Governance Structure and Company Culture: Case Study of Google

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Google is one of the largest, most successful, and well-known media companies in the world, with more than 60.000 employees in more than 50 countries, owning and providing services like Gmail, Google Maps, Google Chrome, Android, of course, the Google Search and many more.

The history of Google

“The Google story begins in 1995 at Stanford University. Larry Page was considering Stanford for grad school and Sergey Brin, a student there, was assigned to show him around.” as it is written on the webpage of Google.

In 1995 Sergey Brin was already studying at Stanford University and Larry Page was thinking about studying there. In 1996 they started to work on a search engine project called BackPub. The name BackPub comes from the procedure how the software works because it ranks web pages according to how many backlinks they have. Larry and Sergey launched the software in March 1996 from Larry’s own Stanford home page. To be able to use and sort the data BackPub gathered, they developed a page rank algorithm.

While they were analyzing the results of BackPub, which consisted of ranked backlinks Larry and Sergey noticed that their software, based on page ranking produced better, more useful results than already existing techniques. This search engine continued to work from Stanford’s servers for a year. After this period, on the 15th of September 1997, Google.com was registered. Google’s name comes from a mathematical term googol. It is number. 1 followed by 100 zeros. “It is rumoured that this reflects the founders’ mission to organize the infinite amount of information on the internet.”

In August 1998 a check for $100,000 from Andy Bechtolsheim was written for the yet not already existing company. The founders opened a bank account and continued working with the investment of Bechtolsheim. On the 4th of September 1998, Google was incorporated as a private company. Their first famous office was a garage in Menlo Park, California. After a year in 1999, the company moved from the garage to its new office at 165 University Avenue, Palo Alto. They needed to move because in 1999 they already had 8 employees and of course their famous team member Yoshka, the dog.

Later, Google got an offer of $25 Million from Kleiner Perkins Caufield and Byers and Sequoia Capital, because they have seen the potential in the company. After a year Google was already Yahoo’s search engine. Google’s results surprised all rivals. At those days the company’s only income came from licencing its technology, they focused narrowly on algorithmic search.

In the following couple of years Google went on with growth. They hired engineers, scientists, sales and marketing people and moved to their new headquarter in Mountain View, California, which is a huge campus called The Googleplex. On the other hand, during the years Page and Brin made many attempts to sell the company to Yahoo, Excite, and many other companies from the Silicon Valley for a price of $1 Million. As Brian O’Connell wrote, fortunately, for both the founders, all the employees, and invertors none of the attempts came to realization and Google kept it’s hold on the search engine market.

Google went public in 2004 and became one of the biggest media companies. It launched Google News in 2002, Gmail in 2004, Google Maps in 2005, Google Chrome in 2008, Google+ in 2011, and many other.

The reasons of success

As mentioned above Google has become one of the largest, most well- known and most successful media companies in the world, but how did it manage it, what were or are the factors of the success?

“Perhaps there is no greater testament to Google’s .. success than the fact that it has become a verb.”

In my view there are 4 main sources of the success, these are:

Early recognition and efficiency
The business model
Continuous innovation
Governance structure and company culture

Early recognition and efficiency

As the internet expanded the need for a tool, a proper search engine, which gathers and orders the information on the web grew as well. Prototypes and already existing search engines used keyword frequency as a base for their rankings which leaded to irrelevant listings and frustration among users. Using this software, one needed to read through an average of 10 finding to get to the thing he was looking for.

This problem was solved in 1998 by Larry Page and Sergey Brin. Their original business was sorting and the growing amount of information with algorithms. What is more, their software gave scores to the findings, given by specific criteria. So instead of employing human capital to review the results, they developed a page ranking system. This system preferred pages linked to each other. The more reference there was, the more important the given page was. This criteria helped to determine on which place the found page could be displayed among the search engine results.

