Microsoft Global Strategies and Contemporary Issues - Report Example

xxxxx No. 12345 MICROSOFT GLOBAL STRATEGIES AND CONTEMPORARY ISSUES ABC Xxxxx xxxx College Department of XXXX XXXX 26 March, 2013 (Total Words: 3791) Table of Contents Contents Page No 1. Introduction 03 2. Motive for Global Diversification Strategy 04 3. Microsofts Contemporary Diversification Strategy 05 4. Competitive Analysis & Positioning 07 5. Porter’s Five Force Analysis 08 5.1 Competitive Rivalry 08 5.2 Bargaining Powers of Suppliers 08 5.3 Bargaining Powers of Buyers 09 5.4 Threats of New Substitutes 09 5.5 Threats of New Entrants 10 6. SWOT Analysis 10 6.1 Strengths 10 6.2 Weaknesses 11 6.3 Opportunities 11 6.4 Threats 12 7. BCG Matrix 12 8. Lack of Innovation: A Contemporary Challenge to Global Strategy 13 9. Recommended Global Development Strategies 14 Appendices 16 Appendix-I: Porter’s Five Forces 16 Appendix-II: BCG Matrix 17 Bibliography 18 1. Introduction Microsoft is a US based multinational and world’s largest organization in computer and software industries with its areas of operations in each and every country of the world. The organization is headquartered at Redmond, Washington and was founded by Bill Gates and Paul Allen on 4th April, 1975. The company has delivered hundreds of different software, operating systems, and computing devices and thus earned a global reputation. The company has $73.72 billion revenue by the end of 2012 while its total assets are more than $121 billion dollars. More than 94,000 employees are working under Microsoft at global level (Microsoft Corporation Financial Statements, 2011). The company has invested a huge amount of money in its operating system sector to gain competitive advantage on product innovation. Today millions of people across the globe enjoy a wide range of operating systems offered by Microsoft in all segments of retail from operating systems of XP and Vista to other software and hardware tools. During the 2nd quarter of 2010, Microsoft reported record revenue of about $19 billion which was an increase of 14% as compared to the 2nd quarter of 2009 (Microsoft Reports Record Second-Quarter Results, 2010). Microsoft adversely affected by the global recession during 2008 and 2009 and its growth rate dropped to just 12.3%, a huge reduction compared to preceding year. The profit margin has also face a declining trend since the 3rd quarter of 2012 and dropped to 23%, however, due to its massive strategic assets, the company has shown a sustainable statistics in its growth rate during last two years. This paper describes the Microsoft’s current global diversification strategies to grow its areas of operations through new emerging markets along with highlighting the contemporary key challenge which the Microsoft has been facing and likely to face in near future as well. The main purpose of this paper is to analyze the implications of these strategies on the performance of Microsoft. According to current CEO of Microsoft Steve Ballmer, "Youve got to be very realistic about where you are, but very optimistic about where you can be, and the day you cant be both of those things, you shouldnt be a leader of a company like Microsoft. You have to believe; you have to believe; you have to believe" (Chitwood, 2007). Keeping his positivity and dynamism, the paper will analyze the global development strategies of the company with respect to latest challenges and suggest the possible options for its top management to encounter these contemporary issues under the light of certain models like SWOT and Porter’s Five Force Analysis etc. 2. Motive for Global Diversification Strategy Microsoft rightly considered that several aspects of computer and software industry are grown up now and reached at the maturity level, therefore, ultimately the downfall of several products is natural, and that’s why the company has strategically relocated itself from the dependency on normal PCs, which are losing their space in the market. This strategy demonstrates the background of its mission statement i.e. “At Microsoft, our mission and values are to help people and businesses throughout the world to realize their full potential. We consider our mission statement a promise to our customers. We deliver on that promise by striving to create technology that is accessible to everyone—of all ages and abilities. Microsoft leads the industry in accessibility innovation and in building products that are safer and easier to use.” (Microsoft’s official website) Microsoft considers that by stretching out its market potential through global diversification strategy, ıts going to accomplish excessive income, as personal computers are not remain too much trendy. Microsoft believes that diversification is a realistic development through this diversification strategy; it is now at a commanding level in the globe. This diversification towards several services and products has made Microsoft more appealing to investors and so long as it keeps on making use of its potential and strategies in new sectors, and organizing all of them proficiently, diversification will contribute as a winning instrument for its market leadership. Once Bill Gates highlighted the importance and issue of diversification as “We are sitting at a pretty interesting