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

• 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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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

EXHIBIT 1. ESTIMATED 2016 INDUSTRY REVENUE AT CONSTANT

CURRENSY

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Strategic Analysis of Microsoft Corporation

EXHIBIT 2. Five Forces analysis for Software Industry

Threat of New Entrants

Cost of entry (High)
Economies of scale (High)
Brand Loyalty (High)
Product differentiation (High)
Proprierty knowledge (High)
Potential Retaliation (High)

Industry Rivalry Bargaining power of

Bargaining power of Concentration of competitors Buyers
suppliers (High) Switching Costs (High)
Switching costs (Low) Diversity of competitors (High) Buyer concentration
Product/price differentiation (High) (High)

Threat of Substitutes
Brand loyalty (High)
Switching costs (High)
Close relationships (High)

Source: Microsoft Strategic Analysis Report (2013-2014)

Source: IDC

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Strategic Analysis of Microsoft Corporation

EXIBIT 3. STRATEGIC GROUPS IN IT INDUSTRY

ClearDB Xeround

SQL Azure AWS RDS Amazon

Google

Microsoft

IBM

SAP

ORACLE

Source: Microsoft Strategic Analysis Report (2013-2014)

EXIBIT 4. COMPETITIVE POSITION OF KEY COMPETITORS

MSFT ORCL GOOG AAPL Industry

Market capitalization, 425,48 174,27 507,70 571,00 17261
$bln
Number of employees, 118 132 62 110 485
‘000s
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

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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

EXHIBIT 5. KEY COMPETITORS BY REVENUE

MSFT
ORCL
GOOG
AAPL

Sourсe: https://finance.yahoo.com

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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
OPPORTUNITIES
• Cloud based services
• Mobile advertising
• Mobile device
industry
• Growth through
acquisitions
Source: Microsoft Strategic Analysis Report (2013-2014)

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Strategic Analysis of Microsoft Corporation
WEAKNESSES
• Poor acquisitions and
investments
• Dependence on
hardware markets
• PC markets have
matured
• Slow to innovate
THREATS
• Intense competition
• Changing consumer
behavior
• Open sourse projects
• Potential lawsuits

Strategic Analysis of Microsoft Corporation

EXHIBIT 7. Microsoft capability analysis

Allow the company to dominate the market

CAPABILITIES and to shape the direction of the technological
future

1)High brand equity

Processes 2)Awereness education
3) Fourty years of operating experiences

1) Highly skilled employees, supliers

People (Skills) (engeneers, managers and etc.)

1) R&D
Systems/Tech 2)Intellectual property (patents and other forms
of intellectual property)

1) Cash reserves give a large amount of financial

Alignment & flexibility
Sustainability
2) Established distribution channels

Source: Microsoft Strategic Analysis Report (2013-2014)

(2013

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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

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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Strategic Analysis of Microsoft Corporation

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- Microsoft actively participates

private partnerships 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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Strategic Analysis of Microsoft Corporation

Civil society/ Across the breadth of business,

nongovernmental Microsoft engages with
organizations (NGOs) 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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Strategic Analysis of Microsoft Corporation

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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