External and Internal Environments of Microsoft Corporation - Case Study Example

?INTERNAL AND EXTERNAL FACTORS OF MICROSOFT Microsoft Corporation is a USA based multinational company which is devoted into development, production,licensure and sustainment of vast range of products and services related to computing. The company has always successfully dominated the personal computer functioning system whole worldwide through its different software’s. The company has got eight business divisions with potential to serve the customers adequately. Microsoft follows a mission statement which claims, “We are committed long term to the mission of helping our customers realize their full potential”. The company acquired this position through constant innovation, update and improvement of their products through acceleration of new technologies as they emerge (Microsoft, 2013). Segments of General Environment Affecting the Company: Environmental internal and the external factors both affect the function ability of the any company. Internal factors are the controllable factor prevailing within the firm. Whereas external factor accounts for those factors which are beyond the control of any firm. One of the external factors affected the pricing strategy of a single product of Microsoft. The factor was one of the macro environmental factors of the external environment affecting the entire information technology industry. One of the factors was the political and legal forces. This did not directly affect the marketing ability of the company but indirectly clouted the marketing decisions of the company. For Microsoft political and legal external environmental forces lead profound influence on the decision making and strategy department of the company. Changes in the political and legal field hugely affected the marketing decision of the company. These forces are the macro economics forces which affects the overall industries. XBOX 360 is one of the products of Microsoft which comes under the Interactive Entertainment Business division of Microsoft. The issue which came to the picture depicted that the use of lead free solder was the source for lack of strength in the XBOX 360. So prohibitions were brought by government for the usage of lead and mercury cadmium. Following this issue the European Union announced the banning of lead and mercury Cadmium on every product used by any companies in the IT industry. It assures that the external environmental issues affected not only Microsoft but also the entire IT industry (Cornwell, n.d., pp. 1-4). Social and cultural forces of the external environment also affect the marketing concepts of the company. It assures that the firm should take a go ahead in eliminating the detrimental product. As an effect of the same Microsoft stated working to pertain technology to noteworthy environmental issues and collaborated with European Environmental Agency (Microsoft, Corporate Citizenship, 2013). Porter’s Five Forces: Michael Porte’s five forces of competition give a brief of a simple model helpful in assessing and scrutinizing the competitive strength and situation of a certain firm in respect to its competitors. Porter’s five forces lead to a competition of the rivals of the industry. Two of the forces are existing competitive “entry of competitors” and the second is “threats of substitute products”. Threats of substitute products are the potential threats from the competitors within the industry regarding the products. Microsoft faced threats from the competitors in the field of personal computer software market. Its close competitors were MAC OS, Sun Solaris, Linux, various structured browser, lotus notes etc. This lead to a high degree of competition amongst the IT companies within the industries regarding their close substitutes. But in this aspect the government had a different view. As per the government Microsoft did not face any such threats from the competitors regarding he close substitutes. Rather it enjoyed a monopoly in the middle level market due to its pricing strategy. They also added another reason that the software markets are exemplified by succession of temporary monopolies leading to no potential threats from the rivals (Gilbert & Katz, 2001, pp. 7-8). “The entry of the competitors” or “threat of the new market entrant” creates a rivalry amongst the competitors of the industry. Microsoft always faced threats from the new level of entrants in the product vase of the IT industry from its competitors. Improved Abilities to Address the Forces: In order to address the forces the company first and foremost should make a competitive scenario analysis of the industry. Threat for substitute happens when the particular company is forced to compete with the other companies within the industry. The other companies produce substitute products or services. For Microsoft the threat was to a great extend. To address the threat the company should make out how easily their products can be substituted. The company can go for the market analysis of the same before designing a product. They should look for the grounds where their competitors are lacking and take the opportunity of the factor and make a strategy accordingly. On the basis of their research it should design its product. While designing Microsoft should also make an analysis of the fact that how easily its product can be substituted and made less costly. They should also make out the variables at play in respect to the marketplace analysis. Microsoft before going into the production plan should find the clear solution of the issues and should have a secondary plan in order to save its products from substitution. If Microsoft address this issues in the mentioned manner then it can be able to reduce the threats from substitution of some extend. The entry of the competitor in the industry brings new capacity, alternate resources and often engulfs the market share. The intensity of the entry of the competitors depends upon the barrier of entry created by the company prevailing in the industry. If the barriers are make high then the entrants will face retribution. There are few sources which will create the barrier to the entry of the new competitors. They are the economics to scale, product differentiation, capital requirement, government policy and access to the distribution channel. For safeguarding it from the entry of the competitors Microsoft should strategically address the factors. The company should also identify the barriers and make a strategy in accordance to that. As per the government Microsoft should create a barrier of entry of the competitor by assuring that the operating systems did not share any familiar set of appliances through middleware. External Threat and Opportunity: Threats and opportunities are the two elements of the SWOT analysis. Threats and opportunities are the external factor for any company. In an industry any company is exposed to lots of threats and opportunities. Threats can come from the emergence of the new competitors, launch of the new technologies, change in economy that affects the customers purchasing habits, change in the politics policies and regulation made by the government, fads etc. Threats trigger the external factor of the environment and