juncture. Handwriting recognition, speech recognition, B2B, easy inter-operability, decent development tools, all of these things we have dreamed about for the last 20 years. But it’s only now that the right level of power in the systems and the right kind of R&D to take on these tough problems is really in place.” (Manjo, 2009) 3. Microsofts Contemporary Diversification Strategy The innovative business conceptuality of Microsoft has altered substantially with the course of time and being a leading software provider company, its objectives have enormously developed over the time through some enterprising attempts to typify the brand new breakthroughs in smooth technologies, together with entertainment, networking software, information providers, and much more. In addition to market dominance, the company’s global diversity has expanded in several aspects to offset the market saturation. The range of its diversification includes Operating Systems and Servers, hardware products, PC games, internet technologies, Windows mobile operating systems, Xbox games, hardware like smart phone and Pocket PCs, development tools, business software, and Macintosh products etc. Microsoft has grabbed numerous sectors from the IT market and it is progressively diversifying its profile towards irrelevant extents e.g. finance and investments. The step into a variety of accounts offers the reimbursement for Microsoft to come up with money to cross subsidies from the unnecessary segments in such a way that its rivalries might not be able to do so. It means Microsoft makes sure the competitive advantage for that subsidized industry and the long-lasting sway to push the rivalries from industry, allowing Microsoft having dominance through excellent services. It turned out to be really phenomenal as well as specifically exciting when Microsofts global diversification strategy entered into the field of video games and game consoles. The very first product was Xbox 360. The purpose at the rear of market entry to the video games sector is included with justification. It was developed predominantly to hang onto its possible rival, Sony, under control. Despite of the fact that, Sony is primarily associated with a distinct field, Microsoft acknowledged that they might possibly turn out as its competitor. The SonyPlayStation was simply a customized game control system as well as not as good as of Microsoft Operating system. Nonetheless, SonyPlayStation II was introduced with internet browsing potentials. Microsoft, thereby, had concerned that, in due course, SonyPlayStation II might achieve influential power associated with customers computing routines and online searching, acquiring its users off from PCs and Microsoft Operating Systems. In May 2011, Microsoft acquired the Skype and thus controlled the online call services. The deal cost $8.5 billion, which is till now its largest acquisition (Search Office Space Blog, 2011). This sophisticated proceeding has turned out to be strategically valuable for Microsoft to become leading partner in the online chatting, conversation, information sharing, and amusement industry. Microsoft might make use of the product label to construct a more prominent customer industry and combine the web phone services to the Xbox live video gaming service. Although Microsoft’s programs like Windows Messenger and Linc are identical in nature to Skype, however, the major distinction is that many of Skype visitors purchase the service. Skype facilitates online phone services for each incoming and outgoing calls. These phone calls are quite expensive with traditional communication systems whereas, through Skype, these call services are quite free for its users. The call structure of Skype is an additional value towards the Messenger and Linc stage as well as for the Microsoft Exchange 2010, which also contains voicemail message systems. This integration of Skypes call facilities with Windows Messenger and Linc is really a rational global strategy to increase the marketing of other items at global scale. This diversification step really helped the company to come out successfully during the global recession in late 2000s. Another step, although hard and yet is not commercialized, is the recent release of Microsoft Surface. It has been made to uncover the potential of target market that has been scared with computing products. Although, this product has not been fully commercialized, however, so far it has been found quite effective and it is considered that this novel and un-traditional invention will set new mile stones in computer industry. 4. Competitive Analysis & Positioning The long-term positioning strategy of Microsoft is based on differentiation and it firmly emphasizes on brand recognition, its design and style, high quality support and services, as well as uniqueness. The organization designs inexpensive strategy which in turn offers inexpensive production in large economic climates. Like Microsoft, enterprises which engage in differentiation strategy are to have higher professional worker, a solid marketing staff, vast field of research along with a higher standing of quality. Accordingly, in order to contend on differentiation as well as pricing strategies, Microsoft have to make certain that it produces and maintains the individuality in the market in terms of both hardware and software field. Moreover, since they have one of the strongest strategic assets and highly motivated professional staff, therefore, it must take advantage of their dedication to global development strategies and innovation. 