Strategic Management Report: Microsoft's Competitive Advantage

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This report provides a comprehensive strategic management analysis of Microsoft, examining its internal and external environments. It utilizes Porter's Five Forces model to assess market competition, buyer and supplier power, and the threats of new entrants and substitutes. The report also applies PESTLE analysis to evaluate the political, economic, social, technological, environmental, and legal factors impacting Microsoft's business. Furthermore, it explores international strategic management, Ansoff model and McKinsey model to understand Microsoft's strategic approach and competitive advantage. The report concludes with recommendations for Microsoft's future strategic direction, drawing on the insights gained from the various analytical frameworks. The report is a student submission, available on Desklib, a platform offering AI-driven study tools and resources.
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STRATEGIC
MANAGEMENT
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Table of Contents
EXECUTIVE SUMMARY ............................................................................................................3
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Porter five force model in Microsoft......................................................................................4
PESTLE Analysis...................................................................................................................6
International strategic management........................................................................................9
McKinsey strategic model....................................................................................................11
CONCLUSION..............................................................................................................................13
RECOMMENDATION ................................................................................................................13
REFERENCES..............................................................................................................................14
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EXECUTIVE SUMMARY
Microsoft is the multinational technology organization which has its headquarter in Redmond,
Washington. With evaluation of external and internal environment and different market
condition company can compete with other competitive firms and could easily sustain in the
market for long term with the innovations in its products and different techniques to cope up with
the difficulties. The effective use of strategic management helps them to attain their future goal
with the productive use of resources.
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INTRODUCTION
Strategic management is a system to achieving organization goals and objectives. This
method give a path to company for effectively accomplishing their goals. Strategic management
also involve in firms objectives, evaluating companies internal and external environment,
competitive environment etc.
Microsoft is a multinational company based on technology. It is American organization
and its headquarter in Redmond, Washington. The company is founded by Bill Gates and Paul
Allen in 4 April, 1975 in New Mexico. Microsoft dealing in computers software, personal
computers and customers electronic. Company's popular and famous products are Microsoft's
Office, Microsoft's Window, MS-power point, Internet explorer, web browser etc. The above
study includes that how Microsoft deal with their competitors and hurdles in market of software
and hardware by Porter Five Force model. This study also conclude PESTLE analysis, which
explain how Microsoft dealing with different factors. This factors responsible for organizational
and environment changes in Microsoft's. This study also explain Ansoff model and McKinsey
model which also important in an organization(Cavicchi and Vagnoni, 2018).
MAIN BODY
Porter five force model in Microsoft
Porter five force model is a system to evaluating the conditions of business. It is also
helpful for examine market competitors for organization. This forces are help companies for
identifying their strengths and weakness. Microsoft also use Porter's Five Force model for
analysis their business strength, weakness and competitors in market. These forces are:
Competitions in market: This force represents market competitors and their quality to undercut
an organization. If in market numbers of competitors increases, it will also increase equivalent
goods and service in market. Which is directly affects the power of firm in market. Microsoft
also use this technique for know about their competitors in market. If competition is among
existing company it will affect the profitability of company. For manage all this kind of
competition and rivalry in market, Microsoft focus upon some strategies i.e. average switching
cost, high aggressiveness of industry, and high diversity of company. Moderate shifting cost,
influencing Microsoft business. In this company customers attract towards competitors hardware
& software services. Because competing firm offer attractive prices for their services. For handle
with all this forces Microsoft design innovative and attractive technical hardware and software
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products which have variety. Microsoft also focus upon their diversity, cost and aggressiveness.
They also reduce their cost, but when in market competition is low Microsoft can earn high rate
of profit for their hardware and software services(Nakhratova and et.al., 2017).
Bargaining power of buyers: This especially deals with quality of consumers to drive price
down. It is affected by how numerous buyers or consumers an industry has, how important each
customers is. Microsoft is also affected by the customers. Consumers are so much demanding,
they want high quality products at cheapest cost. This put pressure on Microsoft profitability. For
dealing with this issue, company build high range of customer base. This will reduce the
bargaining powers of buyers and provide opportunity to company for increasing sales and
productions. New products of company also cut down the rejection of existing buyers of
company. Company also provide high quality information further empower customers in terms
of satisfactory information's that can be use for comparing Microsoft hardware & software
services with competitors. This information about company services and products are easily
available of company websites or online portal(Kumar and Sharma, 2019).
Bargaining power of suppliers: This force is totally depends upon the company suppliers.
