Microsoft's Current Development Strategy - Case Study Example

1. Introduction The subject of this paper is the strategy of Microsoft, ”an American multinational computer technology corporation”1 which “develops, manufactures, licenses and supports a wide range of software products for computing devices.”2 Microsoft is a very good example of a corporation which has adapted itself to new conditions of the market and innovations in electronic industry. This is a result of its competitive position and strategic positions in recent years. Microsoft is selected here in this paper because it seems very interesting to examine the strategy of a company in the context of modern and traditional strategy theories. 2. The Corporation As a company, Microsoft values integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. They are committed to their customers and partners and have a passion for technology. They take on big challenges. They hold themselves accountable to their customers, shareholders, partners, and employees by honoring their commitments, providing results, and striving for the highest quality.3 Microsoft’s best selling products are the Microsoft Windows operating system and the Microsoft Office suite of productivity software. These products have prominent positions in the desktop computer market, with market share estimates as high as 90% or more as of 2003 for Microsoft Office and 2006 for Microsoft Windows, in line with the company's original mission of "a computer on every desk and in every home, running Microsoft software"4. Microsoft has footholds in other markets besides operating systems and office suites, with assets such as the MSNBC cable television network, the MSN Internet portal, and the Microsoft Encarta multimedia encyclopedia. The company also markets both computer hardware products such as the Microsoft mouse and home entertainment products such as the Xbox, Xbox 360, Zune and MSN TV. Known for what is generally described as a developer-centric business culture, Microsoft has historically given customer support over Usenet newsgroups and the World Wide Web, and awards Microsoft MVP status to volunteers who are deemed helpful in assisting the company's customers.5 Microsoft has often been described as having a developer-centric business strategy. A great deal of time and money is spent each year on recruiting young university-trained software developers and on keeping them in the company. For example, while many software companies often place an entry-level software developer in a cubicle desk within a large office space filled with other cubicles, Microsoft assigns a private or semiprivate closed office to every developer or pair of developers. In addition, key decision makers at every level are either developers or former developers. In a sense, the software developers at Microsoft are considered the "stars" of the company in the same way that the sales staff at IBM are considered the "stars" of their company.6 Within Microsoft the expression "eating our own dog food" is used to describe the policy of using the latest Microsoft products inside the company in an effort to test them in "real-world" situations. Only pre-release and beta versions of products are considered dog food. 7 This is usually shortened to just "dog-food" and is used as noun, verb, and adjective. The company is also known for their hiring process, dubbed the "Microsoft interview", which is notorious for off-the-wall questions such as "Why is a manhole cover round?" and is a process often mimicked in other organizations, although these types of questions are rarer now than they were in the past.8 For fun, Microsoft also hosts the Microsoft Puzzle Hunt, an annual puzzle hunt (a live puzzle game where teams compete to solve a series of puzzles) held at the Redmond campus. As of 2006, Microsoft employees, not including Bill Gates, have given over $2.5bn dollars to non-profit organizations worldwide, making Microsoft the worldwide top company in per-employee donations.9 Starting around 2005, a blogger claiming to be an employee of Microsoft, dubbing itself Mini-Microsoft, claims that the company has become a "passionless, process-ridden, lumbering idiot," due in part to ineffective management, and calls for the company to be downsized.10 In January 2007, the Harris Interactive/The Wall Street Journal Reputation Quotient survey came to the conclusion that Microsoft had the world's best corporate reputation, citing strong financial performance, vision & leadership, workplace environment rankings, and the charitable deeds of the Bill & Melinda Gates Foundation.11 3. Source of the information The information for this research is based on published and electronic data. This form of research is selected because the company has many references in written and electronic media, thus allowing quick access to comprehensive picture about the company. The company’s web site, financial reports and statements, stock analyses and different conference literature have been the main sources. This information has been put in theoretical context using main theories of corporate strategies. 