Analysing the Core Competencies of Google Inc

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Google Inc is one of worlds rapid growing and innovative web 2.0 companies who provides wide variety of commercial and free products to the end-users. The report analyses Google Inc. strategy by using the concept of Core Competencies which was introduced by Hamel and Prahalad in 1994.

Core Competencies are technical or managerial process that integrates diverse technologies, processes, resources and know-how to create unique offerings to the customers and gains a unique competitive advantage to the organization. Core products are developed with core competencies and wide variety of competitive end-products can be developed by using the core products and it creates completive advantages to the corporation in short and long term basis.

Google Inc has core competencies in software engineering in content indexing and maintaining scalable hardware infrastructure. The company's culture of innovation also can be highlighted as a core competence. Google owns few core products and they are PageRankâ„¢ indexing technology, Google Ads and Google Mapping platform and based on the core products the company has developed wide variety of end-products.

The core competence has facilitated Google Inc to enter to wide variety of markets and the core competencies have created competitive advantage to Google Inc in short and long terms.

The strategy of Google Inc agrees to the concept of Core Competencies, which introduced by C.K. Prahalad and Gary Hamel in 1994.

Google's core competencies have created competitive advantage and they have made the company profitable in short and long terms.

Literature Review

The concept of Core Competencies was introduced by C.K. Prahalad and Gary Hamel in 1994 in their article "The Core Competence of the Corporation", which was published in Harvard Business Review. According to Hamel and Prahalad (1994),

"Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies... it is also about the organization of work and the delivery of value.

Think of a diversified company as a tree: the trunk and major limbs as core products, smaller branches as business units, leaves and fruit as end products. Nourishing and stabilizing everything is the root system: core competencies."

Tampoe, (1994) as cited in MacMillan and Tampoe (2000), elaborate the core competencies in detail as "A technical or managerial subsystem which integrates diverse technologies, process, resources and know-how to deliver products and services which confer sustainable and unique competitive advantage and added value to an organization"

Hamel and Prahalad, (1994) highlighted the importance of core competencies to a corporation as, "Focusing on core competencies creates unique, integrated systems that reinforce fit among your firm's diverse production and technology skills-a systemic advantage your competitors can't copy… The tangible link between identified core competencies and end products is called 'core products'"

Based on the above literature, Core Competencies are technical or managerial process that integrates diverse technologies, processes, resources and know-how to create unique offerings to the customers and gains a unique competitive advantage to the organization. Core products are developed with core competencies. Core products are the components or sub-assemblies that significantly contribute for delivering the benefits of end-products. Wide variety of competitive end-products can be developed by using the core products and it creates completive advantages to the corporation in short and long term basis. Example, Honda has core competency in manufacturing engines and Honda's core product is gasoline powered small sized engines. This core product is used to manufacture wide variety motorcycles, lawnmowers, generators etc. Core competency will not diminish with the usage and it tends to increase when it used over and over. Core competencies gain unique completive advantages to the organization in short and long term basis.

Tampoe, (1994) as cited in MacMillan and Tampoe (2000), suggests that the following series of tests can be used to identify core competence of a particular corporate,

"1. Essential to corporate survival in the short and long term

2. Invisible to competitors

3. Difficult to imitate

4. Unique to the enterprise

5. Result from a mix of skills, resources and processes

6. A capability which the organization can sustain over time

7. Greater than the competence of an individual

8. Essential to the development of core products and eventually to end products

9. Essential to the implementation of the strategic intent of the enterprise

10. Essential to the strategic choices of the enterprise

11. Marketable and commercially viable

12. Few in number"

The Chosen Organization (Google Inc)

Google Inc started its operation on 1998 and today it is one of worlds rapid growing and innovative web 2.0 companies. "Google's mission is to organize the world's information and make it universally accessible and useful" (Google Inc, 2010). According to Richard (2005), Google - the market-leading search engine and perhaps the web's No. 1 brand. The company has won dozens of awards for its innovative products and it offers array of commercial and free services and following are some of the major products offered by Google (Google Inc, 2010),

Google Search -Web Search, Image Search, Scholar, Earth, Finance etc.

Google Apps - Google Apps, Gmail, Google Docs, Google Voice, Talk, Translate etc

Enterprise - Earth for Enterprise, Google Search Appliance, SketchUp Pro etc.

Google Ads - AdSense, AdWords, Analytics etc.

