying the majority of their operating expense toward the salaries of their employees, they should try to get the most from their workforce.
Another study conducted in 2007 by the AmericanTimeUseSurvey through the U.S. Bureau of Labor Statistics (AmericanTimeUseSurvey, 2007) showed that of the total working people in U.S., those who were between the ages of 25 to 54 living in households with children under the age of 18 spent most of their time either working or in work-related activities. The survey was provided from data taken on non-holiday weekdays. Out of the total 24 hours, those between the age of 25 to 54 living in households with children under the age of 18 spent 8.7 hours working or on work-related activities, 7.6 hours sleeping, 2.6 hours on leisure and sports, 1.2 hours caring for others, 1.1 hours on household activities, 1.1 hours in eating and drinking and the remaining 1.7 hours on other activities. The following chart illustrates these hours in percentiles.
Based on this survey, people with children between the ages of 25 to 54, who were part of the labor force, spent the majority of their time at the workplace or doing work-related activities. If companies created a suitable and stable environment, this labor force would be motivated to work harder to help companies maximize their profits.
This study will research and analyze how companies could create a competitive advantage by attracting and retaining the best employees through a superior corporate culture.
Why I focused on IT
IT, by any comparison, is the fastest growing industry in the world. Companies are spending billions of dollars every year, which has made the IT industry one of the most profitable industries in the world. According to a study conducted by the U.S. Census Bureau in 2005 and published in 2007 (U.S.CensusBureau, Information and Communication Technology: 2005, April 2007), the information industry by itself contributes 52.4 billion dollars to the IT industry through purchases of hardware and software annually. The finance and insurance sectors spent $44.2 billion; the manufacturing, professional, scientific, and technical services sectors spent $32.5 billion; the health care sector spent $27 billion; and the social assistance business sector spent $19.9 billion on IT hardware and software components in 2005 alone. Based on this study, more than $200 billion was spent on IT hardware and software by different business sectors in 2005.
According to this study, the noncapital and capital expenditures for computer software were higher compared to IT hardware. It is a general assumption that if companies are investing more on computer software, the software industry is generating a lot of money. In 2005 alone, the noncapital expenditure for computer software was $54.2 billion, whereas the capital expenditure for the same sector was $49.8 billion. Therefore, this research will focus on computer software companies.
Why Focus on Google?
Google is one of the fastest growing companies in the world. It has grown sevenfold over the last decade. According to Fortune, Google was listed as the fourth best company to work for in 2009 (100 Best Companies to Work for 2009: Google - GOOG - from Fortune, 2009).
Even though Google was listed as the fourth best company to work for in 2009 by Fortune, it has the highest job growth rate when compared to the other companies listed in the top ten. While Google has a 40% job growth rate, NetApp, which was listed in first place, only has a 12% job growth rate. Edward Jones and Boston Consulting Group, listed second and third, have only a 9% and 10% job growth rate respectively (100 Best Companies to Work for 2009: Google - GOOG - from Fortune, 2009).
Google has shown tremendous growth over the past few years. As the following chart indicates, from 2004 to 2008, the net income of the company increased tenfold. Even when the world economy was in a recession at the end of 2007 and 2008, Google managed to secure a high net income (GoogleInc, 2008).
Google has an interesting workforce distribution. As of December 31, 2008, 40% of Google's total workforce was in sales and marketing, 36% in research and development, 15% in general and administrative positions, and the remaining 9% in operations (Google Inc., 2008). According to this data, Google places nearly as large an emphasis on research and development as it does for sales and marketing. Having a large staff in research and development will ensure a strong future market when it is supported with an appropriate corporate strategy.
Even if it is difficult to conclude that Google will have a bright future based on the distribution of its workforce, it is certain that this strong contingency of Google's research and development team has proven to be valuable by developing new and exciting technologies, making it difficult for competitors to catch up.
In today's globalized and integrated world, change within industries and organizations occurs rapidly. Understanding the impact of an organization's environment could assist organizations in coping with this change. The organizational environment includes all elements existing outside the boundary of the organization that have the potential to affect the organization (Daft, Organization Theory and Design, 8th ed., 2004).
The organizational environment consists of the external environment and the internal environment. The external environment is made up of those forces that exist outside of the organization's boundaries and have an effect on the organization. The external environment is further divided into the general environment and the task environment. The general environment is the outer layer that is widely dispersed and affects organizations indirectly (Daft, Management, 7th ed., 2005). The general environment includes technological, socio-cultural, economic, legal/political, and international factors. On the other hand, the task environment is closer to the organization and includes the sectors that conduct day-to-day transactions with the organization and directly influence its basic operations and performance (Daft, Management, 7th ed., 2005). The task environment includes customers, labor market, suppliers and competitors.
The internal environment includes the elements within the organization's boundaries (Daft, Management, 7th ed., 2005). It includes employees, management and culture of the organization. In this paper the focus is on the culture of the organization and its affect on the performance of the organization.
A corporate culture is defined as the set of key values, beliefs, understandings, and norms shared by members of an organization (Martin, 2002) (Kilmann, Ralph H.; Saxton, Mary J.; Serpa, Roy, 1986) (Smircich, 1983). It could also be defined as an “interdependent set of beliefs, values, ways of behaving, and tools for living that are so common in a community that they tend to perpetuate themselves, sometimes over long periods of time. This continuity is the product of a variety of social forces that are frequently subtle, bordering on invisible, through which people learn a group's norms and values, are rewarded when they accept them, and are ostracized when they do not” (Bemowski, 1995) (Wilhelm, 1992).