4. Microsoft’s Strategic Position 4.1 Current strategic position in the context of business environment Microsoft's mission is to enable people and businesses throughout the world to realize their full potential. One way for Microsoft to fulfill this mission is by developing innovative software that transforms the way people work, learn, and communicate. Another way is by using their resources and expertise to help expand social and economic opportunities in communities around the world. Social Environment: Microsoft's greatest strengths are their employees' passion, creativity, and dedication, and their strong partnerships with thousands of private, public, and community organizations. A few years ago, Microsoft set a goal that, by the end of this decade, they would help bring the benefits of technology to 250 million underserved people worldwide but they recognized that they could not do this alone. So they built this goal on the strength of partnerships with governments, schools, nongovernmental organizations, and community organizations. Working together, they are bringing valuable technology skills to teachers, students, and others—more than 135 million people so far, putting them more than halfway to this goal. Technology Environment: Their innovative technology and partnerships are also helping meet some of society's toughest challenges: assisting law enforcement in the fight against online predators with the Child Exploitation Tracking System, helping industry and government to protect individual privacy and fight spammers and identity thieves, and enabling people with disabilities to develop job skills and live fuller lives through advanced tools that make technologies more accessible. Economical Environment: From the beginning, Microsoft’s community investments have been inspired by their employees, and it's their passion and commitment that continue to drive Microsoft's efforts to help people in need. This is especially true when disaster strikes. Their employees are often on the front lines, giving help wherever it's needed and devising unique ways to use technology to aid relief efforts. At Microsoft, everything they do is guided by corporate values, codes of conduct, and company policies that, for example, ensure diversity and fair business practices among vendors and suppliers, provide for good stewardship of the environment in the way they create and package their products, and support collaboration with governments and industry on important technology issues such as interoperability and security. They are constantly expanding their understanding of what they must do to be a responsible leader and a good corporate citizen, and they are always seeking new ways to put partnerships and innovation to work to really make a difference. Their global citizenship efforts represent their mission and values in action, and they underscore how creativity and a spirit of innovation can make a difference, not only in the products they create, but also in the way they give back to communities worldwide. 4.2 Strategic Position in the past five years “For the fiscal year ended June 30, 2007, Microsoft announced revenue of $51.12 billion, a 15% increase over the prior year. Diluted earnings per share for the year were $1.42. Excluding certain items, earnings per share would have been $1.49, an increase of 17% over the prior year when also adjusted for certain items.”12 Revenue (Gross Income) diagram in past five years based of Microsoft Financial reports13 As governments everywhere strive to harness the opportunities and meet the social and economic challenges of the 21st-century knowledge economy, they are focused on promoting job growth and skills training, encouraging the development of local industry, and enhancing their global competitiveness. Governments understand that devising strategies to successfully address these issues today will provide a solid foundation for future growth and prosperity. Because computer operating systems and applications are the engines that drive the knowledge economy, many of these economic development strategies center on increasing digital literacy and the use of technology. Meeting these objectives is a long-term effort that often cannot be accomplished by governments alone. One hallmark of the digital age has been the increase of public-private partnerships to address issues such as skills training, access to technology, and funding for new enterprises. This new spirit of collaboration demonstrates that the private sector, as well as governments, has an important role to play in creating opportunity for local communities worldwide. Creating Opportunity for Businesses: Microsoft is a very successful company, but their achievements in past 5 years, depend on the success of thousands of other technology companies around the world. At the heart of their business model is their reliance on other companies that build hardware and software, provide solutions, and offer services based on the Windows platform. This global interdependent network of 650,000 Microsoft partners created huge opportunities for local communities. It created jobs, generated tax revenue for governments, offered skills and workforce development programs, and made significant investments in innovative new technologies. Recent research conducted by IDC, a leading provider of marketing intelligence for the ICT industry, shows that for every $1 of revenue Microsoft earns, local software, hardware, and services firms earn between $6 and $18 of downstream revenue. Creating Opportunity for Individuals: Creating economic opportunities for nations, communities, and businesses begins by opening doors of opportunity for individual people. Microsoft has been deeply involved in promoting digital inclusion around the world, working in partnership with governments, industry leaders, and community organizations to offer skills training ranging from basic computer skills to the most advanced professional training and certifications. During