REPORT ON MICROSOFT

Summary

Microsoft Corporation is an American Multinational Technology company and by its nature it is

distinctive to other technological companies. In its 42 years of operations it has grown substantially

and has prospered to be one of the biggest and most successful Corporation Globally. Microsoft

has turned the PC industry upside down by making the Microsoft OS available to every desktop

and we have recommended a five-year plan and strategies that it should follow, so that Microsoft

can Sustain in the market and keep its dominance in the future as well.

We recommended different types of plans from corporate to functional level strategy and from

cultural changes to system.

 Table of Contents

TITLE PAGE

History, development and growth of the company 1

Internal environment 1

External environment 3

SWOT analysis 8

Companys business 10

Distinctive competencies 11

Competitor analysis 14

Financial performance 15

Value chain analysis 17

Competitive advantage 17

Current business model 19

Recommendations 21

Corporate level strategy 22

Business level strategy 24

Functional level strategy 25

Technology strategy 26

Revised business model 28

Change in companys governance 29

Strategic control system 29

Existing company culture 30

Global strategy 31

Ethical value proposition 32

History, Development and Growth of the Company

Microsoft Corporation is an American multinational technology company headquartered in

Redmond, Washington. The company develops, manufactures, licenses, supports and

sells computer software, consumer electronics and personal computers and services (Microsoft,

2016). Its best known software products are the Microsoft Windows line of operating

systems, Microsoft Office suite, and Internet Explorer and Edge web browsers.

Microsoft was founded by Bill Gates and Paul Allen on April 4, 1975 (Microsoft, 2016). It rose to

dominate the personal computer operating system market with MS-DOS in the mid-1980s,

followed by Microsoft Windows. Since the 1990s, it has increasingly diversified from

the operating system market and has made a number of corporate acquisitions. The company

produces a wide range of software for desktops and servers, and is active in areas including Internet

search, the video game industry, the digital services market, and mobile phones. The current CEO

of Microsoft is Satya Nadella (Microsoft, 2016).

Internal Environment

Tangible resources:

o Operating Income: Microsoft reports operating income of over $20 billion in 2016

(Microsoft, 2016). It ranks at #25 in the Fortune 500 US list (Fortune, 2016).

o Liquidity: Microsofts current ratio in 2016 is 2.35 (Morningstar, 2016), indicating a

good financial standing, because their liquid assets significantly outnumber their short-

term liabilities.

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 o Cash Reserves: Microsoft has approximately $113 billion in cash and short-term

investments (Microsoft, 2016), giving them a large amount of financial flexibility.

o Property and Equipment: Microsoft reports property and equipment of over $18 billion

in 2016 (Microsoft, 2016).

o Distribution Channels and Customers: Microsoft has well-established distributors,

retailers, and online vendors all over the world, and a huge, loyal customer base worldwide.

o Location and Size: Microsoft owns and leases a massive 45 million square feet of real

estate in 765 sites around the world (Microsoft, 2016).

Intangible resources:

o Brand Value: Microsofts primary intangible resource lies in its brand value. In fact,

Microsoft has been ranked at three on Forbes list of the worlds most valuable brands, just

after Apple and Google, with a brand value of over $75 billion (Forbes, 2016).

o Company Reputation: Reputation is another strong resource for Microsoft. The

Harris Poll lists Microsoft at #20 on their annual reputation ranking in the US (The Harris

Poll, 2016).

o Intellectual Property: Microsoft maintains a large intellectual property portfolio. In 2016,

the total value of their net intangible assets and goodwill was approximately $21 billion

(Microsoft, 2016).

o Research and Development: Microsoft is the biggest spender on R&D among software

and internet companies (Fortune, 2014). The company has spent around $11.99 billion on

R&D in 2016, and around $12.05 billion in 2015 (Statista, 2016).

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Capabilities

o Structure: Microsoft follows a horizontal, divisional organizational structure. Each of

its business sectors operate independently but report to a central command. Facilities, retail,

research and development, networking and operations, and support are some of the main

divisions of the company's organizational structure. This structure makes it easy to

communicate within and between departments, and also with the top management

(Reference.com, n.d.).

o Culture: Microsofts organizational culture focuses on facilitating innovation and

customer satisfaction. Microsofts culture has the following main characteristics:

i. Accountability

ii. Quality and innovation

iii. Responsiveness to customers

iv. Growth mindset

v. Diversity and inclusion. (Panmore Institute, 2017)

o Control: Microsoft uses a pay-for-performance system to reward its employees. It

offers merit pay, bonuses, and stock options to the top performers. An important aspect of

the compensation system is for employees to stay competitive (SHRM, 2013).