Corporate culture is derived from both the management and the organization itself. The management, through its philosophy, values, actions and the organization through its roles, structure, systems and technology comprise the corporate culture. Feedback is received from the corporate culture to the management and organization. The following illustrates this process.
There are different classifications of corporate culture defined by different authors. The different views of four authors will be considered in the following:
1. Henry Migliore
After studying 24 organizations, Henry Migliore included 20 cultural factors, which he referred to as the “Corporate Culture Index” (Migliore, Henry; R.T. Martin; Tim Baer; and Jeffrey L. Horvath, 1989). These factors include the following characteristics.
* Member Identity: the degree to which employees identify with the organization as a whole in their type of job or field of professional expertise
* Team Emphasis: the degree to which work activities are organized around teams rather than individuals
* People Focus: the degree to which management empowers the employees within the organization
* Autonomy: the degree to which departments within the organization are encouraged to operate in a coordinated or interdependent manner
* Control: the degree to which rules, regulations, and direct supervision and used to control employee behavior
* Risk Tolerance: the degree to which employees are encouraged to be aggressive, innovative, and risk-seeking
2. Geert Hofstede
Geert Hofstede believes the behavior of organizations is affected by a national and regional cultural grouping. To study this point, he looked for a national difference among over 100,000 of IBM's employees in different parts of the world. He came up with five dimensions of culture that influence national regional groupings (Hofstede, 1980). These are:
* Power distance: the expectation of society on the levels of power an individual possess in the society. A high score of power distance reflects the expectation of the society that some individuals possess more power than others. A low score of power distance reflects the expectations of the society that all people have equal rights
* Uncertainty avoidance: the degree to which a society accepts uncertainty and risk
* Individualism vs. Collectivism: the degree to which people stand up for themselves or act as part of a group
* Masculinity vs. Femininity: the degree to which the society gives value to the male or female
* Long vs. Short-term Orientation: the degree to which a society values long term or short term orientation
3. Deal and Kennedy
According to Deal and Kennedy, organizational culture is the way things get done in an organization (Deal & Kennedy, 1982). They measured an organization's culture using different elements. These elements include:
* Feedback: response from the organization
* Risk: the degree of uncertainty in the organization
Using these two elements, Deal and Kennedy suggested four classifications of corporate cultures (Deal & Kennedy, 1982). These are:
* The Tough-Guy Macho Culture: The feedback, which is the response from the organization, is quick and the reward is high.
* The Work Hard/Play Hard Culture: Few risks are taken, but the feedback, which is the response from the organization, is rapid.
* The Bet Your Company Culture: This involves high risk, but it may take a long time to know the outcome of the decision or action.
* The Process Culture: This is associated with bureaucracy in the organization. It is common in organizations where there is little or no feedback.
4. Charles Handy
Charles Handy developed Roger Harrison's work of 1972 which linked organizational structure to organizational culture (Handy, 1985). According to this idea, there are four types of culture. These are:
* Power Culture: A few will rule the organization from the middle.
* Role Culture: Employees have clearly delegated authority and the structure of the organization is highly defined.
* Task Culture: Teams are formed to solve particular problems; this is a common organizational culture for a matrix structure.
* Person Culture: Employees focus on individualism rather than team work. These organizations will face a hard time staying above water.
A corporate culture has two levels, visible and invisible. The visible level of culture can be seen at the surface level. It includes symbols, stories, heroes, slogans and ceremonies. The invisible level is deeper values and shared understandings held by organization members who include expressed values, assumptions and deep beliefs. The following illustrates the levels of corporate culture.
It is difficult to express the invisible level of corporate culture since it cannot be seen as compared to the visible level of corporate culture. The visible level of corporate culture has different entities. These include:
* Symbols: an object, act, or event that conveys meaning to others. Symbols can be considered a rich, non-verbal language that vibrantly conveys the organization's important values concerning how people relate to one another and interact with the environment (Pratt & Rafaeli, 2001).
* Stories: narratives based on true events that are repeated frequently and shared among organizational employees (Daft, Management, 7th ed., 2005).
* Heroes: s who exemplify the deeds, character, and attributes of a strong corporate culture (Daft, Management, 7th ed., 2005).
* Slogans: a phrase or sentence that succinctly expresses a key corporate value (Daft, Management, 7th ed., 2005). Companies use slogans to convey their core values and missions. Examples of slogans are Google's “Don't be evil,” and Microsoft's “Our passion, your potential.”
* Ceremonies: a planned activity that makes up a special event, and is conducted for the benefit of an audience (Trice & Beyer, 1984).
According to research conducted at Harvard on 207 U.S. firms (Kotter & Heskett, 1992), corporate cultures can be divided into adaptive and unadaptive corporate cultures. The study found that a strong corporate culture by itself does not guarantee company success. However, when strong corporate culture adapts to the external environment, it will bring success to the company's business.
In both adaptive and unadaptive corporate cultures, there are visible behaviors and expressed values. In the adaptive corporate culture, managers are concerned with their customers (external environment) and employees (internal environment). On the other hand, in an unadaptive corporate culture, managers are concerned only with themselves. Therefore, they don't want change or risks. A strong corporate culture should always be adapted to the external environment (Kotter & Heskett, 1992).
Table 1: Adaptive and Unadaptive Corporate Culture
Adaptive Corporate Cultures
Unadaptive Corporate Cultures
Managers pay close attention to all their constituencies, especially customers, and initiate change when needed to serve their legitimate interests, even if it entails taking some risks.
Managers tend to behave somewhat insularly, politically, and bureaucratically. As a result, they do not change their strategies quickly to adjust to or take advantage of changes in their business environments.
