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Microsoft Strategic Management Essay

Background

It’s the 1970s. At work, we rely on typewriters. If we need to copy a document, we likely use a mimeograph or carbon paper. Few have heard of microcomputers, but two young computer enthusiasts, a nineteen year old kid and his twenty-two year old business partner (Bill Gates and Paul Allen) sold their first program to a little computer company in Albuquerque, New Mexico. The program was called BASIC, and it was the start of this company we call Microsoft. We see that personal computing is a path to the future.

In 1975, Gates and Allen form a partnership called Microsoft. Like most start-ups, Microsoft begins small, but has a huge vision—a computer on every desktop and in every home. During the next years, Microsoft begins to change the ways we work.

Starting in 1980, Microsoft formed an important partnership with IBM that allowed them to bundle Microsoft’s operating system with computers that they sold, paying Microsoft a royalty for every sale. In 1985, IBM requested that Microsoft write a new operating system for their computers called OS/2; Microsoft wrote the operating system, but also continued to sell their own alternative, which proved to be in direct competition with OS/2. Microsoft Windows eventually overshadowed OS/2 in terms of sales. When Microsoft launched several versions of Microsoft Windows in the 1990s, they had captured over 90% market share of the world’s personal computers.

We can take a look of the road map of Microsoft products, how it becomes a giant in the personal computer market.

In 1982 – 1985 (Windows 1.0) – Microsoft launched a first version of new operation system – Interface Manager is the code name and is considered as the final name, but Windows prevails because it best describes the boxes or computing “windows” that are fundamental to the new system.

In 1987 – 1992 (Windows 2.0) – Microsoft releases Windows 2.0 with desktop icons and expanded memory. With improved graphics support, you can now overlap windows, control the screen layout, and use keyboard shortcuts to speed up your work. Some software developers write their first Windows–based programs for this release.

In 1990 – 1994 (Windows 3.0 & Windows 3.1) – Microsoft announces Windows 3.0, followed shortly by Windows 3.1 in 1992. Taken together, they sell 10 million copies in their first 2 years, making this the most widely used Windows operating system.

In 1995 – 2001 (Windows 95) – Microsoft releases Windows 95, selling a record-setting 7 million copies in the first five weeks. It’s the most publicized launch Microsoft has ever taken on. Television commercials feature the Rolling Stones singing “Start Me Up” over images of the new Start button. The press release simply begins: “It’s here.”

In 1998 – 2000 (Windows 98, Windows 2000, Windows Me) – Windows 98 is the first version of Windows designed specifically for consumers. PCs are common at work and home, and Internet cafes where you can get online are popping up. Windows 98 is described as an operating system that “Works Better, Plays Better.”

In 2001 – 2005 (Windows XP) – Windows XP is released with a redesigned look and feel that’s centered on usability and a unified Help and Support services center. It’s available in 25 languages. From the mid-1970s until the release of Windows XP, about 1 billion PCs have been shipped worldwide.

In 2006 – 2008 (Windows Vista) – Windows Vista is released in 2006 with the strongest security system yet. User Account Control helps prevent potentially harmful software from making changes to your computer.

In 2009 – today (Windows 7) – By the late 2000s, the wireless world has arrived. When Windows 7 is released in October 2009, laptops are outselling desktop PCs and it’s common to get online at public wireless hotspots like coffee shops. Wireless networks can be created at the office or at home.

External Environment

Microsoft gained a good result during the past thirty years. However, they still need to face the market change, which we called External Environment. Let us to take a look what External Environment that Microsoft is facing.

Political factors – Microsoft is highly affected by the political scenario there in USA. Microsoft is becoming one of the giant companies globally. It has created huge monopoly across the globe. US government is now trying to break up Microsoft into several different companies so that to maintain equal competition throughout the market. One of the other reasons in splitting up Microsoft Corporation that it is becoming so much stronger that it could be a threat for even US government in near future. Economic factors – Being such a versatile company and the market share they have, Microsoft plays major role in bringing up the country economies they have set-upped their businesses. According to an independent studies that the economies of the country shoots up three times when Microsoft starts businesses in that country.

Social factors – Microsoft has an edge on all of its competitors that socially more people are inclined towards Pentium platforms so naturally it helped a lot to have more market share rather than others. Market segment of Pentium users is considerably very huge but it would be threat for Microsoft that they are losing its share with an average pace, due to their unsatisfied customers.

Technological factors – It was a decade earlier that Microsoft was the leader in producing high tech software and gadgets, but now they are getting tough competition from global phenomenon brand ‘Apple’. No doubt Microsoft adopts and market new technology.