Suppliers affect the input cost of company. Microsoft company also affected by the supplier
power. Microsoft all hardware & software products raw materials are buy from suppliers.
Powerful suppliers on technical sectors use their negotiate ability to earn high price of raw
materials from the firm. Microsoft shape some strategies for dealing with suppliers power.
Microsoft made an effective supply chain with various suppliers. By this technique, company
have numbers of suppliers for raw materials if price can go up. By using this strategies Microsoft
can bargain with multiple suppliers of raw materials and buy materials at lowest cost, which is
beneficial for firm. It will also improve sources of raw materials availability in market for firm.
Threats of new entrants: It is related with new companies who are enter in technological,
software and hardware market. This new firms and existing firms are affected from new entrants
in the market. New competitors of software & technologies like Amazon, HCL etc. also use new
techniques for innovations and provides their services at lower cost. The cost strategy of
competitors company create pressure on Microsoft company to reducing cost and provides new
values point to consumers. Microsoft has to maintain with all this strategies and build strong
strategies to deals with. For these company design new products which are not only affects new
customers but also give a strong reason to their old customers to buy Microsoft products.
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Microsoft also design powerful techniques which becomes barriers for new entrants in dynamic
market of company(Oláh and et.al., 2017).
Threats of substitutes: Substitute products and services are those which can be utilized in place
of firms products and services. Microsoft's company also dealing with substitute products and
services in market. Microsoft know that when customers find new products and services in
replacement of other goods than company profitability affect. Threats of substitute products and
service is high. For dealing with those issues, Microsoft reduce the availability of substitute in
market. Microsoft services like windows, software and some other technical systems are
outdated, so company replace them more efficient services and technology. Microsoft also
increase their switching for consumer, so that are not able to shift another substitute.
Management of firm also focus upon customers need that what actually wants from the firm,
what kind of products and services satisfy their needs. By all this techniques Microsoft's reduces
the threats of substitute in organization(Galkin and et.al., 2017).
Illustration 2: Michael Porter's Five Force Framework
[Source: Microsoft Corporation Porter Five Forces Analysis, 2018]
PESTLE Analysis
PESTLE Analysis model is the instrument for identifying all external factors that
influence the remote or macro-environment of the organizations. Microsoft's managers apply the
PESTLE analysis formulation to interpret all company's business situations in the competitive
market. For Microsoft these external factors indicate the performance of the computer hardware
and software market. These factors symbolize the issues related to the business of the Microsoft
and by determining the issues through PESTEL Analysis company can make strategies to
compete with other competitive rivals in the market(Jeske and et.al., 2019).
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Political Factors : The political factor of PESTLE Analysis deals with the impact of government
on the macro environment of the computer software and hardware business. Microsoft raise its
sales and marketing investments due to the political stability of the countries worldwide which
creates greater opportunity for the company. Microsoft with the help of the governmental support
for high tech solutions can raise computer technology gross sales with the help of government
clients. Expand in international trade agreements helps the Microsoft to grow its sales globally
also by evaluating the macro-environment. Company can easily meet up with all business deal in
foreign market. The EU is becoming more attentive towards the US giants after the terrorist
attacks as the political pressure has raised on IT and technology companies(Bosisio and et.al.,
2019).
EU has fined the Microsoft for anti- trust violation by $750 in 2013. This shows that the
political factors directly affects the Microsoft's business. Microsoft contribute $10 million for the
data protection, sales taxes and regulations and privacy of the data which is the favourable
condition for political lobbying for the company. Economic Factors :Economic factors has a
direct emphasis on the company. The world economy is growing very rapidly after the recession
period. The economic environment of the country shows the profitability in the market. If
economy is thriving the consumers purchasing ability will be high and this will raise the revenue
and profit of the company. Microsoft has increases its sales and software business in year which
result in amazing profits for the company. Thus, the improvement in the global economic
situation helps the Microsoft to increase its sales and profit in upcoming years. The global
economic and financial crisis in 2007-2009 leads to have a adverse impact on the Microsoft they
had downsized more than 50,000 of their employees in 2009 this shows the economic factors
directly effects the Microsoft. Social Factors: Social and cultural factors have a direct impact on
the sales and revenue of the company. It is very essential for them to evaluate the social and
cultural forces if these factors are not maintained this could have a negative impact on the
company. So the thorough understanding of the customers living standards, belief, education in
society helps the company to design the product and marketing strategies which will helps them
to boost up their business with huge success. Microsoft is now developing a gaming product for
their customer's leisure time to gain more customer satisfaction. With the rapid use of technology
people can easily connected with each other via Internet. This gives a chance to the Microsoft to
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promote Skype and MSN which is cost effective and convenient way for their customers to
easily connect with each other(Irina and Olga, 2016).
