Microsoft Strategic Audit

This strategic audit of Microsoft provides an analysis of the internal and external business environment, industry analysis, competitors, and strategic recommendations. It covers topics such as company background, business development history, industry analysis, competitors, and more.

Running head: GLOBAL STRATEGIC MANAGEMENT
Global strategic management
Manubah E Uzonduawuotu
Texas A&M University Commerce
Summer 2019

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Table of Contents
Introduction......................................................................................................................................2
Company background..................................................................................................................2
Business development history of Microsoft................................................................................4
Industry analysis..........................................................................................................................5
Competitors..................................................................................................................................7
Determination of the industry competitiveness...............................................................................8
Bargaining power of the buyers...................................................................................................8
Bargaining power of the suppliers...............................................................................................9
The threat of new entrants.........................................................................................................11
Threat of substitutes...................................................................................................................12
Competitive rivalry....................................................................................................................14
Determination of the external business factors..............................................................................15
Political factors..........................................................................................................................15
Economical factors....................................................................................................................16
Social factors.............................................................................................................................18
Technological factors.................................................................................................................19
Financial Analysis.........................................................................................................................20
Key Performance Indicators......................................................................................................20
Previous and Current Financial Position...................................................................................20

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Operating Margin Performance.................................................................................................21
Profit Margin Performance........................................................................................................21
Return on Capital Invested Performance...................................................................................22
Current Ratio.............................................................................................................................23
Competitor Comparison.............................................................................................................24
Future Financial Performance Estimation.................................................................................25
Internal Environment Analysis of Microsoft.................................................................................26
Mission of Microsoft.................................................................................................................26
Goals of Microsoft.....................................................................................................................27
Values of Microsoft...................................................................................................................28
Microsoft’s Business and Organisational Structure......................................................................29
Functional Strategies of Microsoft................................................................................................32
Marketing...................................................................................................................................32
Finance.......................................................................................................................................33
Operations..................................................................................................................................34
Human Resources......................................................................................................................35
Information Technology............................................................................................................35
Improvement Initiatives undertaken by Microsoft........................................................................36
Best Practice Implementation....................................................................................................36
Cost Reduction...........................................................................................................................36

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Quality Driven Management.....................................................................................................37
SWOT Analysis.........................................................................................................................37
Conclusion.....................................................................................................................................38
Strategic recommendations............................................................................................................39
Implementation of artificial intelligence...................................................................................39
Product diversification and innovative technologies.................................................................40
Strategic alliances with companies............................................................................................42
Addressing the increase in competition.....................................................................................44
Increasing the presence in smartphone industry........................................................................45
Reference.......................................................................................................................................48

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Introduction
In the current business scenario, information technology sector is the one of the most
promising and potential sectors in the world. This is mainly due to the immense opportunities
waiting in this sector and coverage of multiple areas. This is further getting amplified by means
of rapid improvement and technological development in this sector. These development
processes are mainly spearheaded by Microsoft and Google and in this report the strategic
analysis of Microsoft will be done. The strategic analysis of Microsoft will include the internal
and external business environmental analysis due to the reason that determination of the internal
and external environments will help to identify the major challenges and opportunities for
Microsoft (Van Der Aalst, 2013). In the current scenario, this analysis is important due to the
reason that external business factors are getting rapidly changed with time and the effectiveness
in coping up with these changes will influence the long term business potentiality. This is due to
the reason that if the business organizations cannot get coped up with the change in the business
factors, then it will be difficult for the entities in getting the maximum return from the market
(Trkman, 2013). In this report, a few strategic recommendations will be discussed on the basis of
the identified factors and these suggestions will be based on data and market knowledge. It is
expected that the suggested steps in his report will help Microsoft in increasing their long term
business viability.
Company background
Microsoft is the leading software company in the company as of 2016 in terms of
revenue, which denotes that they are the highest earning technological company in the world in
the current time. It is also reported that as of 2018, Microsoft is the ranked 30 company among

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the Fortune 500 companies in the world. Microsoft was founded in 1975 in the United States.
Currently, the headquarters of Microsoft are in Redmond, Washington. As of now, Microsoft is
operating in both hardware and software market including manufacturing of different
technological devices and selling and licensing software and operating systems. The hardware
devices of Microsoft include gaming consoles, desktop, laptop, smartphone and tablets
computers. Major software of Microsoft includes Windows operating system, Internet explorer
browser and Office ranges. Thus, it can be concluded that there are different products and
services being offered by Microsoft and covering of larger market areas.
Analysis of the history of Microsoft identified that Bill Gates and Paul Allen started the
journey of this brand by developing devices for tracking traffic data. This further developed in to
personal computer space and the operating system business started. Zenix was the first operating
system introduced by Microsoft and it was first used in the IBM computers. In the later stage,
Windows operating system got introduced in the market by Microsoft and initiated the revolution
in the computing and technology sector (Sinha et al., 2015). The time period between 1995 and
2007 was the resurrection time for Microsoft due to the reason that this time periods witnessed
the rapid development of the Windows operating system and hardware and the entire computing
process. In addition, this is the time when Microsoft started to face the increasing competition in
their business. As of now, the overwhelming success of Microsoft is mainly due to the market
leadership status of the Windows as the key operating system for computers and the sales of
hardware. However, on the other hand, this should also be noted that there are number of
challenges being faced by Microsoft in the recent time and is mainly due to the reason that
Google and Apple have first emerged as the competitors for Microsoft. For example, Google’s
Android operating system is the market leader among the smartphones followed by Apple. Thus,

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it is becoming more important for Microsoft in reviewing their business environments and
initiate different strategies accordingly.
Business development history of Microsoft
Microsoft can be termed as true global brand in the world with having their presence
across the world. They are having their presence in majority of the countries across the world
with their entire ranges of products and services are available and also terms as one of the most
valuable companies in the world. It is identified that effective management and implementation
of the change process helped Microsoft in coping up with the change in the market along with
staying ahead in the competition (Bharadwaj et al., 2013). For example, Microsoft was the first
that introduced the concept of the portable personal computer in the era of oversized computers.
This change management process of Microsoft is well evident in the current time as well due to
the fact that cloud technology is extensively being leveraged by them in offering their
contemporary services. For example, it is reported that as of 2018, the net revenue for Microsoft
stands at US$ 267 billion, which is the highest in the world.

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Figure: 1
Actual and projected cloud revenue of Microsoft
Source: (Richter, 2019)
According to the above figure, it is evident that Microsoft is on the track of achieving
their target from the cloud services. In addition, the projected revenue from the same services is
denoting that they have well forecasted that cloud services are the future sources of revenue.
However, on the other hand, it should also be noted that there are number of failed attempts also
occurred for Microsoft in terms of their business strategy (Pagani, 2013). For instance, merger
and acquisition is another widely used business strategy by Microsoft and acquisition of Nokia
cellular services is one of the major failed attempts in the recent business history. This is due to
the reason that Microsoft acquired the Nokia cellular services in order to gain the market share
among the fast growing smartphone segment. However, the forecasting approach of Microsoft in
this case got wrong and their Windows based mobile operating system offered lower value
propositions compared to the Android powered by Google (Vuori & Huy, 2016). This ultimately
led to the sale of the Nokia Brand to HMD global. Currently, Microsoft is not having their
presence in the smartphone sector, rather they are leveraging on the computer operating system.
Industry analysis
Even though, Microsoft is offering different hardware and software in the market, but
they are primarily operating in the operating system industry. According to the reports, the
worldwide sales of the operating system sales as of 2014 were US$ 32.8 billion. It is also
identified that Microsoft is having more than 75 percent of the market share compared to 12
percent market share of MAC OS by Apple (Gawer & Cusumano, 2014). Google is not having