affect the company’s decision making policies. In this context Microsoft should list the threats from the external environment while taking any decision. They should consider the probable threats from the shrinking market, should focus on consumers changing trends, shortage of raw materials, threat in context of market growth, and changes in the competitive market. Based on these factors Microsoft should take up a strategy which will protect the company from the probable threats. Microsoft faced several threats in the operating system field. Netscape was one of the potential threats to Microsoft. Microsoft’s Windows was threatened from the fear of substitution by Netscape navigator. In addition Microsoft has also been threatened of losing its dominance in the market share (Microsoft, 2013, pp. 54-56). Opportunity on the other hand is also influenced by the external forces of the environment which are beyond the control of the any company. Opportunities can be applied over both macro and micro environment. Based on the opportunity front Microsoft can improve its local economy and also can boost its public image. As per Phillippe J, president of Microsoft, “Technology has the fundamental ability to positively impact people’s lives. However with this comes the responsibility- to our customers and global community- to operate our business in a way that promotes respect from human rights.” It assures that Microsoft has got an opportunity over the technological front. Microsoft should create an opportunity on the basis of the emerging technologies, latest rules and regulation from the government, economic downturns, competitive mergers and acquisition, innovative use of old products and any positive alteration on the competitive market (Microsoft, 2013, pp. 60). Strength and Weakness: Strengths and opportunities allow any company to identify the forces which influence both the positive s and negatives of the company. By the analysis of the same a company can able to organize its operations, frame up strategies and present solutions for the weaknesses as well. Both strength and weakness account for the internal factors of a company. These factors are available inside the firm. They are the controllable factor and the company has got control over these factors. These factors lead profound influence over the marketing decision of the company. Strength and Weakness can be related to the top management, finance and accounting, research and development, manufacturing process, purchasing activities, companies image and brand equity (SWOT Analysis: A Tool for Making Better Business Decisions, 2006 ) Microsoft’s greatest strengths are brand loyalty, brand repute, dominant distribution channels, easy and user friendly software, healthy financial performances and acquisition of Skype. The company’s weaknesses are poor acquisition and investment decisions, flaws in the security laws, reliance on the hardware software, balance sheet burdened with too much debt, slow paced innovation skills and huge competition on the operating system market (Microsoft, 2013, pp. 45-81). To maximize the strength Microsoft should go for more potential alliances with other firms to have access to their competencies. They should aim at the maximum utilization of the internal resources to robust the financial growth with cost benefit advantage. They should also make up strategies which would provide them a competitive advantage over their competitors. Microsoft should also focus on reduction of its weaknesses to build a better position in the competitive market. A clear strategic direction should be framed to address the weaknesses. Finance department should reduce the debt equity ratio and give importance in strengthening its equity base. The research and development department is required to improve their productivity by developing their innovation skills to meet the potential threats by removing their weaknesses. Resources, Capabilities and Core Competencies: For Microsoft the manufacturing department is responsible for the production of good quality of product for the worldwide consumer market. The operating software is the resources for Microsoft. The brand equity and the corporate image also contribute for the same. They are the potential resources for Microsoft. Microsoft also used their business intelligence tools in the CRM system with full fledged capabilities. Competitive advantages over the online service division of the company accounts for the core competencies. The business solution division accounts for products like SharePoint, Lync, Visio, Office, Exchange etc, the entire interactive Entertainment Business and Windows Phone Division also add up to the core competencies of Microsoft (Microsoft, 2013). Porter’s Value Chain: A value chain comprises of a set of activities that any firm carries out in order to create value for its consumers. In this context porter suggested a general purpose value chain. As per porters value chain any company can see how the activities are connected to each other through the application of value chain. The value chain can be used to figure out the sub activities of the primary department. It also helps to understand the sub activities of the each support activity. The value chain can also be implemented in order to look for opportunities to increase the value and identification of links. Overall the value chain gives a spotlight on systems and shows hoe the inputs are altered into outputs purchased by the consumers (Bischoff, 2011, pp. 3-5). It assures the fact that the more value any firms create t will be entitled to more profits. By applying the value chain it is found that the business solution division and the business intelligence division exposed the value change presentation. The interactive entertainment division enhanced the ad hoc collaboration activities (Microsoft, 2013). References Bischoff, L A, (2011), Porter’s Value Chain and The REA Analysis as an Accounting Informational System, Germany, GRIN Verlag Cornwell A, (n.d)., XBOX 360: Environmental Factors Affecting Pricing, retrieved on 18 July 2013 from: https://www.google.co.in/webhp?source=search_app&gws_rd=cr#sclient=psy-ab&q=+environmental+factors+affecting++microsoft&oq=+environmental+factors+affecting++microsoft&gs_l=hp.12..35i39.3933.31460.0.33566.58.38.3.17.19.0.223.5324.0j36j2.38.0....0.0..1c.1.20.psy-ab.MrXDZqMRrwU&pbx=1&bav=on.2,or.r_cp.r_qf.&bvm=bv.49478099%2Cd.bmk%2Cpv.xjs.s.en_US.c75bKy5EQ0A.O&fp=56e0e38cda57afa7&biw=1152&bih=604 Gilbert R & Katz M, (2001), An Economist’s Guide to U.S. v. Microsoft, Berkeley, Department of Economics UCB Berkeley Microsoft, (2013), Microsoft’s Business, retrieved on 18 July 2013 from: http://www.microsoft.com/about/companyinformation/ourbusinesses/en/us/business.aspx Microsoft, (2013), Corporate Citizenship, retrieved on 18 July 2013 from: http://www.microsoft.com/About/CorporateCitizenship/en-us/working-responsibly/principled-business-practices/environmental-sustainability/ Microsoft, (2013), Annual Report 2012, Investor’s Relation, retrieved on 19 July 2013 from: http://www.microsoft.com/investor/reports/ar12/index.html SWOT Analysis: A Tool for Making Better Business Decisions, (August 2006), United States Of America, USDA Risk Management Agency Read More