Strategic Management of Microsoft - Case Study Example

?Strategic planning report Of Microsoft Report group: YANG HAN Yurong Huang 110038521 Executive Summary In this paper, the researcher will shed lighton business portfolio related strategic issues of Microsoft in context to strategic management theories like competitive advantage, core competency, resource based view (RBV) etc. However, it is to be believed that core competencies or competitive advantages are being achieved through practices very long period. Therefore, the study has considered historical background and long term strategic resouce based benefits of Microsoft Corp in order to understand its actual business position in modern world. The study has been based on the information presented by Hitt, Ireland and Hoskisson (2013) in the Microsoft case study. The paper has covered issues like current product portfolio and business background in order to prepare the basal plain for further strategic analysis. Analyzing the current business strategy of Microsoft has been done in the paper in order to find strength and loopholes in the existing business portfolio of the company in discussion. In the later part of the paper, the study has analyzed the supplier relationship and distribution channel strength of Microsoft in order to understand the external aspect of core competencies of Microsoft. Understanding key strategic challenges and issues faced by Microsoft is being a pertinent aspect of this paper. After analyzing resources and business portfolio of Microsoft, the study has detailed core competence/competitive advantages of the company. In the last part, the study has suggested strategic recommendation which could have been used by Microsoft to compete with its present business rivals and achieve sustainable competitive advantage. Introduction It has been 23 years since Prahalad and Hamel (1990) gave the idea of core competency but still their theories remain as relevant as any other strategic management theories emerged in 21st century (Gupta and Dwivedi, 2012). In this paper, the researcher will shade light on trajectory of core competency when it comes to business matrix of Microsoft. The study will use the Microsoft case study presented by Hitt, Ireland and Hoskisson (2013) in order to understand issues like existing challenge for Microsoft, product portfolio of the company, business rivalry etc. Using core competency model proposed by Prahalad and Hamel (1990) will not only help the study to analyze pertinent aspects of Microsoft case study but also help test the applicability of the core competency concept in context modern business challenges. Company Background According to Hitt, Ireland and Hoskisson (2013), Microsoft Corp was established by Bill Gates and Paul Allen in the year 1975. First product of the company was Altair 8800 and they entered in computer industry through the partnership with IBM for providing MS-DOS operating system and BASIC software for all PCs of IBM (Hitt, Ireland and Hoskisson, 2013). At present, Steve Ballmer is the president and CEO of the company. Product portfolio of Microsoft includes Business Solutions segment, Xbox Game Console and Entertainment segment, online service divisions, server and tools segment, Windows and Windows live segment etc. Microsoft is market leader in the field of operating software, business solutions, Game Console and Entertainment segment while the market share of the company is decreasing in the online service segment (Hitt, Ireland and Hoskisson, 2013). Consideration of the case study reveals the fact that Microsoft is basically stuck in the middle because the company has not entered in the smart devices technology field while competitors like Google, Samsung and Apple already entered in the field of modern technology segment. Current strategy Microsoft currently uses including innovation through strategic acquisitions and alliance, coordinated internal development and a strong distribution channel. Innovation In today's business world, organizations need more than just good products and services to survive, without innovation; they would fall behind easily and soon pulled out of the market. The reason why is because the advance of globalization and outsourcing. There is increased pressure for an organization to improve efficiency and effectiveness. This requires organization to innovative processes and management to drive down costs and improve productivity. In addition, consumer expectations also led to innovation in the market. Based on case study notes, integrated innovation describes Microsoft's strategy of designing products. Microsoft through built on the same technologies to make the features of all products to be able to compete with one another, and Microsoft gains an advantage over other rivals as they could not easily integrate their products with Microsoft products. This concept has also instilled into promoting product. Microsoft is bundling them with the established product to advance use. Many of Microsoft's products and services have been acquired or modified from the innovations of its competitors. For instance, in the early 80s, Microsoft had an agreement with IBM to provide BASIC software and MS-DOS operating systems on all IBM PCs while hold the right to sell these products to IBM's competitors. Therefore, Microsoft quickly acquired an existing operating system QDOS from Seattle Computer Products, modified it and marketed it as MS-DOS. In the case of Microsoft, it seems that it wasn't innovating its products that made it an industry leader but aligning itself at the center of the entire PC industry. However, integrated innovation strategy has some issues. The reasons why is because the dependencies the mandate of integration creates which would slower the development process of new products; in addition, integration forces developers to spend more time updating existing products rather than creating new ones, so thwarting its original intent and negating the innovation part of the phrase (Hatch & Mau, et, al, 2011) Relationship and alliances Despite the cutthroat reputation evidence by the volume of lawsuits for patent and copyright infringement and anti-competitive behavior. The ability of leaders to develop strategic relationships with critical partners from IBM to Yahoo is one of the principal strengths which has led Microsoft to the