Critically evaluate the business strategy of Facebook in relation to its changing external and competitive environments
Facebook has grown tremendously in the last couple of years. Starting as a small website for students to share photos, the company is now one of the largest social media network with over one billion users. This growth can be attributed to the strategic decisions that Mark Zuckerberg made as CEO. The company also enjoys huge revenue, in 2011. According to CORBEL (2012), the company had revenue of $3.71 billion up from $1.97 in 2010. Despite all this, the company may well be nearing the end of its product life cycle. According to MAYRHOFER (2012), the product life cycle theory says there are four different developmental stages in a product’s lifestyle. In the introductory stage, which is the first one, growth is stagnant and profits are minimal as the product is on trial. The product, if successful, proceeds to the growth stage. In this stage the product expands in to new markets because the product has been accepted. The third stage is the maturity cycle where Facebook currently is. In this stage there are stable prices and profits. MASUM and TOVEY (2011) assert it has become the norm for everyone to have an account on Facebook which basically means growth stage is passed. The last stage is usually the decline stage where sales and profits decrease. Although there is yet to be developed a technology that will directly kick Facebook out of business, several factors threaten its stability. There has been a big exit from Facebook especially in the U.S, Canada, and European markets as BARNETT (2012) claims. The company also introduced its IPO in May; the share has performed dismally going below by as much as 40% since. According to ADDLEY (2009) another factor is the rise and rise in the use of twitter. Although the micro blogging site uses a different technology, it could very well compete with Facebook for advertisements. As such, to keep stable in this industry, Facebook must adopt an appropriate business strategy.
At its start WILLIAM (2008) says Facebook’s strategy was aimed at getting as many users as possible, especially in the U.S and Canada. The company embarked on a charm offensive and managed to lure as many campus students as there were. This strategy was implemented by developing collaboration with colleges directly. Previously, college administrators had a negative opinion about Facebook and saw it as a nuisance. The company set a target to market itself to college administrators. The company would provide organizational services which included class registration, promotion of clubs and activities as well as advertisement. With the cooperation and support from the colleges, the company was able to bring in new users, for instance, by advising freshmen to check the school Facebook groups. Students would therefore be compelled to open accounts. The company would then offer many services to keep these customers dedicated to the website. Another strategy involved balancing the entry of new users with advertisement. College students provide a strategic advertisement market for other colleges, books and even music. This often involved sending messages to a user and informing them of their friends who have, say, downloaded music at a certain music website. SOON (2010) says given the peer pressure effect, most users would follow suit thus providing the company with click-through rates. With the change in client numbers, the company has reviewed these strategies as they are outdated. The user numbers have nearly hit the limit since there can only be so many users in the world. The company now has set new strategies to keep up with the changes in the industry. Facebook plans to expand to global users. It is important to note that although the company is immensely popular in the U.S and Canada, there exist huge market gaps in countries such Japan, Germany, Brazil, Russia, South Korea and many African countries. The lack of mention of china is due to the fact that as STRAUSS (2012) says, Facebook has been unable to enter this market that is heavily dominated by heavy players among them the SINA Corporation and RenREN
. The company is also considering developing social products so as to maximize engagement. Through innovation, the company hopes to enhance communal engagement by providing interactive solutions. However, experience has shown that customers are often dissatisfied and angry with compulsory upgrades. A move to include users into more interactive communities should be carried out with utmost care. Develop a more engaging technology for the mobile user. The mobile market is often said to be most factor in the company’s growth and the fact that the company will often be required to expand to this market portends an uncertain future. The4 screen is definitely smaller limiting the level of graphics that can fit.