External Environment

Political environment: Political steadiness can have a positive impact on the business as it

is helpful to increase investments. For automation, support from Government is very much needed

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because it will include large-scale purchase from Governmental organizations which will boost up

computer technology sales. Worldwide trade can be beneficial for increasing global sales but it

will also increase competition.

Economic environment: Stable condition of economy is very helpful for the business as it has

a significant impact on the sales revenues of Microsoft. In high-growth developing countries, the

growth rate of Microsofts sales revenue is also high. And again increasing disposable income of

middle-class has a positive impact on the sales of the company as middle-class customers are a

vital source of Microsofts revenues. Considerable economy boosts the sales revenues.

Social environment: Cultural variety can be an important issue for Microsoft to deal with as it

can be both an opportunity and a threat too because if the company does only target the largest

cultural groups, they cannot satisfy all the customer groups. Dealing with customers is another

important factor. By maintaining high quality customer service; the company can increase their

profitability as it has a positive impact on sales revenues.

Technological environment: People are now-a-days adapting mobile technology fast. Microsoft

can take it as an opportunity and work more with improving its mobile devices. Technological

advancement also brings high competition. People are getting used to online transactions.

Microsoft needs to provide products which will support safe online business dealing out. Another

negative impact of this online transaction processing is that it can increase cybercrime attacks.

Increasing automation in businesses can have a very positive impact on the sales revenues as it

will involve people to get more attached to computer technology.

Environmental environment: Promoting green products or environment friendly products can be

beneficial to the company as it will increase its sustainability. Using recycled materials for its

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computer hardware and software products and packaging purposes can be useful. This type of

initiatives will have a positive impact as it will also focus on the societys sustainability too.

Legal environment: For protecting software piracy, the improving and implementation of patent

laws is very helpful for Microsoft as it will have a positive impact on the companys sales revenues.

By practicing rules for electronic waste disposal Microsoft can facilitate effective waste dumping

program that will enhance its brand value.

Industry Analysis

Microsoft refers to the technology industry. Sales for the global software and service industry

stood at $2, 3300 billion in 2009. The global markets valuation is expected to rise at a CAGR of

27.90% between 2015 and 2022 and increase from US$23.8 billion in 2014 to US$164.3 billion

by the end of 2022.Though Microsoft has experienced decelerating growth in the recent years,

over the next five years, the analysts that follow this company are expecting it to grow earnings at

an average annual rate of 9.19%. This year, analysts are forecasting earnings increase of 6.41%

over last year. Analysts expect earnings growth next year of 10.32% over this year's forecasted

earnings (Research).

Competitive forces analysis

o Threat of new entrants: The threat of new entrants for Microsoft is very low or

moderate as cost of setting up with a new company in technology industry is high. New

company cannot compete with already established company like Microsoft and Apple as

they already have a positive brand image with strong customer loyalty. In addition,

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 Microsoft is enjoying a monopoly with capturing over 90% of marketplace with operating

system and browser.

o Bargaining power of suppliers: The most important suppliers for the industry are PC

hardware mechanism suppliers plus software tool suppliers. The suppliers are moderate in

size and their overall supply is also moderate but plays an important role in the industry.

They can influence Microsofts business moderately with possible alteration by changing

their price strategy. They could influence in a large manner if overall supply would have

decreased. Principle hardware tools are mainly supplied by Intel, a core supplier. The

power of suppliers is moderate because of high importance of contribution and supplier

cannot be replaced easily.

o Threats of substitute products: Threat of substitutes is always present but low

though Microsoft had to suffer earlier when Apples software proved them as better. To

maintain their position in software market, Microsoft always positioned itself as providing

products at lower price than Apple. So threats of substitute products are low moderate.

o Bargaining power of buyers: Buyers are mainly firms, individual clients and government

organizations. The buying authority of these customers is low or moderate because there

are few options available, little obtainable substitutes and switching costs are high. In

addition, Microsoft is already enjoying competitive advantage with a positive image.

o Competitive rivalry: High switching cost and high exit barriers make the competition

stronger. That results price cuts, innovation, promotion, product development etc. A

moderate competition in the industry is prevailing. Companies like Microsoft is already

enjoying competitive advantage with economies of scale and strong brand image and

strong customer loyalty, they continue to maintain and make the competition stronger in

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 the high-end market from the diversification and other fields. High switching expenditure,

variety of firms and assertiveness of firms (in terms of innovation and promotion) create

competition stronger.