success. Microsoft has signed on in the smartphone market with Nokia, in a cloud computing partnership using Windows Azuew with Dell, HP, ebay and Fujitsu, with Gorillaz to promote the release of Internet Explorer 9. As the dominant player in all things computer, other companies are afraid to refuse enter into an alliance with Microsoft (Hatch & Mau, et, al, 2011). There are some benefit of alliance or joint venture: For direct competitors, this may help in sharing common skills, and with the objective of increased market share. For less direct competitors with complementary skills, the intention is more likely to be benchmarking and learning for mutual benefit and the possible development of new ideas For related companies sharing different skills and competencies. Organisations may well be linked in the same added-value chain. Alliance should generate synergy through cooperation, innovation and lower cost while allowing each partner to concentrate on its core competencies (Thompson & Martin, 2005). Coordinated internal development and strong distribution channel Microsoft (2013) claimed that accessibility help everyone to personalize their computers to see, hear and utilize technology easily thus meet their specific needs and preferences. Accessibility as part of overall usability, is a primary consideration for Microsoft during product design, development, evaluation and release. Microsoft effort to integrate accessibility in all section including: planning, design, research, development, testing, and documentation. Microsoft serves a worldwide customer base and maintains offices in more than 100 countries. For diverse customers, Microsoft has regional operations centers in Euiope, Africa, and the Middle East, also serving the Asia Pacific region and both North and South and Latin Americas. Different languages and conventions are all allowed (Hatch & Mau, et al, 2011). Microsoft (2013) offers information that through original equipment manufacturers, distributors, retailers and online to distribute and market its products and services. Various organizations have license Microsoft products and services through enterprise agreements transact directly, with sale support from solution integrators, independent software vendors, web agencies and developers that advise organizations on licensing their product and services. Indirectly, primarily through large account resellers, distributors, value-added resellers, OEM, system builder channels and retailers. Some of their largest resellers include CDW, Dell, Insight Enterprises and Software House International. Microsoft Dynamic software is licensed to enterprises through a global network of channel partners providing vertical solutions and specialized services. They allocate retail packaged products primarily through independent no-ecclusive distributors, authorized replicators, resellers and retail outlets. Hardware products, such as Surface, Xbox, and PC accessories are through third-party retailers and Microsoft stores. Microsoft is also delivering additional value to clients by using cloud-based services. They provide online content and services to consumers through Bing, MSN portals and channels, Mirosoft Office Web Apps, Office 365m Windows Phone Marketplace, Xbox Live.com and others. Key issue There are five business divisions exist in Microsoft, Windows and Windows Live, Microsoft Business Division, Server and Tools Division, Online Services Division, Entertainment and Devices Division. During the development of Microsoft, they face different issues, factors and impacts from different divisions. Referring to the BCG model in the appendix, some divisions already help Microsoft earn profit, and some divisions have considerable potential to be profitable, also some other divisions facing difficulties and need to make an adjustment. In details, Xbox in Entertainment and Devices Divisions are a star product, because the whole game industry has an increasing trend. Bing in online service Division and windows phone in Entertainment and Devices Division have unpredicted future, as it is not outstanding in their field, but it still has some unique advantage comparing with other competitors. Also, Window OS in Window and Windows Live Division, and Microsoft office in Microsoft Business Division is the cash cow in the Microsoft, because they are quite more successful in the current market. Finally, Server and Tools Division is not widely used and decreasing profitability. In the first step, the five force model would be used to analyse the key issues of Microsoft products. There have been approximately 80% of original equipment manufacturers choose to use windows (Hitt et. al, 2013), and Windows live is a suite of applications and web services. It has two target consumers; one is for personal consumer, another one is windows office live which is suitable for enterprise (Hitt et. al, 2013). Because Windows and Windows Live division depends on the PC market, and also refer to Porter’s five force models in the appendix. Firstly, about the threat of new entrants, due to the demand of a new mobile device is growing rapidly; the smartphones and tablets may take a large piece of the PC market (). With falling demand for PC, and the Windows and Windows Live would decrease as well. Secondly, the bargaining power of buyers is high; because some other similar operating systems provided to buyers, and buyers are price sensitive with low switching cost on the products; since customers have more choices to purchase the products with low price (Porter, 2008). Thirdly, because the smartphones and tablets are increase demand in the market, which are cheaper but have similar functions as the PC; therefore, the threats of substitute products are medium, and it has a serious influence on sales of Windows. Lastly, about the rivalry among existing competition, compare to the competitor like Apple. Apple system is much safer, because its system not allowed in pirate, and virus is hard to invade the system. Moreover, Apple system is more humanized, because all Apple products could be connected together (). In one word, competitors have some unique advantages comparing with Windows, and it would influence the sales of Windows. For the online service division, the main products are Bing, Microsoft adCenter, MSN and atlas. Nevertheless, the products from Google and Yahoo are become their