Google Android and Google Chrome operating systems

Google has become mostly used search engine in the industry (The Nielsen Company, 2010) and it shows the company's highly innovative product design and excellent software engineering capabilities. Google's core products are Google content indexing technology, Google Ad platform and Google Mapping platform.

Google builds and maintains massive index of websites and other online contents by using a highly complex and versatile indexing technology that called as PageRankâ„¢. The University of Stanford holds the patent right for PageRankâ„¢ technology under patent number US6285999 and Google Inc owns exclusive right to use the patent. PageRankâ„¢ is one of the innovative and continuously improving core products of the company.

Google Ads platform is another important core product of the chosen company and the primary revenue stream for Google is advertising programs. Large number of businesses uses Google's AdWords program to promote their products and many third-party web sites uses Google AdSense program to generate additional income. Google Ads is one of the most advanced and user friendly online marketing programs in the industry. Over a period of time Google has built intelligent algorithms to deliver appropriate advertisements based on what user searched.

The chosen company has expertise not only in Software Engineering but also in infrastructure designing and maintenance. The entire Google platform runs on number of grid computing data centres that has several thousands of server nodes. Google has cultivated a culture of innovation from its inception and the culture has helped the company to grow rapidly and continuous improvements to its portfolio of products. (Google Inc, 2010)

Analysis of Google Inc's Strategy

Google Inc is an innovative, rapid growing conglomerate that has diversified product portfolio. It owns number of unique selling propositions (USP) such as Google Search - the most user friendly sophisticated search engine, Google Ads - a versatile online marketing solution, Gmail - a sophisticated email solution and Google Apps - the secure enterprise grade application engine.

Identification of Core Competencies

"Google's core competency is based on the technology used in the search service, which is capable of building and organizing a database that makes it possible for the Internet user to find practically any piece of information he may be looking for." (Sugano, Gonçalves and Figueira. 2009). Arnold (2005) explains the Google's core competencies as, "Google's competitive advantage comes from its core competencies in computer hardware and software engineering. Search is simply the most visible application running on the Googleplex."

It is obvious that Google has superior capability in software engineering in content indexing and maintaining scalable hardware infrastructure, and this is a one of the major core competency of Google Inc. Google has cultivated a culture of innovation from its inception and it can be considered as one of the core competency (Google Inc, 2010).

The above core competencies have the features such as "essential to corporate survival in the short and long term, difficult to imitate, unique to the enterprise, essential to the development of core products and eventually to end products, result from a mix of skills, resources and processes" etc.. which described by MacMillan and Tampoe (2000).

Core Products and End-Products of Google Inc

Google has developed few strong core products by using it is core competencies. The core products are PageRankâ„¢ indexing technology, Google Adds advertising platform and Google Mapping platform.

PageRankâ„¢ is one of the innovative and best indexing mechanisms in the search engine industry which provides the most accurate results to the user. Google Ads is the most user friendly and effective online advertising programs in the industry, which delivers appropriate advertisements to the user based on what he interested in. Google Mapping platform is a sophisticated geographical mapping service that offered commercially and freely.

The company continuously improves the quality of the above core products and these core products are used to developed array of innovative end-products such as Web Search, Image Search, Translate Tools, Google Apps, Google Docs, Google Earth, Scholar etc. The company always attempt to use core products in developing new products, example Gmail uses both PageRankâ„¢ indexing technology and Google Adds, which provides value addition to the end product Gmail.

Mapping Google's Core Competencies, Core Products and End-products

The links between Google's core competencies, core products and end-products can be depicted with the following diagram,

Fig 01: The link between Google's core competencies, core products and end products

Comparing Google's Strategy and Concept of Core Competency

"The tangible link between identified core competencies and end products is what we call core products" (Hamel and Prahalad, 1994). Google's core products are PageRankâ„¢ indexing technology, Google Ad platform and Mapping platform. These three core products heavily used in developing its array of end-products. Google web and image search uses both PageRankâ„¢ and Google Ad core products. Google's enterprise solutions such as enterprise emails, Earth for Enterprise, Google Appliance uses PageRankâ„¢ indexing technology. It is evident that Google owns core products that are being used to develop the end-product and core products significantly contribute to increase the benefits of the end-product.