Technological Factors :Microsoft is the hi-tech company. Thus is there is any change in the
technology may directly affect the organization. To lead among the other competitive rivals
company should keep on developing new technologies continuously. They had to make the
strategic changes in their technology to compete with rivals. The increasing trend of online
transactions builds the opportunity for company to introduce more products which offers the
secured online transaction thus how they can attract customer's attention and safeguards their
customer's from cyber crime. Nowadays, smartphone trends are also growing rapidly to become
a popular Microsoft is developing Windows 8 for smartphones to follow up the customer's taste
which will help them to increase the profit. The company has also announced the strategic
partnership with Sony for software solutions, artificial intelligence and semi conductors. There
aim is to develop the play stations and Xbox. They are introducing advance features in them
which includes the virtual reality, voice recognition which will help the company to grow
effectively in the competitive market. Environmental Factors : This factors is becoming is more
important to be considered in 21st century. All technological companies which makes
smartphones, PCs and laptops have a major responsibility for the environmental factors. Because
these products are complicated to dispose and comprise hazardous elements which may have an
adverse effect on the environment. Microsoft is making a significant investment to negotiate its
environmental effect. From 2012 company has reduced the use of carbon in their products and
services. The organization is also investing in renewable energy which is a positive step in their
sustainability strategies. Company can also use recyclable materials in their hardware and
software computer products and packaging by this they can directly raise the sustainability.
Legal factors: Legal factors are another force which may have an important effect on the
business. Microsoft Corporation can implement effective disposal and recycling programs to
enhance their brand image among the customers due to the Electronic waste disposal regulation.
Microsoft uses the Grants Management solutions which is built on Microsoft Cloud technology,
avails the broad platform to access new regulations, and can understand the operations deeply
and burden of reporting may reduce. Microsoft uses the data protection act as it is very necessary
for the company to safeguards the data as it is engaged in cloud business they must compliance
all their privacy data and use the safest way to store the data's. The company should be careful
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about the trade, labour and product law and compliance for the smooth low of business among
different countries(Kara and Ant, 2018).
Illustration 2: Pestle Analysis
[Source: Scanning the Environment: PESTEL Analysis, 2016]
International strategic management
Strategic thinking is a concept that an individual or an organization applies while making
the decisions for their long term goals. In short, it is the series of analysis which an individual
goes through in order to attain its future objectives. Companies usually goes through extreme
strategic planning where they to assess the various competitors to achieve competitive
advantage. It becomes a crucial tool for all the organizations to identify emerging opportunities
and overcome the threats(Steiner and et.al., 2016).
Exposed to wide variety of strategic tools, one of the most common tool used by
Microsoft to devise strategies in order to accelerate their future growth is Ansoff matrix. Ansoff
matrix is a well known strategic model which enables the organizations to evaluate their product
as well as market strategy. This model used by Microsoft have enabled the company to thrive not
only domestically but across the globe. The four different strategies of model revolves around
the unexceptional potential of Microsoft to make their brand them recognizable by people around
the world. These four wide strategies are:
Market penetration- This is the strategy whereby the organizations advertises their already
established products and services in already established market. In short, Rather than providing
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the new products to new market they focuses on offering the old products within current market
and aspire to thrive a large market share. Microsoft utilizes this intensive strategy in order to
flourish their business. For example Microsoft dominated the IBM PC adaptable operating
system globally where it successfully covered market penetration by differentiating its strategy
as well as bought uniqueness in its product to entice customers. Besides this, Microsoft promotes
its windows devices and application software in around 116 stores of Microsoft spread
worldwide and also online channel through authorized distributors(Riso and Castellini, 2019).
Product development- This strategy involves the organizations effort to grow their market share
by introducing new products and offering but in operating and existing market. This involves
expanding the product line or product mix and supplying to already working market. Microsoft is
highly engaged in this strategy and uses its each and every aspects systematically. For example
the cloud engineering group of Microsoft developed a CRM management tool and Cloud
infrastructure in its recent Xbox one game as well as added new feature to serve existing market.
This occurred during the fiscal year 2018 where the expense in research & development
increased to USD 1.7 billion as compared to 2016 & 2017 and revenue of Microsoft reached to
13% with its launching(Omelyanenko, 2016).