Environmental factors – Microsoft follows very strict policies to make sure that the company remains in full compliance with international environmental regulations and the specifically environmental requirements of each country/region where they are doing their business. Microsoft reduces waste disposal, where possible through source reduction and recycling at company facilities. All waste safely and responsibly handled and disposed of properly.

Legal factors – Microsoft is playing vital role in legal aspect of their pirated products like Windows and other software. They are trying their level best to reduce the usage of their pirated software. They are introducing different security features which may reduce the usage of pirated products.

Porter’s Five Forces Model

Force 1: Potential Competitors

The entry barriers of Microsoft’s business divisions are high. In the operating system business, it holds major market share in personal computing. There is over 90% of personal computer are using Microsoft Windows Platform (NETMARKETSHARE, 2012). The second is Mac OS by Apple Inc. which is only have 7.3% market share. Creating an operating system takes years and requires high skill set and knowledge. Besides the coding, it involves graphic design for better user experience, integration between various platform, and design of innovative features. Both Microsoft and Apple have been developed operating system for near thirty years. Microsoft has very strong user base from home users to enterprise and even government all over the world. To create a new operating system is very difficult that not only the financial problem but also experience developer and the market to promote this product.

Force 2: Rivalry Among Incumbent Firms

The threat of rivalry is relatively among Microsoft is low. There are just few rivals on operating systems market. The only distinction between operating systems is what software it can run. However, many famous application have release cross platform version.

Force 3: Supplier Power
F

or supplier power, the threat for Microsoft is relatively low. All major resource are come from corporate internal. Most of them are human resources. For other business like their gamming console, Microsoft has several of suppliers available. The only down side of a supplier could hold is that the items needed by the console is a wide variety of electronics

Force 4: Buyer Power

Most of the PC Company sold their desktop, laptop, workstation with latest Microsoft Windows OS. This is become as expected by buyer. Even the direct competitor like Apple, their Mac PC and Mac Book can also support Windows OS. The cost of the OS is absorbed in the price of PC, and buyers tread it as bundle software. So it leads to low treat from buyers.

Force 5: Substitute Products/Services

Threat of substitute for Microsoft is low, even with the improvements of Mac OS X has made. To substitute by Mac OS, user need to purchase Apple PC. Apple PC usually more expensive compare with other brand in same hardware configuration. Many user consider the cost is not justify.

SWOT

Microsoft SWOT Analysis is in order to dissect the company situation in the market, consisting of 4 layers such as Strength, Weakness, Opportunities and threats. To date, the global business of Microsoft Corporation (Microsoft) mainly develops, manufactures, licenses, and supports software products for various computing devices. Its performance has been certainly in the science and technology circle, through its strong operating performance and financial stability to the company. It was expected to seek more growth avenues in the future. However, Microsoft’s margins and market share were partially hinged on the intensifying competition.

Strengths

* Windows is the dominate operating system in PC desktop of the world 92 percent of the market before Apple with 6 percent * Microsoft Internet Explorer is the second largest web browser behind Google Chrome * MSN was one of the favorite’s instant online chatting platforms * Bing is the second largest search engine behind Google * Software products have high name recognition, broad-based corporate and consumer acceptance, for instance Word, Excel, PowerPoint & Access, and numerous powerful features that are in use worldwide, thereby promoting standardization and competitive advantage through their ease of integration and cost-effectiveness

Weaknesses

* Dependency on hardware manufacturers to preinstall Microsoft’s PC operating system * Falling sales in the operating systems and server software sectors * Little or no significant presence in the wireless market. For example, Windows CE has been hazy and gave up. * Few products were occupying in an Internet applications * Perceived by many as a cutthroat competitor that uses its dominant market position to marginalize competition by stealing/destroying the competition’s products, stifling product innovation, and decreasing the availability of competitor products

Opportunities

* Lower global telecommunication costs create new markets as people connect to the Internet * Mobile phone applications and exploitation of personal digital assistants represent a growth industry so that strategic alliances could provide Microsoft with opportunity in a market Popularity among people for Internet access * The needs for personal computers in the global markets still keeps necessary for the aspect of document although the growth and increasing popularity of personal handheld devices

Threats

* Apple and Linux threaten Microsoft’s 88% market share of the desktop operating market * Currency exchange rates affect demand for application/operation software and hardware, and fluctuating currencies can negatively impact revenues in the global marketplace * Hardware manufacturers (Sun Microsystems, Oracle, and IBM) have collaborated on new platform technologies that replicate much of the value of Windows * Hardware manufacturers (Sun Microsystems, Oracle, IBM, AOL, and Apple) are preinstalled in their own prefunded programs with their own hardware * Personal computers, mobile phones, personal digit assistants, entertainment oriented handheld computers, and similar wireless products for Internet access do not need Window operating system products * Rapid development of mobile devices that will displace/replace personal computers * Software piracy of commercial and consumer applications software would be directly threaten the revenue streams * Cycle of Technology life is shorter