The market has also begun getting many entrants who could inconvenience the company. Given the money the company has recently acquired through the IPO, the company intends to buy some of the companies that currently have a substantial stake in the mobile technology industry. The biggest threat, however, will be from Google which, through its Google+ social network may emerge to hold a major stake in the industry. The company also plans to boost efforts to become the leading developer of Facebook apps, if the company can invite developers to make its apps, users will most likely adopt them more easily than they will apps from other developers. This market, however, will be difficult to win given most users may ignore these suggestions. Another strategy is for the company to increase products for both users and advertisers. Given the fact that the company has a very huge market by virtue of the high number of users- users who are not charged anything- companies may take advantage by posting adverts through Facebook. However, BRYANT (2013) says such a move should be done subtly to avoid hindering the customer’s experience.
From the discussion it is clear that Facebook started with clear strategies that have worked well to give it the success it currently enjoys. However, with the change in the market environment, the company needs and continues to adapt new strategies. Each strategy has its merits and demerits as discussed above.
ADDLEY, E (2012) The rise and rise of Twitter. Retrieved from http://www.guardian.co.uk/technology/blog/2009/mar/27/twitter-popularity
BARNETT, E (2012).Facebook members ‘leave site in Europe and US retrieved from http://www.telegraph.co.uk/technology/facebook/9407657/Facebook-members-leave-site-in-Europe-and-US.html
Bryant, M.(2013). Facebook’s mobile display ads are gambling with my patience. Retrieved on 17th January 2013 from http://thenextweb.com/facebook/2013/01/09/facebooks-mobile-display-ads-are-gambling-with-my-patience/
CORBELL, T. (2013) Is Facebook Approaching the End of Its Product Life Cycle? Yes. http://www.bizcoachinfo.com/archives/7164
MASUM, H., & TOVEY, M. (2011). The reputation society: how online opinions are reshaping the offline world. Cambridge, Mass, MIT Press.
MAYRHOFER, P. (2012). Interdependencies in the Discovery and Adoption of Facebook Applications an Empirical Investigation. Dordrecht, Springer. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=1083316.
SOON, J. (2010). Did Facebook absorb freewill?: the role of peer pressure in the rise of Facebook.
Strauss, K. (2012) Facebook And The China Problem. Retrieved from http://www.forbes.com/sites/karstenstrauss/2012/05/18/facebook-and-the-china-problem/
Waugh, R. (2012) You WILL reveal your past! Facebook’s timeline feature becomes mandatory for all users – with just 7 days to ‘clean up’. Retrieved from http://www.dailymail.co.uk/sciencetech/article-2091735/Facebook-Timeline-mandatory-users–just-7-days-clean-up.html
WILLIAM, C. (2008). Facebook and the emerging social networking industry. Retrieved from: http://www.mcafee.cc%2FClasses%2FBEM106%2FPapers%2F2008%2FFacebook.pdf
Critically evaluate the implications of Facebook’s aggressive growth strategy in relation to the management of people and organizational culture
All organizations have a culture. There are several organizational cultures one can use to analyze organizational culture. According to HANDY (1993) there exists four types of culture in an organization, they are: the power culture, task culture, person culture, and role culture. Some organizations retain power in the hands of only a few people such that only they make decisions. They are privy to privileges at the organization. The same individuals delegate duties to the rest of the work force. In this case, the subordinates have no choice but to comply with the given instructions. The work force is not at liberty to express their concerns or even submit their ideas to management in an open forum. There is a likelihood of the managers to favor certain individual which would lead to a rebellion by the rest of the work force. The second type of culture is the task culture. Here, the organization has teams or several groups formed to attain set goals or to solve certain problems. GRAY (1998) says these small groups of about five people are normally comprised of individuals with common goals or specializations who will contribute equally to achieve set goals.