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market share in the smartphone sector. There are number of Linux based operating systems in the
market consisting of negligible market share. Thus, it can be concluded that the intensity of
competition for Microsoft is limited yet emerging.
Figure: 2
Revenue growth rate of Microsoft (2002-2018)
Source: (statista.com, 2019)
According to the above data, it is denoting that the revenue of Microsoft only got
increased with time after 2002 with slight fluctuations in the middle. In the continuous increase
of the revenue of Microsoft, globalization is having a major role due to the reason that with the
help of the globalization, the market size of Microsoft got increased. For example, Indian market
is one of the largest markets for Microsoft in the current time and this market got tapped by them
after the economic liberalization in 1991. This is due to the fact that India became an open

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economy from a closed economy after 1991 and this enabled Microsoft in entering the Indian
market and taps the emerging opportunities. Thus, the revenue and market size for Microsoft got
increased due to the role of globalization. On the other hand, it should also be noted that
globalization also increased the business complexities for Microsoft due to the reason that
different regions are having different sets requirements majorly from the operating systems
(Tseng, Liu & Wu, 2014). Different software is also having different levels of utilities in
different regions, which are also being managed by Microsoft. This is well evident in different
variants of technologies being offered by Microsoft.
Competitors
Apple
Apple is considered as the major competitors for Microsoft due to the reason that their
business model is similar to the latter. Apple is also having their own sets of hardware and
operating system and is rapidly emerging as the market challenger for Microsoft. One of the
major advantages of Apple over Microsoft is their extensive presence in the mobile sector. This
is due to the fact that Apple is selling millions of iphones across the world, which is not in the
case of Microsoft. As of now, Apple is having approx 12 percent of market share in the computer
operating system sector, while in the smartphone sector, it is approximately 18 percent (Zing et
al., 2015). Thus, it can be concluded that Apple is not having market leadership status in any of
the business sectors but is fast emerging and consisting a considerable market share. It is
predicted that with the introduction of the affordable products over their existing premium
products, this market share will get increased in the long term.
Google

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As of now, Google is not a formidable competitor for Microsoft in terms of the computer
operating system with having negligible market share. However, in the case of smartphone
segment, Android operating system of Google is the clear market leader with having more than
85 percent of market share. Thus, it is a major challenge for Microsoft in gaining market share in
the smartphone sector (Kaur & Sharma, 2014). On the other hand, it is also to be noted that
Google is competing with Microsoft in terms of internet browser also due to the reason that
Google Chrome is the market leading internet browser compared to the diminishing market share
of internet explorer of Microsoft. Thus, the Google is also competing with Microsoft in different
areas and posing multiple challenges.
Determination of the industry competitiveness
Determination of the industry competiveness is important due to the reason that it will
help to identify the key bargaining factors and the extent to which the different stakeholders are
having influences. Based on the extent of competition in the industry and the bargaining power
of the different stakeholder groups, strategic direction should be designed. This is applicable for
Microsoft as well. In this case, the porter five forces analysis will be used to determine the
impacts and influence of each of the major factors in the industry where Microsoft is operating.
Bargaining power of the buyers
Bargaining power of the buyers is the force that determines the level of negotiating power
that the customers will have. The product differentiation within an industry, the cost of
switching, and the part of the total industry output that the buyers represent are the factors that
determine the level of bargaining power of the buyers (Noe et al., 2017). It is to note that
Microsoft is required to continue to satisfy its customers who determine the performance of the

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company. The impact that these customers have on the computer software and hardware industry
has been evaluated in the aspect of bargaining power. The size of the availability of the
substitute, the cost of switching and the quality of information determined the bargaining power
of the suppliers on the firm. It is to note that for Microsoft, the low availability of the substitute
is a weak force. This low availability of substitute showcase the problem in accessing the
adequate substitutes to the products of Microsoft. For instance, buyers face issues in finding out
the non-computer network solutions, which are efficient and effective as the products of the
company. It exerts weak forces on the company its environment.
Also, there are moderate switching costs of the suppliers and buyers for the firm, and this
further creates a significant force on the business of Microsoft. Due to the intensity of the
switching cost, the buyers have a tendency of shifting from the products supplied by Microsoft to
its rivalry companies. Moreover, there is a high quality of information, which is considered to be
a strong force for Microsoft (Fabbri&Klapper, 2016).This further empowers the customers in
terms of sufficient details and information that they can make use of for comparing the software
and hardware products of the company to the competitors. For example, such type of information
is very quickly present in the online sources. On the basis of the external factors that influence
the bargaining power of the buyers, Microsoft should also include this force to be a moderate
force and as a notable concern in the business strategies.
Bargaining power of the suppliers
It is to note that the business of Microsoft depends heavily on the supply conditions.
Bargaining power of the suppliers outlines the impacts of suppliers on the industry environment.
The size of the suppliers, their population and the overall supply maintain a low force of bargain

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power of the suppliers on the firm. Factors like the supplier industry being dominated by the
large companies, high cost of switching, the ability of the suppliers to enter into the industry that
they are supplying determines the high and low intensities of the bargaining power for a
particular sector (Moatti et al., 2015). It is to mention that the bargaining power of Microsoft is
low as of the fact that a large number of suppliers provide technologically advanced products and
competitive operating systems to the customers. In the case of Microsoft, many markets are
dominated by it in terms of operating systems. With the same, it is also to note that there is high
supplier switching cost within the technology and software industry.
Microsoft is a worldwide recognised brand, and it has many potential suppliers. Not
many companies within the industry have many suppliers. For example, the software is
considered to be an intangible product, which is developed in house. The suppliers in the
manufacturing supply the products and components required for making the hardware like game
consoles, tablets etc. the suppliers doing so are huge in number, and as Microsoft is a famous
brand, the suppliers of the company feel prestigious to be labelled as the suppliers of the firm.
This is why, the firm gets the option of terminating the supplier if he or she tries to bargain with
the company and hence, the switching cost of theirs is , and so is their bargaining power.
Furthermore, it is also to note that a significant number of supplier try to contract with Microsoft,
and this makes the suppliers of Microsoft to skip trying taking advantage of the company. The
population and size of the suppliers enable them for imposing a notable and limited influence on
the overall business of Microsoft (Venkataraman, 2019). For instance, some of the moderately
sized hardware suppliers can change their pricing and this ripples to the potential adjustments in
the prices. With the same, the moderate supply also develops a notable but limited amount of

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force on the company. It is to note that although the intensity of the bargaining power of
suppliers for Microsoft is low, it can be increased if the overall supply is decreased.
The threat of new entrants
In the software and hardware industry, the threat of new entrants is generally low. It is to
note that this aspect of five force analysis is focused on influencing the new entrants of the
industry. The high cost of developing the brand, moderate cost of doing business and the average
cost of switching can be considered to be the intensities of the factors that result in a moderate
level of threat from the new entrants. It is to mention that the high cost of creating and
developing a tech-businesses brand gradually weakens the impacts of the new entrants on the
firms like Microsoft. Such external factors impose a very moderate effect on the potential
competitive concerns of the firm (Pan, Huang &Gopal, 2017). To a whole, these types of
condition correspond to the moderate force of threat to new entry against the company. The
present trends within the industry indicate that people are highly attracted to the latest software
developments as they try for replacing the current technology with the more advanced and
improved ones. According to Tidd and Bessant(2018), in the software and hardware industry, the
threat of new entrants is comparatively low as of the fact that the barriers to entry are high.
Developing and designing the company software if very costly and at the same time, its success
takes much time. With the same, there is a shortage of people who possess the required
proprietary skills and knowledge.
The prevailing players have developed some absolute cost advantage as a result of their
intense and high economies of scale and expertise. Also, brand loyalty too plays a critical role in
the whole process. Notwithstanding this fact, in the hardware and software industry, many new