competitors. In the current market, Google still occupies the larger market share comparing with others (Hitt et. al, 2013). Bing, Yahoo and Google all have the similar basic function on searching, such as they show price, product reviews, related items when users doing online shopping. However, they have different strong point, for example, advertisers always choose Yahoo, because it provides a lot facility to cater the need of advertisers. Web surfers are preferred to use Google as it has better performance on online search. Also, there is no spam result of relevant topics when doing research. Meanwhile, Bing has applied a unique procedure in which it ignores the researching results that users are not interested in (). Totally, we can conclude that Google is applying Search Engine Optimization (SEO) techniques or hiring a SEO company to boost their search engine (). Moving to Entertainment and Device Division; it includes Xbox platform, Windows phone, Mediaroom and Zune digital music platform, meanwhile, with the high speed of technology development, and these products have a short lifecycle, which they need renew products every 5 to 10 years (Hitt et. al, 2013). In the porter’s five force models, the threat of new entrants is weak, because the hardware has generally a loss for every company in the video game industry. Another reason is that the technology industry has hyperactive characteristics, the upgrade of products is very quick and consumer preferences are changing all the time (), in one word, no one could always be the market leader. Furthermore, the bargaining power of suppliers is between low to medium, because Xbox has different materials suppliers. The bargaining of buyers is low, because it is not a standardized product, and consumers could not find the equivalent products to against the vendor (). However, the threat of substitutes is high, because cost of switching to the substitutes is low, which buyers have additional choices to play games, like PC, mobile phones and tablets. It would seriously impact the sales of Xbox. The threat of competitors is also high, because Xbox does not really understand game industry comparing with Nintendo and Sony; these two strong competitors take a large part of market share, and even resulting in a decrease of market share yearly for Xbox (Hitt et. al, 2013). Windows phone also faces a significant issue in the Entertainment and Device Division, the bargaining power of buyers is high, since multiple phones with different brands, features and price are provided to buyers; buyers have more chances to choose the most suitable phones. Comparing to strong competitors like Samsung and IPhone, Samsung and IPhone have more apps which means more convenience for customers. Moreover, because Samsung and IPhone have more brand cognitive, they have an obvious effect on the current market. Customers prefer to take a low risk by choosing a brand that well known. Besides, the tablets could take place in the smartphone and become a threatening substitute, because tablets have similar functions as smartphones, even more unique features than smartphones. Next step is using the five force model to analyse the human resource issues of Microsoft, Core competence/competitive advantages Firstly, the resource-based view (RBV) is identified as an effective tool to test the approval of an existing competitive advantage in the organization, and it could outline the reason why a company may differentiate with others (Barney 2001, p.649). Therefore, RBV suggests that Microsoft becomes more and more competitive because of its unique expertise resource. Furthermore, Microsoft has a remarkable resource of expertise, which includes outstanding business manager and productive technical engineer. Moreover, these human resources are desirable asset for all competitors within this industry, such as Apple and Google, and they are competing for this, but Microsoft attract more expertise than others, and it becomes successful because large contribution from these brain trust (Cusumano 1995, p.73). So resource of expertise could be an obvious competence in the Microsoft, and it is essential to contribute the most works in Microsoft. Secondly, technology is growing fast, and the company could not survive without updated products in the digital market, so Microsoft has built up continuously development of innovation which makes all the Microsoft products to be updated according to the technology growth. Moreover, the size of research and development is large in Microsoft, and based on the RBV, the development of innovation could be recognized as an important resource to be prepared to compete with other producers, so if Microsoft is prepared with large amount of innovative products, it will be out stand in the market, and it is the reason why Microsoft became a powerful competitor to other producers. Beside the business competition, most of the digital customers would love to see the new innovative products. Therefore, if Microsoft does so, then its product will be more attractive than other competitors’, and it is also beneficial both customer and the company (Rohm 1998, p. 138). Thirdly, Microsoft is not only targeting the North American market, but also global market, and worldwide distribution makes Microsoft’s products spread quickly all over the world, and this company has branches over a hundred countries. Moreover, each of them also has their specific products design regards to different cultures, and it becomes accessible to almost all geographic and cultural background users. Therefore, Microsoft’s products and service maintain large percent of market share in its international sales. Furthermore, Microsoft do much more than a software application producer, it become an enterprise through many industry, such as medical and business, and it makes their software products to be capable to different industry, as a result, it boost the global usage of its product, which makes it become more successful as a global corporation. Lastly, Microsoft windows and office are the two giant successful products which generated over half of total revenue in this organization. According to five force models which identify the influences of five business forces to associate with the organization, and the organization could create competitive advantage regards to their reaction to those five forces (Porter and Millar 1985, p. 155). Moreover, it suggests that these two products make a low level of bargaining power of buyers, which means consumers have fewer alternatives. In other words, other software application producer will be more difficult to make such product to compete with these two. In addition, Microsoft’s software are all bounding together, so it makes almost all age and profession to be accessible to these applications, for example, most of organization will use Microsoft office to do their daily job, as a consequence, only Microsoft product can open the application by other individual or organization, so it generates a big network with their all products, and it makes the Microsoft product as the only selection. Therefore, Microsoft Windows and office are the competitive strength in this organization, and they are still being the frontier of the industry at the moment. Recommendation/Future direction It is suggested that Microsoft should make some changes to inefficient strategy and unprofitable products based on the change in the digital market, but it is recommended that Microsoft should keep some effective business. Firstly, based on the previous five force model analysis of smart phone market, Microsoft should change their position in the phone market, in order to produce cheap and low cost phone to achieve a high volume sales, rather than focus on expensive smart phone like IPhone and Samsung Galaxy. The reason is that Microsoft occupied small percentage of luxury phone market share, and the competitors are powerful, therefore, instead of competing with powerful competitor who has large market share, Microsoft should targeting at the consumers who are in the middle level of income, and this will generate more quantity of purchases by large percent of normal consumers. In implementation of this leveraging, Microsoft could make some valuable acquisitions of other phone producers to increase their market share in the phone market, and in fact it already got some successful steps by Nokia acquisition (Ando and Rigby 2013). Furthermore, as an international strategy, it could mainly target on Asian, Latin American and African market for a large population of middle income customers. Secondly, from the previous analysis, mobile device and tablet products gave a shock to the personal computer market, even Windows operating system was threatened by this. As a solution, regarding the future trend of increasing use of mobile devices. Microsoft should rely on their valuable human resource and financial support to do a diversification, which helps this company to maintain a competitive stage in the digital market. In implementation, Microsoft can establish some research on transforming their PC products to a mobile device based products, which compatible with most mobile devices in the market, and it required product development investment and expertise resources. Thirdly, some products divisions could be cut off to save the investment and be more concentrated on main products. Based on Boston Consulting Group matrix analysis of profitability in different product divisions, it is recommended that server and tool division could be liquidized to other software producer, but Microsoft windows could be maintained because it is the cash cow. However, Microsoft Office should be leveraged to a new standard which based on an online cloud server, rather than physical sales, furthermore, it could be more focus on individual customers to increase their production diversity. On the other hand, Xbox is a profitable division with delightful future, Microsoft should invest more to develop more applications to boost their sales on Xbox, and also invest in a new division of phone based game to catch the future trend. Lastly, employees are an essential asset within the organization, and it is relative to the success of implementation of the strategy (Michlitsch 2000, p. 30). Based on the analysis of human resource factor, Microsoft is suffering loss of their valuable employees. As a solution to the loss of employees, Microsoft should implement a new organizational policy to avoid the bureaucracy to make a better working environment, moreover, it is essential to have some attractive recruiting measure to employ more valuable worker. Conclusion In this paper, the researcher has used concepts like resource based view (RBV), core competencies, and competitive advantage in order to address questions presented in the Microsoft case study (Drejer, 2002; Edgar, and Lockwood, 2012). In short, the study has found major core competencies of Microsoft are intellectual capital, strong financial position; competent leadership style and supplier relationship. Taking help from the Microsoft case study presented by Hitt, Ireland and Hoskisson (2013 and 2012), it can be said that without the vision of Code writers of Microsoft Corp such Bill Gates and Steve Ballmer, it was not possible for Microsoft to achieve its present leadership status. However, the study has found that all the products of the portfolio of Microsoft are not performing in equally profitable manner and to be precious, Microsoft is struggling with its online servers and web browser product ranges. Another thing is that Microsoft Corp is facing stiff competition from technological giants like Google and Apple in the field of Smart devices manufacturing and offering modern technology solutions (Hitt, Ireland and Hoskisson, 2013). Time has come for Microsoft to think beyond its computer business and start searching ways to enter Smart devices segment complemented with mobile application development, Smartphone, Tablets. Consideration of the case study presented by (Hitt, Ireland and Hoskisson, 2013) reveals the fact that the company is losing its intellectual capital due to employee attrition. In such context, it can be concluded that Microsoft Corp should implement the above mentioned recommendations in order to compete with Google and Apple and remain relevant in changing technological environment. 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Microsoft Annual Report,2013, www.Microsoft.com viewed on 22 Oct 2013 Appendix Appendix: Chart Porter’s five force model Windows and Windows Live Threat of new entrant Bargaining power of suppliers Bargaining power of buyers Threat of substitute products or services Rivalry among existing competitors Read More