5. Porter’s Five Force Analysis Porter’s Five Force Analysis highlights the major influences in target markets and consumer behavior. According to Sanderson and Luffman (2001), this analysis indicates “current strategies of competitors, the potential of new competition to enter the market, the behavior of suppliers and buyers, and the availability of substitute products” (2001, p.20). The five forces are shown in a figure as Appendix-I. 5.1 Competitive Rivalry - High The competitive environment between already existing rivals offers opportunities for new products, services, and marketing campaigns. The main competitor of Microsoft is Apple, however several other organizations are emerging to compete Microsoft in some particular sectors. Microsoft has taken the apple serious by launching back to back two operating systems Vista and Windows 7 after foreseeing the real threat from Apple (Porter, 2008). The innovation of cloud computing has made the market more competitive. There are several multinational companies who are actively operating in software industry like SAP, Oracle, and PeopleSoft, combine making almost 60% of the market share and thus creating a high competitive environment. The competition in product differentiation is also significantly high as lot of software and programs are differentiated with respect to customization, size, and development features. Price differentiation also creates equally high competition as companies modify the price of their products with respect to size of the target market, type of the required software, cost related to development, training and technical support. 5.2 Bargaining Powers of Suppliers - Low Pressure coming from suppliers is actually exactly what provides them their own energy. Microsoft installs its operating system on each and every sold computer and that’s why PC manufacturers have yet no other choice to select any other operating system instead of Windows. Another reason of low powers of suppliers is that software industry mainly deals with intangible products and services, thus, this rational characteristic reduce the requirement of huge number of suppliers. Microsoft executes its global strategy mostly with only those suppliers who can physically record the media. 5.3 Bargaining Powers of Buyers - Low Due to several causes, the bargaining power of buyers is quite low. (i) Although concentration of buyers is increasing because of their preference, however, it is also fact that they belong to diversified groups and communities. (ii) Most of the new products and related infrastructure systems offered by switching providers are high, thus, buyers have little room to rethink on switching its existing systems. (iii) Multinational companies even medium and small sized organization know the importance of business software, therefore, they are happy to pay at existing cost. The vital point for Microsoft is that it has great monopoly with respect to operating system to run computer games that its consumers have zero alternative nevertheless to acquire any other operating system other than Windows. 5.4 Threats of New Substitutes - Low Windows is quite unique with respect to users as they find it a comparable product. It means that user can easily feel the similarity of Windows with Mac’s operating. So in case a user wants to change the products, he or she would have to change his / her computer, related knowledge of PC’s functioning, and sense of comforts. Thus, it will be an emotional change. But in case, users want to change their operating system Mac, it’s very much possible that they will not be able to observe their operating system similar to Windows operating system. Definitely it will be different understanding. 5.5 Threats of New Entrants - Low The threat from new entry in the industry is low because it needs a huge amount of capital investment. Another reason is the presence of dominating Microsoft, even Apple as well, because their operating systems especially Windows is considered as the standard operating system throughout the world. Another reason is that the development of any enterprise software or operating system deals with extensive amount of money, time, and highly professional knowledge. Moreover, Microsoft not only competes its rivalries, it is also competing itself as it has launched any of its operating system basically against its own previously existing system. In order to combat the indifference in future, Microsoft can implement a discounted rate on its new product. By all means, if a new company makes an attempt to enter in the market, the existing competitive firms will give immediate response to it by creating compatibility issues and thus will make it quite tough to establish its roots. However, if the new company operates with new innovative software and keeps extremely efficient staff, the existing companies use another option by purchasing the whole company for saving their dominance. 