Industry life cycle analysis: Software industry is in growth stage. It refers to the technology

sector. The software industry is expected to be the fastest growing industry with expected growth

of 7.1%, followed by information technology (or IT) consulting and systems integration services

at 6.6% in the IT space (Forrester, 2014). Worldwide software revenue stood at $407.3 billion,

compared to $388.5 billion in 2012, registering a 4.8% increase (Gartner, 2013). Microsoft

(MSFT) continues to be the market leader in the segment and holds 16% market share.

Macro environment influence on technology industry: Political issue can affect the industry.

Political stability, government support can be opportunities for the industry. On the other hand,

political instability, govt. policy barriers and rules can affect the industry too. Increasing

international trade agreements can both be threat and opportunity. Considerable economic stability

and increasing middle class disposable income can boost the sales. Rapid adoption of mobile

technology and increasing automation in businesses can also add revenues.

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SWOT Analysis

Worldwide Reach
STRENGTHS Brand Reputation
Leading OS in the PC market

Security flaws in Windows OS

WEAKNESSES Slow to innovate

Cloud based service

OPPORTUNITIES Growth through acquistions

Emergence of Open Source Softwares

THREATS Multiple lawsuits against Microsoft
Mature PC market

Strengths:

o Worldwide Reach: When it comes to network, be it customer or supplier, Microsoft has

the best reach compared to other OS manufacturing companies in the world. Not only does

it have the acceptance from the consumers, but Windows OS also gets co-branded by

hardware makers from all over the world.(Anon., n.d.)

o Brand Reputation: Microsoft stands 7th in Forbes list of the most reputable businesses

in the world and 5th according to Inter-brand as the most reputed brand in the world with a

value of $57.8 million. This high brand reputation allows Microsoft to hold a majority of

the market share and enjoy increased sales.(Jurevicius, 2013)

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 o Leading OS in the PC market: Although sometimes people criticize the Windows

OS for various flaws, majority of the PC users all over the world use different versions of

Windows because of the ease of usage.

Weaknesses:

o Security flaws in Windows OS: When it comes to virus attacks, Windows OS is the

most vulnerable compared to other OS in the market. And there have been a lot of issues

of system crash regardless of the version of the OS with the users.

o Slow to innovate: Despite all the new versions of windows over the years there has not

been any significant change in the upgrades. Microsoft has made a conscious decision to

do pure research as well as applied research, which necessarily means that research dollars

may never turn into actual products(Gralla, 2011)

Opportunities:

o Cloud based service: With the recent development in mobile internet there is a huge

demand cloud based services all over the world. While having One Drive already for that

purpose, Microsoft could expand by providing more range of services which can

complement with Windows OS.(Jurevicius, 2013)

o Growth through acquisition: Since the PC market for OS has reached a saturation point it

has very little space for organic growth. Therefore they follow a method to pursue inorganic

growth through acquisitions of small business in the industry which will bring in new

prospects like specific skills and competencies.(Anon., n.d.)

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Threats:

o Open Source software: Nowadays open source software is becoming more popular

in the market which can become an alternative for Microsofts Windows and other software

which are pretty expensive. This can reduce the market share of Microsoft.(Jurevicius,

2013)

o Lawsuits against Microsoft: Microsoft has already faced class-action lawsuit multiple

times in the past which claims violations of various rules and regulations from their part.

The most recent example is the lawsuits for the Windows 10 upgrade. And if Microsoft

continues to operate this way they might face a financial downfall in the future, since

lawsuits are expensive.(Hruska, 2016)

o Mature PC market: In the age where smart phones have become a necessity, the market

of personal computers has reached a saturation stage. Therefore, it is now a more difficult

job for Microsoft to grow revenue in this sector.(Jurevicius, 2013)

Companys Business

In current world Microsoft strives to serve their customers, people who require easy to use

operating system and software application for their personal computers and other smart devices.

These are the people who use internet complemented technologies for their day to day work.

Microsoft satisfies their customers by providing one of the most user friendly interfaces in terms

of operating systems and other application giving them a prominent experience of using

Microsofts products.

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Taking the need of their customers into consideration Microsoft takes varieties of approaches to

satisfy their needs. Voice of Customer and Partner Listening Systems and Programs enable us to

connect with our customers through research, social media, product support services, in-product

feedback mechanisms, and internal and external programs. These tools work to help us understand

your needs and create a better experience for them.(Micosoft Corporation, n.d.)