It quickly turned out, that using this idea instead of word count is able to provide better results than existing software on the market. Of course, Google’s search engine went through and still goes through upgrades to give users more appropriate results. “Because it started strong and just kept getting better and better.”

The business model

As Mohit Tater describes in his article about the business model of Google, the important element of Google’s business model, that differentiates Google is the fact that it uses a multi-sided business model. It means that although Google provides a free search engine for usual user, it gathers uncountable data about almost everyone that could be used for business purpose.

Google also needs to generate income, just like other businesses. That is why it is focusing on advertisement. On the contrary, advertisements are not the only source of revenue. Google attracts visitors and sells advertisements places at the same time.

The business model works like this: Google analysis the user’s online behavior and uses this information. From this data Google builds up its value proposition.

According to Mohit Tater, there are 3 value propositions from which the business model is built up. There are different value propositions for different users, they actually follow the same philosophy, which is providing targeted advertising.

Value proposition number 1.

The first group targeted is webmasters or people who have a website. Google aims to help them earning money from their content.

Blogger.com is also provided by Google. This is a free platform for those who don’t want to have an own, separate website, but want to reach potential customers and want to be reached by others.

Another software for this purpose is called AdSense. AdSense also helps content creators to earn money. The working mechanism of AdSense is the following: It allows publishers to have Google ads on their website so that they could generate money from that. By using this software, the content creator becomes a partner of Google and receives a percentage of the revenue generated by his or her website. This partnership is beneficial for both Google and for the individual because Google can show ads on other pages not just on its own and the individual gets attention.

Value proposition number 2.

The second service is for advertisers. They are individuals with an own business, the need to be reached by customers faster, and the willingness to pay for it.

Google has the largest network for online advertisement and was able to catch the advertisement market, not like Bing or Yahoo.

The so-called AdWords software is responsible for this achievement. Advertisers, at any size, so start-ups, smaller businesses, and even huge companies can promote their service using Google ads.

Advertisers have the opportunity to customize their online advertisement campaign according to their plan of price and return. They can set keywords, whom, and where they want to advertise.

The targeting service of Google AdWords helps for demand and supply to meet. It ensures that only ads relevant results are shown.

Thanks to the multi-sided platform, Google have a major source of revenue. This source is advertising. The more ads are displayed, the more Google makes from advertisers.

But advertisers cannot just easily buy ad space from Google, they have to go through a differentiation process set by AdWords. This approach puts the company in a supreme position.

“AdWords looks into the popularity of the keywords and the narrowness level of the target audience, and then proposes a biding price per advertisement impression, cost per installation, and cost per click, ..”

Of course, with a higher search volume and a greater popularity comes a higher price, that needs to be payed for the service.

In conclusion, Google’s revenue from AdWords makes it possible for the company to provide free software, which is value proposition number 3, such as the search engine, Gmail, and AdSense the program that encourages creators to use the service of Google, so that it could succeed in online business, and of course enables all the products and services of Google to be improved continuously.

Continuous innovation

Improving and upgrading is crucial these days in the life of a company. Usually, it means keeping up with trends. This is not completely the case with Google. Although they are refining processes, adding new designs and option, they always pay significant attention to innovation.

As I experienced, while using and researching Google products, innovation plays an important role in the life of the company. Google stresses the importance of it and encourages employees to be creative. The result of this behavior can be noticed easily: technology that we can wear, driverless cars, mobile operating system, drone delivery system, and many more. As money isn’t the key driver of the company anymore, because of the advertising revenue, it can focus on creating new things. A usual process at Google involves creating a beta version of a program or project, releasing it, and constantly gathering information and learning from customer data and feedback.

How does Google achieve this?

Firstly, they heavily invest in research. Billions of dollars are spent yearly on research and development. Google usually invites scientists and university professors to its headquarters to give presentations or to work with the amount of data Google gathers. Google also invites small and young businesses, and start-ups to use the data and work with Google members in order to help them work out or to refine their ideas. Companies like these include Slack, Nest, 23andMe, and Walker, and Company. On the other hand, Google doesn’t just help these firms but learns from them.