6. SWOT Analysis SWOT analysis reveals a general overview of the largest conglomerate related to software industry. It highlights the threats and potential opportunities for Microsoft due to which top management will address the contemporary diversification issues in some better way. 6.1 Strengths Microsoft is globally recognized brand name which has proved its dominance over the years on the software business world. In segment of operating systems, Microsoft has more than 90% market share which is an obvious sign of its reputation across the globe. It can sustain its diversified portfolios through innovative programs and effective marker research. Microsoft has more than $73 billion assets, one of the largest organizations in respect of revenue. By introducing Xbox, Microsoft has made a strong entrance into the game market (Grossman, 2005). 6.2 Weaknesses Microsoft has a number of compatibility concerns and in order to pre-install the computer programs, it is somewhat based upon hardware vendors. The corporation is facing a considerable deficiency in terms of online wireless services which is specifically vital for its global development strategies. Except Windows operating system, Microsoft is lacking in the field of innovation. It has weak online applications as most of the business is executed in the form of CDs or DVDs. Further, complex code based process creates difficulties to the customers to update recommended products. Microsoft made a late entrance in diversification into several fields like smart phones and mobile phones. 6.3 Opportunities Microsoft recently shifted towards the Chinese market by delivering computer programs and software as well as offering highly professional experts to the Chinese federal government. The venturing into such a vast and emerging marketplace is going to be remarkably effective for Microsoft. Smart phone and its other similar software indicate upbeat possibilities for future particularly when the products are certainly going mobile. It can create a strong competition with Google by growing its ad revenue through Bing search engine. Strong strategic assets provide an opportunity to acquire Yahoo or make partnership with it to boost up its online position against the Google. Although Microsoft has made a late entry in mobile sector, even then it has the potential to make substantial market share in this field as well. 6.4 Threats The achieving success of Microsoft within the software industry has created several rivals to follow Microsoft on the same actions. Because of their diversified products, Microsoft is required to spar for customers with unique advancements through different professional organizations within their particular domains. Linux operating system could be a risk for Windows operating system because of its incredible versatility and open source features. The problem associated with piracy is an additional long-lasting concern with regard to Windows operating system as its software programs are easily unlocked. Another great threat is from sophisticated cell phones launched by Blackberry, Apple, and HTC and Search engines. These new products might be progressively replacing the personal computers. Google can create real concerns by establishing full function office against Microsoft Office. Anti-trust issues are also somewhat threats to slow down the acquisition process, thus can create hurdle to the diversification strategy. 7. BCG Matrix BCG Matrix is used analytically by the firms to evaluate its strategic management, product management, marketing plan, and portfolio analysis and is shown as Appendix-II. The new release of Microsoft Xbox and its relevant accessories come under the Star product category which means a high growth rate along with high market share. As far as Microsoft specialized software are concerned, they fall under Question Mark category i.e. they may shift either to Dogs category or Star category. The major product of Microsoft i.e. operating system Windows come under the Cash Cows category, showing that its has high market share but low market growth rate. 8. Lack of Innovation: A Contemporary Challenge to Global Strategy The global recession of late 2000s left adverse implications on major multinational companies working at global scale including Microsoft. By analyzing Microsoft through essential models like Porter’s Five Forces, SWOT, and BCG Matrix, lack of innovation seems more prominent. Microsoft is required to address this issue with the help of its leadership and global development strategy. The above SWOT analysis shows that one of the key challenges which Microsoft is facing is its lack of innovation. Most of the products released in last 25 years were actually influenced by the existing products. For example, Microsoft’s operating system Windows was very much influenced by Apple’s operating system Unix. Similarly Microsoft Office was actually derived from Lotus and Word Perfect. Internet Explorer was also influenced by Netscape which created a great rivalry between two browsers during late 90s (Joshua Cooper Ramo, 1996). As far as Microsoft’s search engine Bing is concerned it also possesses similar features of Google. It means Microsoft picks the idea from existing products and then utilizes its massive resources to gain a valuable share in the market. According to