Distinctive Competencies

Wall Street Journal reporter Alan Murray (1998) declares flatly, Microsoft is a monopoly. He

also added which is a fact even in business today, Windows operating system has become almost

the sole entry point to cyberspace. Michael Miller, editor in chief of PC Magazine, supported

Alan Murray asserting that Microsoft has an effective monopoly on PC operating systems. He

[Jim Barksdale, head of Netscape] knows it, Bill [Gates] knows it, and all the senators [who

questioned Gates at a Senate hearing early 1988] know it. So do all of us who buy PCs.

There are several evidences that Microsoft has nearly monopolized the market of computer

operating system. The chart given bellow will definitely show how dominant Microsoft is in

market share of OS.

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 Total Market Share (%)

50
40
30 Total Market
20
Share (%)
10
0

PC Operating System Total Market Share

(%)
Windows 7 47.2
Windows 10 25.3
Windows XP 9.17
Windows 8.1 6.9
Mac OS*10,12 2.75
Linux 2.27
Mac OS*10.11 1.73
Windows 8 1.62
Mac OS*10.10 1.07
Windows Vista 0.84
Mac OS*10.9 0.39
Windows NT 0.36
Mac OS*10.6 0.13
Mac OS*10.8 0.12
Mac OS*10.7 0.11
Mac OS*10.5 0.02
Windows 2000 0.02
Windows 98 0.01
Free BSD 0
Mac OS*10.4 0

(netmarketshare, 2017)

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From this chart above we see 91.42% of total market share of PC Operating System belongs to

Microsoft owned operating system Windows. So, near monopolistic market of Operating System

has become a distinctive competency for Microsoft. Its windows operating system has become the

de facto standard for home and business computer applications.

It is obviously clear that Microsoft has become a dominant firm in the market of windows operating

systems by monopolizing the computer operating system market and maintaining its dominance

over the period of time despite of many allegations both from the government and the competitors.

On November 5, 1999, Judge Thomas Penfield Jackson issued findings of fact that were based on

evidence presented on the antitrust allegations.

o Microsoft has a monopoly of PC operating systems

o Microsoft harmed consumers through its use of its monopoly powers, and

o Several of Microsoft contracts had anti-competitive effects. (businessbaylor, n.d.)

Several settlements attempted by Microsoft failed miserably. Even if the federal antitrust case is

settled, there are still several antitrust actions pending against Microsoft.

Many people think that Microsoft has monopoly because of their biggest market share. But in

reality, it is not the sole reason. Besides being the most popular in the market of operating system,

Microsoft wields a lot of power over PC giants like HP, Dell, Lenovo and others. Though these

PC manufacturers also sell Linux machines, but in a very small number. And those machines do

not get their required popularity either. So, the manufacturers mostly depend on windows.

Another reason why Microsoft gained near monopoly in PC operating system is for their

copyrights of software. If anyone wants to compete with Microsoft they had to come up with

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operating system other than Microsoft which is a pretty hard nut to crack. And it is near impossible

to compete with the leadership of Microsoft in complementary products and software of Windows.

Competitor Analysis

Immediate Competitors: Microsoft Corporations immediate competitors are some of the

most prominent technology companies including Apple, Google and IBM. In the area of operating

system, though Microsoft has gained monopoly, Mac and open sources such as Linux would be

the immediate competitors. These two operating systems have the most market share right after

Windows.

Impending Competitors: Microsoft has a kind of lock in PC operating system. But the PC

market has shrunk over the period of time and mobile market immerged. In the current scenario of

technology market mobile claims much bigger portion of the market share than the desktop/laptop

PC. In the consideration of the mobile market, servers and other embedded markets like cable

boxes and smart TVs, Windows is nowhere near in the competition. There is a good possibility

that Android will emerge as a PC operating system in future. There is already a recently launched

PC in the market called Pine 64 which runs android as operating system. Pine 64 is a single board

computer which is more powerful than Raspberry Pi 3 and capable of running Android 5*

(Bhartiya, 2016).

Invisible Competitors: The invisible competitor is a company outside of an industry who

uses the preemptive alliance approach to place a stake in a new industry and immediately become

a player (Man, 2001). Microsoft itself has established as an invisible competitor by creating many

preemptive alliances. For example, alliance with Point Cash, a computer news and advertising

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company, enables it to integrate with Microsofts web browser into its product offering to counter

Netscape. Microsoft also faces threats from invisible competitors. There is always a high risk to

lose market share to other preemptive alliances and companies from different industry. That is why

Microsoft has created a huge network of interlocking relationships with industries worldwide. And

they have been successful many times in making these arrangements before Sun Microsystems,

Oracle or other potential competitors.