The person culture is the third type in Charles Handy’s model. In this model, individuals care more about their interests as opposed to the interest of the company. FLAMHOLTZ and RANDLE (2011) adds that employees see the organizational as a means to get money and rarely feel attached to the organization and are always disloyal to the management and decision made is not in favor of the organizational. FROST (1985) Asserts that It need not be mentioned that such an organization performs dismally and is fast ton collapse. The role culture is the fourth culture in Charles Handy’s model. It involves each employee being delegated roles and duties which best suit his or her specialization, education, interest and expertise. The setting involves employees identifying roles they can best perform and voluntarily accept the challenge. That means the employees have power and freedom that comes responsibilities. With its growth, Facebook has been changing some of its cultures and practices to be in tandem with the growth as well as to maintain the corporate culture. When he started the company, Mark Zuckerberg set an open culture with no hierarchies. The founder set several structures that were intended to make the company a fun place to work; such an environment would attract the best talent in the industry. The company has since then grown from a small company to a global company with thousands of employees. it also has had to change its corporate structure and culture to give it a more corporate image.
Charles Handy’s model provides an appropriate model to analyze the culture at Facebook. In particular Facebook provides a combination of the role culture and task culture as discussed by Charles Handy. On role culture the company provides a great experience for the worker, with an internal culture of openness and cooperation. PURKAYASHA AND QURNER (2011) say the company offered many opportunities for people who wanted to be innovative and explorative. This independence definitely separates it from the pack. Employees are left uninterrupted by office politics, and meddlesome management. The company has no cubicles as employees share desks, even management share desks as did Mark Zuckerberg although using the conferences for meetings. When the company shifted to California, they created a relaxed environment even providing a basketball court which had graffiti paintings. Management was readily available and easy to approach. Employees were provided with good foods, including three meals a day and snacks at all times. Food was ranked as one of the most attractive perks. ARTHUR (2010) the company was copying Google’s style as it even hired one of Google’s chefs. The company also provided special meals during sessions that required the company’s programmers to work all night.
On task culture they have a culture based on small teams that works together developing innovative product WALTER (2013) says the company recruits only for the right attitude and not necessarily the best skills. The hiring practices at Facebook are skewed in favor of the cultural values set at the company. The company has very few vice presidents so that all employees feel equal. VANCE (2012) says that Beginning 2008, the company, in a bid instill its culture and values to recruits, the engineering team at Facebook started the engineering boot camp program. Under this program, each recruit would go through an intensive six months program that involved working with a mentor and a cross team in a hands on problem solving. The purpose of this learning from mentors and peers was geared towards establishing a task culture as it helped the learner to connect across in the organization. As the company growth went on, there was need to open new offices. By 2011, the company had over 20 offices across the globe. This was definitely a tricky moment as the company needed to maintain the culture similar to the one at the headquarters. In an effort to inculcate its culture in the new offices, SWIFT (2011) says the company would select some of the company’s top employees who were experienced in the running and culture of Facebook. They would then be delegated to go open, set and establish the new offices for a certain period of time. These teams were referred to as the Landing teams.
ARTHUR, C. (2010). Life Inside Facebook: how head of developers organizes people. The Guardian 22nd November pg. 22.
FLAMHOLTZ, E., & RANDLE, Y. (2011). Corporate Culture the Ultimate Strategic Asset. Palo Alto, Stanford University Press. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=692447.
FROST, P. J. (1985). Organizational culture. Beverly Hills u.a, Sage Publ.
GRAY, R. (1998). Organizational Culture and the Psychological Contract. London, Kampania Consulting.
HANDY, C. B. (1993). Understanding organizations. London, Penguin
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PURKAYASHA, D. & QURNER, S. (2012). Facebook: Balancing Growth and Preserving Corporate Culture (2011) Retrieved from http:. www.iupindia.in%2F711%2FHRM%2520Review%2FFacebook.pdf
SWIFT, M. (2011) Facebook landing team transports company culture.
Vance, A. (2012). Facebook: The Making of 1 Billion Users. Retrieved from http://www.businessweek.com/articles/2012-10-04/facebook-the-making-of-1-billion-users
Walter, E. (2013). Think like Zuck: the five business secrets of Facebook’s improbably brilliant CEO Mark Zuckerberg McGraw-Hill Professional.
