Microsoft Corporation’s Strategy Essay
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1. Executive Summary
Microsoft is a computer business company. It is famous for software products are the Microsoft Windows line of operating systems, Microsoft Office suite, and Internet Explorer web browser. It is the world’s largest software maker measured by revenues. Also Microsoft has a new development strategy in recent year which approaching to smart-phone industry. Microsoft built on the partnership with Nokia since 2011, and the significantly increasing success of Nokia’s Lumia smart-phones. Microsoft’s purpose is to use the acceleration growth of its share and profit in mobile devices through the speed innovation, addition synergies and centralized brand and market.
At that period for Nokia, this transaction was significantly accretive to earnings, strengthen its financial position, and provide a solid basis for investment in its continuing businesses. This acquisition will promote competition, Microsoft offer competitive alternatives to Google and Apple which helped by integration of hardware and software. Also, Microsoft gains proven ability which from key personnel to success in devices and services, it remains committed to working with partners in the windows & windows phone ecosystems.
Moreover, the acquisition can benefit consumers, it has pulled down Microsoft’s devices and services costs from development through the market and by gaining cost savings from Nokia’s.
Microsoft Corporation is an American multinational company, and its mission statement is use human diversity and inclusive of ideas and solutions to satisfy the needs of its increasingly global and and diversification consumer base . Microsoft get into the smart-phone market would be a big step for it to develop more for its business, that is one of the reasons that purchasing Nokia in 2013. Microsoft’s acquired Nokia on 3rd September 2013; and announced that to used approximately $ 7.2 billion to purchase almost all of Nokia’s mobile phone business which spent $ 5 billion on equipment and service departments, also paid $ 2.1 billion for related patent. This report aims to analyze the strategy of Microsoft acquisition of Nokia which included SWOT, also the analysis of PESTLE and five forces of the strategy, then finally would be the Value chain, the recommendation of its strategy and retaliation of competition. SWOT analyzes that after changed the strategy how to affect Microsoft as a good and bad way, also how it inspires more chances to develop the business, and any risk from this strategy.
It shows that electronic product industry competed in the firm. Secondly, the report explains the reason of Microsoft has to change strategy by political, economic, social, technological, environmental and legal, all those factors show that when strategy changed by Microsoft. Thirdly, this report will talk about Nokia entered into Microsoft is the strategic change the business by using five forces; it explains the current rivals and potential new entrants in the industry with the businesses change in strategy. Also, with the value chain, the original Nokia’s technique skills have changed the organization and competencies. Finally, this report will talk about the future of this company development, it will tell core competence and innovation strategies are most likely to improve its absolute and relative performance in the next 3 to 5 years. With those analyses, this report will explain the details of this strategy from Microsoft, and both advantages and disadvantages by using this strategy for its future business.
3. The Environment Analysis
With technology great development, Apple’s produce iPhone and products to cater the market as Google’s does have Android to compete in. Thurs made a decision with Microsoft acquired Nokia in 2013.
3.1 SWOT Analysis
Microsoft and Nokia’s huge influence in the world
Microsoft Corporation is world leader of personal computer software development; also it currently is the world’s largest provider of computer software. At the same time, according to Steve Ballmer Microsoft Chief Executive (2013), Microsoft’s Windows occupy 91.49% sharing of the global PC operation system. Nokia has had powerful hardware design concept and abilities of manufacturing, also Nokia’s Lumia occupied approximately 82% of the market. So, acquisition of Nokia was a great record for Microsoft’s corporate strategy.
Microsoft has been managing operation systems and software provider, it establishes over 90 % of the PC operation system’s market share. Most of people grew up with Microsoft’s operating system because of the easy manipulating and will use continually, there are not much brands can compete with it for those reasons. Even open source operating system; it is totally free, suits ordinary users.
Profits of the mobile phone market
Profit is a big principle of Microsoft’s acquisition of Nokia. According to the US technology blog estimating, Microsoft earned 10 US dollars gross profit from each Lumia phone, but after the acquisition, the gross profit of Lumia has increased to over 40 US dollars, which mean that Microsoft can recover the cost of acquisition of Nokia with 25 million Lumia phones be sold. 3.1.2 Weaknesses
Microsoft approached too late to the smart-phone’s market, it has already saturated when Microsoft stepped into. Most of the market shares have been taken by Apple and Android. According to Bamburic (2013), in 2013, Window Mobile only occupied 2.9 % from the smart-phone market share, it is a bad record which compare with Apple’s 18.2 % and Android’s 74.4 %.