Financial Performance

Ratios of Microsoft:

Name Company Industry

P/E Ratio 30.39 53.43

Net Profit margin 19.57% 6.01%

Return on Equity 23.03% 12.4%

Return on Assets 8.29% 5.61%

Return on Investment 11.51% 7.85%

5 Year Sales Growth 4.05% 11.55%

Quick Ratio 2.02 2.87

LT Debt to Equity 86.19% 61.01%

Asset Turnover 0.42 0.55

In the year 2016 net income was $16,798,000 thousand, in the year 2015 net income was

$12,193,000thousand and in the year 2014 the net income was at the peak which was

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$22,074,000thousand which indicates that Microsoft has maintained a stable profit in every year

and it is financially in strong position as well.

P/E ratio: Here, the P/E ratio is close to average market ratio which is 20/25 times earnings

but the industry average is quite high so we can safely say that it is a value pal.

Net profit margin: Microsofts net profit margin is higher to its industry which indicates that it

is in fairly good position and it has a decent profit after tax ongoing.

ROE and ROA: ROE and ROA of Microsoft are better than industry average so it is safe to

say that the management team is performing efficiently as well.

ROI: Return on Investment is better than the Industry average which indicates that Microsofts

gain on investment better than other companies.

Sales Growth ratio: The sales growth of Microsoft is lower than the industry as Microsofts

main product is more on maturity so it is difficult for them to increase their growth rate.

Quick ratio: Microsoft has a quick ratio of 2.02 compare to the Industry average of 2.87 which

is not a big factor here as Microsoft has more than sufficient liquidity to cover the liabilities.

LT Debt to equity ratio: Microsoft has comparatively higher Long Term Debt to Equity ratio

which usually indicates that it is riskier than other companies but the difference is not that

significant so it shouldnt make a big impact on financially but still it is riskier than the industry

and it also shows that Microsoft is using more Leverage to finance its assets relative to its stock

value.

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Asset Turnover Ratio: Microsoft is using its assets more efficiently to generate sales as the

ratio is lower than the industry ratio. It also indicates that it has a better profit margin than other

companies.

Value Chain Analysis

Competitive Advantage

Microsoft has adapted numerous strategies to establish itself in the industry. The variety of these

strategies is dependent on their external and internal objectives. Here are a few major competitive

advantages that Microsoft has achieved.

Human resources management: It has always been Microsofts pride to be praised for its

excellent recruitment procedure. Skilled engineers and other brilliant personnel from different

backgrounds and cultures contribute to a highly diversified work environment at Microsoft.

Microsoft leaves no stones unturned when it comes to contributing resources for their employee

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training program. The reason behind this enormous investment is their belief in creating proper

skill set for their employees.

Customer retention: The main thrust behind Microsofts customer retention is their continuous

improvement in service and quality. Users of Microsofts product and services stick to Windows

by continuously updating it to newer versions.

Standardized services: One major advantage that Microsoft has been enjoying for years is

that majority of PC used by millions of users comes with Windows pre-installed and it makes

Microsoft standout because no other companies OS are popular in the market.

Huge investment in R&D: Entrance cost for new competitors are enormously high. And having

one of the best R&D facilities, though increases initial investment, can drastically drop per unit

cost which can allow Microsoft to reduce prices to the point where competitors wont be able to

make profit.

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Current Business Model

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Business model

Service
Management

Software Convenien
Skype and ce
Pr o bl em licensing
Solving

Windows OS
for pc and Microsoft
Quality smart phones One drive
Control Office 365

Research and
Development

Windows
Azure X b o x

Bing

Microsoft
Lumia Microsoft
mobiles Outlook

Game
Licensing

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Recommendations

o Microsoft does not have any viable position in the market of smart phones. Smart phones

and tablets are getting popularity rapidly. Microsofts windows on Nokia were not a

successful attempt. They can come up with upgraded version with solutions of the previous

problems with operating system. And make it more user friendly and providing different

types of mobile phones run by Windows OS along with innovative applications.

o Microsofts R &D facility is one of the best in the industry. By using their R & D facilities

and with investments they can go for product differentiation with lower cost and can come

up with innovative products.

