Microsoft's Diversification Strategy - Case Study Example

Microsofts Diversification Strategy Table of Contents Table of Contents 2 Introduction 3 Brief overview of Microsoft 3 Discussion 4 Microsoft’s motive for Diversification 4 Briefly describe the diversification strategy of Microsoft and its video game and game console business 4 Apply relevant international strategic management theories by critically evaluating Microsoft’s strategy of competing in the video console/games business 6 Analysis of UK market 8 Porter’s Five forces strategies used by Microsoft to analyse the competiveness of video game and game console market in UK 8 PESTEL is used to analyse the macro environment of Microsoft in UK market 10 Conclusion 11 Recommendation 12 References 13 Introduction Brief overview of Microsoft Microsoft is recognised as one of the most reputed multinational software organization, founded in the year 1975. It is developed by visionary pass out of the University of Harvard, Named Bill Gates. He aimed to present personal computers in each and every desktop so as to make their work easier and simpler. Keeping this fact in mind, Mr. Bill Gates and his friend Paul Allen founded the leading organization in computer software development. Being headquartered in Redmond of Washington D.C, the organization of Microsoft offers software support such as hardware, computer electronics etc in the entire globe. Due to which, the total sale of the organization increased that amplified the revenue and operating income by $ 62.484 billion and $ 24.098 billion in the year 2010. Other than this, the organization of Microsoft also employed almost 89000 employees that amplified the profit margin by $ 18.760 billion in the year 2010. Thus, due to the presence of numerous product lines, the brand image and reputation of the organization of Microsoft enhanced to a significant extent as compared to many others (Microsoft, 2010). Apart from this, the competitive position and sustainability of the organization of Microsoft also enhanced that amplified its ranking and brand value in the market among others such as IBM, Apple Inc. However, in order to improve its market share and popularity in the market, the organization of Microsoft decided to enter into the market of non-PC with product lines such as enterprise software, mobile phones, consumer products, video games and many others. In order to analyse the strategy utilised by the organization of Microsoft in order to create a strong foothold in the video game business or market, varied types of international management theories are used such as 3 generic strategies, VRIO strategic capabilities, five forces model as well as PESTEL analysis. Discussion Microsoft’s motive for Diversification In this age, diversification is considered as one of the most essential long-term progression that may help in retention of the sustainability and competitive position in the market. Keeping this fact in mind, the CEO and other management executives of the organization decided to move into the segment of video games and game consoles so as to amplify its brand image and reputation in the market among many other rival players. In addition, Microsoft desired to position its software’s in such a way that it might prove effective for accessing facts, communication, information and business transactions etc. Only then, the total revenue and total profitability of the organization of Microsoft might get enhanced to a significant extent as compared to others (Peng, 2013, pp. 434-456). Furthermore, the organization of Microsoft decided to diversify from the segment of personal computers to video games ad game consoles, the brand became more valuable and unique among the investors that amplified its portfolio and distinctiveness in the market among other rival contenders. Due to these underlining reasons, the organization of Microsoft decided to diversify into the segment of games. Briefly describe the diversification strategy of Microsoft and its video game and game console business In order to amplify its market share and brand value in the market, the organization of Microsoft decided to shift over from PC market to video games and game consoles. The prime desire behind such a strategy is to position itself as an organization epitomizing varied types of inventive technologies as well as innovative products and services, networking software’s, entertainments etc (Porter, 1985, pp. 123-134). In the year 2001, Microsoft introduced the first and foremost game console with the name XBOX in North America. It attracted a large range of customers of varying age-groups that amplified the demand and reputation of the game console. Then in the year 2002, it was launched in Japan and Europe. Similarly, in both the countries, the products is preferred and liked by all that amplified its profitability and total sale. However, the introduction of Xbox 360 proved extremely effective for the organization of Microsoft that augmented its operating income and profit margin to a praiseworthy height among other contenders such as Sony. At that time, the organization of Sony introduced Sony Play Station II that also attracted a significant percentage of customers towards its end. Then, in the year 2013, the organization of Microsoft decided to develop the most prominent and effective game console, named Xbox One. This game console improved the market share and consistency of the organization of Microsoft in the market among others as presented below. (Source: Gamerinvestments, 2014). (Source: Gamerinvestments, 2014) Thus, from the above mentioned points, it might be clearly depicted that the status and brand value of the organization of Microsoft amplified to a considerable extent. This became possible only due to the introduction of Xbox 360 that improved the sustainability and ranking of the organization of Microsoft. Apply relevant international strategic management theories by critically evaluating Microsoft’s strategy of competing in the video console/games business In order to improve