Managers care deeply about customers, stockholders, and employees. They also strongly value people and processes that can create useful change (e.g. leadership initiatives up and down the management hierarchy).
Managers care mainly about themselves, their immediate work group, or some product (or technology) associated with that work group. They value the orderly and risk-reducing management process much more highly than leadership initiatives.
Types of Cultures
There are four types of corporate culture, which can be further classified into two matrixes. These are the needs of the environment, which could be flexible or stable, and the strategic focus, which can be external or internal. The four categories associated with this are adaptability, achievement, involvement, and consistency (McDonald & Gandz, 1992) (Denison & Mishra, 1995).
The four types of corporate cultures are:
1. Adaptability culture: A culture characterized by values that support the company's ability to interpret and translate signals from the environment into new behavior responses. It emerges in an environment that requires fast response and high-risk decision making. Managers encourage values that support the company's ability to rapidly detect, interpret, and translate signals from the environment into new behavior responses. Employees have autonomy to make decisions and act freely to meet new needs, and responsiveness to customers is highly valued. Managers also actively create change by encouraging and rewarding creativity, experimentation, and risk taking (Daft, Management, 7th ed., 2005).
2. The achievement culture: A results-oriented culture that values competitiveness, personal initiative, and achievement. It is suited to organizations that are concerned with serving specific customers in the external environment but without the intense need for flexibility and rapid change. This is a results-oriented culture that values competitiveness, aggressiveness, personal initiative, and willingness to work long and hard to achieve results (Hooijberg & Petrock, 1993).
3. The involvement culture: A culture that places high value on meeting that needs of employees and values cooperation and equality. It has an internal focus on the involvement and participation of employees to rapidly meet changing needs from the environment. This culture places a high value on meeting the needs of employees, and the organization may be characterized by a caring, family-like atmosphere. Managers emphasize values such as cooperation, consideration of both employees and customers, and the avoidance of status differences (Daft, Management, 7th ed., 2005).
4. Consistency culture: A culture that values and rewards a methodical, rational, orderly way of doing things. It has an internal focus and a consistency orientation for a stable environment. Following the rules and being thrifty are valued, and the culture supports and rewards a methodical, rational, orderly way of doing things, since there is no stable environment. It is rather difficult to have this kind of corporate culture (Daft, Management, 7th ed., 2005).
The Start of Search Engines
Most people agree that the first pre-web search engine was Archie created by Alan Emtage in 1990, while he was a student at McGill University. At that time, the Internet was used by learning institutions to store different kinds of documents on shared machines. Since there were no search engines at that time, if one did not know the exact machine address and file name, it would not be possible to find the document. Emtage created an interface for the search engine, calling it Archie, and used an indexed filing system. In order to use Archie, a user would log in to an Archie server via a command line interface and type in keywords that matched the file title being searched. The result from Archie would display the possible machine locations in which the file could be found. The user then had to log in to each machine and look for the individual file. Archie provided the machine name where the file could be found, but the user had to know a keyword in the title of the file being searched. This may seem useless today, but it was the best technology available at the time.
In 1993, students at the University of Nevada created another search engine similar to Archie, which they called Veronica. The main difference between Archie and Veronica was that Veronica's search results showed the possible document names. As the Internet started to grow larger, from 130 sites in 1993 to 600,000 in 1996, the glory of Archie and Veronica also faded.
Matthew Gray, a researcher at the Massachusetts Institute of Technology, created a web based search engine known as WWW Wanderer. The Wanderer had a list of indexed sites at the back end and a search interface that allowed users to search the index at the front end.
In 1994, Brian Pinkerton, a researcher from the University of Washington, developed a more powerful search engine by the name of WebCrawler. WebCrawler could index the full text of a web document it found and also use a linking of different web pages, just as Google's PageRanking algorithm does.
Alta Vista was the next stronger search engine invention. Unlike other search engines, Alta Vista was created to test the performance of the superfast Alpha processor. After Digital Equipment Corporation (DEC) made a superfast Alpha processor, the company was looking for a way to test its performance. One of DEC's researchers, Louis Monier, was working at Western Lab in Palo Alto, California, and came up with the idea of building a search engine that could load the entire Internet onto the Alpha computer to show the processor's speed. Not only did Monier come up with the idea, he also built the search engine. However, the management of DEC did not realize the magnitude of this discovery. Some believe that the management could not understand the marketability of Alta Vista, because they considered DEC to be a hardware, not a software company.
In January 1998, Compaq purchased DEC for $9.6 billion dollars. Compaq recognized the marketability of Alta Vista and started to invest more into it. Rod Schrock, a Compaq executive, was given the responsibility of Alta Vista, and developed the site to look like Yahoo. In June 1999, Compaq sold Alta Vista to CMGI, an Internet holding company, for $2.3 billion dollars, mostly in stock. CMGI could not hold on to Alta Vista for long since it lost 90 percent of its value. In 2003, CMGI was forced to sell Alta Vista to Overture Services, Inc. for $140 million. Yahoo acquired Overture Services, Inc., and Alta Vista became owed by Yahoo, its former fierce competitor.
Yahoo had opened its doors two years prior in March 1995. Yahoo was started as a project to win a fantasy basketball league by two Stanford PhD candidate students, Jerry Yang and David Filo in the early 1990s. Both were studying electronic design automation, which was a popular field when they began studying but the subject got cold when these students reached their fourth year of their doctoral work. “The prospects of finishing and getting on with life were pretty grim. The real story is that we were bored with our PhDs and we did everything we could to avoid writing our thesis,” (Battelle, 2005) Yang recalls. To win a fantasy basketball league, Filo came up with an Internet crawler that collected data from basketball sites using protocol and compiled the data based on different categories like players' performance, trade amount, history, etc. Yang and Filo won the fantasy basketball league using their project (Battelle, 2005).
