Strategic Analysis of Microsoft Corporation · PDF fileStrategic Analysis of Microsoft ... The...

�Strategic Analysis of Microsoft

Corporation

KV � 05.05.2016

Strategic Analysis of Microsoft

Corporation

INTRODUCTION

Microsoft Corporation is an American multinational technology company that

develops, manufactures, licenses, supports and sells computer software, consumer

electronics and personal computers and services. There are Microsoft office

locations around the world.

Microsoft has a new mission statement: «To empower every person and every

organization on the planet to achieve more»3. New words sound like old Microsoft

mission.

Today Microsoft holds leading positions in the world rankings (see attachment 1).

Microsoft operates in software industry – a part of IT industry. Software industry

executives are most bullish on cloud applications, cloud infrastructure, security,

mobility, and data analytics. This is the main trends in this industry. According to

the research consultancy IDC, the global information technology (IT) market,

encompassing hardware, software, services, and telecommunications, is expected to

reach $3.8 trillion in 2016, up from $3.7 trillion the previous year1. The U.S. market

accounts for approximately 28% of the total, or slightly more than $1 trillion1. Over

the past decade, the biggest shift in global industry allocations stems from growth of

the Asian region, fueled primarily by the rise of China1. Exhibit 1 shows regional

structure of industry revenue.

COMPETITIVE POSITION

Exhibit 2 shows strategic groups in software industry. There are three groups:

• cloud databases;

• cloud platforms;

� Strategic Analysis of Microsoft Corporation

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• traditional systems software publishers.

There is a high concentration of competitors within the industry. There are several

factors that affected the industry rivalry: the concentration of competitors, diversity

of competitors, product differentiation and price differentiation2. The treat of new

entrants is low, because of high cost of entry, high economies of scale and etc. The

treat of substitution, bargaining power of buyers and bargaining power of suppliers

are also low. Feature of the industry is low requirement for suppliers, which is

associated with the products and services produced by its own stuff. Please see

Exhibit 2 for additional information.

The main competitors of Microsoft are Apple, Google, Oracle and SAP. Exhibit 4

shows the main financial performance of competing companies. As we can see,

Microsoft holds leading position. For example, in terms of revenues the company

ranks second among competitors, in terms of market capitalization – 3. Exhibit 5

shown strengths, weaknesses, opportunities and threats of Microsoft. How we can

see, Microsoft has good prospects for development.

Microsoft has many capabilities. There are seven main capabilities according to the

Strategic Analysis Report (2013-2014)2:

1. Financial control

2. Capacity for decision making

3. Continuous improvements

4. Brand management

5. Ability to identify and respond to market trends and adapts

6. Engineering and technical know-how

7. Research capability


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Core capability: allow the company to dominate the market and to shape the

direction of the technological future2 (see Exhibit 7)

These capabilities are difficult to imitate. This is due to the high importance of

human capital in the industry.

COMPETITIVE LANDSCAPE

During Microsoft early years it had significant product development costs and little

revenue. Today Microsoft could best be characterized as being the maturity phase. It

continues to spend considerable amounts on research and development and

investment in new assets. For the last three years, through its cash from operations

has exceeded its net income. Also, cash from operations over this period exceeded

cash used for investing, and common stock repurchased exceeded common stock

issued.

For Microsoft, as for any large company, the challenge is to maintain growth. In the

software industry, where products become obsolete very quickly, the challenge is

particularly great.

INTERNATIONALIZATION STRATEGY

• Microsoft has five major divisions, with each division devoted to a specific activity

or service: Windows & Live Windows Group, Server Software, Online Services,

Microsoft Business, and Entertainment and Devices. Until 2013, each of these

divisions was relatively self-contained, with its own customer service group,

research organization and sales division. One consequence of this divisional

organization is that until 2013 Microsoft had no single global strategy implemented

across all five divisions.


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Ballmer's "One Microsoft" e-mail announced a company newly devoted to sales

through the creation of "a family of devices and services" for both businesses and

consumers around the globe. It explicitly renounces the company's earlier

concentration on relatively autonomous divisions. It repeatedly describes how the

new divisions will work together and implies a farther-reaching central

management. What Ballmer intended can be further gleaned from certain repeatedly

emphasized concepts. Important among these are operational speed and responsive

speed. The company will operate faster -- "Be nimble" is how Ballmer describes it --

and respond faster to local markets around the world.

In addition to a general emphasize on speed, Ballmer also stresses the need for faster

corporate communications and increased and faster developing collaboration that

empowers Microsoft employees in local markets. The over-riding purpose of the

"One Microsoft" strategy is create a company with increased market-penetration

speed.

One significant difference between Microsoft's diversity initiatives and what may

seem to be similar initiatives at other global corporations, is that while most global

companies have strategic diversity initiatives, at Microsoft the Global Diversity

Initiative is the encompassing strategy that contains all others. In a recent corporate

mission statement, all other initiatives were described as aspects of GDI. On its

website, Microsoft emphasizes the necessity in a growingly diverse world market of

being in tune with that market, partly as a matter of economic justice and largely as

a survival necessity. The company discusses GDI in three specific areas:

representation, which it describes as a means of building a pipeline of future leaders;

inclusion, which it describes in terms of creating a work environment that promotes

engagement; and innovation, which it synopsizes as driving market excellence. For


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Microsoft, global diversity and inclusion are the means to achieve closer alignment

with local markets that in turn improves market penetration speed. What may be the

core idea here -- that effective companies look like their clients -- has increasingly

become a concern in the 21st century for smaller companies as well.