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firms have been able to capture and grow a small share of a market like tablets, video game
consoles, personal computers etc. These productions, although being on a small scale, are
thriving. Moreover, the threat of new entrants for Microsoft is low as of the high investment that
it has made and the reputation that it has earned while entering into the operating system
developing the industry. It is to note that higher costs of entry into the industry reduce the threat
of the new entrants to a significant extent. At present, a maximum number of governments invest
significantly in the R&D process. Hence, the new market entrants in this way are overcoming the
issue of fund deficiency. Thus it can be concluded that the threat of suppliers is high for
Microsoft due to the presence of number of external suppliers in their business operation. It
should also be noted that with the increase in the external suppliers, the intensity of the threat of
new entrants will get further increased. As of now, there are number of business areas being
covered by Microsoft and it is highly unlikely that they will be able to include more business
areas in the coming time. Thus, the threat of new entrants will be same for Microsoft in the long
term as well.
Threat of substitutes
In the case of Microsoft, the threat of substitute is high due to the reason that there
multiple service providers available in the market, which are offering the same level of services
to the customers. For example, the internet browsing services can be done both with the help of
the internet explorer and Google Chrome. In this case, the point of differences between the two
browsers is less and thus Microsoft is enjoying competitive advantages over their substitute
offerings. There are number of differences being identified between the two browsers that are
enhancing the threat of substitution for Microsoft. One of the major differences is the user
experience. The user experience of Google Chrome is more simplistic compared to that of the

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internet explorer. This is mainly due to the reason that Google Chrome is designed as lightweight
browser over the heavy usage based internet explorer. This is helping Google chrome in being
more efficient over the internet explorer. Hence, in terms of the convenience and user
friendliness, Google Chrome is way ahead of the internet explorer. On the other hand, it is also
identified that Google chrome is an open source platform while internet explorer is not. Thus the
pace of development is more in the case of Google chrome compared to internet explorer. There
are number of features being offered by Google Chrome that are not available for internet
explorer. Thus, it can be concluded that Google chrome is one of the major substitutes for
internet explorer of Microsoft and pose a greater challenge.
Mobile operating system can also be considered as the potential substitute for Microsoft
due to the reason that in the recent time, the sales of smartphones are increasing at a rapid pace,
while the sales of desktop computers is witnessing the diminishing trend. This is posing the fact
that smartphone operating system is the more profitable and emerging sector compared to the
traditional computer based operating system. However, with the negligible market share of
operating system of Microsoft in the smartphone sector, this is also one of the major substitutes
for them. In the recent time, customers are opting for portable smartphones for computing over
the traditional full sized desktop computers. This is further reducing the market potentiality for
Microsoft. In terms of hardware as well, the threat of substitutes is high due to the reason that
Apple is competing with them with the hardware with same value propositions. This is due to the
reason that Apple is also having desktop computers, laptops and tablets similar to Microsoft.
Thus, customers are having more options for substitute products to choose from in terms of the
technological hardware. From the above analysis of the threat of substitutes of Microsoft, this

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can be concluded that high substitution threat is to be faced by Microsoft considering the number
of similar manufacturers operating in the industry.
Competitive rivalry
In terms of Microsoft, it is identified that the competitive rivalry is high. This is due to
the reason that high number if competitors are operating in the market. The more will be the
presence of competition in the market, the more will be the rivalry among them. There are
different factors that are contributing towards increasing the competitive rivalry among the
entities and these factors will be discussed and analyzed in the following section.
One of the major factors is the intensity and extent of consolidation in the industry due to
the reason that higher level of consolidation will further intensify the competitive rivalry. In the
case of Microsoft, the level of consolidation is high due to the coverage of different segments
under the same business. For example, the acquisition of Nokia and PayPal by Microsoft is the
instance of high level of consolidation in the technology sector. On the other hand, acquisition of
the Motorola by Google in order to gain footprints in the smartphone sector is also denoting the
high level of consolidation in the industry. Thus, it can be concluded that intensity of competitive
rivalry is high for Microsoft each of the operating firms in this sector is trying to stay ahead in
terms of acquiring the different firms including the competitors.
Approaches towards reducing the cost of manufacturing by the operating firms in this
sector are also denoting the high level of competitive rivalry in this sector. This is due to the
reason that with the reduction in the cost of the production process, the average profitability of
them will get increased. It is identified that majority of the of players operating in thus sector are
outsourcing or off shoring their production process to other countries with lower cost of

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production. For example, Apple is having their production process in China. This is denoting that
the competitive rivalry in this industry is high and higher profitability with the help of the lower
cost of production will enable the players in fending off the competitive factors.
Growth in the industry is also contributing in the enhancement of the competitive rivalry.
This is due to the reason that the more will be growth in the industry, the more will be the
attractiveness for other players in doing business in the particular sector. In the case of
Microsoft, industry is witnessing positive growth with the coverage of newer areas. For instance,
the operating system in the smartphone is the lately introduced sector for Microsoft and others.
Thus, with the amplification of the business areas, the competitive rivalry is estimated to get
increased in the later stage.
Determination of the external business factors
Determination of the external business factors is also important due to the reason that the
change in the external business environments is having direct influences on the business process
and in the recent time, the rate of change of the external business factors is rapid. It is becoming
important yet challenging for the contemporary business organization in coping up with these
changes. The following sections will discuss about the different external factors and their
impacts on the technological sector where Microsoft is operating.
Political factors
One of the major political factors that are having implications for Microsoft is the
different political scenario in different countries. This is due to the reason that Microsoft is
having their manufacturing units and operations across different regions including their
competitors. Thus, the differences in the political factors are having higher implications. The

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recent trade war between China and the United States is the most important political factor for
the technological sector. This is due to the reason that China is the global manufacturing hub for
the majority of the technological firms and United States is the biggest market for it (Katz,
2013). Thus, the trade war between these countries is posing challenges for Microsoft as well as
for their competitors in managing their global business. It should be noted that China is
considered for the manufacturing process due to their low cost of resources. However, with the
increase in the taxation of the Chinese manufactured products by the United States caused
increase in the cost for the operating entities.
On the other hand, the increase in the trend of protectionism by different countries is also
posing the challenges for the technological sector. This is due to the reason that this sector is
highly globalized in nature with having consolidated operations across the world. However, with
the increase in the protectionism in the global political scenario, this globalized approach of this
sector is facing challenges and barriers (Tai & Soong, 2014). Thus, the advantages that are being
gained by the companies from outsourcing and off shoring are getting reduced with time. In
terms of the legal factors and regulations, tax and other business policies to be adhered by the
entities are also challenging. This is due to the reason that different regions and countries are
having different sets of business laws and regulations. In the case of Microsoft, it is challenging
for them to adhere to different laws and it is evident in different tax related lawsuits being faced
by Microsoft in their business operations.
Economical factors
Economical factors are also important for the long term business viability due to the
reason that the more favorable will be the economical conditions, the more will be the

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profitability for the involved entities. In the case of the technological sector, the major
economical factor is the intensity of competition. For example, as of now, Microsoft is facing the
competition majorly from Apple and Google and this intensity of competition will get increased
with the entry of new entrants in the future. On the other hand, it is also identified that domestic
economy of the different markets is also a major determining factor due to the reason that
improvement in the domestic economy of the target country will be favorable for the
enhancement of the business (Holland, 2018). In this case, it should be noted that the developing
countries comprising of the BRIC members are the major economically potential areas because
countries such as India, China and Brazil are witnessing the maximum economical growth in the
recent time over the developed economies. Thus, apart from the major challenges, there are
number of opportunities also to be gained by the technological sector in the coming time.
Figure: 3
Country ranking in terms of GDP

