Why Is Microsoft So Successful - Essay Example

From an economic perspective, why is Microsoft so successful? Introduction In the world of technology, the success of Microsoft is unprecedented andremarkable. Bill Gates, who is the founder of Microsoft, is considered as the richest man in the world as on March 2014 according to the Forbes’ billionaires list, a position that he has consistently held for 15 years out of the last 20 years. His net worth which currently stands at $76 billion has increased by $9 billion from the previous year (Sifferlin, 2014). There is hardly any computer user in this world that does not use Microsoft software. Microsoft is essentially a technology company that creates software mainly for personal computers (PC). Almost every computer is loaded with Microsoft operating system, without which a computer cannot function, or games. In the initial years, the company focused on creating computer language, but most of the financial success came after it embarked on producing operating systems. Today, Microsoft is one of the most popular and financially successful software companies in the world. Its products have penetrated into every household with a PC because of its easy-to-use and ground-breaking software. This paper explores the success story of Microsoft from the economic perspective. The secret of success Like any other world famous companies, Microsoft is not without criticisms. It has often been criticized for its alleged bullying tactics rather than earning success through innovation. However, according to Harvard Business School professors Marco Iansiti and Alan MacCormack, the company’s success can be attributed to its capability to predict future technological developments and make maximum efficient use of the major software technologies. One remarkable fact is that Microsoft has seen huge financial successes during phases of technological revolutions because of its ability to adapt to changes. Usually, during such vulnerable phases many large businesses collapse for failing to deliver. Although it has been criticized that Microsoft Corporation’s success is largely due to its monopoly position in the global market which the company has taken full advantage of, Iansiti and MacCormack have a different perspective. They have asserted that “Microsoft wins through effective management of its intellectual property and an ability to spot and react to important trends before they take hold” (Silverthorne, 2002). From the early days of writing simple programming language for computers the company progressed to making operating systems based on the DOS system. In subsequent years, Microsoft grew to become Windows XP. There have been two divisions of Microsoft – one with operating system for business and the second focusing on personal use at home. Thus they have always kept themselves on the mark to meet the demand and captured both the principle markets. They also have a “free gaming site, word processor, Office tools, and HTML editor” (Richards, 2006, p.233). When global recession struck in early 2008, Microsoft Thailand launched a “Crisis Turning Point” Campaign. The purpose was to guide the local businesses to fight the ongoing economic crisis. The company encouraged businesses to work in association with their partners and customers so that technologies can be used efficiently to reduce cost of production and maximize efficiency. The technique was to focus on the 3Ps such as “people, processes and policies”. Since a success of a company depends on its ability to adapt to changing economic conditions, therefore the campaign’s goal was not only to reduce costs but also to motivate people to approach the best of their abilities for the progress of the company. According to a “Big 5” program that was launched by Microsoft Thailand in October 2008, attempt was made to utilize its products and also other prevailing IT resources to reduce costs and enhance competency in workplaces. The campaign used three steps to fulfill its goal. First, the employees were trained in the manner so that they can learn to make maximum utilization of available resources in the most efficient way. Second, as a result of the training they understood the processes by which Microsoft products can be effectively used. Finally, they learnt to identify and implement appropriate policies to reduce costs and increase business efficiency (Microsoft unveils ‘Crisis Turning Point’ Campaign, 2008). Since operating system is compulsory for every computer, therefore Bill Gates’ target was to capture the maximum area of the global market by making his operating system user-friendly. This way Bill Gates became successful in holding a monopolistic positing in a growing and expanding global market. His strategy was to encourage his friends and associates from college, who were “a powerful team of software and programmer experts” (Richards, 2006, p.233), to work as a group so that their skills and knowledge could be pooled together for innovations and development. This way he captured the expanding market by creating a brand name that became popular household name. His monopolistic strategy has contributed to the huge success of Microsoft. His success strategy is reflected in Microsoft’s vision: “leadership in today’s global marketplace requires that we create a corporate culture and an inclusive business environment where the best and brightest diverse minds—employees with varied perspectives, skills, and experiences--work together to meet global consumer demands” (A Vision and Strategy for the Future, 2014). According to recent studies, America is faced with the possibility of acute labor shortage as a result of baby bust cohort which will be inefficient to meet labor demand. It is predicted that labor will continue to increase through 2014 after which its rate of increase will decline. Like