DIVERSIFICATION STRATEGY

Microsoft's conceptualization of its business scope has changed radically over time

and their goals have dramatically evolved from being a software supplier to a

company that has attempted to epitomize the new developments in seamless

technology, including information services, entertainment, networking software and

more. Their diversification has extended in many areas whilst trying to mitigate the

market saturation as well as market dominance. Some of which includes:

Microsoft's primary product lines include:

- PC Games - Internet technologies

- Xbox Games - Xbox Hardware

- Hardware - Home Productivity

- Development tools - Reference Software

- Business software - Macintosh Products

- Operating Systems & Servers - Telecommunication

Microsoft has captured various segments of the IT industry and is gradually

diversifying their portfolio into unrelated areas such as finance and investments.

This initiative is a far-cry from Microsoft's initial vision. The move into multiple

portfolios provides the incentive for Microsoft to afford to cross-subsidise one

business from the surpluses earned from another, in a way that their competitors


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may not be able to. In other words, it ensures a competitive advantage for the

subsidised business, and the long-run effect may be to drive their competitors out of

business, leaving Microsoft with a monopoly from which good and services can

then be earned.

Just recently, Microsoft closed a deal with Skype to buy the internet call provider.

This progressive move by Microsoft to become a major player in the convergence of

communication, information and entertainment is strategically advantageous.

Microsoft could utilize the brand name to build a bigger consumer business and

integrate the internet call services into the Xbox live gaming service. Even though

The telephone infrastructure of Skype will be an additional value to the

Messenger/Linc platform and also for the Microsoft Exchange 2010, which has

voicemail integration. Integrating Skype's telephone services to Messenger/Linc and

Exchange is a logical way to extend those products across the market.

STAKEHOLDERS ANALYSIS

Microsoft regularly communicates with thousands of stakeholders globally ranging

from parents concerned about their child’s online safety to international human

rights experts. These engagements take many forms. Employees from their business

and operational groups regularly identify and engage with stakeholders in the course

of their daily work activities. Their Citizenship and Public Affairs team also

manages a number of stakeholder relationships and ongoing dialogues to help

inform and guide our strategies. Microsoft connects with leading thinkers on

corporate responsibility and societal challenges in groups such as Business for

Social Responsibility, the Clinton Global Initiative, and the World Economic

Forum. They learn from them and other advocacy groups, socially responsible

investors, corporate responsibility rating agencies, other external stakeholders, and


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Their own employees to identify new and emerging citizenship issues. They also

base our work on international frameworks such as the United Nations Global

Compact, the UN Guiding Principles on Business and Human Rights, and the

Global Reporting Initiatives’ Sustainability Reporting Guidelines

CONCLUSION

Microsoft has been a leader in the software industry for many years. The strategic

analyses showed strong competitive position of the company due to the fact that

products and services of Microsoft Corporation are difficult to imitate, high buyer

concentration, high brand loyalty and etc. The company should focus on its

strengths and opportunities and to try to minimize the impact of weaknesses and

threats to keep its position in the future.


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EXHIBIT 1. ESTIMATED 2016 INDUSTRY REVENUE AT CONSTANT

CURRENSY


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EXHIBIT 2. Five Forces analysis for Software Industry

Source: Microsoft Strategic Analysis Report (2013-2014)

Source: IDC

Threat of New EntrantsCost of entry (High)

Economies of scale (High)

Brand Loyalty (High)

Product differentiation (High)

Proprierty knowledge (High)

Potential Retaliation (High)

Threat of SubstitutesBrand loyalty (High)

Switching costs (High)

Close relationships (High)

Bargaining power of suppliers

Switching costs (Low)

Bargaining power of Buyers

Switching Costs (High)

Buyer concentration (High)

Industry RivalryConcentration of competitors

(High)

Diversity of competitors (High)

Product/price differentiation (High)


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EXIBIT 3. STRATEGIC GROUPS IN IT INDUSTRY


EXIBIT 4. COMPETITIVE POSITION OF KEY COMPETITORS

MSFT ORCL GOOG AAPL Industry

Market capitalization,

$bln

425,48 174,27 507,70 571,00 17261

Number of employees,

‘000s

118 132 62 110 485

Revenue, $bln 88,08 37,47 74,99 234,99 7069

EBITDA, $bln 30.46 15.21 24.42 82.79 3740

Net Profit, $bln 11.41 9.20 16.35 53.73 N/A

IBM

SAP

ORACLE

Amazon

Google

Microsoft

ClearDB Xeround

SQL Azure AWS RDS


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EPS 1.41 2.07 23.59 9.40 0.02

P/E 37.86 20.00 31.26 11.27 23.90

PEG 2.15 2.03 1.27 1.01 1.50

P/S 4.91 4.55 6.77 2.50 2.97

Source: https://finance.yahoo.com, Microsoft annual report


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EXHIBIT 5. KEY COMPETITORS BY REVENUE

