A CASE STUDY OF MICROSOFT CORPORATION 1

A CASE STUDY OF MICROSOFT CORPORATION: STRATEGIC DIRECTION IN THE

LAST DECADE

Course Name

Professor’s Name

University Name

City, State,

Date of Submission
A CASE STUDY OF MICROSOFT CORPORATION 2

Table of contents

1. Introduction

2. Literature review

3. Marketing Mix (4Ps) analysis

4. Microsoft's organisational structure

5. Analysis

5.1. Microsoft Company and its environment

5.2. Five Forces Analysis (Porters model)

5.3. SWOT analysis

5.4. PESTEL analysis

6. Conclusion

7. Reference list
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Introduction

Microsoft Corporation- founded in 1975- is the largest software company in the

world; it also deals in devices, services and solutions that are aimed at enabling people and

businesses to achieve their full potential- the core underlying principle of the company.

Microsoft is regarded to have attained optimum practice status across various operational and

strategic business practices. Through its technical innovations and marketing expertise,

Microsoft has excelled and dominated the software industry. However, in an entirely new era,

Microsoft is increasingly being identified as a best practice company; an organisation that is

aligned with a services strategy. Microsoft is a company that has synchronised its operational,

organisational, and strategic aspects around Enterprise Service Management- this is their

services strategy that is partner-based and is aimed at satisfying the complex IT service

requirements of the high-end customers who are also geographically diversified. Much of

Microsoft’s success is attributed to its software business. However, the last decade has seen

Microsoft undertaking strategic shifts that revolve around software, devices and services in a

bid to achieve success in the highly competitive market of today. This paper aims at tracing

the changes of strategy and strategic direction of Microsoft over the last ten years.

Literature review

In 2000, Steve Ballmer took over as the CEO of Microsoft from Bill Gates and later

visualised a strategy of “devices and services” rather than the company being viewed just a

software company (Rubini, 2010). This strategic shift was a major transformation and it

began in 2008 when Danger Inc. was acquired. For the first time, in 2012, Microsoft entered

the market for personal computer production by launching the Microsoft line of tablet

computers- Surface. Later, the company formed Microsoft Mobile by acquiring the devices

and services business of Nokia (Violeta and Camelia 2016). Ballmer said that the business of
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the company has shifted into a devices and services company. In the devices and services

strategy, Microsoft aimed at producing various devices and services for both individuals and

businesses to empower the people in their daily activities. According to Ballmer- the then

CEO- this could only be achieved by Microsoft going back to its core mantra- to enable

business people reach their full potential. This move was not only in recognition of the threats

to its (until then) core software business but it was also a basic move in the direction of

monetising software through hardware and service-based models.

This transformation was quite huge and presented a profound challenge.

MacCormack and Iansiti (2009) claim that a few years back, it would have been unthinkable

of Microsoft as a “devices and services company”- especially one that is led by devices

having been mainly a software company. The tradition software business was seen as dead or

dying, a position that was until later on forthrightly acknowledged by Microsoft. Many of the

problems experienced by Microsoft arose from the fact that, Microsoft still viewed the

software- Windows licensing- business as its core business despite the headline

transformation into a Devices and Services company. This conflict needed to be solved first

before Microsoft pursued the devices and services strategy.

However, when the position of CEO changed hands in 2014 and Satya Nadella took

over, there was a scaling back on hardware as the company’s focus was instead on cloud

computing. This move helped the shares of the company to attain the highest value since

December 1999 (Chao and Kavadias 2017). At 2014, the primary priority of the business was

to reshape the “core” of Microsoft- Nadella admitted that the devices and services strategy

introduced by Ballmer was helpful, but there was a need for a unique strategy. The unique

strategy involved focusing on mobile and cloud computing- Nadella stated that the aim was

to reinvent productivity so that every person and every organisation on earth could be

empowered to do more and achieve more (Chao and Kavadias 2017). Nadella pointed out
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that the devices and services business and cloud computing were interconnected- he said that

every device or sensor is connected back to a cloud service. Nadella also planned on

reshaping the various products of Microsoft to be quality-focused, speed-oriented, data-

driven, and customer-obsessed. The fact that there was a new leader, but one that could

implement the same strategy in a unique way was a huge advantage for Microsoft- the ideas

of Ballmer and Bill Gates could be implemented but in a unique way.

The last ten years have seen the transitioning of Microsoft from the previous sale of

packaged software- such as Windows disks- to service contracts that span for years (Patel

2017). As a result, the dependence of the company on the unit sales of software licenses and

personal computers has been reduced- the company has created a business where there are

increasingly recurring revenues. However, the shift of the tech industry to services from

software packages is now advancing far beyond payment models.