* UNIX is believed dominating in high-end mission as its customers do not believe Windows can handle these operations

Capability and Resource

In today’s information generation, the invisible is the essential. We no longer live in a world where physical assets are more valuable than invisible assets. Top levels of business performance are relying on invisible characteristics. Successful business could be achieved depending on the tangible and intangible issues.

Intangible

Leadership and managerial capabilities
Slogan as follows quoted by Bill Gates of Microsoft:
“Our basic assets, which are our software and our software development skills, do not show up on the Balance Sheet at all.” – Bill Gates advocates the company that Ability to innovate, Ability to change, Speed to Market, Develop and Retain the Best People and Create a One to One Customer Relationship.

He clearly pointed out the Marketplace that a preference for invisible over visible when it goes to running a company. Therefore, businesses will have to recognize new drivers of value, such as customer led company processes, increased specialization, and an emphasis on knowledge employees.

Brand name

According to http://brandirectory.com/league_tables/table/global_500_2011

Microsoft jumped from fifth to second place in Brand Finance’s new list of the world’s most valuable brands as at 2011, but it’s still behind first-place Google.

The Microsoft brand is worth $42.8 billion on 2011, up from a value of $33.6 billion in 2010, according to the list released today.

Patent

The Microsoft Intellectual Property Licensing group is responsible for licensing Microsoft patents and other forms of intellectual property (IP) such as research technology and know-how. The following items were the examples of patent of products.

Several devices, from portable computers and personal digital assistants (PDAs) to mobile phones and video cameras, use liquid crystal display (LCD) technology to render images on a screen.

Exchange ActiveSync is a communication protocol that enables mobile, over-the-air access to e-mail messages, schedules, contacts, task lists, and other Exchange Server mailbox data

File systems patent

The Extended File Allocation Table (exFAT) is the latest file system for personal storage devices. The file allocation table (FAT) File System makes it possible for an operating system to track the location and sequence of each piece of a file Microsoft also offers a flexible Intellectual Property (IP) licensing program upon increasing in the industry’s interest in licensing its growing hardware technology portfolio.

Strategic Partnership

Nokia and Microsoft gathered on 2011 to create market-leading mobile goods and services designed to provide consumers, operators and developers without rival choice and chances. As each company would concentrate on its important competencies, the partnership would create the chances for fast time to market execution. Besides, Nokia and Microsoft joined integrate important assets and create completely new service provides, while extending built up goods and services to handheld devices market.

Tangible

Researching Centre and facilities

Microsoft Research Cambridge was set up in July 1997 with a few researchers. Today over 100 researchers, mostly from Europe, are joined in computer science research at the lab. The city of Cambridge, England, was the good choice for the station of the facility because of its world-renowned reputation and its rich history as a center of learning. Located in Mountain View, California, Microsoft Research Silicon Valley was founded in August 2001 and now employs about 75 researchers. Its research work concentrate on assigned computing and includes privacy, security, protocols, fault-tolerance, large-scale systems, concurrency, computer architecture, Internet search and services, and related theory.

Microsoft Research Asia is founded in Beijing as Microsoft’s fundamental research facility in the Asia Pacific region and expands rapidly. By attracting the best talent from Asia and across the international, Microsoft Research Asia has grown into a world-class research laboratory with more than 240 researchers and developers and more than 260 visiting scientists and pupils. Nowadays, the lab conducts core research in natural user interfaces, next-generation multimedia, data-intensive computing, search and online advertising, and computer science fundamentals.

Employee

With 90,000 employees in over 190 cities planning and developing many products and services for all customers and partners, Microsoft is concentrate on ensuring a top level of satisfaction among its customers and partners. It is an important component of its business. Final mission is to provide experiences for the customers and partners, across all of their interactions with Microsoft, that they value and recognize, and enable them to realize their full potential.

Strategies

In order to discuss Microsoft’s strategies of business level, corporate level, and international level, it is necessary to define them beforehand. Business level strategy is a comprehensive mechanism a company chooses to gain competitive advantage or superiority in a particular business (Cutcher, 2006). Corporate level strategy refers to the decision a firms make to explore new strategic opportunities, which range from an extension of current product line to expanding current operations and further moving the firm to completely new lines of business, under such conditions to vendor uninterrupted growth or keep current sales and profits (Cutcher, 2006). International level strategy is a strategy through which the firm sells its goods or services outside its domestic market by a few entry modes, like exporting, licensing, Joint venture/Alliance, and Sole venture.