Microsoft is difficult to ask people to accept the whole system moved to a smart-phone operating in a short period. Although consumers have not totally approved Window Mobile, Microsoft still updates the mobile system slowly.
Android occupies most of the market share of smart-phone, however the loyalty of Android’s users are unstable, also Apple’s products are too expensive for consumers, with no more choice for mobile system, Window mobile get a chance to attract those customers.
With the developing Information Technology, people see mobile as a necessity, and mobile phone is not just a communication tool, consumers concern about the multi-function and the brand of mobile phone.
The threat of substitutive, same level of smart-phone will be the greatest substitutive of Microsoft, such as Samsung, LG, Sony; developed technology and internet, net communication also are the substitutive, such as E-mail, MSN, Skype.
Limited Creative & Cost
The creative abilities of the whole industry are declining as Apple or Samsung. With the quick developed in these years, systems and function are getting homogeneous. This is the same problem for the whole industry. Moreover, with the developing creative function, cost also is a main element to win the competition which how to spend less to do more.
3.2 PESTLE Analysis
Macro environmental influences on Microsoft are summarized with in following six categories to identify the key drivers for change.
The US government concerns the investment in high-tech industries and supports the development of high-tech enterprises which made the Mobile Enterprises starting the patent competition. Mobile manufacturers defray a large proportion of cost by the strict US patent system. Also America has the most complete and strict for mergers and acquisitions law.
America’s tertiary industry occupied for about 78 % of GDP, which the contribution of high-tech owned the most, the technology is crucial for the US which is the power source of economic development. The global economic crisis of 2008 caused a huge blow to the world economy, under the impact of the economic crisis, Nokia’s share price fell sharply which just made a great offer for Microsoft to purchase as a low cost.
With the development of the information age, people rely on mobile phones increasingly. By changing the concept of value as people’s lives changed as well, people do not see mobile as a communication tool at all, they attach importance to the multi-function and brand of the products. Consumers’ brand awareness is getting stronger when they are selecting mobile phone. Smart-phones are no longer for teenage only, it turns to be public goods for everyone. With the smart-phone fashion rising, mobile phones have become a symbol of renewal as a consumer, so the mobile phone market is very considerable.
Walking in front of others is the only way to survive in the high-tech field and the fierce market competition. High-tech products have rapid upgraded and short life cycle, it inspires higher requires to enterprises’ special application software and ability of continuing to update the hardware configuration. Nokia as a former mobile phone giant obviously hold numerous patents, specialized technical personnel and technical reserves the phone which is an advantage to help Microsoft to develop on smart-phone industry.
Microsoft corporate supervised by laws, and it followed the laws which contain Labor law, intellectual property and the tax regime.
Microsoft is an ecofriendly company, it is green IT and the company request customers to recycle the product which are used.
3.3 Five forces
3.3.1 Existing Competitions
With fierce competition in the electronics industry, Microsoft’s mobile is facing every kind of problems in development, smart-phone’s challenged from Apple and Google, also there has problems with products, research and development, marketing strategy and enterprise development strategy. Microsoft needs to plan its strategy as an “universal key” to open each locks.
3.3.2 Threat of New Entrant
New entrant is a threat of Microsoft. HP (Hewlett-Packard) purchased Palm mobile firm in 2010, HP was a global information technology company, main business focused on printers, computer and software. HP is just one of the new entrant, most of the famous computer industries involve as well, such as Lenovo, Dell. They have stable trust on consumers and market in society, now they invade to mobile phone industry which is a serious threat for Microsoft.
3.3.3 Threat of Substitutes
With development of information technology and continuous improvement of people’s living standards, network, iPod and even digital cameras are more popular to substitute with phones by more functional and professional. As a result, the substitutive has a certain threat to Microsoft.
3.3.4 Power of Buyers
The products’ quality and quantity depends on the power of buyers. Nokia’s technique could not satisfy buyers enough to buy their products because of the lower level in the smart-phone market which cause buyers’ bargaining power are getting stronger. But Microsoft has good reputation and well system, after the acquisition of Nokia, it increases buyers’ confident of products which successfully reduce the bargaining power from buyers and raised profits.
3.3.5 Power of Suppliers
Mobile phone suppliers had great competition before 2010, so enterprises picked very seriously of their suppliers which caused a low bargaining power in the market. After 2010, Apple’s products sold well and had significantly outstanding result which leaded to other enterprises’ profit sharply dropped down; also suppliers got reduced by them at the same time. So Microsoft purchased Nokia at the right timing which earns a good bargaining power.