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Source: (worldpopulationreview.com, 2019)
The above table shows that out of the current top 10 countries in terms of GDP, three the
emerging economies comprising of India, China and Brazil. Thus, operating in these countries is
helping the technological sector in gaining the maximum return from the market. However, the
probable economical risks such as emergence of the economic recession will pose challenges for
Microsoft in managing their business viability. Technological sector is based on the premium
pricing and yet not included as the necessary proposition. Thus, emergence of the global
economical recession will pose challenges for the technological sector in terms of the
economical factors also.
Social factors
Social factors are important for the business viability of the technological sector due to
the reason that changes in the customer trends and preferences pattern will led to the change in
the business operations for Microsoft and others. One of the major social factors is the diversity
among the customer groups. This is due to the reason that global customers are diverse in nature
with different languages and cultural factors. In the case of the technological firms, this is major
challenge because the language being used in the system should also be diverse. For example,
English is the primary language being used by Microsoft in their system but thus might not be
acceptable across different countries such as China. Thus, different languages are to be used by
Microsoft and their competitors in their systems. Another factor identified is the population,
which is also important because the more will be the population, the more will be the potentiality
of the technological sector in the tapping the market opportunities. In this case, there are both
challenges as well as opportunities being faced by this sector. The major opportunity is the rapid

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increase in the middle class segment in the developing nations. In the previous section, it is
identified that developing countries are witnessing the maximum economic growth and these
countries are largest in the world in terms of population as well. Thus, operating in the
developing countries such as India and China is helping Microsoft along with their competitors
in tapping the larger target customers due to the increase in the average rate of population.
However, on the other hand, the major challenge in terms of the population for the technological
sector is the saturation of the developed countries. This is due to the reason that developed
countries are getting limited market opportunities and thus market is getting saturated. In this
case, it can be concluded that both challenges and opportunities will be faced by the
technological sector in terms of the social factors.
Technological factors
Technological factors are also an important factor for Microsoft due to the reason that
this sector is based on the development and improvement of technology. This is due to the reason
that the more developed will be the technology; the more will be the competitiveness for the
entities. One of the major potential areas in terms of the technological factors is the expansion of
the business. For example, smartphone market is the lately introduced business opportunity for
Microsoft. In addition, the well penetration and rapid expansion of the internet services across
the world is also contributing in the amplification of the business opportunities for Microsoft and
others. This is due to the reason that majority of the technological services and products of
Microsoft are based on the internet services. The opportunity in relation to the technology will
get enhanced by means of further development. However, on the other hand, there are number of
barriers also to be faced in the rapid technological development with one being the cost involved.
There are huge costs involved in the development of the new technology for the entities and

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future uncertainties are involved regarding the level of acceptability of the new technologies in
the market. For example, Windows Vista was developed as the improved version of Windows
XP but it was not well accepted in the market and cannot match the popularity of the Windows
XP. Thus, the return on investment from the introduction of Windows Vista was less for
Microsoft.
Financial Analysis
Key Performance Indicators
In analyzing the past and current financial performance of Microsoft Corporation, certain
financial key performance indicators (KPI)’s are selected that includes profit and operating
margin along with return on capital invested and current ratio. Poufy margin KPI analysis can
serve as an effective profitability indicator for Microsoft Corporation that is analyzed as the
company’s net profit as its revenue percentage (FY19 Q3 - Press Releases - Investor Relations -
Microsoft., 2019). Operating margin KPI can measure Microsoft Corporation’s performance
against evaluating the ratio of its operating income to net sales. Return on invested capital based
KPI can measure the company’s performance through analyzing the percentage return that are
earned by investors from the company from their invested capital. Current ratio KPI can measure
the financial performance of Microsoft Corporation through evaluating its profitability position
and measuring company’s capability to address its short term obligations within a financial year.
Previous and Current Financial Position
In evaluating the financial performance trend of Microsoft Corporation, past and current
financial data related with the mentioned KPIs will be analyzed. The performance trend over

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year’s fir the company will be represented in the form of graphs and charts for easy
representation of findings.
Operating Margin Performance
Past and current operating margin for Microsoft Corporation over the span of 10 years are
indicated in the graph below. Through observing the graph it can be observed that the current
operating profit margin of the company is observed to be 28.62% in the year 2019 (FY19 Q3 -
Press Releases - Investor Relations - Microsoft., 2019). Such increase in operating margin from
2016 t0 2019 is because of great success and sales growth of its cloud services along with
increased demand for its intelligent cloud division and for its successful approach of monetizing
its LinkedIn acquisition.
Figure 1: Operating Margin Trend of Microsoft Corporation
(Source: FY19 Q3 - Press Releases - Investor Relations - Microsoft., 2019)
Profit Margin Performance
Historical and current profit margin performance trend of Microsoft Corporation is
indicated in the graph below over the time span of past 10 years. The current profit margin of the
company is recorded to be 28.58%. Increase in the company’s profit margin is observed after the

24MICROSOFT STRATEGIC AUDIT
year 2018 as the company is observing tremendous growth in its office and cloud services.
Moreover, its gaming revenue increased by 3% due to increased sales of Xbox over years
(Microsoft Annual Report 2018, 2019).
Figure 4: Profit Margin Trend of Microsoft Corporation
(Source: FY19 Q3 - Press Releases - Investor Relations - Microsoft., 2019)
Return on Capital Invested Performance
The graph below indicates the return on capital investment trend of Microsoft
Corporation over the past 10 years that signifies a decreasing performance of ROIC over the
years from 2016 to 2018. The ROIC of the company is observed to be 93.94% in the year 2019
and it has decreased in comparison to previous years as the company is struggling to develop
more lucrative business model as its traditional licensing model is obtaining sluggish revenue
from subscriptions (Microsoft Operating Margin 2006-2019 | MSFT., 2019).

25MICROSOFT STRATEGIC AUDIT
Figure 4: Return on Capital Invested Trend of Microsoft Corporation
(Source: FY19 Q3 - Press Releases - Investor Relations - Microsoft., 2019)
Current Ratio
Historical and recent current ratio trend of Microsoft Corporation is indicated in the
graph below over the years from 2006 to 2019. Current ratio of the company is observed to be
constant over the tree months in 2019 that is at 2.97 (Robinson, Henry, Pirie & Broihahn, 2015).
The current ratio of the company is indicating a decreasing trend as its ability to pay all its short
term obligations is observed to be affected over the past years.

26MICROSOFT STRATEGIC AUDIT
Figure 4: Current Ratio Trend of Microsoft Corporation
(Source: FY19 Q3 - Press Releases - Investor Relations - Microsoft., 2019)
Competitor Comparison
Apple Inc is one of the key competitor of Microsoft Corporation as it utilizes its
competitive advantage of developing innovative products that shares similar software, operating
system and applications. IBM is another major business rival of the organization as it has vast
expertise in global expansion and maintaining lower production costs in optimizing its profit
margins. However Microsoft is a diversified company that offers numerous services and
products and maintains competitive edge over its rivals. The table below indicates the financial
performance of Microsoft Corporation in comparison with its major competitors namely, Apple
Inc and IMB Corporation (Robinson, Henry, Pirie & Broihahn, 2015). The key performance
indicators of three companies are compared in this table which indicates revenue of Apple Inc is
higher in 2019 in comparison to other two companies and gross profit margin of IBM is better in
comparison to other two organizations. Whereas, operating margin, current ratio and return on
capital invested performance of Microsoft Corporation is better in comparison to its major
competitors (Robinson, Henry, Pirie & Broihahn, 2015).
Microsoft Apple IBM