o Microsoft is vulnerable to cyber-attacks. Getting rid of this problem, they should ensure

safety by adding any unique feature to their OS. They can adjust built in extension in their

windows explorer so that virus cannot attack very easily. With the help of this extension

software will be downloaded through a filtering process and PC will not get affected by

virus.

o Microsoft can hire more independent distributors to sell their products to get more involved

in reaching worldwide market.

o Microsoft can acquire some software and application developing companies to create or

develop applications suitable for windows operating system and which will help to operate

windows more easily. They can come up with applications which are more demanding

among the customers.

o As cloud-based services are becoming very demanding now-a-days. Microsoft can focus

more on using cloud based services to deliver its services to customers. They can include

making interface more user friendly by using cloud-based service.

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 o Microsoft can create a buzz in the market by doing strategic alliance with cell phone

companies as smart phones and tablets are grabbing the market share. Through this they

can do rebranding of OS. They can make alliance with hardware companies to create

hardware products run by Microsoft operating system.

o Microsoft had faced class-action lawsuit multiple times that claims violation of anti-trust

laws. In this process their image got hampered in some ways. They can come up with some

CSR activities like using green products or environmental products and recycled materials

etc in hardware and software packaging purpose.

o To increase and maintain superior profitability Microsoft should target larger variety of

customer segments through providing products with customization according to

customers preference.

o They can make development in the process of outsourcing, motivating, giving benefits and

retaining employees so that they can be beneficial for the companys economic growth.

Corporate Level strategy

Microsoft is already pursuing a lot of corporate level strategies to increase their market share for

Windows. But based on Microsofts current position in the OS market there are still a few

corporate level strategies that can be followed which are somewhat in reliance of each other.

These are three strategies that can be pursued:

Strategic Alliance: The strategic alliance is already a widespread phenomenon for Windows

with corporate giants like Dell, HP, and Lenovo etc. These alliances exist only for personal

computers, especially laptops. Microsoft can carry out the similar strategy in the cell phone market,

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by introducing Windows OS for phone with more companies. So far their strategic ally in this case

has been Nokia which has not been so successful so far. The behind this fruitless venture was

mostly because of the lack of compatibility of various applications with Windows OS. By creating

strategic alliance with more cell phone companies by rebranding Windows would create a buzz in

the market. Also to be successful in this venture this has to rely on another strategy and that is

backward vertical integration.

Backward vertical integration: Despite having one the best R&D facilities in the world

Microsoft could still use a different set of approach and acquire some software and application

developing companies. This would enable them to mitigate the very problem, which is lack of

availability of applications for Windows. Microsoft would be able to develop more applications

compatible for Windows which would make the OS more user-friendly and create a lot of demand

in the market. These acquisitions can also enable them to develop features or applications which

are only available or compatible for Windows.

Taper integration: Taper integration, in case of Microsoft, can work better in terms of

independent distributor. Microsoft already has stores all over the world. However, what would

help more in competing in the market in the developing countries is by making the retail sector

dense. Emerging companies are either opening up new stores or giving their product to a particular

distributor very rapidly. While opening new stores can be problematic in terms of controlling the

operation, Microsoft can hire more independent distributors to sell their products. Again the

success of this approach will be dependent on the outcome of the previous two mentioned.

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Business level strategy

There are some business level strategies which Microsoft Corporation can implement to sustain

their profitability and market share for a longer period of time.

Strategy to support:

o One drawback of Windows OS is vulnerability to virus attacks. There are cases where

system has crashed as well. Microsoft OS should come up with a unique feature which

provides the customers a sense of relief that their PC is safe. So, providing more security

would make life easier for the end user of the OS which will support them in differentiating

their OS as well.

o Innovation has been lagging for Microsoft for quite a few times, it should be focused on

how it can make its interface more user friendly and cloud based service can help here

greatly. Cloud based service is getting more and more demanding so Microsoft has a good

opportunity to expand their services to the customers through this.

o Microsofts main goal is to run Microsoft software in every PC so that everyone can use

Microsoft product. In order to do that, Microsoft can use a low pricing strategy that can

help them achieve their goal and it will help them to gain strategic lock-in position in the

market and dominate for a longer period of time.

o Microsoft has one of the best R&D facilities in the technological industry so they can use

their R&D and invest to create a value innovation and shift above the efficiency frontier

through greater differentiation with lower cost. As they are already enjoying economies of

scale, they can provide customers with more flexibility and range of other services to their

customers.