Marketing Mix (4Ps) analysis

The marketing mix of Microsoft Corporation shows how the combination of

innovation and effective approaches are used to maintain a strong market share. The 4Ps-

Product, Place, Promotion and Price- or marketing mix determines the tactics and strategies

for the implementation of a marketing plan. Microsoft utilises online technology and

technological procedures for protection of digital products. It enjoys high revenues as it is a

major competitor in the market for hardware and software.

Initially a software developer, Microsoft now offers a variety of products. Its

product mix includes software, devices, games, apps and entertainment. Software category

includes Windows OS and Microsoft Office. Hardware includes Windows phone, Xbox,

tablets and personal computers. Apps include proprietary, free, and third-party software

products- examples are proprietary Drawboard PDF and Microsoft Remote Desktop. Gaming
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products include Windows games and Xbox games. In the entertainment sector, Microsoft

earns some revenue from all songs and movies that are sold through its website. Thus, there is

a high-level diversification of Microsoft’s products. This is part of the generic strategy and

intensive growth strategies of Microsoft which facilitate growth through penetration of

markets and provision of attractive products.

In its Place/ distribution mix, Microsoft uses its official websites/online stores,

authorised sellers and stores for transacting with customers. Although the Microsoft stores are

limited in number, they facilitate direct marketing which enables the company to improve

customer experience and enhance brand image. This distribution mix shows the company’s

strategy of capturing every person as a consumer. In its Promotional mix, Microsoft aims at

attracting customers by implementing effective tactics and communication strategies. The

promotional mix includes public relations, personal selling, direct marketing, sales promotion

and advertising. Advertising is the most significant and is the biggest promotion expense of

Microsoft- example is the corporate image-enhancing “Women Made” Super Bowl ad. The

company also offers donations, incentives and discounts. In pricing, Microsoft uses the

following pricing strategies- Buy Only What You Want, Freemium, and Market-oriented

pricing strategies. Each strategy has its own advantages. The pricing strategies of Microsoft

are reformed with regard to changes in the market for hardware and software, especially in

the presence of heavy competition from other technology firms.

Microsoft's organisational structure

The organisational structure of Microsoft Corporation emphasises the importance

of business output- this structure is used to maintain a competitive advantage. The

organisational structure facilitates the growth of the company especially following the

structural change of the firm implemented in 2015. The structure of the organisation is

responsive to the dynamics of the hardware and software market hence ensuring the long-

term success of the company.

Microsoft’s organisational structure is the product type divisional structure

(Sawhney et al 2017). In this structure, there are various divisions (of personnel and

resources) based on particular organisational outputs (computer hardware and software

products). Microsoft’s product type divisions include personal computing, intelligent cloud,

productivity and business process, and corporate division and others. In addition to product

type divisions, Microsoft’s organisational structure has other significant secondary

characteristics that define it; these include global corporate groups and geographic segments.

Based on the functions that are essential in the business of computer technology, these

corporate groups ensure the functioning of the organisation as a whole. For instance, the

Human Resources group ensures that the workforce requirements and related concern in the

company are addressed. The marketing group ensures that the company outputs are well

promoted through advertising and market research hence enhances increased sales (Jeffery,

Aoyagi, and Kalletta 2017). The corporate strategy and operations group devises and

implements tactics and strategies that enhance the performance of the company. The finance

group handles all the financial records in the company and is involved with budgeting and

planning- good financial communication has contributed immensely to the success of the

company (Trojetto, 2015). The technology and research group delves into technological

advancements and is tasked with coming up with new technologies. However, the

performance of this group is wanting as Microsoft lags behind in the field of new

technologies. Other global corporate groups in the organisational structure of Microsoft are

Legal, Windows and Devices, Application and Services, Business Development, Microsoft
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Cloud and Enterprise, Microsoft Global Sales, Marketing and Operations, Worldwide

Commercial Business, and Office of the CEO groups. The coordination of these groups has

enabled Microsoft to function as a whole and achieve success. However, the poor

performance of groups such as the Technology and Research and Legal groups is threatening

the performance and ranking of the whole organisation.