And secondly, this attitude to innovation is present on all level and is reinforced to everyone. The best example of this behavior at Google is the so-called 20 percent rule, which means that employees should spend 20 percent of their work time with ideas, projects that they find interesting. (The rule will be explained in more detail later) This approach and this particular rule has led to the existence of Google News, Gmail, and AdSense. The attitude is the following: as long as there is possibility to benefit from the idea or to create something new the company will give it a try.

This mentality of Google is supported by its famous governance structure and company culture, which are in my opinion the 4th and substantial part of the success.

Governance structure and company culture

First of all, let me introduce both the governance structure and the company culture Google has and then go in detail with how they play an important role in Goggle’s success.

Governance structure

The following part about the governance structure of Google refers to Scott Thomson’s ideas. Google hasn’t got an unusual corporate structure other than some unique leadership positions like Chief Culture Officer and Chief Internet Evangelist. A board od director oversees the company gives instructions to the executive management group. The executive management group is responsible for departments such as engineering, products, legal, finance, and sales, but these departments are also divided into smaller ones.

Originally a corporate structure is built like this: there are usual employees at the bottom, supervisors oversee them, who are overseen by middle management and above all, there is the top management. This is called vertical approach, where decisions are made at the top and executed at the bottom, as Heather Skyler describes.

On the other hand, Google has a cross-functional organizational structure. This is basically a matrix structure with a degree of flatness. This flatness is a considerable feature of the structure, that supports growth and competitiveness. There are 3 major characteristics of Google’s corporate structure:

Function for grouping
Product for grouping
Flatness

Function as a basis for grouping is used in the structure. This means that there are Sales, engineering and product management, and many other groups. The company also uses product-based grouping. This means that some employees are responsible for developing a particular mobile phone. And the third characteristic of the structure is flatness. Flatness of an organizational structure allows employees, teams or groups to get and share information across hierarchy levels. Thanks to flatness they can directly communicate with higher management.

This characteristic contributes to a more comfortable, smaller company feel because employees are part of the decision-making. This leads to the feeling and stresses the importance of being equally important in the success of the company. Good and clever ideas play a more crucial role than titles.

The governance structure of Google supports its company culture in achieving continuous innovation, which as already discussed is one of the key drivers of success at Google. The joint work of the corporate structure and the company culture helps to develop competitive advantages against other giant media companies like Apple, IBM, Intel, Microsoft, Amazon.com, Facebook, Twitter, and Snapchat. That is why Google is a good example of alignment to achieve growth and success.

Company culture

Google hasn’t got a traditional organizational culture. This is partly because of the alignment with the governance structure but many other factors also play an important role.

Google’s corporate culture has 6 main characteristics as follows:

Open
Innovative
Unique in hiring
Celebrates failures
Provides employees with a fun working environment
Has its core values and mission statement

Google is open to new and creative ideas. Employees know that, that is why they feel free to share their opinions, ideas. The matrix organizational structure just helps to keep sharing information, in order to improve and to make ideas come true. This way the company also tries to motivate employees to challenge themselves and try to think over of the usual way. Of course, they get support in achieving these tasks. Google provides comfortable and warm ambiance working conditions like in a small business, that just makes it easier to keep openness and share ideas, even with Larry Page and Sergey Brin.

I already mentioned the 20 percent rule at Google. This is how the company encourages creativity and innovation, which is a key term in Google’s company culture and success. The broader definition of the 20 percent rule is the so called 70/20/10 rule. The working mechanism is the following: Employees are ought to spend 70 percent of their working time with the project the are currently working on. 20 percent should be spent with gathering ideas, creating new projects that are in connection with the core one. And in the rest 10 percent they can deal with any other new ideas, they have. This kind of freedom is one of the key forces behind new products.