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 o They can create an OS which will provide services to the disable people and thus they can

attract a new segment of market. As they have a great market reach, they can easily capture

the market and thus they can use focus differentiation as well.

o Microsoft has the ability to offer good benefits and services and they should utilize it more

effectively to help the customers solve their issues. They can do it via online services which

will add value to their customers. The more satisfied customers are, the more sustainable

the organization is.

o Microsoft should let other software or technological company use Microsoft platform so

that the threat for new entrants gets lower and later Microsoft can standardize the product

or service they offer and maintain liaison among the technologies and business groups.

Functional Level strategy

To support corporate level and business level strategy Microsoft should generate inter-related

functional level strategies.

Marketing Strategy: Microsoft can adapt one strategy for their marketing where they can focus

on the customer feedback/suggestions to facilitate innovation. They should communicate with the

customers on a level which doesnt only provide feedback on the quality of the existing product

but also suggestions for products that will be launched in the future.

R & D Strategy: Microsofts R & D facility is one of the biggest in the world and they are

already working on some lucrative projects like Lightspace, OmniTouch, Kinput project all of

which focuses either on interactive 3D display on different surfaces or scanning objects. These

types of innovative devices should be available to end-users so that the users can replace their

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current handheld devices to new devices to experience the new taste and features. Also they should

formulate the method where they can bring customer into product development process. This

method should allow customers to recommend or even submit new designs and modifications of

the product which are available in the market or which are going to be released at a later date and

from there the best possible alternative(s) can be chosen to work on.

Information Management Strategy: Information management strategy of Microsoft should be in

sync with its R&D strategy and that is they should transfer all the feedback data from the customers

over to the R&D department. In order to do that, their Information Management System should

also collaborate with the Marketing Department which will allow the feedbacks and suggestions

to be categorized.

Technology Strategy

Due to the emergence and high popularity of mobile and tablet devices, computer market has been

shrinking over the last few years and along with it, computer operating systems. Microsoft

Windows is facing huge competition from mobile operating systems, Android and iOS. So for the

next five years, Microsoft should focus on re-establishing itself as the industry standard and

creating network effects.

Since Android is in the process of releasing computer operating systems in the future and there is

existing competition from Apples OS, Microsoft should implement these following strategies to

remain the industry standard in PC operating systems. Its latest Windows 10 was a big step

forward. But it has to come up with an advanced version of Windows which is perfectly compatible

with mobile and tablet devices along with computers to better compete in the market. Although

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Microsoft previously released Windows Mobile on Nokia devices, it failed because of many

reasons. In order to succeed next time, Microsoft has to come up with solutions to fix the OSs

previous issues and to make it more accessible, user-friendly, provide better selection of

applications, and more choice of Smartphones that are run by Windows OS. They can provide

services like file sharing and synchronization between computer and mobile devices, and other

innovative services.

The next strategy would be to create network effects. Microsoft has to provide customers with

more complementary products - a broad selection of applications, support systems, etc to further

strengthen their position and capture more market share. They should try to establish their next

Windows OS as a revolutionary and disruptive technology. This will help them in any format war

that might occur in the future. Their aim can be to replace Android as the killer application. An

advantage that Microsoft has in this regard is their research and development capacity. As

mentioned earlier, they invest huge sums of money on R&D and they have ample cash reserves,

giving them the financial flexibility to innovate and develop this technology.

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Revised Business Model

Microsoft office
solutions

Windows Software
Real time
Embedded and
Freeware troubleshooting
licensing

Windows OS
Microsoft
for PC and
Quality One drive
tablet Office 365
Control

Research and
Development
Explorer

Windows
phone X b o x

Distinctive
features and Microsoft
good enough Outlook
content Game
Licensing

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Change in Companys Governance

The governing body of Microsoft is its Board of Directors. Microsoft does not need to change its

current corporate governance to implement our recommended strategies. The reasons for this

decision are mentioned below:

o Microsofts existing governance supports change and progress of the organization.

o They are constantly working towards the development of the organization.

o They try to align the interests of shareholders, directors, and management, and act in

accordance with the law (Microsoft, 2016).

o They follow a systematic approach in setting objectives, monitoring performance, and

providing accountability (Microsoft, 2016).

o The existing governing body is familiar with how the management works.

o They have the resources and capabilities to execute the recommended strategies.

o Changing current governance may prove to be risky, as the new system of governance may

take time to adjust because of the magnitude of the organization.

Strategic Control System

In order to achieve success over the organizational strategies, there are a couple of strategic control

systems which should be adopted to monitor the implementation of those strategies.