Geographic segments are less significant in the organisational structure of Microsoft

and they are used to categorise operations in the financial reports of the company. These

geographic divisions are: Unites States division and International division. The organisational

structure of Microsoft has implications, advantages and disadvantages; the main implication

of this structure is the ability to emphasise on product development. For instance, the

intelligent division of the company is used to provide innovative/highly advanced services in

cloud computing. This corporate structure is subsequently advantageous as it contributes to

the competitiveness of the products from Microsoft. However, this structure is

disadvantageous as it offers a less analysis of regional market differences. Patel (2017) says

that preferences for the features of Microsoft products- such as the smartphones- vary from

place to place. Therefore, there is the need for the integration of regional market differences

in the design of Microsoft’s organisational structure.

Analysis

Microsoft Company and its environment

The case study looks into Microsoft Company and its highly competitive

environment. There are internal structures defining Microsoft as well as external factors

threatening its dominance in the software market. With the trends in technological

advancement, the leading position of Microsoft in the industry is being outshined by rivals

who are more innovative.

The technology industry that Microsoft operates is not only fast-paced and

changing rapidly but also it is one where preferences fluctuate frequently. Most of the drivers

of technological trends do not favour the software giant. Kenney and Pon (2011) say that the

advancement of the capabilities of the mobile device has transformed effective computing.

The sales in smartphones are five times higher than the sales in PC; also, the strength of the

PC market is being threatened by the popularity of portable tablets. With the entry of personal

devices in the workplace environment, business choices are being superseded by consumer

tastes. The dependence of Microsoft on PCs and enterprise markets is at a disadvantage under

these conditions. Furthermore, computing markets are about to undertake a transformational

shift in the direction of a “cloud-based” service model (Marston et al 2011). There is a

disparity between new platforms and the marketing and distributing structure of Microsoft

which puts about 90% of the market share of Windows at risk. Though these environmental

factors pose a threat, awareness of these trends provides insight into the future and reduces

the dilemma with regard to the future direction of the industry. The sale of PCs still exceeds

newer mobile devices sales and the use of Microsoft’s Office suite of software products, as

well as its operating system, is not yet about to dissipate. Cloud computing- despite being far

different from the successful software packages of Microsoft- presents new opportunities for

Microsoft to indulge in new markets that are valued at more than $3 trillion (Hyrynsalmi et al

2016).

Although Microsoft missed previous opportunities of introducing new technology,

it is undertaking heavy investments in its cloud computing platform and already 300 million

users are being supplied with cloud applications- Microsoft is also establishing innovative

cloud platforms to aid data management systems and data centre efficiencies in its primary

enterprise market (Chao and Kavadias 2017). Also, Microsoft has successfully advanced in

the profitable search engine advertising market where Bing has gained a stunning 11.5%
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share despite being in the market for one year and four months (Patel, 2017). There is

potential for more growth as users become more attracted by the futures that the upstart

search engine offers. Opportunities for International growth should also be integrated into the

strategic planning of Microsoft which generates about 42% of its revenue from outside the

domestic market (Hitt, Ireland, and Hoskisson 2012).

Competitors in consumer markets are gaining more ground against Microsoft;

recently, Apple surpassed the ranking of Microsoft as the most valuable technology, and this

presented a psychological hit to the company. Although the company still firmly holds the

business enterprise market, the competitors are ahead of it in the introduction of new

technologies such as media, gaming, smartphones, and tablets. There is a multimarket

competition between Microsoft and its rivals, Google and Apple; each competitor is aiming to

converge media markets, telecommunications and IT. Each of the three companies generates

revenues differently. Online advertising accounts for 97% of the revenues for Google;

consumer electronic sales account for 60% of Apple’s income; 58% of Microsoft’s revenue is

generated from operating systems and software (Adams and Watch 2015). The levels of

diversification for both Microsoft and Apple are moderately constrained. The competition

model for Apple is an entertainment/communication “hub” that is consumer-centric. PCs

account for 27% of Apple sales thus impacting the software and operating systems reach of

Microsoft. Google mostly depends on a single source of revenue- although this suggests a

lower level of diversification, the opposite is true. To support its ad-based model, Google has

innovative developments in browsers, applications, operating systems, and other software;

thus it provides competition on all business segments of Microsoft. The enterprise market of

Microsoft is being directly attacked by Google- Google is doing this by developing new

products in cloud computing; there is a free software that connects Google’s cloud and MS

Office products hence attracting users. Google has adopted aggressive competitive business
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practices such as fierce pricing and copying the features of Microsoft’s products such as the

Bing search engine. Also, with its extensively used Android operating system for phones,

Google is a threat to Microsoft.

Figure 1: Microsoft’s monopoly hangover (based on research from Rotem, 2017)

Microsoft’s revenues have shown an upward trend over the years. The revenues hit

the $60 billion mark in 2008 and have grown upwards reaching their maximum in 2015.