the market value and demand, the organization of Microsoft implemented varied types of strategies. Business level or corporate strategies are implemented within the organization in order to amplify the competitive advantage and position in the market. According to Porter (1985), generic strategies are one of the best tactics that might be applied by an organization in order to amplify its profitability and productivity in the market. These are: cost leadership, differentiation and focus. Cost leadership: the strategy of cost leadership is used by the organization of Microsoft at the initial stages of video game and game consoles. By doing so, the demand of the products of video games and game consoles increased to a significant extent that amplified the profit margin and efficiency of the organization. As a result, the market share of the organization of Microsoft also increased that amplified the distinctiveness and consistency of the product lines. This is mainly due to the presentation of the inventive featured products at a quite lowest cost that fascinated a wide range of customers of varying income groups and age-groups. This proved extremely effective for the organization of Microsoft thereby augmenting its brand image and prosperity in the market among many other rival contenders (Pride & Ferrell, 2004, pp. 223-234). Differentiation: the organization of Microsoft utilised the strategy of differentiation only to create a distinctive and unique image in this price insensitive market. Introduction of Xbox 360, Xbox one proved extremely worthy for the organization as it comprised of differentiated features. In-spite of advanced and differentiated features, the products are available at a quite low cost that attracted a wider range of customers. Due to which, the brand image and market value of the organization of Microsoft amplified thereby augmenting its portfolio and reputation in the segment of video game and game consoles as compared to PC. Focus: it is also another noteworthy strategy that might be used by an organization to amplify its supremacy and position in the market. As per this strategy, an organization needs to develop the products or services as per the taste and preferences of the customers. Only then, the level of profit margin and demand of the product lines of the organization of Microsoft might get enhanced to a significant extent as compared to others. The organization of Microsoft implemented this strategy in the year 2001, i.e. at the time of introduction of a new product. So that the customers might get attracted towards it and the fame of the organization of Microsoft might get enhanced in the market. Thus, it might be clearly stated from the above mentioned points that porter’s 3 generic strategies proved extremely worthy for the organization of Microsoft as compared to others. VRIO strategic capabilities Value: in order to enhance the demand of the organization, it developed value-added products such as Xbox 360 and Xbox one. By doing so, the organization became able to attract a wide range of customers towards its end thereby amplifying its brand value and reputation in the market (Gupta, 2004, pp. 334-345). Rare: the organization also always tried develop rare type of products that is highly preferred by the customers. Due to which, the brand value and market share of the organization of Microsoft enhanced to a significant extent among others. Imitable: the organization used operating system (OS) in order to develop varied types of advanced product lines to attract a wide range of customers. By doing so, the organization became successful in amplifying its prosperity and prosperity. Organization: in order to develop the product lines, the organization of Microsoft utilised its resources to a fullest extent. This proved extremely effective for the organization thereby amplifying its profit margin and market share. Analysis of UK market Porter’s Five forces strategies used by Microsoft to analyse the competiveness of video game and game console market in UK In order to analyse the competitiveness in the segment of video games and game console, Porter’s five forces strategy might be used. It comprises of five elements. Rivalry of the competitors: the rate of rivalry among the competitors in the segment of game console and video game is extremely high. This is mainly due to the presence of numerous rival players. Therefore, in order to create a strong foothold in the market of UK, the organization of Microsoft implemented latest graphic design technologies within the product of Xbox 360 or Xbox one in order to amplify its demand in the market. This strategy of implementing advanced technology proved extremely effective for the organization thereby amplifying its profit margin and portfolio in the market of UK among others (Grant, 2005, pp. 445-459). Threat of New entrants: the threat of new entrants within the segment of video game and game console is quite low. This is because; the products of this segment includes varied types of advanced technologies and techniques such as blue-ray technology is used by Sony, Microsoft web services is used in Xbox etc. So it becomes extremely difficult for any new entrant to present such type of advanced technological products to attract the customers towards its end. Threat of Substitutes: the threat of substitute products in the segment of video game and game console market is extremely high. This is because; the existing players are trying their best to develop inventive technologies so as to develop advanced products. Only then, the range of customers might get enhanced to a significant extent that may amplify the profitability and brand image of the organization in the market of UK among many other rival players (ESOMAR. 