Google gets about 3 million job applications a year, but only hires about 7 thousand, according to the data from July 2015. So, there must be something in Google’s hiring process that makes it possible to filter this huge amount of application and find candidates who fit perfectly in Google’s innovative, creative team. Of course, they ask some questions to estimate the candidate, but they look rather for candidates who are intellectual, fun, confident and ready to deal with and experience the unknown.

The acceptance of failure plays also a crucial role at Google. The attitude towards failures is the following: If you fail, but you share the failed project and experience with others, you actually make it easier for others not to fail. So, you basically save resources and time for the company. Making failures is an everyday phenomenon especially at companies like Google who are dealing with innovation and unknown. This attitude motivates employees to dream bigger.

Besides this attitude to failures, the media giant pays significant attention how it treats employees. It provides an uncountable amount of fringe benefits and a fun working environment. Employees are able to get unlimited food and snacks, massage, healthcare, fitness centre and gym membership, there are volleyball and basketball courts, bowling alleys and so on. What is more, Googlers are also allowed to take their dogs to work.

“Our mission is to organize the world’s information and make it universally accessible and useful.” says the mission statement of Google. Core values held by the company and its employees are really important. Core values give the guidelines how to behave with each other and how to set expectations. Don’t be evil is Google’s unofficial motto. Although, an approach like this isn’t the proper one at a huge business, like Google but already knowing the company culture of Google I believe that employees could feel the difference between working at Google or elsewhere.

In conclusion, it is attractive to work for Google, because employees can feel that they are important, what is more, equally important. Happy employees work better and reduce the opportunity of turnover. Both of these characteristics lead to a greater success.

“As Larry Page himself said, .. … … … … …, ‘it’s important that the company be a family, that people feel that they’re part of the company, and that the company is like a family to them. When you treat people that way, you get better productivity.’”

To sum it all up, Google has special governance structure and company culture. It must be said that they are not organising procedures in the traditional way and are treating employees uniquely, but I wouldn’t say that this hole couldn’t be imitable. This idea brings me to the last part of my study, which is based on the question whether Google has to change anything in these areas or not.

Changes and future

Before beginning with changes let me raise maybe the strongest point against any major change according to Google’s behaviour. An important change would affect millions of advertisers, millions of other users, not to mention all the 60.000 employees working for Google. Now have a look at the other perspective:

Criticisms of Google’s company culture

From the description above it turned out that Google is a friendly and creative place to work. This creativity resulted many new products during the years. On the other hand, it must be confessed that these products are usually offered for free and contribute to the heavier use of the search engine but did not produced extensive new revenue.

This is just one of the potential threats why Google could need some changes but there are some more:

Could there be any other player on the market who could challenge Google’s dominance? The answer is yes. As I already mentioned it at the end of the part before there is the potential possibility that someone would try to imitate the strategy of Google. Although, it wouldn’t be the exact same service Google is providing, but when someone would offer almost the same it could gain high popularity in short time. Firstly, the switching for consumers wouldn’t be too hard, if the product has the quality and secondly, it isn’t so hard anymore to provide a service similar to Google. This way other companies could take this competitive advantage back from Google.

Google is following a trend. It is trying developments and improvements in all perspective of life and technology. It is possible, that a new idea would take the interest from all the other fields and change the aspect of the company. A change like this could have a negative effect on the reputation.

Both of the problems listed above could be solved by unpredictable decisions and movements. Google could pay even more attention to present projects and that way generate some more revenue from them.

Keeping Google googley means me keeping that type of leaderships which leads to success.

Let me end this study with the words from the homepage of Google:

“The relentless search for better answers continues to be at the core of everything we do. Today, with more than 60,000 employees in 50 different countries, Google makes hundreds of products used by billions of people across the globe, from YouTube and Android to Smartbox and, of course, Google Search. Although we’ve ditched the Lego servers and added just a few more company dogs, our passion for building technology for everyone has stayed with us — from the dorm room, to the garage, and to this very day.”

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