Strategic Analysis of Microsoft Corporation's Competitive Strategies

This report provides a comprehensive strategic analysis of Microsoft Corporation (MS). It begins with an executive summary outlining the company's competitive strategies, particularly product differentiation and vertical integration. The report then delves into the background of Microsoft, including its financial performance and internal analysis using models like SWOT and VRIO, and market share analysis. Ratio analysis is performed to assess profitability and liquidity. External analysis includes competitor analysis, industry life cycle assessment, and Porter's five forces. Key success factors and a value chain analysis are also presented. The report critically evaluates Microsoft's competitive strategies and concludes with recommendations for improvement, specifically suggesting the consideration of cost differentiation tactics. The report highlights Microsoft's strong position in the software and hardware industries and emphasizes the importance of strategic adaptation for continued success.

STRATEGIC
MANAGEMENT AND
SUSTAINABILITY

EXECUTIVE SUMMARY
Every business entity uses strategies for operating and sustaining in the industry. There
are different kinds of tactics adopted by the firms in order to gain competitive benefits as well as
boost up business performance. In the present study an organisation selected i.e. Microsoft
corporation which provides software and hardware products as well as services across the world.
In the present project it is identified that which are the competitive strategies and techniques
adopted by the cited firm. Along with this, recommendations for adopting further tactics to gain
competitive advantages are given to the entity. From the analysis, it has been found that MS
corporation implemented product differentiation strategy along with full vertical integration
within working environment. It can be advised after analysing overall research that, MS
corporation needs to consider cost differentiation tactic as it had high prices of Windows
operating system.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Identifying Competitive Strategy of MWOS...................................................................................1
Background of the company with financial analysis..............................................................1
Internal analysis...............................................................................................................................1
Market share...........................................................................................................................2
VRIO analysis........................................................................................................................2
Ratio analysis of Microsoft Windows Operating System......................................................3
Patent......................................................................................................................................4
Research and development.....................................................................................................4
Sales network..........................................................................................................................4
External analysis..............................................................................................................................4
Competitor analysis................................................................................................................4
Industry life cycle...................................................................................................................5
Porter's five forces..................................................................................................................5
Key success factor (KSF) of Microsoft..................................................................................6
Value chain analysis...............................................................................................................6
Critically Evaluation of Competitive Strategy Used by MWOS.....................................................7
Suitable Recommendations..............................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

ILLUSTRATION INDEX
Illustration 1: Market share of Microsoft Windows OS..................................................................2
Illustration 2: Value chain analysis of Microsoft.............................................................................6