past five years, through innovative technologies and partnerships, Microsoft has provided provide ICT skills training to a quarter billion people who were previously underserved by technology. Through their flagship digital inclusion programs, Partners in Learning and Microsoft Unlimited Potential – Community Technology Skills Program, they provided technology access and training to all types of learners, no matter where they happen to be on the continuum of ICT skills and knowledge. They offered skills training for schoolchildren, for teachers who need to learn how to incorporate technology as part of their classroom instruction, and for community learners. They worked with new users and historically underserved populations—such as at-risk youth, refugees, senior citizens, and people with disabilities—as well as mid-career professionals who need to sharpen their skills or gain new ones. Together, these digital inclusion programs lay the groundwork for increased economic opportunity and social improvements. 5. Changes in corporate and functional strategies, viability Microsoft in past few years has worked with government officials and other stakeholders to advance public policies that improve economic and social well-being, and that enable people to realize their full potential. Their efforts which are the changes or the enhancements in Microsoft strategies and viabilities , fall into three broad categories: enhancing Internet safety, creating economic opportunity, assuring broad inclusion in the digital evolution. 5.1 Economic Opportunity Preserving Consumers’ Internet Freedoms (Net Neutrality): Preserving an open Internet will have far-reaching implications for consumers, technology and Internet companies, broadband network operators, and ultimately the nation’s global competitiveness. To ensure the Internet remains open, Congress should pass legislation that: preserves the ability of consumers to access and use lawful Internet sites, content, services, applications, and devices of their choice; and ensures that network operators will not unfairly or inequitably interfere with the ability of online companies to deliver their products to consumers over the network operators’ local facilities. These are the “Net Neutrality” legal principles upon which the Internet was built. Recently, the Net Neutrality debate has been the focus of much rhetoric, and the term has been subject to a variety of interpretations. Microsoft believes the two core ideas they are pursuing are limited in their scope, but at the same time are essential to preserving an environment in which companies at the “edge” of the Internet can continue to develop and make available innovative new content, services, applications, and devices. With these principles in force, consumers will be assured that they can enjoy these products and services without interference. Other Aspects of Well-Balanced Communications Regulation: Convergence among Internet, telephone and entertainment services creates challenges in applying traditional regulatory concepts. To avoid impeding the development of new capabilities, policymakers need to proceed both creatively and carefully, developing rules that are both well-suited to the new reality and that are narrowly targeted. Microsoft’s position on Net Neutrality is one example. It envisions a largely deregulated environment, bounded only by the principles described above. To accelerate broadband deployment, Microsoft also supports aggressive spectrum reform aimed at improving the odds that new wireless technologies can become realistic broadband options. With respect to accelerating the digital television transition, there is much the IT industry can do on its own by developing exciting new devices and services. Here, Microsoft and its partners need the FCC to continue to evolve copy-protection regulations governing DTV devices that are both consumer friendly and respectful of IP owners’ interests. Finally, though new Voice-over-Internet Protocol services raise difficult transition questions (such as how to keep phone service affordable in high cost areas and how to enable lawful surveillance), policymakers should assure that innovators have the chance to create new solutions to old problems. Microsoft’s Role in Building a Strong IT Sector: The global market for IT products and services is estimated at over $2 trillion annually. Despite recent economic sluggishness, the sector continues to generate high-skilled, high-wage jobs and significant tax revenues. Growth in the sector is particularly important because of its multiplying effect. As usage of IT increases, businesses and consumers become more productive, fueling additional growth and higher standards of living. Microsoft has been a major contributor to this virtuous cycle since its founding. They contribute through constant innovation, support for open standards and interoperability, and their commitment to business partnerships. Worldwide, they provide over 750,000 partners with tools, training and other resources to help them succeed. By enabling others’ success, their sector can continue to deliver an ever broadening range of benefits. Intellectual Property: Like most innovative companies, Microsoft maintains a diverse portfolio of intellectual property, including copyrights, trademarks, trade secrets and patents. Strong intellectual property laws assure that innovators can continue to license and invest in new technologies, fostering broader benefits for the general population. U.S. creators of IP enjoy a strong legal framework. However, government