In order to make the strategies, as mentioned in the previous parts, there has to be a monitoring

system for managers to ensure efficient inputs and output, which is just not limited to the products

but also the customer feedback and companys responses towards that feedback. For example, if

there is a technical issue regarding Windows OS and there are customer complaints incoming the

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responsibility of the managers would be to analyze how long it takes for the employee to respond

and how quickly the engineers can figure out a solution. Having a record of this performance can

help a manager determine how well the company strategy is working.

Another thing which can help managers is that if they can evaluate their employee performance

and also motivate them, through various reward schemes if necessary, to perform well which will

eventually help bring efficiency to the organizational strategies. And this evaluation should also

be extended to the relevant stakeholders of Microsoft. For example, by motivating a distributor

can make that distributor work better in order to achieve give objectives and build long term

relationships with the company.

Just like the recommended strategies mentioned previously, the strategic control systems, to make

their implantation efficient, are also inter-dependent. And the manager has to make sure that they

work in proper sync to achieve firm-specific goals.

Existing Company Culture

The current organizational culture of Microsoft has the potential to implement our recommended

strategies. Under new CEO Satya Nadella Microsoft has adapted growth mindset which implies

bringing out best in people rather than creating smartest employees. Weve spent a lot of time on

culture, Kathleen Hogan, the companys executive vice president of human resources said, Of

course, there are a lot of other things that Ive been spending time on, but Id say probably the No.

1 thing with Satya is really talking and thinking deeply about what is the culture we aspire to have

here at Microsoft.(Bishop, 2015)

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Before, Microsoft depended on network marketing which did not lead them to end users, but, now,

they are focusing more on visiting and listening to customers. The employees are also going

through mandatory diversity training to grow more adaptability with new culture. During an

interview with GeekWire Kathleen Hogan said, Theres been a lot more discussion around team

norms, and how we can create environments where we do hear from everybody. Its amazing, but

small thing like that can matter.(Bishop, 2015)

There is always a place for doubt and distrust on a corporation which can be very difficult to cope

with. What Microsoft is saying today about creating new organizational culture that can take time

more than people can think of, just because it is a long term process. No organization can change

their years old culture with a magic stick. But, we have already seen a few changes like Microsoft

focusing on Mobile and cloud computing, though strategy taken on mobile flopped again. But it

can be a good initiative to learn and come back with more consumer friendly innovations. CEO

Nadella recognized that the technology industry does not respect tradition it only respect

innovation.(Brengel, 2016). Microsoft embraced open source technologies which can be a

positive sign for implementing our recommended strategies including making more software and

as open source. Now it seems people are starting to put hope on Satya Nadellas vision for

Microsoft.

Global Strategy

Microsoft can put more importance in outsourcing operations as a global strategy to lower its cost

and increase its profit. They can outsource work force for internal actions, software improvement,

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testing etc. They also can outsource people from application developing companies to develop

features and applications.

Microsoft can get more global markets by profoundly encouraging free and open trade as open

trades show the way to economic expansion. Free trade and open market lead to worldwide wealth

and global growth. Global growth will increase competition and competition will make more

profitability and will bring economic growth. Microsoft can also take some initiatives to

discourage government eliminating trade barriers for IT products and IT services.

Global diversity initiatives are very important to take care of the various cultures and environment

which will delight the customers. Microsoft should care more about taking global diversity

initiatives like employing diverse people, promoting computing studies in universities etc.

While establishing production line in different countries, Microsoft had to adapt with different

types of formalities, legal and social systems. In order to get rid of these problems, they can make

strategic alliances with local companies to do their work more successfully in the global market.

Microsoft should adapt a different price strategy for developing counties where the imitations of

Microsoft OS is all over the market. If the price is reasonable in those regions then end users will

not go for the counterfeits.

Ethical Value Proposition

There are some ethical value propositions which need to be followed by Microsoft in the business

and functional level strategies. The ethical value propositions are:

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o Microsoft needs to follow centralized system where every department will be operating

discreetly as every department requires being interdependent. Every department has to do

their job properly but not interfere in another department. For example: R&D should focus

on their job and they should not interfere in any other department.

o Every department needs to be very efficient with their own department. They need to be

efficient with what they are doing and they need to response proficiently to the complaints

that they get. So every employee has to work with the same mindset so that they can be

more resourceful towards their job.

o Employees need to be aware that efficient flow of information is there in the organization

because distorted information can hamper the smooth work flow of the whole organization.

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