After the first browser was released in 1993, Yang started surfing the Web and maintaining a list of sites he was most interested in. Filo continued to develop software, and later wrote “Jerry and David's Guide to the World Wide Web,” which helped to automate the list of sites Yang was collecting. Yang created a home page for the software Filo developed and called it Akebono, named after a famous sumo wrestler (Battelle, 2005). “Jerry and David's Guide to the World Wide Web” became quickly famous, first among Stanford graduate students and then throughout the Web.
In 1995, Yang and Filo realized the potential of “Jerry and David's Guide to the World Wide Web,” and decided to invest more time into it. First and foremost, they wanted to have a catchy name for the site. Both, Yang and Filo, were inspired by computer science acronyms that started with “YA” for “yet another.” They began to search the dictionary, and when they got to “Yahoo,” they knew they had a winner (Reid, 1997). The dictionary defined the term as “a rude, unsophisticated, uncouth person,” but the word also lent itself to reverse engineering by way of an acronym: Yet Another Hierarchical Officious Oracle (Battelle, 2005).
Filo and Yang tried to sell their project, Yahoo, to different companies. However, they were unable to find interested buyers. Therefore, they decided to organize their own company. In March 1995, they accepted $2 million from Sequoia Capital's Michael Moritz and started their own company (Battelle, 2005).Yahoo added a search engine to its directory in joint venture with Alta Vista and became famous in the following years.
The Start of Google
In 1995, Larry Page, a University of Michigan graduate, was considering Stanford for his post-graduate studies. Sergey Brin, who was from Russia, was assigned to show him around. Even though the two men met in this way, during their first meeting they disagreed on most everything they discussed. Larry Page, who was from Michigan, always wanted to be an inventor having become inspired after reading about Nikola Tesla, a famous inventor in the first half of the nineteenth century. Page realized that even though Tesla's inventions were significant, he remained a minor . Page wanted to be an inventor but not a minor like Tesla. He once said about Tesla, “He had all these problems commercializing his work. It's a very sad story. I realized Tesla was the greatest inventor, but he didn't accomplish as much as he should have. I realized that I wanted to invent things, but I also wanted to change the world. I wanted to get them out there, get them into people's hands so they can use them, because that's what really matters” (Battelle, 2005). In 1996, Page enrolled into the Stanford computer science graduate school with Sergey. In the same year, they started to work on a search engine project named BackRub. The following year, 1997, these two students changed the name of the project to Google. They come up with the word “Google” as a play on the term “googol,” a mathematical term for the number represented by the number 1 followed by 100 zeros. Google was based on their idea to organize the world's information and make it easily accessible to users. The term was first used by Milton Sirotta and was popularized in the book, “Mathematics and the Imagination” by Kasner and James Newman (Google Corporation, 2009). BackRub, renamed to Google, was operating on Stanford servers and was taking up too much bandwidth to suit the university. In September 1998, Google was incorporated in Susan Wojcicki's garage at 232 Santa Margarita, Menlo Park, California. The total initial investment raised for the new company was $1.1 million, of which $100,000 was a check from Sun Microsystems co-founder Andy Bechtolsheim (Google Corporation, 2009). In February 1999, the company moved to a new location in Palo Alto, California with its eight employees. However, they did not stay there for long (Fried, 2002). They showed tremendous growth, and in August 1999, Google moved to its first Mountain View location (Olsen, 2003), where it remains to this date. The Mountain View corporate office for Google, commonly referred to as Googleplex, was at first leased from Silicon Graphics, but it was later purchased by Google from Silicon Graphics for $319 million (StaffWriter, 16 June 2006). In 2006, the word “Google” was added to the Merriam-Webster Dictionary and to the Oxford English Dictionary, meaning “to use the Google search engine to obtain information on the Internet” (Merriam Webster and Oxford English Dictionaries).
Google's search engine works in a way that when a user is searching for something, the query is sent to a Google web server, and the web server sends the request to the index servers. On the index servers, the document the user is looking for will be searched, and if it is found, it will be sent to the doc servers for the document to be retrieved. Finally the search results are returned to the user. This whole process takes a fraction of a second (Google Corporation, 2009).
Google Products and Features
Today, Google has different products that generate income or will generate income in the near future. Some of Google's major products are (Google Corporation, 2009):
* Search engine: This is considered as the major business of Google. There are different kinds of products under the Google search engine. Some of the major ones include the following:
o Book Search: Not only one can search for books in Google books, but one can also get full information about different kinds of books. Also, the soft copy of books can be read online. One can even search specific phrases or words within a book.
o Blog Search: Googlers are well known for understanding the use of blogs. For this reason, Google has developed a site to search different blogs.
o Custom Search: One of the strongest strategies of Google is the idea of giving power to the user or customer. In a custom search, users can easily create and customize their own search engine. After creating the search engine, one can link the customized search engine to any site and get the results of the search on the site.
o Google Finance: The search engine for the finance world.
o Patent Search: The search engine to find information on patents of different products.
o Product Search: This search engine lets users search for products they want to buy, providing such information as the cost and location of the item being sold. Special Searches: This search engine allows users to narrow down their search to a specific topic. For example, Google U.S. Government Search enables users to search topics that are found on sites that are hosted by the U.S. government only.
o Google goog-411: This search engine can locate different kinds of businesses in different cities and states over the phone. To use this engine, dial 1-800-GOOG-411 and give the state and the business type and the search engine will list the top search results and give options to connect the user with the search result for free.
o Images: The search engine for images.
o Scholar: The search engine for scholarly papers.