must devote sufficient resources to combating IP crimes and to educating the public on the importance of respecting IP. To enhance their IP infrastructure, the U.S. Patent and Trademark Office must also receive the resources it needs to improve patent quality and to reduce application processing time. 5.2 Security Security & Privacy: Security and privacy are top Microsoft priorities. The last several years have shown that security, in particular, is a complicated industry-wide challenge because criminal hackers are continually developing ever-more sophisticated attacks. Although no complex software system can be perfectly secure, Microsoft is reducing risks by improving their software development practices and their security response mechanisms. To better secure the broader IT eco-system, they also regularly partner with industry and government; they have created a rewards program to help international law enforcers find criminal hackers; and their support governmental efforts to fund more training for their IT professionals. Globally, they support ratification of the Council of Europe Cyber Crime Treaty. As to privacy, Microsoft has long been committed to empowering users to control the collection, use and distribution of their personal information. They advance this goal through the products and technologies they build, as well as via their data management practices. They also recognize policymakers’ interest in assuring baseline privacy protection via legislation, and they look forward to working on proposals that address both consumers’ and innovators’ concerns around regulation in this area. Combating Spam & Spyware : Microsoft continues to pursue a multi-pronged strategy to combat spam. With law enforcers and on their own, they have brought legal actions against the most egregious spammers. With legislators, they have helped craft new anti-spam legislation. And with industry and advocacy partners, they are increasing awareness of best e-mail practices. They also continue to deploy cutting-edge technologies that deter spammers without unduly burdening legitimate e-mailers. Deceptive software, commonly called spyware, is a relatively new threat. It is typically installed on users’ systems without their knowledge or consent, and it can expropriate a system’s capacity and/or the user’s data. As a starting point, solving this problem requires new technical solutions and heightened consumer awareness. Some policymakers are ready to legislate. But as a recently enacted law in Utah demonstrates, precipitous legislation can also inadvertently regulate or prohibit legitimate consumer-assistance technologies. Any legislative approach needs to focus on eliminating bad behavior rather than regulating all software. 5.3 Digital Inclusion Bringing Opportunity to All: Microsoft’s overarching mission is to enable people throughout the world to realize their full potential. Expanding digital opportunity to all – and especially to those who face disadvantages -- is part and parcel of this mission. In fiscal year 2003, Microsoft launched a new initiative to promote digital inclusion, "Unlimited Potential." It is designed to meet the needs of underserved groups in community-center settings around the world. As of June 2004, Unlimited Potential is operational in 76 countries—and this is just a start. Ultimately, Microsoft will have a presence in more than 100 countries. They also extend their efforts to people with disabilities. By collaborating with developers of assistive technology, they help assure that their tools work well with Microsoft’s. And within their own products, they work to regularly improve the accessibility of IT. Together, these programs represent the company’s most significant commitment to helping individuals, communities and nations gain access to the technology tools and skills innovation they need for economic opportunity and social well-being in the 21st century. 6. Drivers In this section the presentation and assessments of the main drivers that are influencing Microsoft’s present and future strategy will be shown. A useable framework for the assessment of the market drivers is two of porter’s forces theory (rivals and new entrants) .But first, General drivers will also be shown which are the criticisms to Microsoft, the main drivers of changes in Microsoft’s strategies. 6.1 Criticism to Microsoft 6.1.1 Corporate: During the past few years, Microsoft has been the focus of much controversy in the computer industry. Most criticism has been for its business tactics, often described with the motto "embrace, extend and extinguish". Microsoft initially embraces a competing standard or product, then extends it to produce their own incompatible version of the software or standard, which in time extinguishes competition that does not or cannot use Microsoft's new version. These and other tactics have led to various companies and governments filing lawsuits against Microsoft. Microsoft has been called a "velvet sweatshop" in reference to allegations of the company working its employees to the point where it might be bad for their health. The first instance of "velvet sweatshop" in reference to Microsoft originated from a Seattle Times article in 1989, and later became used to describe the company by some of Microsoft's own employees. Free software proponents point to the company's joining of the Trusted Computing Platform Alliance (TCPA) as a cause of concern. A group of companies that seek to implement an initiative called Trusted Computing (which is claimed to set out to increase