SWOT analysis, Microsoft has more than 90% dominance in the segment of operating systems which proves that it mainly focuses on the development of its operating systems instead of creating other innovative products. Due to this lack of innovation, many software experts have left the company to find new opportunities in other organizations. Therefore, Microsoft needs not only to recruit innovative minded staff but also ensure to retain its software developers (Business Week, Sep 26th, 2005). Another question arises that will it be possible for Microsoft to sustain its dominance in future because it is natural that once the product reaches its maturity, its start to decline (Dina Bass, 2010). Microsoft is gaining only 5% of its revenue from internet while by the arrival of cloud computing on the scene, desktop computing is changing its preferences from desktop computing to web based computing where user can easily switch from one site to the other. More than 80% of overall market share of Microsoft comes from the segments of operating systems and Microsoft Office and really a sign of concern for Microsoft that all these products are now easily available online from its competitors e.g. Google Apps, StarOffice, OpenOffice, Zoho, Zimbra etc. therefore it will always remain a risk for Microsoft that this cash cow will not remain as much profitable in future as it is today (Wall Street Journal, 2008). 9. Recommended Global Development Strategies Numbers of global development strategies can be applied by Microsoft to counter this issue. These strategies are discussed below. (i) No frill strategy is useful because introduction of cloud based computing has offered simple, cheap and quick access for users, therefore, most of the work is done by the users online. According to Porter’s Five Force analysis, the bargaining power of buyer is high in terms of web based products. Thus, this strategy is best to target those customers who are price sensitive and least concerned with quality of the service or product. This strategy will enable Microsoft not only to keep its competitors under control but will maintain the customers’ loyalty on its products. Drawback of this strategy is that Microsoft cannot adopt it overnight as it can create some hurdle to its cash cows i.e. Windows operating systems and Microsoft Office (Johnson, Scholes, & Whittington, 2008). (ii) Low price strategy will ensure the popularity of products of Microsoft as well as gaining the market share. However, this strategy may put a severe adverse effect on the profit margin. It will also affect the future investments of the company as well because the prices were kept quite low (Johnson, Scholes, & Whittington, 2008). (iii) By using the differentiation strategy, Microsoft can focus on the development of innovative products and services against its competitors and thus can enhance its integrity. Today most of the business work which was earlier done on desktop computers is now being done on the web. Hence, Microsoft can change the preferences of its customers to use its premium offers online decorated with exceptional tools, thus ensuring best value for best price charged (Dushmark, 2009). This strategy may put the company into risk because loyalty of the customers would be quite low in this segment, as the expenses of online services are quite low. (iv) In current scenario, the best option for Microsoft is the hybrid strategy (Johnson, Scholes, & Whittington, 2008). This strategy will enable it to differentiate its services and products. It will also facilitate it to charge different prices for different products depending upon their quality, manufacturing cost, and the cost of competitors. Microsoft is required to emphasize on web based computing because the trend of using desktop is diminishing. Further, its search engine Bing has tremendous potential to grow and to give a real tough time to Google. Apple and Microsoft are making an agreement that Apple will replace its default search engine Google with Bing on its iPhone (Digital Inspiration, Dec 3, 2009). Of course, it will not be a revolutionary step, but this small proceeding will set up a way to gain a reasonable market share among search engines (Burrows & Edwards, 2010). Appendix-I Porter’s Five Forces Appendix-II BCG Matrix Products Existing New Stars Question Marks Market Growth High Xbox Microsoft Associated accessories e.g. MS Office Specialized software Low Cash Cows Dogs Microsoft windows line of operating systems MP3 players and computer accessories High Low Relative Market Share Bibliography Burrows, P., & Edwards C. Business Week Jan 2010; Business Week, Sep 26th, 2005; Digital Inspiration, Dec 3, 2009 ; Dina Bass, Business Week, Jan 2010; Dushmark, G. Self-mutilation at Microsoft may hold key to success. Time Magazine April 2009; 3(54): 80-81 Google. Microsoft Corporation Financial Statements. February 28, 2011. Retrieved April 4, 2011. Print. Grossman, L. Microsoft: Out of the Xbox. Forbes Magazine, May 2005; 1(76): 54-57 Microsoft’s official website, < http://www.microsoft.com/enable/microsoft/mission.aspx> Iperior,G. Dec, 2008; Johnson, G., Scholes, K., & Whittington, R. Exploring corporate strategy. 2008; 8th edition Joshua, C. R. 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