* Checkout: Google has an online store operating under the name “Checkout.” In this online store, Google sells the products of different stores as an agent. This is to say that Google does not have an inventory of any products; it is simply the middle company between stores and customers. Checkout is advantageous to customers in that they don't have to create multiple accounts and passwords for different online stores. They can have only one account with Checkout and shop in different online stores.
* Google Health: On this Google site, customers can store and organize their medical records online. They can also securely share their medical records with a family member or doctor.
* Gmail: This is Google's emailing service. What makes Gmail unique compared to other email service sites is that the user can customize their own account. Also, Gmail is the first email service site to include chat and video chat within the email service. Gmail became popular because of the large storage space it offers. When Gmail was launched, the service was only available by invitation from a person who was already using the service. Now, however, the service is available to everyone. Gmail has excellent spam filters. Not only one can chat within Gmail, but the chat can be saved. Gmail is also accessible using mobile phones.
* Mobile: Recently, Google has introduced a new mobile phone under the name G1 mobile phone. Running under the T-mobile G3 network infrastructure, G1 is more than a mobile phone. The unique advantage of G1 mobile phone is that it gives the user the choice of customizing different phone features. The software on which G3 operates, Android, is an open source software, which means that one can download the source code of Android, modify it, and use it. Additionally, Android offers good integration with Google applications and also with the Amazon MP3 store. A person using G1 can easily access Google Search, Gmail, Google Maps, Google Talk, YouTube and other Google products. The phone has a full QWERTY keyboard, 3G support, Wi-Fi, GPS and supports Bluetooth. Contacts and emails are automatically backed up on G1 phones. Contacts, emails, and calendar events are always syncing and are up-to-date and available. Some users have given G1 phones a negative rating because it does not have a standard headphone jack, and it does not support Microsoft Exchange. For some users, the design makes the phone uncomfortable to hold and use. It lacks the ability to download and save applications to the memory card and the speakerphone quality is not the greatest. (Lee & Chaand, 2008 ) Overall, Apple's iphone will have stiff competition from the G1 phone in the coming years.
* Orkut: This is the social meeting site of Google.
* Picasa: This is a site where user photos can be edited and shared.
* Talk: Using Google Talk, one can easily call or IM a friend. When using Google Talk to call someone through a computer, there is no charge incurred by the caller or the receiver of the call. Google Talk uses Voice Over IP (VOIP) for this service.
* YouTube: This is a consumer media company for people to watch and share videos. Using YouTube, people can easily upload and share video clips on at www.YouTube.com and across the Internet through websites, blogs, or e-mail. It is the most controversial service of Google because of copyright laws. YouTube has quickly gained popularity over a short period of time. Unlike other services, YouTube was not created by Google. YouTube was founded in February 2005 and acquired by Google in 2006 for $1.65 billion in a stock-for-stock transaction (Battelle, 2005).
* Other services: Google also has Google Translate, which translates web pages from one language to another; Google news, which provides not only news but also archive searches of news; Google Map, which allows users to search for directions and places using satellite images of the earth; Google Sites, which lets users create a site and share information, files, announcement and other information with other group members securely; Google calendar, which lets users organize their schedules and share events with others; Google Docs, which lets users create and share online documents, presentations and spreadsheets; Google Groups, which allows users to create discussion groups; and many other products.
Even though Google has many varied products, it consideres the search engine as its main business and gives it a high priority.
Google's Finance and Growth
Google is one of the fastest growing companies in the world. In 2002, its total revenue was only $440 million, but in 2008, it reported a total annual revenue of $21.8 billion (GoogleInc, 2008).
The growth of Google has been tremendous over the last ten years. Even in 2008, when the US and the world economy were hit with the worst recession in decades, Google still managed to generate a high income. Even though Google's revenue is large, the net income is relatively low compared with the annual total revenue. This is because of Traffic Acquisition Costs (TAC) which take nearly 30% of the total advertising revenue every year (GoogleInc, 2008). It is quite obvious that if Google managed to decrease this cost, its net income would be much higher than it is now.
Google has grown rapidly from 2004 to 2008. Its revenue and expenses have grown approximately sevenfold from 2004 to 2008 (GoogleInc, 2008). However, its net income has grown more than tenfold from 2004 to 2008 (GoogleInc, 2008) making Google one of the fastest growing IT companies in the world.
According to the consolidated statements of income data for Google, the major costs of Google are those of revenue, research and development, sales and marketing, and general and administrative costs. The following table illustrates the total revenue and different types of expenses of Google for 2006, 2007 and 2008 (GoogleInc, 2008).
Table 2: Consolidated Statement of Income Data for Google for the Year Ended December 31, 2008
Consolidated Statements of Income Data:
Costs and expenses:
Cost of revenues
Research and development
Sales and marketing
General and administrative
Total costs and expenses
Income from operations
Impairment of equity investments
Interest income and other, net
Income before income taxes
Provision for income taxes
Revenue costs hsve been the highest cost of Google followed by the cost of research and development. Google spends more money in research and development than sales and marketing and general and administrative costs. If we look at the cost of research and development compared with cost of sales and marketing from 2004 to 2008, in 2004 and 2005, the cost of research and development was equal to the cost of sales and marketing. Through the years, the cost of research and development rose higher than the cost of sales and marketing (GoogleInc, 2008). This illustrates that Google is keen on developing and introducing new products and services to the market to insure the future of the company.