Microsoft adopts differentiation as one of the business level strategy by:

* Accessibility options that let user personalize the computer display, mouse, keyboard, sound, and speech options in Windows and other Microsoft products. * Assistive technology products, specialty software and hardware products (such as screen readers and specialty keyboards), that provide essential computer access to individuals with significant vision, hearing, dexterity, language, or learning needs, and, * Interoperability among assistive technology products, the operating system, and software programs, which is critical for assistive technology products to function properly.

* Continuing our longstanding commitment and leadership in developing innovative accessibility solutions. * Making the computer easier to see, hear, and use by building accessibility into Microsoft products and services. * Promoting innovation of accessibility in the development community and working with industry organizations to encourage innovation.

Microsoft also uses cost leadership as one of the business level strategy to be consistent with the aim of Microsoft’s original goal enabling PCs that run Microsoft software on every desktop making the use of software is possible for everybody (blogspot, 2011). It provides inexpensive upgrade offers for user to upgrade from existing operation system or software to brand new version. Also, OEM version of operation system comes with brand new PC devices are sold at considerable discount. Furthermore, special edition of operation system and software specified for colleges ‘use are also offered with much discount to penetrate the market of students and teenagers.

To maintain growth of business, Microsoft goes for diversification and innovation as corporate level strategy (scribd, 2009). Example would be TV game console, Xbox 360, mobile phone operation system, and voice over IP service software, Skype. Such strategy enables Microsoft to benefit in terms of money, market share, and better use of resources by:

1. Exposure to new products and markets 2. Sustain innovation and use opportunities to integrate knowledge into operations 3. Spread risk by avoiding having all eggs in one basket and provide better risk control through not being reliant on a single market 4. Provide movement away from declining activities (scribd, 2012)

As to international level strategy, Microsoft adopts licensing as an entry mode, in which Microsoft, the licensor, authorizes a foreign licensee to use its patented technology for making and marketing products in the licensee’s home country (Cutcher, 2006). Microsoft sells goods and services through forming partnership with local licensee all around the world. Their partners are often licensed resellers and authorized distributors that are selling Microsoft’s products to local customers and provide marketing operation (Microsoft, 2012). Besides, Microsoft adopts global strategy to compete globally. Except suiting the language for each country and region, their products, like OS and office suite, are standardized that they share the same functions and features.

Recommendation

Microsoft is the world’s largest software maker. It represent the top tier in the industry and playing the role of market leader. Actually there’s not much weakness on its dominate market like operating system and office application. On the other hand, due to the changes of user behavior on Internet, more and more user surfing Internet using mobile device. In 2011, only 3.79% using mobile or tablet for browsing Internet. At the end of 2012, it has been increased to 10.42% (NETMARKETSHARE, 2012).

We can predict the numbers of mobile device will keep growing in the near future. Microsoft was once dominate the mobile device (or PDA during that era) market by its Windows Mobile / Pocket PC OS. But losing it when Apple release iOS and iPhone. Consumer market keep changing in an expeditious way. A market leader can falling in a blink. Microsoft take two years to release Windows Phone 8 after the release of Windows Phone 7. To regain the market share, Microsoft may speed up its R&D. Provide upgrade path for its product or even produce its own hardware like other direct competitors Apple Inc. and Google did.

Bibliography

Cutcher L., & Wailes N., (2006), Cases in Strategy and Management, North Ryde, McGraw-Hill,p.100.

Chakidan, 2011. Microsoft Business Strategy Analysis. [online] Available at:< http://chakidan.blogspot.hk/2011/04/strategy-analysis-for-microsoft.html> [Accessed 26th Dec 2012]

Microsoft, 2012. Microsoft partner program. [online] Available at:<http://www.microsoft.com/taiwan/partner/CertPartner/p10.htm>[Accessed 26th Dec 2012]

NETMARKETSHARE, 2012, Browsing by Device Category, Net Applications.com, [online] Available at:<http://www.netmarketshare.com/report.aspx?qprid=61&qptimeframe=M&qpsp=144&qpnp=24>

NETMARKETSHARE, 2012, Desktop Operating System Market Share, Net Application.com, [online] Available at: http://www.netmarketshare.com/operating-system-market-share.aspx?qprid=8&qpcustomd=0

scribd , 2009. Project Report: Impact Of Company’s International Strategy on


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