27MICROSOFT STRATEGIC AUDIT
Corporation (2019) Inc
(2019)
(2019)
Revenue $ 30.6 billion $ 58
billion
$ 18.1
billion
Operating Margin 28.62% 25.34% 16.15%
Gross Profit Margin 28.58% 38.00% 46.67%
Return on Capital
Invested
93.94% 31.61% 22.62%
Current Ratio 2.97 1.32 1.36
Future Financial Performance Estimation
Through evaluating the financial performance of Microsoft Corporation over years,
forecast of the company’s income statement is carried out over three years from 2019 to 2021
that is indicated in the table below. The forecasted income statement of the company indicates
that its net income is anticipated to increase over the years for anticipated growth in its cloud
services. Demand for Microsoft Corporation’s cloud offerings are anticipated to attain drastic
growth that will continue to increase its growth in revenue as well as operating income with
constant execution from the company’s sales teams as well as partners along with targeted
strategic investments.
Forecasted Income
Statement
2019 2020 2021
Fiscal Period June

28MICROSOFT STRATEGIC AUDIT
Sales 124 886 138
647
153 893
EBITDA 53 479 59 980 67 920
Operating profit
(EBIT)
41 784 46 950 53 404
Pre-Tax Profit (EBT) 42 351 47 402 53 722
Net income 35 465 39 378 44 569
P/E ratio 29,7x 26,6x 23,3x
EPS ( $ ) 4,60 5,14 5,86
Dividend per Share ( $
)
1,81 1,97 2,15
Yield 1,33% 1,44% 1,58%
Reference price 136,580 136,58
0
136,580
Internal Environment Analysis of Microsoft
Fleisher and Bensoussan(2015) are of the viewpoint that the internal environment of a
particular business enterprise wields a prominent influence on the business operations of the
concerned enterprise and also the success or the failure attained by the same. As discussed by
Grant(2016), this is important since the business enterprises need to take into account their
internal environment along with the external environment for the formulation or designing of
different business strategies. More importantly, they are also required to consider the same for
the designing of the different commodities or services offered by them to the customers(Aithal,

29MICROSOFT STRATEGIC AUDIT
2016). Thus, it can be said that an analysis of the internal business environment of the enterprise
Microsoft is likely to reveal insightful information regarding the entire enterprise itself.
Mission of Microsoft
According to Booth(2015), the mission statement of a business enterprise highlights the
overall objectives as well as the goals of the concerned enterprise which it tries to attain or
achieve through its business activities. Thus, it can be said that for an effective understanding of
the business operations or for that matter the success attained by the business enterprises an
understanding of its mission statement becomes imperative. As per the official website of
Microsoft, the initial mission of the concerned enterprise is “to empower every person and every
organization on the planet to achieve more” (Microsoft.com, 2019). In addition to this, it is seen
that the official mission statement of the enterprise presently is highlighted by the statement “The
Microsoft mission regarding global diversity and inclusion is to create an environment that helps
Microsoft capitalize on the diversity of its people and the inclusion of ideas and solutions to meet
the needs of its increasingly global and diverse customer base” (Microsoft.com, 2019). In this
regard, it needs to be said that the mission statement of the enterprise Microsoft encompasses
four different aspects of its business operations, namely, financial performance, safe operations,
offering high quality services to the customers and finally establishment of positive relationship
between the enterprise and its customers or stakeholders (Fortune.com, 2019). More importantly,
as the mission statement of the enterprise under discussion here makes it clear the focus of the
concerned enterprise is on the aspect of empowerment. As a matter of fact, the enterprise over
the years had sought to seek empowerment of its business operations or finances but also the
empowerment of its employees, stakeholders and others who are directly or indirectly associated
with its business operations. The resultant effect of this is that the enterprise under discussion

30MICROSOFT STRATEGIC AUDIT
here over the years had tried to model its business operations and also its relationship with the
customers or the stakeholders on the basis of the mission which it is trying to achieve.
Goals of Microsoft
The enterprise Microsoft over the years had modified its business goals in conjunction
with the success attained by it. For example, it was seen that in the past the major business goals
of the enterprise under discussion here were to develop a “cohesive Global Diversity and
Inclusion strategy”, enhance the engagement between the CEO of the enterprise and its
employees, strengthenits global perspective, enhancement of its diversity, improvement of the
quality of the services and products offered by it (Microsoft.com, 2019). However, presently as
the official website of the enterprise under discussion here clearly states are-
 Establish and preserve management accountability to Microsoft's owners by appropriately
distributing rights and responsibilities among Microsoft Board members, managers, and
shareholders.
 Provide a structure through which management and the Board set objectives and monitor
performance.
 Strengthen and safeguard our culture of business integrity and responsible business practices.
 Encourage the efficient use of resources, and to require accountability for stewardship of those
resources.
Values of Microsoft
The values of the enterprise Microsoft are being highlighted by the statement “Global
diversity and inclusion is an integral and inherent part of our culture, fueling our business growth
while allowing us to attract, develop, and retain this best talent, to be more innovative in the
products and services we develop, in the way we solve problems, and in the way we serve the
needs of an increasingly global and diverse customer and partner base” (Microsoft.com, 2019).
The statement in a succinct manner highlights the fact that presently diversity and its inclusion

31MICROSOFT STRATEGIC AUDIT
within the organisational or the workplace which is being followed with the enterprise is an
important part of the values of the enterprise. More importantly, the focus of the enterprise under
discussion is on the effective growth or the development of its employees which in turn is likely
to help it to offer innovate services or products to its customers so as to attain its business goals
and mission (Fortune.com, 2019). In addition to these, it is seen that the conservation of the
environment or the planet had become an integral part of the value of the concerned enterprise
which in turn had propelled the enterprise to offer products or services that are environmentally-
friendly.
Microsoft’s Business and Organisational Structure
The enterprise Microsoft is the largest software manufacturing company of the world
while being one of the most valuable ones of the world (Fortune.com, 2019). In addition to this,
it is seen that the successful acquisition of the different rival companies or competitors like
LinkedIn, Skype Technologies, Nokia and others in the recent times had further strengthened the
position of the concerned enterprise in the international business market (Microsoft.com, 2019).
As a matter of fact, in the first quarter of 2015 itself the enterprise manufactured more than 33
million units of software, phones and other electronic goods sold by it (Microsoft.com, 2019).
More importantly, the enterprise under discussion here is the only third business enterprise in the
world to be valued at more than $1 trillion after Apple and Amazon (Microsoft.com, 2019).

32MICROSOFT STRATEGIC AUDIT
Figure: Annual revenue generated by the different products offered by Microsoft
Source: Fortune.com, 2019
The above figure in a succinct manner indicates the fact that the enterprise Microsoft
earns the maximum amount of revenue from its product Microsoft Office System which is being
followed by the operating system offered by it, namely, Windows. In this regard, it needs to be
said that in order to effectively enhance the revenue that the enterprise under discussion here
earns from these products the enterprise over the years had designed as well as launched
different versions of the same so as to cater to the diverse needs of its target market.
Schaltegger and Burritt(2017) have articulated the viewpoint that the construct of
organisational structure can be defined as the hierarchical structure which is being followed
within the framework of a particular organisation or the manner in which the hierarchy is being

33MICROSOFT STRATEGIC AUDIT
maintained within the same. More importantly, as discussed by Duan(2018), for the designing or
formulation of an effective organisational structure the business enterprises are required to not
only create various departments or designations but at the same time assign the different job
roles that the individuals related to the same would be required to perform. This is important
from the perspective of both the business enterprises and also the employees related to them
since it not only ensures the effective completion of the work of the entire enterprise but at the
same time ensures the employees are performing the kind of tasks that they are comfortable with
((Buckley, 2016). The organisational structure which is being followed within the enterprise
Microsoft is being highlighted by the below given figure-
Figure: Organisational structure followed within the enterprise Microsoft
Source: (Created by the Author)
The above figure clearly highlights the fact that at the top of the organisational chart of
the enterprise under discussion here is SatyaNadella, the CEO of the enterprise and all the other