INTRODUCTION
The study is on the basis of Microsoft Corporation (MS) which is one of the largest firm
in software and computer hardware industry. Further, it serves products and services worldwide.
The main aim of this report is to identify the competitive strategies adopted by MS corporation
that has been further evaluated for recognizing its strengths. It has also focused on the attainment
of yet another objective of presenting effective recommendations to MS.
Identifying Competitive Strategy of MWOS
Background of the company with financial analysis
Operating system i.e. Windows developed by software engineers and name of the
company through which it launched is Microsoft Corporation. It is one of the largest software
firm in the world along with the highest market share. Initiative for developing the product like
Windows OS is taken by Paul Allen with the help of programming as well as MS Disk OS. This
particular OS product was come into existence in September 1981 by which computers are
operated properly. It was introduced with Windows where version was Windows 1.0. In the
present times, version of this OS used by the people is 10 which was launched in September
2014 by MS corporation (Engert, Rauter and Baumgartner, 2016). Moreover, it is one of the
widely used operating system in Desktop and Laptops as compared to others. Bill Gates was later
declared as the Chief executive officer (CEO) of MS corporation after being involved with Paul
Allen in the programming and development of MSDOS.
Financial position of the company is at a better level in the period of 2017 but 2 years
ago, it was unable to generate high number of profits. Between 2014 to 2016, the business
performance in terms of profitability declined consistently due to reducing revenue with high
amount. Moreover, current financial performance of Microsoft Corporation is moderate. The
reason being its undertaken strategies of product differentiation and full vertical integration in
the business at a corporate level without focusing much on the cost aspect.
Internal analysis
In order to analyse internal business environment and conditions there are different
frameworks and models included. After applying the models in the business, internal situation of
the firm can be analysed in proper direction (Borland and et.al., 2016). Major model involves
SWOT and VRIO analysis, for Microsoft's internal analysis second model is considered.
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Market share
In the industry of operating system there are wide range of companies operate currently
and serve their services to the customers. When talking about the market share of Microsoft
Windows OS in the industry, then it was 85% in the year 2012-13 which is the highest compare
than its competitors. Further, chart of market share is stated below:
Illustration 1: Market share of Microsoft Windows OS
(Source: Desktop Operating System Market Share Worldwide, 2017)
VRIO analysis
 V- Valuable: When the management uses available resources in optimum manner for
generating higher revenue then it considers valuable. Microsoft corporation properly
addressed available resources which helps to adopt differentiate strategy within
workplace. In addition to this, quality and features of the operating system are also highly
better.
 R- Rare: Resources and raw materials used by Microsoft are of the high quality which
taken into operation by few firms. Due to which, resource used by MS corporation are of
the rare nature.
 I- Inimitable: Windows operating system is one of the highly differentiate product as
compare to others firms (Lozano, Nummert and Ceulemans, 2016). The reason is that, it
comes up with innovative and high features in the Windows version. In addition to this,
MS uses product differentiation tactic for sustaining in the software industry.
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 O- Organised: Resources and materials which are utilised for producing Windows OS
are properly organised as well as managed in the selected firm. If it not organises
important significant then cannot produce differentiate system of desktop and mobile
operating.
Ratio analysis of Microsoft Windows Operating System
Profitability ratios Formula 2016 2017
Gross income 52540 55689
Net income 16798 21204
Net sales 85320 89950
Gross profit ratio Gross income / net sales * 100 61.58% 61.91%
Net profit ratio Net income / net sales * 100 19.69% 23.57%
From the above stated ratios, it can be said that MS corporation performs well at the end
of FY 2017 where GP ratio enhances from 61.58% to 61.91%. Further, increasing ratio of net
profit from 19.69% to 23.57% reflects that, MS firm able to manage and decline total indirect
expenses at the fiscal period ending 2017 (Income statement of Microsoft Corp, 2017).
Liquidity ratio Formula 2016 2017
Current assets 139660 159851
Current liabilities 59357 64527
Closing inventory 2251 2181
Prepaid expenses 0 0
Current ratio Current assets / current liabilities 2.35:1 2.48:1
Quick ratio
Current assets – (closing stock + prepaid
expenses) / current liabilities 2.31:1 2.44:1
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Increasing trend of current and quick ratio shows from the year 2016 to 2017 that,
position of financial or liquidity is strong and highly capable to meet with the short-term
obligations. Moreover, current and quick both ratios like 2.48:1 and 2.44:1 are higher in
comparison to standard ratio i.e. 2:1 and 1:1. Henceforth, it gains competitive benefits at the
accounting period ending 2017.
Patent
Patent is one kind of intellectual property right for each and every business organisation.
Microsoft has wide number of patents for different criteria by which it smoothly operates in the
industry. Areas for Microsoft has patent are like data encryption, gaming systems, internet tools,
image processing, search engines, telecommunications, data compression etc (Baumgartner and
Rauter, 2017). Majority of the patents taken by Microsoft are from the United States.
Research and development
Several techniques and terms used by the software and hardware firms in order to
develop their products. Microsoft corporation considers Graphical user interface (GUI) which
supports to the firm for creating as well as adding visuals adds in the software. Further, with the
help of Graphical User Interface MS produces innovative and updated version of Windows OS
(Daspit and et.al., 2017). Hence, in the department of research and development the GUI is
highly incorporated by the management.
Sales network
Microsoft corporation selling its products and services worldwide where in which client-
based software is one of the significant part. Along with this, it delivers additional value up to
the consumers by considering cloud-based term. At the majority level, it sells Windows
operating system with the help of online portals as well as channels like MSN, Xbox LIVE, Web
application of MS office etc. On the other side, it delivers services and products through offline
also like Windows store etc (Buller and McEvoy, 2016). Therefore, network of sales and
delivering OS up to the customers of MS corporation is broad.
External analysis
Competitor analysis
In the software industry, limited number of businesses operate and compete to the
Microsoft Windows. Along with this, it has the highest market share due to which it not faces
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high or cut-throat competition in the OS industry. Its major rivals are Apple Inc., IBM, Google
Inc. and Oracle. In the market, most of the customers using Windows OS due to its easiness and
simplicity compare to another OS (Abercrombie, 2012). Henceforth, it can be analysed that
competition level for the MS is at the moderate condition where it uses product differentiation
tactic.
Industry life cycle