Even though, Google's major cost is revenues, the majority of this cost comes from traffic acquisition charges for the different Google services (GoogleInc, 2008). The following chart illustrates the cost of revenues of Google in comparison to the total traffic acquisition cost of Google from 2006 to 2008.
Total traffic acquisition costs constitute the major portion of cost of revenues for Google. These are divided into two parts: the traffic acquisition costs related to AdSense and those related to distribution arrangements. This is illustrated in the following chart which depicts these expenses from 2006 to 2008. It is obvious that if Google managed to reduce its traffic acquisition costs related to AdSense, it could easily reduce its total revenue costs.
The following chart illustrates the profit of Google based on geographical areas from 2006 - 2008 (GoogleInc, 2008). According to the chart, in 2006 Google received more than half of its profits from the U.S. market. However, this market share started to drop somewhat, from 52% in 2007 to 49% in 2008. Profits increased from the United Kingdom and remained steady at 15% in 2006 and 2007, but dropped slightly to 14% in 2008. In 2006, 28% of Google's profits were gained from the world market excluding the United States and the United Kingdom. This number increased to 33% in 2007 and to 37% in 2008. These s show that Google started to expand its market share to the rest of the world outside of the United States and the United Kingdom.
Google is listed in all major stock exchange markets with the symbol GOOG (GoogleFinance). Google's stock price has grown tremendously reaching its record high maximum stock price in 2007 (GoogleFinance). The year 2008 was not a good year for the stock market due to the recession. Even though, Google was profitable and released unique products to the market, its stock price has taken a dive along with the stock exchange market. In 2009, Google's stock price has started to rise once again.
Most of Google's revenue comes from online advertisements. Google's paid search advertisement business is unique in that advertisers only pay Google if someone clicks on the advertisement. Also, advertisements are contextual, i.e. car advertisements are displayed when someone searches for cars on the Internet. This is very advantageous for the companies advertising on Google. This online advertisement business consists of the majority portion of Google's revenue. The online advertisement business contributed 99% of the total revenue in 2006 and 2007, and 97% in 2008 (GoogleInc, 2008).
Table 3: Advertising Revenues of Google (GoogleInc, 2008)
Google web sites
Google Network web sites
Total advertising revenues
Google web sites as % of advertising revenues
Google Network web sites as % of advertising revenues
Licensing and other revenues
In online advertisement Google's greatest competitors are Yahoo and Microsoft. Although Yahoo began operations before Google, it cannot beat Google. For example, during the last three years from 2006 to 2008, when Google's revenue was skyrocketing, Yahoo's revenue slightly increased from 2006 to 2007 but slightly decreased again in 2008. On the other hand, software giant Microsoft is well behind in the online advertisement business. Even though its revenue from the online advertisement sector increased in 2008 compared to 2007 and 2006, it is far behind Google. To minimize this gap, the software giant, Microsoft, has attempted to acquire Yahoo.
Google's Corporate Culture and Philosophy
Google has a unique, informal corporate culture. Which some believe has benefited Google in creating a competitive advantage over its competitors. Google strongly believes in teamwork and turning the work place into an informal and fun, yet productive environment. in the company strives to make work challenging while making the challenge fun. Google does not have a dress code. Employees wear clothes of their desire. It is common to see employees with their pets in the office. Google employees are encouraged to share offices. Most employees work in cubes, yurts, and huddle rooms with three or four team members. They can decorate their offices as they want. Most employees eat in the office café, sitting at whatever table has an opening. Employees have an informal relationship with their managers. It is common to see corporate managers playing different kinds of games with employees. The hiring policy favors ability over experience. When Google constructed its offices, it added a local flavor to the design of the building. Bicycles are a common means of transportation within Google buildings. Dogs, lava lamps, and massage chairs are common throughout the building. Google provides healthy lunches and dinners for all staff in its cafes. In a Google building it is common to see foosball, pool tables, volleyball courts, video games, pianos, ping pong tables, lap pools, gyms, yoga and dance rooms. Employees of Google also have different groups formed for reasons other than work; meditation groups, film clubs, wine tasting groups, salsa dance clubs and others can be found (Google Corporation, 2009).
From the day Google began its operation, it had strong organizational philosophies which made it one of the strongest IT companies in the world. To fully understand Google, it is helpful to discuss the following ten corporate cultures of Google.
1. Focus on the user and all else will follow.
Google has always focused on its customers. Most companies say this, but do little or nothing to show that they really do. Google, however, has put the customer first, ahead of profits. In so doing, Google has grown to be one of the largest IT companies through word of mouth. Some of the actions that show how they put the customer ahead of profits include:
* When searching on Google, the results of the search are ranked based on page ranking technology designed by Google. This procedure takes into importance more than 500 million variables and 2 billion terms. Google has ensured its users that it will never sell placement in search results to anyone. This will assure users their search results are accurate and not altered for the purpose of profit. Google co-founder Larry Page once stated, “The perfect search engine would understand exactly what you mean and give back exactly what you want” (Google Corporation, 2009). Google has not yet reached this stage but, it is clear that the company is on the right track.
* Unlike other companies, Google has refused to put advertisements on its home page in order to make the home page clear, simple and easy for customers. Google could generate a huge amount of money from ads on the home page but has chosen to make its users happy by not doing so. Also, Google's home page loads quickly because of its simplicity.
* Advertisements on Google are simple and typically text based. No animation or flashing lights are used, so that the users will not be distracted.