"Thinking in terms of core products forces a company to distinguish between the brand share it achieves in end product markets and the manufacturing share it achieves in any particular core product." (Hamel and Prahalad, 1994). Google's core product PageRankâ„¢ indexing technology was also able to achieve manufacturing share since, the biggest competitor of Google, Yahoo licensed the indexing services from Google from 2000 to 2004, to use Google search service as default search for Yahoo search (Sullivan, 2002; Google Inc, 2010). Yahoo Japan still uses Google's indexing mechanism and Google Ads platform is used by thousands of third-party entities (Google Inc, 2010). It is obvious that Google's core products built with its core competencies are able to win better manufacturing and brand shares.

"Core competencies do not diminish with the use. Unlike physical an assets, which do deteriorate over time, competencies are enhanced as they are applied and shared." (Hamel and Prahalad, 1994). Google uses its core competencies to improve or develop products. Over a period of time the core competencies have improved and broaden rather diminished. In addition to that using core competencies has created new core competencies. As an example initially Google had competencies on software engineering and after a period of time Google created competency in designing and maintaining hardware infrastructure (data centers). This proves that core competencies improve as they applied and shared.

Hamel and Prahalad (1994) suggest to stop thinking of business units as corporate since it will motivate the respective SBU managers to hide the talent as the company pursues the hot opportunities. Google does not operate as separated business units and it always operates as a whole (Google Inc, 2010). This indicates that Google was able to build strong core competencies by thinking as "Core Competencies", but not as strategic business units.

According to Tampoe, (1994) as cited in MacMillan and Tampoe (2000), the core competencies are unique to the organization and they are difficult to imitate by a third party. Google's core competencies are unique and they cannot be copied by the competitors such as Yahoo and Bing. The following are periodic statistics of search providers, ranked by searches (U.S.) and these statistics clearly indicates that Google is the industry leader and it is evident that competitors are not able to imitate Google's core competencies.

Top five search providers for Dec-2009, ranked by searches (US)

Rank

Provider

Searches (000)

Share of Searches

1

Google Search

6,697,223

67.3%

2

Yahoo! Search

1,434,866

14.4%

3

MSN/Windows Live/Bing Search

986,247

9.9%

4

AOL Search

247,421

2.5%

5

Ask.com Search

168,674

1.7%

Table 01- Source: The Nielsen Company

Top five search providers for Mar-2010, ranked by searches (US).

Rank

Provider

Searches (000)

Share of Searches

1

Google Search

6,387,932

65.7%

2

Yahoo! Search

1,304,427

13.4%

3

MSN/Windows Live/Bing Search

1,183,268

12.2%

4

AOL Search

245,810

2.5%

5

Ask.com Search

183,975

1.9%

Table 02- Source: The Nielsen Company

According to the following key performance indicators (KPIs), it is obvious that Google Inc is the industry leading search service provider and it proves that the company is successful since its strong core competencies.

Indicator

Google Inc

Yahoo Inc

AOL

Industry

Market Cap:

188.92B

21.35B

2.61B

93.45M

Employees:

23,331

13,900

6,700

311.00

Qtrly Rev Growth (yoy):

22.60%

1.60%

-26.20%

28.50%

Revenue (ttm):

27.55B

6.53B

2.65B

59.01M

Gross Margin (ttm):

64.15%

56.83%

42.78%

63.48%

EBITDA (ttm):

11.26B

1.40B

788.00M

5.09M

Operating Margin (ttm):

35.86%

11.21%

17.27%

4.68%

Net Income (ttm):

7.94B

1.07B

-924.60M

N/A

EPS (ttm):

24.62

0.77

-7.96

N/A

P/E (ttm):

24.00

21.27

N/A

21.60

PEG (5 yr expected):

1.17

1.41

-1.10

1.53

P/S (ttm):

6.86

3.27

0.99

2.03

Table 03- Source: Yahoo Finance, 2010

The company's core competencies have contributed to develop an array of competitive products and USPs which made the Goolge Inc success.

Conclusion

Considering above facts it can be judged that Google Inc has core competencies in software engineering in content indexing and maintaining scalable hardware infrastructure. Google's culture of innovation also can be highlighted as a core competence. The company owns core products that are built with its core competencies and the core products have provided significant contributions to the end-product to deliver higher benefits to the end customer.

The core competence has facilitated Google Inc to enter to wide variety of markets and the competitors such as Yahoo and Bing were not able to copy Google's core competencies easily. It can be observed that the core competencies and the core products have created competitive advantage to Google Inc in short and long terms.

Considering to the facts described the report, it can be observed that the strategy of Google Inc agrees to the concept of Core Competencies, which introduced by C.K. Prahalad and Gary Hamel in 1994.

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