2008, pp. 564-578). Bargaining power of the buyers: the bargaining power of the buyers is extremely high in this segment. This is because; maximum extent of the customers desire to purchase high-ended products at a quite lowest price. Due to which, most of the organizations desire to present high-technology products to its customers so as to improve its reliability and brand image in the market of UK among others. Moreover, the level of trust and loyalty of the customers might be enhanced by presenting value-added products at a competitive price. Only then, the rate of switch over costs of the customers might get reduced thereby amplifying the level of retention. Bargaining power of the suppliers: the bargaining power of the suppliers is quite low in this segment. This is because; the suppliers had to offer the products as per the tactics and policies of the organizations. Only then, the suppliers might retain its power and reputation in the market of UK among many other rival players. Therefore, it might be clearly stated that in order to retain the position and competitive advantage of the organization of Microsoft need to develop high-ended technological products. PESTEL is used to analyse the macro environment of Microsoft in UK market In order to analyse the macro environment of the organization of Microsoft in UK market, PESTEL analysis is used. Political: the organization of Microsoft attained a considerable position, mainly due to political stability. Die to which, the organization of Microsoft might very easily introduce its products in the market thereby amplifying its range of customers. By doing so, the profit margin and reputation of the organization of Microsoft also enhanced to a significant extent that augmented its market share and consistency. Ina addition, pressure from various other countries mainly USA forced the organization of Microsoft to develop products with the utilisation of OS in it. Due to which, the utilisation of OS increased and the demand of its products also enhanced in the market of UK (Drummond & Ensor, 2006, pp. 678-689). Economic: other than political policies, the exchange rates proved extremely worthy for the organization of Microsoft. Moreover, improvement in the per capita income of the customers also increased the demand and uniqueness of the products of Microsoft. As a result of which, the brand image and portfolio of the organization of Microsoft enhanced to a considerable extent as compared to others. Social: the advanced technology of the products of Microsoft is high preferred by the individual of high life style and living standard. Other than this, the products of Microsoft are also liked by the educated customers that amplified its brand image and reputation. Technological: the technologies used by the organization of Microsoft are extremely accessible and secure. Due to which the level of trust and loyalty of the customers enhanced to a significant extent that amplified the portfolio and profitability of the organization in the market of UK (Beall, 2010, pp. 876-890). Environmental: as the products developed by the organization are entirely hygienic, so its demand it’s extremely high. Due to which, the profit margin and market share of the organization of Microsoft enhanced to a considerable extent among others in the market of UK. Legal: the rules and regulations of the government of UK proved extremely effective for the organization of Microsoft that amplified its sustainability and competitive advantage in the market. As a result, the range of customers enhanced and the market value of the organization of Microsoft amplified considerably (Bradley, 2007, pp. 423-434). Thus, it might be effectively analysed that the political scenario and legal rules and regulations of UK proved extremely effective for the organization of Microsoft. Conclusion In this age, sustainability and competitive position is the most essential requirement of any organization. Due to which the organization of Microsoft need to develop highly advanced product lines so that it may attract the attention of the customers. By doing so the total sale and total revenue of the organization of Microsoft in the market enhanced among many other rival players. As a result, the level of retention of the customers over the brand enhanced that amplified the market share and distinctiveness in the market. Thus, it might be stated that development of video games and game consoles proved extremely effective for the organization of Microsoft thereby amplifying its operating income. Recommendation In order to retain the level of image and prosperity in the market, the organization of Microsoft need to offer highly advanced product lines. Only then, it might attract a wide range of customers of varying income group. This might amplify the profitability of the organization and sustainability in future era. Moreover, such type of brand image might also help the organization of Microsoft to reduce the impacts the threat of substitutes and threat of new entrants etc. In addition to this, the organization of Microsoft need to promote the product lines at a quite competitive cost so as to improve the loyalty and reliability of the organization in the market in long run. References Beall, A. E. 2010. Strategic Market Research: A Guide to Conducting Research to solve problems. Boston: Harvard Business School Press. Bradley, N. 2007. Marketing Research: Tools & Techniques. New York: McGraw-Hill. Drummond, G. & Ensor, J. 2006. Introduction to Marketing Concepts. New York: Cengage Learning. ESOMAR. 2008. Market Research Handbook. London: Sage. Gamerinvestments, 2014. Video Game Stocks. [Online]. Available at: http://gamerinvestments.com/video-game-stocks/index.php/category/editorials/ [Accessed on 23rd April, 2014]. Grant, R, M. 2005. Contemporary Strategy Analysis. London: Sage. Gupta, S, L. 2004. Marketing Research. New York: McGraw-Hill. Microsoft, 2010. Annual report. [Online]. Available at: http://www.microsoft.com/investor/reports/ar10/index.html [Accessed on 23rd April, 2014]. Peng, W. M . 2013. Global strategic management second edition. London: Sage. Porter, M, E. 1985. Competitive Strategy: Techniques for Analyzing Industries and Competitors. London: Simon and Schuster. Pride, W. M. & Ferrell, O. C. 2004. Marketing. London: Sage. Read More