34MICROSOFT STRATEGIC AUDIT
employees of the concerned enterprise are required to respond or report to him (Microsoft.com,
2019). However, at the same time it is seen that the enterprise in order to simply the work
process and also for the improvement of the communication had divided the entire workforce of
the enterprise into various teams or departments each of which are required to complete certain
specific tasks or job roles as per their capabilities. For example, the heads of the two
departments, namely, the Engineering Group and the Business Functions directly report to the
CEO of the enterprise and the different employees or the members of these two departments in
turn report to their heads rather than directly reporting to the CEO of the enterprise
(Microsoft.com, 2019). More importantly, it is seen that these departments are in turn sub-
divided into various smaller departments or groups on the basis of the kind of work or job roles
that they perform. In this regard, it needs to be said that the different departments of the
enterprise like Cloud and Enterprise Engineering, Office Product, Windows and Devices and
others are required to report to the head of the Engineering Group (Microsoft.com, 2019). On the
other hand, the members of the different departments like Finance Group, HR Group, Marketing
Group, Corporate Strategy and Planning and others are required to report to the head of the
Business Functions. In addition to these, it is seen that each of the departments of the enterprise
have Supervisors who are required to manage the different affairs of the enterprise and report to
their immediate seniors. The effectiveness of the organisational structure followed by the
enterprise Microsoft becomes apparent from the fact that it had not only helped the concerned
enterprise to effectively manage its more than 134,990 employees as per the 2018 statistics but
also to attain the desired level of success as well (Microsoft.com, 2019).
Functional Strategies of Microsoft

35MICROSOFT STRATEGIC AUDIT
Schaltegger, Burritt and Petersen(2017) are of the viewpoint that the modern-day
business enterprises in order to attain their business goals or mission and also to attain the
desired level of success needs to formulate an effective operations management plan taking into
account its different functional units as per its needs. On the other hand, Whittle and
Myrick(2016) have noted that the different functional units used by the business enterprises like
marketing, finance, human resources and others varies from organisation to organisation as per
the work that they perform and also the kind of business goals or objectives that they are trying
to achieve.
Marketing
According to Cortimiglia, Ghezzi and Frank(2016), the business prospects of an
enterprise greatly depends on the kind of marketing or promotional strategies which are being
used by the concerned enterprise for the promotion or the marketing of the products or services
offered by the same. In this regard, it needs to be said that the marketing strategies used by an
enterprises is heavily dependent on the nature of the products or services which are being offered
by it and also on the kind of target market that the concerned enterprise focuses on(Amuna, Al
Shobaki&Naser, 2017). In the particular context of the enterprise Microsoft, it is seen that the
enterprise takes the help of the different kinds of digital marketing strategies like content
marketing, social media marketing, search engine optimisation (SEO) and others for the purpose
of effectively promoting as well as marketing the different products or services offered by it
(Fortune.com, 2019). The usage of these digital marketing strategies is greatly influenced by the
fact that the concerned enterprise offers different kinds electronic products and software and thus
it is apt that the enterprise would take the help of the marketing strategies which are reliant on
the same.

36MICROSOFT STRATEGIC AUDIT
Finance
The enterprise Microsoft despite the exponential success attained by it over the years still
takes the help of “conservative financial accounting” in a bid to enhance the market value or
share held by it in the different nations of the world (Microsoft.com, 2019). Furthermore, it is
seen that unlike the other major business enterprises of the world and also its competitors the
enterprise under discussion here does not takes the help of financial leverage so as to enhance the
financial returns earned by it for the investments that it had made(Welford, 2016). In addition to
these, it is seen that the concerned enterprise actively takes the help of the process of hiding its
actual profitability. This is important since it had not only helped the enterprise to evade taxes
but at the same time hide the actual financial growth attained by it as well. More importantly, an
important financial strategy used by the enterprise under discussion here is the fact that the
enterprise rather than investing capital within its own business processes follows the practice of
acquiring its competitors so as to reduce its operations cost and also business
competition(Yasnolob et al., 2018). Moreover, the enterprise over the years had been successful
in influencing the software and other policies of the national government of USA and of the
other nations of its operation and this in turn had offered it an edge over its rivals.
Operations
Microsoft’s Operations Management process is primarily concerned with ensuring that
the products or services offered by it are being manufactured within the stipulated deadline and
also for the purpose of enhancing the effectiveness as well as the quality of the products or
services offered by it as well (Fortune.com, 2019). In this regard, it needs to be said that the
Microsoft’s Operations Management plan followed by the enterprise primarily focuses on 10

37MICROSOFT STRATEGIC AUDIT
different components. For example, the designing entity is primarily concerned with the
designing of the products or services taking into account the needs or the requirements of the
customers. The entity of quality management is concerned with ensuring the fact that the
products or services offered by it are of standard quality(Scuotto et al., 2017). On the other hand,
the process and capacity design section is mainly concerned with ensuring the fact that the
resources of the enterprise are being used in an adequate manner for the manufacture of the
products or services(Appelbaum et al., 2017). Furthermore, the location strategy is being used by
the enterprise to ensure that the raw materials used by the enterprise are easily available and also
in proximity(Jansson et al., 2017). Moreover, an effective global supply chain network is being
used by the enterprise to support its business operations and so on. The effective usage of these
measures or these components has contributed in a substantial manner to enhance the
effectiveness of the operations management process used by Microsoft.
Human Resources
The enterprise Microsoft realising the importance as well as the value rendered by its
human resources or the capital over the years had taken the help of different kinds of human
resource management practices which are intended for the adequate utilisation and management
of the same(Prajogo, 2016). As a matter of fact, it is seen that the concerned enterprise offers
best of the industry wages to its employees along with attractive rewards, perks, leaves,
maternity leaves and others to the employees (Fortune.com, 2019). In addition to these, it is seen
that regular training programs and also workshops are being organised by the HRM department
of the concerned enterprise in conjunction with its management department to ensure that the
employees have the requisite skill sets or knowledge to complete their job roles (Microsoft.com,
2019). More importantly, it is seen that the concerned enterprise focuses on the aspect of

38MICROSOFT STRATEGIC AUDIT
employee engagement and for the attainment of this end different kinds of social and cultural
events are being organised.
Information Technology
Microsoft is generally considered to be one of the most technologically advanced
companies of the world because of its over-reliance on the aspect of technology. For example, it
is seen that every year a substantial amount of profit of the enterprise is being invested by it for
the purpose of research and development so as to come up with recent innovative technologies
which can be used to improve the quality or the nature of the products or services offered by
it(Leonidou et al., 2017). In addition to this, it is seen that the enterprise under discussion here is
presently trying to take the help of different kinds of disruptive technologies like “internet of
things” and others for the improvement of the kind of products or services offered by it.
Improvement Initiatives undertaken by Microsoft
Microsoft over the years in a bid to improve its organisational effectiveness and also to
enhance the level of financial returns earned by it had taken the help of different kinds of
measures. Some of the most important ones are listed below-
Best Practice Implementation
Del Río, Peñasco and Romero‐Jordán(2015) are of the viewpoint that the best practices
measures are those which had already been tried and tested by the other business enterprises and
have proven effective in their particular context. In the particular context of the enterprise
Microsoft, it is seen that the enterprises takes the help of various kinds of best practice measures
related to HRM, management, operations, product or service manufacture and others. In addition