any company, Microsoft’s own demographics are different from the external labor force demographics. Age variance is high in all organizations due to “hiring quickly when they are expanding, stopping when growth stops” (Cappelli, 2014) and this results in age concentrations. In Microsoft, this phenomenon is duly monitored since sudden surge of retirement can result in dearth of talent in key aspects. In a BBC interview, Bill Gates stated the success formula of Microsoft was not always what his company has done, but what his competitors could not do because “they did not understand how to bring in people with business experience and people with engineering experience and put them together” (Miller, 2008). Moreover, by bringing together the best skills he ensured that his employees always remained competitive which pushed them to provide the best of their abilities. Competitive advantages One major reason behind Microsoft’s global success is its competitive advantages over similar companies in the industry. The concept which is known as economic moat gives opportunity to Microsoft to maintain wider consumer base and expanding market in the software industry. The employees are effectively motivated to contribute towards the success of the company. Human capital resource is one strong point of Microsoft which gives it an edge over its competitors so that it can “outperform them consistently” (Iyiola, n.d., p.1). This means the company is always financially strong which makes it capable of investing in latest technologies and machineries that speed up the production process, thus helping the company in attaining sustainable competitive advantage. The second competitive advantage is the fact that the company holds many key patents which gives it a monopolistic benefit. As recently in 2012, Microsoft has bought 800 patents that were held by AOL in exchange of $1 billion. The high price of each patent ($1.3 million) proves the strategic benefits of the patents on business and finance of the company. The large number of patents already held by Microsoft induces smartphone producers to pay licensing fees to the company. By adding more patents to its arsenal, the company gains extra advantage over its rival companies like Google and Apple, and also handset producers that use Android like Samsung, HTC and LG (Lohr, 2012). Microsoft believes that more than invention it is important that the company remains pioneer seller of every product. It has captured every software market either by innovation or by being pioneer seller by ensuring that every product in the initial stage has the minimum standard to satisfy customers. To prevent competition, Microsoft team then focuses on developing new versions of the software products thereby making older versions obsolete (Cusumano & Selby, 1998, pp.8-10). Managers focus on rightly guiding the already skilled personnel so that they can think of new features in a product that will enhance market demand. Since this calls for innovation which can know no time limit, the next step is to fix the number of employees and other resources that can be used for a particular project. This way, timely shipment of newly developed products can be ensured (Cusumano, 1997, p.12). Conclusion Microsoft has not followed any single approach of management or organization to achieve its success. The strategies applied by the company are perfectly compatible with the mass market of software products. However, today the company is confronted with the challenge of being in the “post-PC era”. This means, people are now increasingly becoming addicted to mobile devices like tablets and smartphones for all the functions that till a few years back only a PC could do. Since Apple has captured the broad consumer market for these products, Microsoft has only 3.3 percent of the global market share (Tu, 2013). In spite of all the challenges, Microsoft has every possibility to emerge victorious in the dynamic world of computers because of its highly efficient team who are willing to walk the set path of the founders, which is ambition and integrity. References A Vision and Strategy for the Future (2014). Microsoft, retrieved on July 17, 2014 from: http://www.microsoft.com/about/en/xm/importedcontent/about/diversity/en/us/vision.aspx?navindex=0 Cappelli, P. (2014) Manage work forces during the labor shortage, Microsoft, retrieved on July 22, 2014 from: http://office.microsoft.com/en-in/frontpage-help/manage-work-forces-during-the-labor-shortage-HA001149135.aspx Cusumano, M.A. (1997) How Microsoft makes large teams work like small teams. Sloan Management Review, 39(1), 9-20 Cusumano, M.A. & Selby, R.W. (1998) Microsoft Secrets: How the Worlds Most Powerful Software Company Creates Technology, Shapes Markets, and Manages People, Simon and Schuster Iyiola, O. (n.d.) Sustainability of Competitive Advantage: A Must For Every Firms, retrieved on July 22, 2014 from: http://www.academia.edu/308715/SUSTAINABILITY_OF_COMPETITIVE_ADVANTAGE_A_MUST_FOR_EVERY_FIRMS Lohr, S. (April 9, 2012). Microsoft’s AOL Deal Intensifies Patent Wars, New York Times, retrieved on July 22, 2014 from: http://www.nytimes.com/2012/04/10/technology/ microsoft-to-buy-aol-patents-for-more-than-1-billion.html?pagewanted=all&_r=0 Microsoft unveils ‘Crisis Turning Point’ campaign to boost local businesses during tough economic times (November 27, 2008) The Nation, retrieved on July 22, 2014 from: http://www.nationmultimedia.com/homeMicrosoft-unveils-Crisis-Turning-Point-campaign-to-30089655.html Miller, C. (June 19, 2008) The success of Bill Gates’ success, BBC, retrieved on July 17, 2014 Richards, R. V. (2006) Online Marketing Success Stories: Insider Secrets from the Experts who are Making Millions on the Internet Today, Atlantic Publishing Co. Sifferlin, A. (March 3, 2014). 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