Strategic recommendations to Facebook in order to enhance its future business success
Strategic planning is the process by which an organization plans to achieve its mission. For Facebook to continue being the epitome of business success it has become, the company should adapt several strategies that will help it realize it’s goals. PORTER (1980) suggested some driving forces which could help evaluate the prospects of any sector in terms of competitive positioning. The five Porter forces could be ideal in analyzing competitive forces in whichever industry, including the industry in which Facebook operates. The model strives to address key strategic issues in a general approach. The forces discussed are: degree of rivalry, buyer’s power, threat of substitutes, supplier’s power, and the threat of new entrants. According to GABRIEL (2005), Competition among rival firms has the risk of driving profits to zero. Competition, however, is not perfect. Companies strive to have a competitive advantage over rivals.
In the social media industry, a large market share is held by the largest companies such as Google, Facebook, and Twitter. As such, NILSSON and RAPP (2005) say the industry has a high concentration ratio. The industry is never quite as each firm strives to gain advantage over the other. Facebook can consider adopting several strategies to gain competitive advantage which include: product differentiation, establishing good relations with users as well as the suppliers in the industry. WEINTRAUB (2011) says that as Facebook has grown, competition from Google has become more cut throat. The Google network has 90 million users, it’s also has another 350 million users on Gmail not to mention the quarter billion users on android devices. Most of the revenue Google gains is from advertisers just like Facebook. Unlike Facebook, Google has many products as mentioned here. This poses the threat of Facebook losing users to Google. The threat of substitutes according to porter’s model refers to services from the other industry, or rather from outside the industry. Facebook is a social networking site whose purpose is to allow users to stay connected with friends. The emergence of new service application such as WhatsApp, Skype, and iMessage, will definitely pose a threat. WhatsApp and iMessage are short messaging messages that are basically internet based. There are other threats such as Video calling services which include Skype and Google Hangout. By allowing video communication via the mobile telephone and PCs, they can attract users from Facebook. To counter these challenges, Facebook should consider introducing more messaging apps as well as partner with Skype to produce video calls for its users BENTON (2011).
Even as companies face competition from peers, they also face another threat from new firms. As profits rise, additional firms are bound to enter the market given that the market, in theory, is free-entry, free-exit. In the real world, however, there are barriers to entry and high profits are inhibited. The social networking industry has low entry barriers and appears as potentially profitable. With a few servers and a number of programmers, one can produce a networking site. These inputs are readily available with a small investment. According to KARKAR (2012), mobile journal path pose a threat to Facebook. Two months in to the industry, the site has gained nearly two million users. However, unlike Facebook which is available on several platforms, it is limited to smart phones. The company should boost the Facebook platform app which allows developers to make apps for Facebook. Such developers are unlikely to think of introducing their own apps that can rival Facebook. The company should also adopt a strategy of buying some of the small companies attempting to break in to the market. The bargaining power of customers is the power that clients command in the buying process of services or products in an industry. When the buyer has strong power, such an industry is referred to as many suppliers- one buyer industry. Facebook does not exist in such an industry. Their customer is the advertiser. Revenue from advertising accounts for more than 90% of the total revenue.
Given the number of users that the company boasts of, customer bargain power is very low. Thus, the company has been able to increase the average ad price. However, if the company continues to lose users, the customer bargaining power will increase. The best strategy to mitigate this risk is for the company to create new innovative applications to create a better user experience. As discussed earlier it would be prudent for the company to market itself in new markets so fill the gaps in loss of users in the traditional markets. Suppliers bargaining power is the fifth factor that Porter discusses. All industries have their suppliers; there exists a buyer-supplier relationship in every industry. However, STELZNER (2012) says in the service center in which Facebook operates, there re no direct suppliers. While the company continues to enjoy power over suppliers, there several factors that threaten this power. The loss of customers in traditional markets as well as the inability to reach new markets is one major threat. The loss of users to other platforms by competitors like Google is the other threat. However, the old users cannot easily join other networks high leverages the company’s supplier power. The supplier power is therefore average.