2. It's best to do one thing really well.
Even though Google has grown into a very large company over the years, it has not changed the core of its business, the search engine. Most big companies want to diversify their business by having different products or by engaging in different business sectors, but, Google believes it is better to stick to one core business and do it well. By doing so, Google has come up with better search engines, having one of the world's largest research groups focusing on only the core product.
3. Fast is better than slow
Google wants its users to find what they are searching for as fast as possible. Most search companies have assumed that search engines could be faster using large servers. But, Google has found networked PCs to be faster than large servers in searching for information from massive amounts of data. Unlike other search engines that use apparent speed limits on their search algorithms, Google has algorithms with no limits (Google Corporation, 2009).
4. Democracy on the web works
Google's search engine, unlike other search engines that work on the frequency with which the searched term appears, uses a technique called PageRank. PageRank evaluates all of the sites linking to a web page and assigns them a value. Google will determine the best sources of information and the user will have a ranked search result (Google Corporation, 2009).
5. You don't need to be at your desk to need an answer
Today, one doesn't need to be sitting at a desk PC in order to access the Internet. The inventions of laptops, PDAs, Smart Phones and other portable devices have made it possible to work and access the Internet on the move. Google has come up with different technologies for mobile users. People browsing the Internet from enabled phones or using text messaging services, want to use as few keypad strokes as possible because phone keypad strokes are not comfortable to use. For this purpose, Google has devised the Google number search, which allows users to search with limited keypad strokes to find what they are looking for from Internet enabled phones. Furthermore, they have developed translation systems that convert web pages that are published in hyper-text markup language (HTML) to a format that can be read by phone browsers. This will allow users to browse any site using their web enabled phones, and different sites for web enabled phones are not required (Google Corporation, 2009).
6. You can make money without doing evil
Many people believe that most big corporations are evil when it comes to running their businesses, and there is much evidence that supports this theory. Unlike most big corporations, Google believes money can be made without doing evil. Google, not only believes in this principle, but it also has shown that it stands for its principles. Some stands taken by Google include:
* Google does not allow advertisements on its home page, even if it could generate a lot of revenue. Google believes that placing ads on the home page will decrease the load time and distract the user.
* Advertisements on Google's search results pages are carefully selected and should bring relevant value to the page. All advertisements are marked as “sponsored links” to show to the customer that it is an advertisement. Advertisements are only text based, so that they won't distract users. No pop-up advertisements are allowed on Google sites to ensure the ability of users to see the content of the site they requested (Google Corporation, 2009).
* Google search results are ranked using Google's algorithm, PageRank. If Google's business strategy were not based on ethics, Google could have sold this ranking system to different companies. Therefore, when someone conducts a search, even if there is little or no relevance, the company or individual who has paid Google to be ranked first would show up first, misleading the user but increasing Google's revenue. Google has ensured users that it will never sell rank on search results to protect the need of its customers (Google Corporation, 2009).
* Google has millions of users and has a huge IT infrastructure to support its business and serve its customer. This huge IT infrastructure uses a lot of electric power. Where most companies wait for a regulation or incentive from the government to go green, Google took the initiative to go green. In 2007, Google started one of the largest corporate solar installations in the United States. This solar power installation project was done in the Mountain View headquarters where 9,212 solar panels produce 1.6 MW of electricity. This solar power is equivalent to the energy power required by 1,000 average California homes (Google Corporation, 2009). In going green, Google took five major steps (GoogleInc, 2008). These are:
* Minimize electricity used by servers
* Reduce the energy used by the data center facilities themselves
* Conserve precious fresh water by using recycled water instead
* Reuse or recycle all electronic equipment from the data centers
* Engage with peers to advance smarter energy practices
7. There is always more information out there
Google has taken the initiative to develop searches rather than HTML pages. Google first included PDF format files to its search results and became famous for this in a short period of time. It also added different file formats, like Microsoft Word, Excel, PowerPoint and others to its search results. It also has come up with a web page translator that changes HTML formatted web pages to a format that can be read by web enabled mobiles and PDAs (Google Corporation, 2009).
8. The need for information crosses all borders
In today's globalized economy, countries' borders are becoming less visible. Not only does Google have offices around the world, it also provides its service to people living in every corner of the globe who have access to the Internet. To facilitate the use of Google search engines, Google has customized its page to be accessed with more than 100 languages. Google has done this by offering volunteers the opportunity to help in translation through an automated tool. Google search results can find pages that are written in more than 35 languages. Because of this, more than half of Google users are living outside the United States. Google also has a service that translates web pages written in one language to another (Google Corporation, 2009).
9. You can be serious without a suit
Google has generated new ideas on how a workplace and its employees should be. Google's founders have often stated that the company is not serious about anything but search. Based on this idea, they built a company around the idea that work should be challenging and the challenge should be fun (Google Corporation, 2009). Google has created a work environment that is unique in the corporate world. As Google focuses on its users, it also focuses on its employees. Google employees are encouraged to work in teams in brainstorming ideas and changing ideas to reality. Most meetings are informal and short but are directly to the point. Google employees are not bound by certain dress codes. Each employee is encouraged to come up with an idea, test his/her idea and change it to reality regardless of his/her position in the company. It is common at Google to see accountants or sales people write a code to test their ideas.
10. Great just isn't good enough
Google, as a principle, believes it can improve its products. Whenever it develops something new, Google believes it could improve the product.
These ten Google corporate cultures are the main reasons why the company has grown from a garage office to one of the country's largest companies in fewer than two decades.