39MICROSOFT STRATEGIC AUDIT
to these, it is seen that the enterprise under discussion here in the majority of the cases takes the
help of only those business strategies which have proved their effectiveness in the context of
other enterprises.
Cost Reduction
Microsoft in order to enhance its organisational effectiveness and also the amount of
profitability earned by it is presently taking the help of the process of cost reduction. For
example, in the present times it is seen that the enterprise had reduced its investments for the
different non-profitable business projects and also different other measures are being
implemented to reduce the operations or the manufacturing cost of the enterprise (Fortune.com,
2019).
Quality Driven Management
Microsoft ever since its foundation had focused on the aspect of quality and this in turn
had enabled the concerned enterprise to not only earn the loyalty of its customers but also to gain
a substantial amount of success as well. More importantly, it is seen that the enterprise follows a
stringent quality process through which all the products or services manufactured by the
concerned enterprise had to pass through before they are being delivered to the markets.
SWOT Analysis
Strength
 Microsoft is the leading software enterprise
of the world and the annual revenue
generated by the enterprise for 2018 was
more than $23.2 billion
 The enterprise because of its extensive
focus on quality enjoys a positive brand
Weakness
 Over-reliance and over-exploitation
of the personal computer market
which had presently placed it in a
precarious position
 Failure to innovate and offer
products or services as per the needs

40MICROSOFT STRATEGIC AUDIT
image in the market
 The presence of the enterprise in more than
190 nations of the world had significantly
broadened its customer base and ensures
that it has adequate market for the plethora
of products or services offered by it
 High market capitalisation
 Effective usage of digital marketing
strategies
 User friendly products and services
or the demands of the customers
 Lack of market leadership in the
internet browser category
 Unsuccessful acquisitions
Opportunity
 Effective utilisation of the cloud computing
innovation for the capture of the business
market related to the same
 Capitalisation of the smartphone industry by
developing good quality user friendly
smartphones
 Effective usage of the disruptive
technologies of artificial intelligence,
“internet of things” and others
 Strategic alliances
Threat
 Intense competition from business
rivals like Apple, Google and others
 Ineffective management of human
capital
 Lack of workplace diversity and
inclusion
Conclusion
To conclude, the internal as well as the external environment in which a business
enterprise operates wields a substantial influence on the business operations of the concerned
enterprise. Furthermore, the different tools related to the assessment of the internal and the
external business environment of an enterprise is important since they reveal insightful
information regarding the opportunities and the threats which galore the concerned enterprise in
the business market of its operation. This in turn offers the business enterprises with the required
amount of information or data which in turn helps them to formulate or design different kinds of
business strategies for the conduct of their business operations.

41MICROSOFT STRATEGIC AUDIT
The above strategic audit of the enterprise Microsoft through the analysis of its external
and internal business environment clearly indicates the influence that both of them had on the
business operations of an enterprise. For example, the analysis clearly reveals that although the
enterprise Microsoft had been able to gain a substantial amount of success over the years yet at
the same time there are various opportunities that it can capitalise on to attain an even higher
growth rate. On the other hand, the analysis also reveals the fact that there are various threats that
the enterprise is facing presently and the future growth or the development of the enterprise
under discussion here depends greatly on the effectiveness with which it is being able to mitigate
these threats. In this regard, it needs to be said that the enterprise would have to take into account
the requirements of the internal and the external business environment for the formulation of its
business strategies. These aspects become apparent from the above strategic analysis of the
enterprise Microsoft.
Strategic recommendations
The information that has been gained with the help of analysis of the internal
environment, external environment and industry of Microsoft has helped in the development of
strategic recommendations. The goals and strategic recommendations are mainly based on the
ways by which the organization is able to improve its revenue levels, increase the cash flows and
enhancing the returns that are received from the capital that has been invested (Brouthers, Nakos
& Dimitratos, 2015). The recommendations are also based on the process of business research
that is made with respect to the environment of the organization. The proper development of
research is able to support the formation of recommendations that can be provided to the
company. The following recommendations can be provided to Microsoft in order to maintain the

42MICROSOFT STRATEGIC AUDIT
operations of the organization in the industry for a longer period of time (Bowen, Baker &
Powell, 2015).
Implementation of artificial intelligence
Artificial intelligence can be defined as the simulation of different human intelligence
based processes with the help of machines or different computer systems. The processes that are
implemented as a part of the artificial intelligence mainly include, reasoning, learning and also
self-correction. The development and implementation of AI can be either weak or strong and is
mainly based on the levels of intelligence of the systems(Russell & Norvig, 2016). The levels up
to which the AI systems are able to solve the issues faced by humans are helpful in deciding the
category of artificial intelligence. The costs based on software, hardware and the levels of
staffing are able to affect development of different systems based on AI. The access that is
provided by the AI systems are also able to affect the levels of implementation and the impact
that it has on the humans (Russell & Norvig, 2016).
Microsoft needs to plan for the implementation of artificial intelligence in the software
and hardware based products that are being developed and offered to the customers. The
implementation of artificial intelligence will also be able to support the improvement of the
products and the levels of support that is provided to the customers as well. Microsoft will be
able to attract more customers towards the organization with the development and manufacture
of products that are based on artificial intelligence. The individual customers will be facilitated
in a huge manner by the highly intelligent products of the organization(Russell & Norvig, 2016).
The data of customers can be used by the organization in order to decide the types of
products that can be offered to them. The company will be successful in understanding the

43MICROSOFT STRATEGIC AUDIT
demands and needs of the employees with the support that is mainly provided by the data and
levels of information as well. However, the expenses that are related to implementation of AI
will be able to affect the prices of products that are developed based on this concept. The
company can thereby decide the prices based on levels of services that are being offered to the
customers. The premium pricing of products will be able to play a major role in the development
and offering them to the customers as well(Russell & Norvig, 2016).
Product diversification and innovative technologies
Product diversification is mainly defined as the practice that has been used in order to
expand the original market that is based on a particular group of products. The strategy is mainly
used by the organizations in order to increase the sales that are gained from a particular product.
The stagnant or the declining sales have been able to affect the ways by which different
organizations can maintain their positions in the industry (Jiang et al., 2016). The process of
product diversification can be continued with the help of the processes that include, repackaging,
renaming, resizing, repricing, brand extensions, product extensions. The method of product
diversification can be quite expensive for the organization and can have a major impact on the
organizational operations as well. The development of a new market base is considered to be one
of the major aims that is related to the implementation of product diversification. The test
markets are also used by organizations in order to understand the levels of acceptance that have
been depicted by the customers (David & David, 2017).
Microsoft has been offering different software and hardware based products to the
customers based on the levels of their needs. The major products that have been provided
include, Skype for the business, Exchange Server, Dynamics ERP, Microsoft Azure, SharePoint

44MICROSOFT STRATEGIC AUDIT
Server, Windows Client and Microsoft Office Suite. The implementation of innovations in the
products can enhance the levels of service and customer interaction. The customer interaction
levels can be increased in order to improve the usage of the products in an effective manner. The
products will be offered by the organization to the customers can have an impact on the customer
base of Microsoft (Mayer, Stadler & Hautz, 2015).
A major disruptive innovation that can be implemented by Microsoft is based on the
proper extension of levels of internet connectivity in order to develop the everyday objects and
physical devices. The software will be mainly embedded with the internet connectivity and
sensors that can have an impact on the customer base in a huge manner. The real-time based
analytics can be made by the organization with the support that is provided by the products of
Microsoft. The commodity sensors and machine learning based implementation can have a major
impact on the ways by which software of Microsoft can be enhanced (Müller & Bostrom, 2016).
The proper enhancement and improvement of the products will be able to play an
important role in increasing the revenues that have been gained by Microsoft in the industry. The
implementation of Internet of Things will prove to be a disruptive innovation for Microsoft in
order to maintain its position in the technology industry for a longer period of time. The levels of
disruptive innovation are considered to be an important aspect of the development of future
operations of Microsoft and the methods that are implemented in order to improve the revenue
levels. The proper diversification of products can also increase the different target customer
groups that currently range from 20 to 55 years. The development of highly interactive products
by the organization for senior citizens is also considered to be another major factor that can
impact the revenue levels of Microsoft (Namada, 2018).