Life cycle of an industry or organisation includes majorly four stages like introduction,
growth, maturity and decline. Microsoft corporation operates in different divisions due to which
nature of life cycle also differs. Windows and server as well as tools divisions of MS are at the
stage of maturity where market share and profitability position is moderate. Apart from this,
entertainment & devices, business division and online services are at the growth phase of
industry life cycle. At this stage, margin of profits and revenue both are high (Maas, Schaltegger
and Crutzen, 2016). Along with this, threat of the new entrants always there on yearly basis.
Moreover, when considering to whole Microsoft corporation then it is at the maturity stage in
industry.
Porter's five forces Threat of new entrants: When a company enters in software industry then to develop
brand image higher expenses incurred. Cost of operating in market and switching costs
are also required at the moderate level. Further, threat of new entry is moderate for the
MS firm. Threat of rivalry: In the software industry, majorly 4 companies operate which have
brand image. Due to this, competition level among existing rivals is strong but create
lower impact on Microsoft Windows OS (Ferguson, 2017). Threat of substitute products: In the market substitute goods of the Windows OS are
very low along with the lower switching expenses. Moreover, threat of substitutions for
Microsoft organisation is very low. Threat of suppliers: Power with Microsoft to bargain at the time of selling is low to
moderate extent because of average number of total suppliers in the industry. Further,
overall supply of the different operating systems is also low.
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 Threat of customers: Microsoft corporation provides very differentiate operating system
to the people. Along with this, it offers the higher quality of product at higher cost or
prices. Further, switching cost is also at the moderate situation (Diouf and et.al., 2017).
Hence, power to bargain of consumers is low with the MS corporation.
Key success factor (KSF) of Microsoft
MS created high brand image and value in the software industry with the help of various
elements. With the help of several effectual efforts it built very high image in terms of product
and service both. The key factors of success include innovations in the operating system and
always came up with new version of Windows OS. Within specific period of time, it comes in
the market with innovative products and services which lead to become successful in the relevant
industry (Stead and Stead, 2016). Along with this, it highly maintains supplier and customer
relationship both which is another KSF.
Value chain analysis
A framework through which business activities are identifying as well as analysed for
creating value in the firm is known as value chain analysis. It shown with the below mentioned
figure:
Illustration 2: Value chain analysis of Microsoft
(Source: Dudovskiy, 2017)
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Microsoft's primary activities:
 Inbound logistics: The cited software organisation has contract with the international
suppliers across the world. Further, it maintains this complicated and typical condition of
the supply chain which lead to create better value in the industry. Basic source of the
inbound logistic for MS involves strategic relationship and economies of scale.
 Microsoft operations: Overall production of the selected company operates in the general
three criteria’s. With the help of such three divisions it operated and produce Windows
operating system (Wilhelm and et.al., 2016). The three segments include productivity and
business procedure, intelligent cloud as well as more personal computing.
 Outbound logistics: Software products and operating system when produced then
distributed or delivered up to the customers in this activity. Further, distribution channels
of Microsoft involve original equipment manufacturers, distribution and resellers,
Microsoft stores as well as online sales.
 Marketing and sales: With the help of an effective engagement within viral marketing in
the activities of sales is one of the highly valuable for Microsoft. Further, it takes
licensing system to sell the Windows operating system (Dudovskiy, 2017).
 Microsoft service: The cited software firm provides high quality of the services in proper
and fruitful ways up to the customers. Further, it delivers the Malicious Software tool of
removal to its users which protect to OS from viruses.
Microsoft's Supportive activities:
Apart from primary activities, in the value chain analysis secondary activities are also had
significant role. By using such actions MS corporation able to create value in the software and
hardware industry. Further, supportive activities of Microsoft include infrastructure of firm,
human resources, technology and procurement (Neugebauer, Figge and Hahn, 2016).
From the above overall analysis, it can be identified that, Microsoft corporation uses
product differentiate strategy for the Windows operating system at the corporate level. Along
with this, at the sometimes it considers full vertical integration tactic at the workplace for gaining
competitive advantage in software industry.
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Critically Evaluation of Competitive Strategy Used by MWOS
From the above analysis, it can be evaluated that, with the help of product differentiate
techniques MS able to gain competitive benefits up to the higher extent. For this position 88%
market share of Windows in operation system industry is evidence. The incorporated strategy i.e.
product differentiation is supportive for the firms in order to create brand loyalty between users.
Along with this, for gaining market share also the strategy is useful which is presented in above
analysis. As Microsoft considers differentiation strategy of product then attracted more
customers towards it (Domingues and et.al., 2017). It emphasises on the design, features and
quality aspect of the operating system. Due to this, perception of not availability of substitute
products in market create among people. Along with this, it allows to Microsoft for competing in
industry other than price factor.
Limitation of the product differentiate strategy is that, when company add values and
innovations then extra cost incurred at the workplace. Due to this, it has to increase prices of the
operating system by which customers switch toward those firms who provide services and
products at low prices. Hence, it is highly expensive for Microsoft corporation. Another
disadvantage is that, company lost customers opportunities who are budget conscious (Jansson
and et.al., 2017).
However, cited organisation not looks upon very significant aspect of business which is
cost and expenses. Due to not taking into account to this tactic some customers not switch
towards it. From the initial level, cost and prices of Windows operating system are higher
whereas some firms provide OS in free of cost. This situation leads to declined sales two to three
years before of the company. It can be criticised that, strategy followed by MS in present times is
effective up to the certain extent for gaining competitive advantages. The reason is that, through
product differentiation management able to boost up brand loyalty and market share only.
Suitable Recommendations
After considering the above study it can be suggested to Microsoft corporation that, it
should adopt cost differentiation strategy in the workplace for gaining competitive benefits. The
reason is that, high cost and prices of the product will fall down which lead to attract customers
in higher proportion. In addition to this, MS requires to follow pay-per-usage sales model which
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