Sourсe: https://finance.yahoo.com

MSFT

ORCL

GOOG

AAPL


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EXHIBIT 6. SWOT analysis


STRENGTHS• Brand loyalty &

reputation• Easy to use software• Tie-ups with hardware

industry• Robust financial

performance• Acqusition of Skype

WEAKNESSES• Poor acquisitions and

investments• Dependence on

hardware markets• PC markets have

matured• Slow to innovate

OPPORTUNITIES• Cloud based services• Mobile advertising• Mobile device

industry• Growth through

acquisitions

THREATS• Intense competition• Changing consumer

behavior• Open sourse projects• Potential lawsuits


EXHIBIT 7.

Source: Microsoft Strategic Analysis Report (2013

CAPABILITIES

Processes

People (Skills)

Systems/Tech

Alignment & Sustainability

Strategic Analysis of Microsoft Corporation

EXHIBIT 7. Microsoft capability analysis


Allow the company to dominate the market and to shape the direction of the technological

future

1)High brand equity

2)Awereness education

3) Fourty years of operating experiences

1) Highly skilled employees, supliers (engeneers, managers and etc.)

1) R&D

2)Intellectual property (patents and other forms of intellectual property)

1) Cash reserves give a large amount of financial flexibility

2) Established distribution channels

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Microsoft capability analysis

Allow the company to dominate the market and to shape the direction of the technological

3) Fourty years of operating experiences

1) Highly skilled employees, supliers

2)Intellectual property (patents and other forms

1) Cash reserves give a large amount of financial

2) Established distribution channels


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EXHIBIT 8. BCG matrix

EXHIBIT 9. Stakeholders Map

Primary stakeholders Customers Customer feedback and

insights underlie all of their

decisions to enhance existing

products and develop new

ones. Customer feedback also

plays an important role in

helping us develop clearer and

more customer friendly

contracts and terms of use

policies.

Employees They ask for – and act on –


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employee feedback in multiple

ways, including conducting an

annual online anonymous poll

of all their employees around

the world. The poll, with a

nearly 90 percent response

rate, asks employees to share

feedback about the Microsoft

work experience, including

how they feel about their

workgroups, organization, and

company as a whole. Microsoft

offers employees, customers,

suppliers, and other external

parties multiple ways to report

compliance concerns as

described in our Ethical

Business Conduct and

Governance chapter.

Investors Their engagement with

investors has influenced many

important parts of our

citizenship strategy, such as

their human rights

commitments under the Global

Network Initiative, a

collaborative effort between

information and

communications technology

(ICT) companies, human rights


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groups, socially responsible

investors, and others. Investors

are an important influence as

they continue to consider ways

to enhance our corporate

governance principles and

policies to serve the interests

of their shareholders and other

stakeholders.

Communities Microsoft’s local citizenship

teams work directly with

community groups and in

partnerships with local

nonprofits. They share views

and insights from local

communities with Microsoft’s

global Citizenship and Public

Affairs team in direct

communications, through

regular conference calls, and at

an annual global summit.

Suppliers Microsoft engages with

suppliers through capacity

building workshops and

trainings, supplier advisory

boards, and industry coalitions,

such as the Electronics

Industry Citizenship Coalition.

Microsoft also conduct


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anonymous Voice of the

Supplier Surveys, which

include questions on

citizenship issues

Secondary Stakeholders Policymakers Microsoft engages actively in

policy issues relevant to our

business, both directly and

through industry associations.

They seek to ensure that our

participation in the political

process takes place in the light

of day and for reasons that are

clear and justifiable to our

shareholders and the public.

Their public policy

engagement is guided by a

publicly available Global

Public Policy Agenda, which

outlines our policy positions

on issues core to their

business.

Industry coalitions and public-

private partnerships

Microsoft actively participates

in industry coalitions to

address important citizenship

issues and in many cases is

among the leaders bringing

companies together to work

collaboratively to solve

challenges.


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Civil society/

nongovernmental

organizations (NGOs)

Across the breadth of business,

Microsoft engages with

thousands of NGOs working

on issues ranging from

environmental sustainability to

employee diversity to child

safety.

REFERENCES

1. IT INDUSTRY OUTLOK 2016 CompTIA 2. Microsoft Strategic Analysis 3. Microsoft Annual Report 2014 4. IDC 5. https://finance.yahoo.com

6. http://www.forbes.com

7. www.ft.com

8. www.fortune.com


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Attachment 1

Global rank (FT, Fortune, Forbes). Changing position in global rankings in the

last five years

1) FT:

Year 2015 2014 2013 2012 2011 2010

Position 5 3 7 4 10 3

Sourсe: Financial Times (2010-2015)

2) Fortune:

Year 2015 2014 2013 2012 2011 2010

Position 31 34 35 37 38 36

Sourсe: Fortune 500 (2010-2015)

3) Forbes

Year 2015 2014 2013 2012 2011 2010

Position 25 34 41 42 50 49

Sourсe: Forbes Global 2000 (2010-2015)

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