Microsoft Outsourcing Xbox Production

About Microsoft

• Formed in 1975; IPO in 1986• Global annual revenue of US $62 billion • Nearly 90,000 employees in 105 countries• Develops, manufactures, licenses, supports a wide range

of software products for computing devices• Current Market Cap of $226.19B. Comparable economy:

Egypt - GDP: $187,954B (Population: 79m)

Thailand - GDP: 263,889B (Population: 66m)

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Microsoft’s Challenges

• Primary a software company, however it long had a small but important hardware business selling computer mice, keyboards and joysticks under the Microsoft brand

• Xbox was different: it was a fully functional specialized computer with multiple components including microprocessors, memory chips, graphic chips and an internal hard drive.

• Microsoft quickly decided that it lacked the manufacturing and logistics capabilities to make the Xbox itself and manage a global supply chain.

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Outsourcing

• The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs

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Advantages/Disadvantages

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Key Advantages Key Disadvantages

Focus On Core Activities Loss of managerial control

Cost And Efficiency Savings Hidden Costs

Operational Control Threat to Security and Confidentiality

Flexibility Quality Problems

Tied to the Financial Well-Being of Another Company

Bad Publicity and Ill-Will

About Flextronics

• Singapore-based Electronics Manufacturing Services (EMS) provider

• $13Billion Sales, 100K Employees in 28 countries

• Supplier to Dell, Ericsson, HP, Siemens, Sony & Xerox

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Flextronics Advantage

• Uses “industrial park” strategy• Can shift production from country to country• Had excellent web-based information

systems for real-time exchange• Had experience with Microsoft (e.g. in

computer mice)

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Xbox Market Launch

• PS2 released and was dominating market• Game Cube announced for Christmas launch• Xbox launch:

3 days before Christmas (US)

2 months before the Game Cube (Europe and Australia)

Xbox Market Launch

• Microsoft was able to balance demand and supply

• Over 25 million units were sold (2006)• Outsourcing partner can be a competitive

advantage

Success Story

Outsourcing success blueprint:

• Choose a partner, not a contractor• Set expectations early in the process

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Conclusion

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• Sophisticated and effective outsourcing relationships are becoming more typical in every industry

• Microsoft's decision to outsource the Xbox manufacturing illustrates just how sophisticated and effective partnering with outside contractors can be in the twenty-first century, no matter what the industry or product

Thank You

Q&A

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