Google expands its locations across the US
Everyone knows Google. What started up as a small company at Stanford University is now one of the best-known websites in the world. This phenomenon took the world by storm in the late 90s and has been a part of our lives for over two decades. Whenever we have a doubt and we decide to look it up online our head’s immediate thought is to search it on Google. It has become our go-to search engine, it’s easy to use and it seems to have all the answers to any possible question.
Less than a week ago, the company made a big announcement that did not get too much attention. They’ve decided to expand their offices across the US. As of last year, they counted with offices and data centers in 21 states. This year, 2018, they are opening data centers in Alabama, Oregon, Tennessee, Virginia and Oklahoma. Not only that, but they are either opening or renovating offices in California, Colorado, Illinois, Massachusetts, Michigan, New York, Pennsylvania, Texas and Washington. This massive expansion is just a small display of how much the company is growing.
This growth needs to go hand in hand with sizing capacity. We learned in class that there are several strategies for sizing capacity. These are:
- Forecasting demand accurately
- Understanding the technology and capacity increments
- Finding the optimum operating level
- Building for change
In this case, Google must have forecasted its demand. By doing so, they noticed that they needed more space to be able to supply every client on the long run. Not only that but since they are a technology company, they must keep their data centers and offices ready for the next big thing to come.
Another topic we saw in class related to planning capacity was the different timing strategies to expand businesses. These included: leading demand with incremental expansion, leading demand with one-step expansion, capacity lags demand with incremental expansion and attempts to have an average capacity with incremental expansion. The company took a leading demand with one-step expansion strategy which means that they plan to stay ahead of the demand, thus minimizing the chance of sales lost to insufficient capacity.
In order to complete this strategy, the company has to make huge investments. Google is spending over $2.5 billion dollars on the data centers alone. For each of these servers the technology enterprise needs to hire around 1,900 employees. This is the capacity requirement the firm has calculated for each data center. In one of our latest lessons we saw that capacity requirement is the capacity necessary for a future period of time to meet the forecasted demand of the firm.
Google has grown over time to become a billion-dollar firm, with over 600,000 employees in 50 different countries. Although I only focused on Google US on this topic, the same strategies are being applied in the rest of the countries where this innovative and resourceful company is located.
Can you think of any other tech company that has been expanding its capacity lately? Maybe one that has been using a different timing strategy to expand?
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Hi Maria,
I really liked your post and the way that you incorporated graphs and tied in the class discussion about timing strategies company expansions. I think it’s interesting to look at tech companies and apply the supply chain and capacity topics that we’ve been learning in class.
You mention that Google took a leading demand with one-step expansion strategy so that the company can stay ahead of demand, thus minimizing the chance of sales lost to insufficient capacity. This made me think of other popular technology companies and whether or not they would apply the same school of thought. The sharing economy, and companies offering services in this area, has been increasingly popular and they’ve stayed relevant and successful partly due to the demand of the population. I think there is a greater risk for companies in this area of business than Google, an online search engine. If Airbnb took the same approach and stayed ahead of demand by offering more rental properties, I feel that there would be a risk if the demand doesn’t keep up. Both the company as a whole as well as the individual renters are at risk.
I also thought about Uber and their expansion process. Uber has been trying to keep up with its growth and although the company has been adding more and more new drivers, it still struggles to provide sufficient drivers at constantly competitive prices and in a variety of locations. I think the company used to be lagging behind demand with incremental expansion after realizing they have an underserved or poorly served an area of its consumers. However, their recent move to incorporate self driving cars is their way of leading demand with a one-step expansion. Self driving cars will take out the human element, and cut out the need for a hiring process and compensation model, and essentially automate most of the supply chain.
Reference: https://www.marketplace.org/2016/08/18/world/uber-and-airbnb-have-supply-issues-plain-and-simple
Maria,
Thanks for your post about Google’s expansion. Your intro is spot on–while other search engines exist and are popular with many consumers, Google’s popularity is head-and-shoulders above each of them. Of course, the fact that the firm is so popular with billions of people, means that it has had to grow tremendously over the years. The tech space is riddled with acquisitions and rapid expansion, and Google has proven time and time again that it is effective in forecasting demand–as you mentioned–and staying ahead of the game so that it doesn’t fall behind.
The growth you mentioned in this article is essentially the growth of existing products and services, that is, increasing the capacity for what the company already does. That growth is supported extensively by the fact that this isn’t the first time the firm has experienced growth this way, and it has shown that it can be effective. You left your article by asking us if we knew of any other growth in tech companies, and it reminded me of Amazon’s recent announcement.
Amazon, JP Morgan, and Berkshire Hathaway recently announced that they would be entering the healthcare industry. This represents the kind of growth where a company would be entering a totally different industry in order to offer different products and/or services. While the companies must stay committed to their existing customers, this new project will take lots of capital to complete.
Planning capacity is incredibly important in these kinds of projects, because one error can make a world of difference. Thanks!
Maria,
I really enjoyed your post. The charts and graphs you included improved the overall understanding of every point you made. To me, the most fascinating part about Google is the fact that it was not the first search engine. Yahoo was the first search engine to emerge, however when they began to change and focus on email and other web services, Google came in with an extremely focused and driven business plan and overtook Yahoo as the go-to search engine. Even since then, Google has not looked back and has developed every part of its business with a very specific plan in mind.
That is why your post is so intriguing because I am sure Google, like every other expansion they have undergone, is extremely well prepared. Google’s timeline as a company also points to its impressive resume of capacity planning. In 1999, Google had just outgrown its garage workspace and moved into an office with eight employees. Only five years later in 2004, they went public at $85 a share and were just a year away from launching Google Maps and Google Earth. From the very beginning, the management at Google have been experts in carefully and perfectly planning the expansions. Your post points to more of the same.
As far as your summary questions are concerned, I have not seen a company that has been able to expand at the perfect times and with the same level of success. With a company such as Google, it is easy to expand too fast and overdevelop due to the sheer amount of revenue being generating and the investments from Silicon Valley. However, Google continues to be a leader in planning future capacity nearly perfectly.
The Google timeline I accessed can be found here: https://www.theguardian.com/business/2008/sep/05/google.google
Maria,
I liked your analysis of Google’s expansion projects to meet forecasted demand. Your question at the end sparked me to think about other industry giants and their different expansion tactics over the years. I came up with a few examples. Firstly, back in the day, Netflix used to be a service that delivered DVDs to users quickly with no late fees. In 2005 they had 3.6 million subscribers to their DVD rental service. In 2007 they began to abandon their DVD rental service and transition into the streaming format that we all enjoy today. This is a fairly drastic example but they forecasted that the demand would shift from DVD rentals to streaming services. As a result, Netflix moved ahead of the curve and eliminated the part of its business that had helped it grow into a fairly big business. Additionally, Amazon.com was initially just an online bookstore that was intended to allow people to buy books without leaving their home. Now, you can buy anything on Amazon and, in some cases, have it arrive at your house in hours. They forecasted that demand would move beyond just buying books online and could be applied to any number of things. They also moved ahead of the curve to expand the products that they could provide. Both of these companies recognized demand shifts and future trends and were able to adapt their businesses to meet demand ahead of the curve and have since capitalized on being the first in the market.