Methods of the Study
I. Tools used in this research
The following tools were used in this survey:
ü http://www.esurveyspro.com is an online survey tool used to post survey questions and conduct esurveys. It was also used to summarize the collected data.
ü MS Excel was used to summarize and analyze the collected data.
ü MS Word was used to prepare the documentation of the study.
ü MS PowerPoint was to present the findings of the study.
ü Statistical Package for the Social Sciences (SPSS) is a statistical package tool which was used to summarize and analyze date along with MS Excel.
II. Data collection methods
In this study secondary as well as primary data collection methods were used. As a secondary data collection, the meaning of corporate culture, the need of studying corporate culture, the need to emphasize employees of an organization and the corporate culture of Google have been studied and presented. These secondary sources of information are collected from various books, magazines, newspapers, research papers, online journals and articles, and Google's official corporate site.
As primary data, a questionnaire was prepared and sent to 95 IT professionals who are working in the IT field as systems administrators, network engineers, software programmers and IT technical support technicians in Utah and California. The questionnaires were sent both on paper as well as on online, using the electronic survey tool esurvey and by positing the questions on http://www.esurveyspro.com. In order to use the online survey tool, an invitation was sent to the survey participants. The participants of the study were divided into two groups, those who were managers and those who were not managers.
Findings and Analysis of the Survey
Demography of Respondents
In this survey, there were 31 male and 9 female respondents.
Of the total respondents, 16 were ages 21-30; 19 were ages 31-40; and 5 were 41-50.
Regarding the education level, 21 of the respondents had college degrees, 10 had high school diplomas, 5 had associate degrees and 2 had master's degrees.
Participants of the survey were drawn from four IT fields: systems administrators, network engineers, software programmers and IT technical support workers.
The majority of the 19 respondents had work experience totaling 6-10 years; 16 of the respondents had work experience of 0-5 years, and 5 of the respondents had 11-20 years of work experience.
Of the respondents surveyed, 20 earned 56-75K annually; 13 earned 25-45K, 5 earned 46-55K; and the remainder of the respondents earned 76-95K annually.
Working Position of Respondents
The majority of the respondents did not work in a management level; only 7 of the respondents worked as managers. Of these, 3 were working in low level management positions, 2 were working in middle management positions and the remaining 2 were working in high level management positions.
The majority of respondents believed that their work environment was either dynamic or very dynamic. Only a very few respondents thought that their work environment was static.
All of the respondents thought that their work environment was formal. Of the respondents, 29 thought their work environment was formal, whereas the remaining 11 thought that their work environment was highly formal.
The impact of the corporate culture in the organization was believed to be very high by 16 respondents; 14 of the respondents considered it high; 6 respondents thought that the impact created by the corporate culture was fair; and the remainder thought the impact of the corporate culture was either low or very low.
Respondents from the IT technical support field had diverse opinions ranging from very low to very high on the impact of corporate culture in their organization. On the contrary, respondents from the field of systems administration believed that the impact of corporate culture on their organization was high or very high.
Middle and upper level management believed that the impact of corporate culture was stronger than non-management respondents or lower level managers.
Of the surveyed respondents, 21 believed that they had a bad or very bad social relationship in their workplace; 11 of the respondents believed their social relationship was neutral; and only 8 of the respondents felt as if they had a good social relationship in their organization.
When respondents were divided based on the different IT sectors, system administrators and network administrators believed they had a high social relationship in their workplace. Workers in IT technical support had the least social relationship in their work place compared with others.
Upper and middle level management had a higher social relationship in their workplace as compared to lower level management and non-management respondents of the survey.
Case Processing Summary
Thirty-three respondents believed that the teamwork sprit in their organization was very low, low or fair. Only 7 of the respondents believed that the teamwork sprit was high or very high.
Respondents in the software programming positions had a more positive view of the teamwork sprit in their organization compared to others; those from IT technical support had the worst teamwork spirit.
Case Processing Summary
Most employees who participated in the survey did not feel motivated in their work. A low motivation was reported by 13 of the respondents. Twelve of the respondents had a medium opinion, and 8 of the respondents had very low motivation. The remaining 7 respondents had either high or very high motivation toward their work.
According to this study, the respondents of the survey were divided using two parameters: 1) the management level in which they worked, and 2) their working sector of the IT field, i.e., systems administrators, network administrators, software programmers and IT technical support.
Based on the above classifications, respondents' groups were considered as management or non-management. Those who worked in different sectors of the IT field had either dynamic or very dynamic work environments with highly formal or formal corporate cultures. Most of the survey respondents believed that the impact of corporate culture in their organization was either very high or high.
Respondents of the survey who were not in management positions had a lower social relationship in their workplace compared with those who were in management. Considering the different IT sectors, employees from the IT technical support sector had a lower social relationship in their workplace. On the other hand, those who were in positions of systems administrators and network administrators had a higher social relationship in their workplace.
Most survey participants believed that they had a low teamwork spirit. Specifically, IT technical support employees had a lower sense of teamwork spirit than any of the other IT sectors studied. This was also true for the work motivation of employees.
In order to boost social relationships in the workplace, develop teamwork spirit, and increase motivation, the respondents were asked to suggest different solutions. The following solutions were suggested by 75% of the respondents to solve the above problems.
- Greater recognition of teamwork from management
- A less controlled work environment
- Better treatment from supervisors and upper management
- A less controlled dress code
If we look closely at the recommendations that are suggested by the majority of the survey respondents, it could be concluded that companies should develop an informal work environment. By so doing, companies could develop better social relationships in the workplace, increase the teamwork spirit, and motivate their workers.
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