Strayer University Assignment 5 Financial management Bus 508 Google, aleader internet information searching, challenged big manes internet technology.Compare contrast Google's business model financial management Micrsoft's, launched Bing
Google and Microsoft financial and business performance
The increase in internet users and technological advancement has made Microsoft and Google record increased number of customers. The success of any company will entirely be dependent on the financial position and financial records it pose. "With intense competition, managers and stakeholders have to develop and adopt strategies that ensure growth in market share and growth in the profits" Foley, 2008.
Google is one of the companies that has recorded growth in performance and increased the number of users within the shortest period. It is also important to note that the company was not adversely affected by the economic recession that hit companies across the globe.
In analyzing the financial performance of companies, financial ratios are used. Ratios can be classified into profitability ratios, liquidity rations, gearing ratios and valuation rations Porter, 2009.
These ratios are used in determining the soundness of the financial statements of a firm. The ratios of Google and Microsoft have been calculated and comparison and contrast undertaken to explain their financial performance. Both Google and Microsoft are both companies in the internet industry. These two companies are major competitors who have to compete for their target marker who are the internet users. The duo therefore has to ensure that their services and products compete favorably in order not to incur losses.
One of the core sectors where competition has to be immense is the innovation sector. Innovation is the creation of new knowledge or idea with the objective of improving efficiency and effectiveness. Google Corporation has outperformed Microsoft in the creation of new technology and successfully launched new products. Google maps, satellite photos, video search files and other innovation have worked in favor of the company. Microsoft on the other hand invests vast amounts of resources in innovation. Despite this investment, Microsoft has recorded significant loss of their staff that have moved and joined their competitor firm. The simple user interface of Google has also made the company preferred by the internet users Lowe, 2009.
Moreover, the growing number of internet users together with the advancements in technology makes innovation mandatory in the industry. Innovation and new product development is thus a core determinant in the financial performance of the companies.
Google, the leading search engine, has engaged in diversification strategies and started developing software. Diversification has therefore increased the revenue sources of the company. Some of the areas that Google has diversified its operation include wireless internet, operating systems, and e-commerce. The close monitoring and interaction with the internet users has allowed Google to develop user-friendly services and products that are supported by the diverse internet users Lowe, 2009.
Google has remained committed to providing products that other web users can use support business adverts and that. Robust innovation supported the growth and defensive strategy of Google Corporation. This posed a threat on the existence of Microsoft. To respond to the losses likely to arise, Microsoft reduced their units from seven to three as a way of reducing costs and making the company agile and competitive Foley, 2008()
Google and Microsoft core businesses
Both Google and Microsoft are in the tech industry. The two firms have engaged in the provision of software and search engines where internet users get the opportunity to get information of their interest. Google has posed a threat and challenged Microsoft in the technology industry. Both Microsoft and Google have competing products in as much as they have diverse core businesses. Whereas Microsoft main business is the provision of windows operating system for the PC and dominates in the desktops, Google main service is the provision of search engines that also displays adverts. Microsoft enjoyed monopoly status, which made the corporation realize large amounts of profits and it still enjoys monopoly in the selling of operating systems of desktops Rittinghouse & Ransome, 2010.
Google continue to experience growth in the technology sector specifically on the web. The company is the main provider of software that is used by businesses for advertisement and other information search. Google has further engaged in collection of their users' data and records to enable them increase their share in the industry.
The leading web provider, Google, makes its profits from the advertisement cost paid by companies that advertise on their sites. The other core services like the Google maps and Gmail have also been a major reason why the company has recorded growth. The simple Google products and the continuous improvements will definitely make the company dominate the industry (Foley, 2008). Microsoft has also diversified their services to make them relevant in the dynamic market. Whereas the company's sale of operating system declined, Microsoft earnings increased in other businesses like cloud computing and new software that are preferred by businesses and nonprofit institution Rittinghouse & Ransome, 2010.
One market segment that both the companies continue to struggle for control is the small and medium businesses that are increasingly embracing technology and internet use as a way of growth.
During recession, the economy is at the slow down and businesses record low returns. To survive the losses, businesses must ensure that their growth is not affected by the slow economic down turn. In the case of the tech sector, Google is likely to survive the effects of the recession. This is because of the increasing growth and the diversified portfolio the company's hold. The higher price earnings ratio shows the relationship of earnings of the company and the market price of the shares. It therefore means that investors of Google will record higher earnings for their investments. The higher earnings per share will also mean that the investors in Google have better returns compared to those of Microsoft.
When making investments decisions, investors are guided by the profitability of the company. Investors will choose to invest their money in the most profitable companies because the company's will have prospects of growth and return. At the same time, profitable companies are likely to pay their shareholders better dividends than those companies are with lower profitability. Looking at the profitability ratios, investors will likely chose to invest in Microsoft. The higher returns on assets and return on equity makes the investors forecast better return in the future Porter, 2009.
As can be observed from the ratio calculation, Google recorded a decline in their return on equity from 18.39% in 2010 to 16.75% in 2011. On the other hand, Microsoft return on equity remained constant at 41% showing a stable performance. A look at the return on the assets is also in line with the return on equity. Google return on assets is 13.42 while Microsoft return on assets is 21.3%. Both the companies recorded a decline on their profits in the year 2011 as compared to the year 2010.
Management and leadership styles
The success of any organization entirely depend on the management and leadership style adopted by the managers of the company, both Google and Microsoft had to develop management styles that were in the best interest with the vision and mission of the company. Leadership is the act of inspiring others in order to have the right actions and results realized. In as much as the two companies had different management and leadership styles, both were geared towards improving the performance and output of the company.
For Google, innovation played a greater role. The company believed on the adoption of new ideas and management supported their staff in instituting innovative and crazy ideas. To promote innovation and creation of new ideas, Google management avoided bureaucracy and complex structures that delayed the knowledge formation. The management believed that the crazy and simple ideas had a lot of impact on the success and the realization of their markets desires. Moreover, the management laid emphasis on the demand of their customers. They gathered information through surveys and integrated the customers' expectations on the operations of the company. Small ideas were valued in adding value to the company's customer's demands.
The company management was also patient in creating value and improving services to the customers. Larry Page, the company's founders also valued team management and delegation of roles in ensuring tasks execution. A single individual but a management team that composed of various experts and intellects did not lead Google.
Microsoft management on its side practiced better management to realize the growth and success of the firm. First, Gates believed in inculcating the appropriate culture of inspiring employees and making them have fun on the work they do. Through this, the workers got motivated and were therefore willing to spend more time working for the company. The company's management also realized the need of having a clear vision and mission that provided the employees and the stakeholders in drawing a clear road map and courses of action. The vision had to…