Market development- In this growth strategy, Organizations endeavors to widen their
geographies and market with the help of old and existing products. Companies try to explore new
market overseas by advertising those products which has gained much popularity in the current
market. Since the inception of globalization, Microsoft has entered a wide range of markets
overseas and has left its presence almost in each and every country. Its potential to flourish in
every corner of the world has enable them to use effectively use market development strategy.
Example In 2010, when Microsoft first launched its innovative Hololens, they planned to
distribute and advertise this in around 10 countries but as its features increased its demand on
global scale, Microsoft decided to launch them in further 29 countries.
Diversification- This is the most complex yet advantageous strategy used by the organizations
wherein the companies introduces new products or expand their product line and offers them in
entirely brand new market. Rather than acquiring a large share of market through existing
products, Companies try to achieve competitive advantage with greater synergy between new
product and market. Microsoft uses this intensive strategy occasionally which serve as
supporting factor for them. In the year 2006, when Microsoft first entered cloud business
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simultaneously its competitor Amazon introduced amazon web services but by the end of 2018,
Microsoft exceeded Amazon and became a acknowledged leader in terms of cloud computing.
While in the same year, Microsoft gained 26,7 billion revenues, Amazon revenue fell to 23,4
billion.
McKinsey strategic model
The McKinsey 7S model postulates that in order to achieve organizational effectiveness,
seven factors which are internal to an organization should be aligned to each other as well the
strategic goal of companies in order to become successful. This model is used constructively by
Microsoft to identify the attributes that requires alignment with a view of improving the
performance as well as to manage the alignment during course of changes. The seven factors
encompasses
Structure- Structures defines the way in which the tasks would be performed in an organization
and authorities would be delegated among people. Microsoft follows divisional organizational
structure which was result of restructuring initiative brought about by Satya Nadella, CEO of the
company in 2015. The engineering group of Microsoft is segmented into three compartments
namely Cloud and AI group, research services & artificial intelligence, Experience + appliances.
In contrast to this, its business functions are bifurcated into nine units.
Strategy- Strategy is basically a future plan which the companies prepare to meet any future
uncertainties or contingencies as well as to attain long term objectives. The business strategy of
Microsoft mainly emphasizes on "cloud-foremost, mobile first" and on growth via mergers and
takeovers. Besides this, they are investigating different business opportunities in terms of virtual
reality. Moreover, Microsoft focuses on product differentiation where they launches advanced
digital technology software's and products and distributes them at prime cost.
Systems- System encompasses the various formal as well as informal methods in order to
control and influence the organization. Microsoft employs a varied type of system which
indirectly helps them to run their company successfully. These systems besets employee hiring
and selection, team development system, orientation and monitoring system, customer
relationship system, transaction system, business management system etc. Thus Satya Nadella
endeavors to mitigate bureaucracy at each and every level and simplifies their system.
Skills- Skills includes the efficiency and potential of an organization and their employees which
helps them to achieve their individual as well as organizational goals. Microsoft usually faces the
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biggest challenge of analyzing the skills and knowledge of their personnel. In order to overcome
this, Microsoft C SEO has been working in collaboration with Microsoft's learning and talent
group as well as Linked In to create a skills library where the skills and capabilities needed to
excel would be included.
Style- Style usually encloses the leadership styles that the managers applies while making a
decision or bringing changes in the organizations. When Satya Nadella took over the reign of
Microsoft, CEO clearly conveyed the company expectations and encouraged the employees by
showing a positive leadership attitude. Satya Nadella used the term "growth mindset" as well as
"Empathy" and justified these two in actions(Maduro, Fernandes and Alves, 2018).
Staff- Staff represents people of the company and the way organizations hire and train its
personnel as well as promotes them. Microsoft applies a vigorous effort in recruiting and
selecting the great staff and providing training to them. Microsoft recruits around 144 thousand
employees on full time basis and approx 6% of its employees are put up in home country itself.
The staff of Microsoft are generally put up in four divisions namely product support,
manufacturing, distribution and consultation services.
Shared values- These are the core values that matters for an organization and become a guiding
factor for personnel's explaining what must be important and what they should follow. Microsoft
relies on its main core values which is generating trust among the hearts of customers across the
globe. It is entrenched in its mission and values where they focuses on empowering each and
every person to achieve more success and customer base. Its vision lies in its core strength which
emphasizes on encouraging the human beings and organizations so that they realize their
strength and potential.
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