security and privacy in a user's computer), the TCPA is decried by critics as a means to allow software developers to enforce any sort of restriction they wish over their software. Advocates of free software also take issue with Microsoft's promotion of Digital Rights Management (DRM), and the company's total cost of ownership (TCO) comparisons with its "Get the facts" campaign. Digital Rights Management is a technology that gives digital content and software providers the ability to put restrictions on how their products are used on their customers' machines; these restrictions are seen by the technology's detractors as an infringement on fair use and other rights. DRM restricts even legal uses, for example, re-mixing or playing in a slideshow. The "Get the facts" campaign argues that Windows Server has a lower TCO than Linux and lists a variety of studies in order to prove its case. Proponents of Linux unveiled their own study arguing that, contrary to one of Microsoft's claims, Linux has lower management costs than Windows Server. Another study by the Yankee Group claims that Windows Server costs less than Linux for those with legacy systems and more for those without. 6.1.2 Technical: Older versions of Microsoft Windows were often characterized as being unstable—versions of Windows based on MS-DOS, and later the Windows 95 kernel from the mid 1990s to early 2000s, were widely panned for their instability, displaying the "Blue Screen of Death", when Windows abruptly terminates an application—usually due to malfunctioning drivers or hardware. In Windows NT/2000/XP Professional, the blue screen is also known as the Windows Stop Message. While less frequent, Windows 2000 and XP are still susceptible to Blue Screens of Death. Blue Screens of Death in Windows NT/2000/XP and later Windows systems are the equivalent of kernel panics in Unix-like systems whereas BSODs in Windows 95 or 98 could be for much less severe problems and usually did not require a reboot. As an effort to enforce the usage of signed drivers (which must pass a compatibility test), Microsoft announced that they will disallow unsigned drivers in the 64-bit editions of Windows Vista. However, Peter Gutmann claims that an analysis of the certification process and its criteria demonstrate that the signed driver requirement's first priority is not functionality or performance standards, but mandatory support for DRM technology, which he claims actually lowers performance. The security of Microsoft products is also often a target for critics. Rob Pegoraro, writing for the Washington Post, says that due to Windows leaving five Internet ports open for various running services, malware has an easier time compromising the system. In an article for SecurityFocus, Scott Granneman said that as of 2004-06-17 there were 153 accumulated security holes since 2001-04-18 and that Internet Explorer "is a buggy, insecure, dangerous piece of software." Mike Nash, a Microsoft Corporate Vice President, responded to Internet Explorer security concerns in a 2005 interview by stating that the version of Internet Explorer shipped with Windows XP Service Pack 2 gives it security on the same level as its competition. The current version, Internet Explorer 7, has a security overhaul with anti-phishing and malware prevention technology. 6.2 Competitive rivalry The degree of rivalry is to some extent high in the industry, Microsoft and Linux developers have been competing during the last years to gain more shares of market. Microsoft has been a winner since more than 90 percent of personal computers use windows as an operating system but the low price of Linux and its more security has made it a serious rival. Since Microsoft is almost everywhere in the market , it’s rivals are more than any other software company, Microsoft, Yahoo and Google, are serious rivals in the search engine market. Microsoft has a serious rival to its Internet Explorer which is Mozilla Firefox. People tend to use this explorer more than Internet explorer since it is an open source, bug free, secure and flexible internet browser. However Microsoft is working hard on its browser give similar capabilities to this software. 6.3 Threats of new entrants The entry barriers into the market are the costs and time requirements of developing good software, operating system, search algorithm, high infrastructure costs (hardware and network) and the risks and costs to build a new brand for advertising market. This gives negligible risk of being attacked by new entrants. 7. Conclusion In this paper, Microsoft Corporation was examined with the help of few strategic theoretical framework. In spite of many critics to Microsoft corporate and products, Microsoft has been the most successful IT company worldwide. This company has done a lot of work to meet all the requirements of clients and has been successful so far. There were a few limitation of the usability of the theories but they gave a good framework for this assignment’s purpose. We discussed Microsoft as a company that has adapted itself to the new conditions of the market and innovations in electronic industry. This adaption is a result of competitive and strategic position in recent years. Here in this paper, current strategy of Microsoft was also discussed in the context of business environment, social environment, technology environment and economical environment. We also discussed more drivers than critics to this corporation such as competitive rivalry and treat of new entrants. 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