45MICROSOFT STRATEGIC AUDIT
Strategic alliances with companies
Strategic alliances can help two organizations to join their operations so that they are able
to share the resources and also accomplish the goals and objectives that have been set. The
agreement that is made as a part of strategic alliances are able to help in the development of
operations of two organizations. The involvement levels of two organizations that are a part of
the strategic alliances are quite less in comparison to the levels of involvement of the
organizations that are a part of the joint venture (Link & Antonelli, 2018). The two organizations
which are a part of the strategic alliance can develop their autonomy and can also operate as
separate business entities. The alliance will however provide major levels of opportunities to the
organizations in order to maintain their positions and revenues in the industry. The organizations
are able to increase the hold that they have on the market with the help of the development of
proper goals and using the resources of the organizations who are a part of the alliance. The
companies can also develop an edge over the competitors with an effective strategic alliance that
is developed for the proper usage of resources(Link & Antonelli, 2018).
Microsoft can aim at the development of strategic alliances in order to maintain the
operations and improve the revenue levels as well. The organization will be able to use the
resources of another organization in order to improve the hold that has been developed on the
customer base. Microsoft has been developing strategic alliances with many different
organizations in the course of its operations. The recent alliance that has been made by the
organization was with Hewlett Packard. The two organizations had announced their strategic
alliance in order to join their forces and develop new products that can be offered to the
customers. Microsoft needs to increase the number of strategic alliances that have been formed
with different organizations (News.microsoft.com. 2019). The increase in number of strategic

46MICROSOFT STRATEGIC AUDIT
alliances will be able to affect the operations of Microsoft and the methods that are implemented
by the company in order to develop new and improved products. The proper development of
strategic alliance will be able to key role in improving the revenues of the
organization(News.microsoft.com. 2019).
The organization can further improve the levels of revenues and customer base with the
proper usage of strategic alliance. Microsoft will be able to use the research and development
based facilities of the strategic partner in order to develop new and improved products. Microsoft
can be successful in the ways by which different factors can be taken into consideration by the
organization in order to choose the strategic partners. The global operations of Microsoft have to
be considered by the organization in the process of choosing the strategic
partners(News.microsoft.com. 2019). Microsoft can increase the types of products that are
offered to the customers in order to increase the customer base in an effective manner. The
organization had announced development of strategic alliance with more than 600 partners in
different parts of the world. These partnerships can play a major role in the improvement of
revenue levels. The organization can further increase number of strategic alliances for the
purpose of improving the customer base(News.microsoft.com. 2019).
Addressing the increase in competition
The browser that has been developed by Microsoft named “Internet Explorer” has started
facing major levels of competition from “Google Chrome” that is a browser developed by
Google. The browsers have provided major levels of competition to each other based on the
usage by customers and interaction that is developed with the customers. The open source nature
of Google Chrome has however affected the operations of “Internet Explorer and the levels of

47MICROSOFT STRATEGIC AUDIT
popularity that have been gained. Internet explorer is a closed source browser which leads to the
reduction of customer base in the industry. The open source browsers are able to provide high
levels of interaction with the customers in an effective manner. The levels of customer
interaction that have been formed by the organization have played the most important role in
attracting customers (Su & Tsang, 2015).
On the other hand, the closed source nature of Internet Explorer has led to the reduction
of number of customers of the organization. Microsoft needs to be improve the levels of
customer interaction of the browser in order to enhance the relationships that have been
developed with the customers. The improvement of customer interaction is able to affect the
usage of the software. The development of open source nature is considered to be important for
the organization in order to improve the revenues of the organization(Namada, 2018). Google
Chrome has ensured high levels of interaction with the customers with the help of open source
nature of the platform. On the other hand, the changes that can be made in the closed nature of
the browser of Internet Explorer can have a positive impact on the customer base of Microsoft.
The organization will be able to improve the revenue levels with the support that is provided by
the enhancement of the interaction levels. The web-browser will be able to attract the customers
towards the organization with the help of improvement of customer interaction levels(Su &
Tsang, 2015).
Increasing the presence in smartphone industry
Microsoft had previously taken a major step based on entering the smartphone industry.
The organization had acquired Nokia in the year 2013 and had developed smartphones that were
offered to the customers. The portfolio patents of Nokia had been acquired by Microsoft for ten

48MICROSOFT STRATEGIC AUDIT
years in order to develop smartphones. The deal that was made by the two organizations was
worth 5.4 Billion Euros. The mobile manufacturing department of the organization was
developed in the year 2014 after the acquisition of Nokia had been completed in 2013. The
branding of the smartphones that were developed under the joint venture of Microsoft and Nokia
were done by Microsoft(Müller & Bostrom, 2016). The smartphones that had been manufactured
by the organization had been based on the brand of Microsoft. The range that was formed by the
organizations was named as Lumia. The Lumia range had been quite successful and had
developed a customer base in the emerging markets. The smartphones that had been
manufactured by Microsoft had however started declining in the year 2015. The use of Windows
phone had reduced as the customers were not satisfied by the products and the interface that had
been provided as a part of Windows operating system. A major step had been taken by Microsoft
based on the issues faced in the acquisition of Nokia that was related to implementation of
layoffs. The layoffs had further led to the failure of partnership that has been made by the
organization(Mayer, Stadler & Hautz, 2015).
Microsoft can further aim at the development of new range of smartphones in order to
form a new customer base. The customer base that can be developed by the organization will be
based on the levels of the products and features that are implemented as well. The decline that
had been seen in the sales of Windows phones has depicted that the development of interactive
smartphones is an important factor that can have an impact on the sales and customer base. The
organization can also aim at the development of operating systems that can be used in the
smartphones that are formed by Microsoft. The customers will be attracted towards the products
with the support that is provided by the interactive features(Müller & Bostrom, 2016). Microsoft
has to face the competition that is provided by the two major operating systems including,

49MICROSOFT STRATEGIC AUDIT
Android and iOS. The competition provided by these operating systems will be able to affect the
levels of revenues and profitability that can be gained by Microsoft. The improvement of the
revenues of Microsoft will be enhanced in a huge manner by the range of smartphones and the
new customer base. The organization has been targeting different age groups that range from 20
to 55 years (News.microsoft.com. 2019). The development of smartphones will be able to
increase the customer base, especially among the young groups. The company can attract young
customers towards the products with the offering of products. The products that can be
developed by the organization under the smartphone department will be able to play a major role
in the ways by which different customers can be maintained by Microsoft. Microsoft will be
successful in increasing the profitability levels with the support that can be offered by the
smartphones that are developed and offered to the customers(Brouthers, Nakos & Dimitratos,
2015).
The recommendations that have been provided to Microsoft are mainly related to the
ways by which profitability levels and revenues can be increased in an effective manner. The
different recommendations that have been offered to the organization can help Microsoft in order
to achieve the goals and objectives that are set. The recommendations will be able to play a
major role in proper development of the position that is formed by Microsoft in the highly
competitive technology industry. The re-entry of Microsoft in the smartphone industry will also
be able to play a key role in increasing the customer base of the organization. The major
objective of the organization that is mainly related to the increase in cash flows will also be
fulfilled effectively with the proper development of smartphones. The smartphones can increase
the number of customers of the organization which in turn will also be able to improve the levels
of cash flows. The organization had failed in its venture in the smartphone industry earlier,

50MICROSOFT STRATEGIC AUDIT
however, the proper development of products with the help of implementation of enhanced
operating system can help in formation of a major position of Microsoft.

51MICROSOFT STRATEGIC AUDIT
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