4. The Value Chain
According to Walters (2007), Microsoft knew that the company should have an efficient value chain and offering the customer great value with its products. People would discover that Microsoft’s value chain is completely integrated to crop-net which is their information technology infrastructure network. The management of central control and efficiency are brought by the integration with their technical capabilities, it allows them to use the minimum effort and minimum mistakes at the right time to make a right decision, thus value increased when cost saving. Microsoft provides software to them is minimal for need of logistics, because they can send the software through internet to the local agents. They also do customer services and maintenance by information technology, and they have to recruit, support, market, maintain, interview, finance, customer service, deliver, consult, advertise for the network.
The development of technology is interior, there have the cost benefits of development and maintaining technology of value chain for compared to competitors. According to Johnson (2011), Porter’s Value Chain Model, margin has significantly increased after the Microsoft acquisition of Nokia. For the primary value chain activities, the inbound logistics of Microsoft allows Nokia to provide equipment, also the marketing and sale of Microsoft has many advertising platform that can increase publicity and sales. Procurement area is an important part of the cooperation between Microsoft and Nokia. This development must source raw materials for the business and obtain the best price for doing so. The challenge for procurement is to obtain the best possible quality available on the market for their budget.
At the same time, purchasing inputs that means it buys product cheaper from suppliers. Because of Microsoft’s core competence is the system software; the development of mobile phone hardware is not completed. On the other hand, Nokia’s core competence has the good hardware system and stable suppliers’ source, so this result is becoming a win-win for both companies which reach the cost efficiency. Microsoft can directly use Nokia’s equipment to sell and reduce the costs, also it improves the margin. Figure 1 and Figure 2 shows that after Microsoft got the Nokia, both of them operating margin profit and market value increased. In summary, Value chain model defines the cost advantage after Microsoft acquisition of Nokia; it achieves cost efficiency and associated with core competencies and capabilities in order to perform them better than do competitors.
5. Retaliation of Competitors
Facing acquisition of Nokia, current rivals and potential new entrants in mobile market which are Google, Apple and HP should do something to deal with this Microsoft’s corporate-level strategy. As Burrows comment that Google and Apple did the same thing which is advertise their products. For example, Google-operated retail Web site, use “Web meets phone” as a statement for introducing. In terms of the five force, existing competitions will make a plan for strategic change form same industry, so new entrants does.
Mobile space could be one of the serious problems for Microsoft in recent years. Windows Mobile platform is still dominated by innovative in market, such as Apple’s iOS and Google’s Android operating system. The plan of Microsoft to compete with those providers this year would be releasing Window Phone 7, although it is little bit late to the smart-phone market, Microsoft realizes what consumers really needed, and Window Phone 7 will be the best explanation in the next 3 to 5 years. Innovation has been a big issue for Microsoft, Windows is a special case as an innovative product when it first released, but Microsoft did not provide anything that even matching the innovation. Because of the competitors have developed more creative products, all companies want to be the main competitor in the high-tech space. Innovation is the most necessary element in the smart-phone market which Microsoft has to improve.
Microsoft’s acquisition of Nokia is opportunities as well as challenges. As the analysis of opportunities and threats with Microsoft’s mobile phone business, for Microsoft entered lately to the mobile market and the decline of the old mobile phone giant Nokia, how to achieve the advantage complementary through the merger of both sides, Microsoft has to put smart-phone system and PC operation system together as soon as possible to achieve the great new innovations of smart-phone. Microsoft has to be originality of mobile system for its business, it will be the big step for Microsoft to be success. Microsoft has been the dominant PC computer software manufacturer over years, but now the sales growth of the PC has slowed sharply because of consumers have been the turning to smart-phones and tablets. The sales of PC’s expectation was 409 million units in 2011, it was a 15.9 % increased which lower than 18.1 % the previous estimate of the company.
According to Research director of Gartner Ranjit Atwal (2013), this result reflects the weakening of consumer demand, the recent increase in shipment is expected to decline, increasing consumer interested in the iPad and other tablet PCs are the main factors leading to rising slowing sales growth of the PC in the long run. As Lomas comment that (2013), in the future of 2014, tablet will replace PC for over 10 % of sales, Microsoft and Intel believe that Windows software could attract a variety of users by the touch features, especially business users, and it inspires the development of Windows Tablet PC, touch-screen laptop and their products. Technology is the most influencing Macro environmental factor by the PESTEL analysis. Microsoft strategy through Bowman’s clock as an explanation which both bases of differentiation and intended strategy for low price are detailed. Value chain diagnose the capabilities of the strategy as a tool, it proves that Microsoft strategy aligned well from this completed core. Also Microsoft had the abilities to resource the strategies by man power, technology, funds and information to win the position in the market.
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