However, in the technology industry, Microsoft is still one of the biggest names; it has

been dominating the software industry for more than 30 years and has a vast global customer

base (Mosheshe, 2017). The central position of Microsoft in the PC industry is attributed to

successful strategic practices and entrepreneurial leadership (Rowley 2016). The major

strengths that have played a significant role in the success of the company include distinct

distribution channels, strategic acquisitions and alliances, and integrative product

development and promotion (Gawer 2014).

Figure: The global market for operating systems of PCs (Microsoft's annual revenue

worldwide, 2018)

Microsoft has been dominating the PC software market for years. However, other pc

software form companies such as Apple have shown an upward trend and they are

threat to Microsoft; this is especially so because such companies have other specific

areas where they are leading in the market- such as the fields of computer hardware

and mobile technology.

Aggressive business practices have enabled Microsoft to acquire 500 million MS

users- this represents 98% of the market for office software- and 96% of the browser market.

However, this has happened at a price. The cooperative partners of Microsoft have a negative

view of Microsoft whose reputation has been tarnished- the company has been widely sued

for anti-competitive behaviour and intellectual property claims (Boldrin and Levine 2013).
A CASE STUDY OF MICROSOFT CORPORATION 13

Gavil and First (2014) says that legal cases such as the Microsoft Antitrust cases have

negatively impacted the company both in terms of finances and the reputation. Microsoft is

also failing in the area of development of new technologies; this is despite its history of

driving broad its products, entering new markets, and establishing and adopting disruptive

technology trends. There are various factors which suppress internal innovation- creative

talent is being lost to innovative firms which offer more generous compensation packages and

have more exciting product development; bureaucracy and organisational size which hinder

speedy response; dependencies and coordination across product lines. Microsoft’s failure to

recognise the importance of mobile and web-based advancements has made it difficult to

compete in the segments where there is fast growing technology (Cusumano, M.A., 2010).

By using third-party manufacturers, the company lacks in-house capabilities to comprehend

and be competitive in the division of entertainment and devices. With the orientation of

computing to smaller devices which are portable, the company cannot be able to compete in

the tablet and smartphones market as it has an outdated operating system for mobile devices.
A CASE STUDY OF MICROSOFT CORPORATION 14

Figure: The leading smartphone operating systems (based on a survey conducted by Gartner-

Microsoft's annual revenue worldwide, 2018)

Microsoft’s operating system has been performing poorly in the global market. The android

and iOS operating systems are widely used and pose a threat not only to Microsoft’s

smartphone operating system but also to the use of personal computers in the market.
A CASE STUDY OF MICROSOFT CORPORATION 15

Global annual revenues in billion U.S dollars of Microsoftfrom FY 2008 to FY 2017

100
90
80
70
60
50
40
30
20
10
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2107

Figure: annual revenues from 2008 t0 2017 (Microsoft's annual revenue worldwide,

2018).

Microsoft’s revenues have always been high with slight increments or reductions over the last

ten years- this shows the dominating position that Microsoft holds in the Computer hardware

and software market.

The net income of Microsoft in billion U.S dollars

30

25

20

15

10

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
A CASE STUDY OF MICROSOFT CORPORATION 16

Figure: Microsoft’s net income since 2008 (Microsoft's annual revenue worldwide,

2018)

Despite achieving record revenue in 2015, Microsoft’s most successful year was in 2011

when the record net income was achieved. As a global firm, Microsoft has high productivity

costs; cutting down on these costs ensures that Microsoft gets more net income.

Five Forces Analysis (Porters model)

From the analysis of Microsoft and its environment the five forces in the industry

and their intensity are as follows- threats of new entry (moderate force); risk of substitutes

(weak force); suppliers’ bargaining power (moderate); consumers’ bargaining power

(moderate); competitive rivalry (strong). The company’s resilience is influenced by the ability

to address these concerns strategically. Pinto (2010) says that there must be strategic

implementations to enhance competitive advantage. For instance, research and development

operations must be stepped up along with innovation and upgraded product development to

leverage on the ability to compete against products from other firms.

SWOT analysis

SWOT analysis identifies strategic factors in the internal environment (strengths and

weaknesses) and external environment (opportunities and threats). In the case of Microsoft,

such factors have implications for business diversification, cybersecurity, and unique product

development (Helms and Nixon 2010). The strengths that have facilitated the success of

Microsoft include strong and strategic alliances and acquisitions, alignment of products with

positive externalities, and a dominant brand image. There are some weaknesses that slow

down business in Microsoft- these include lack of computer hardware products that are

dominant in the market; imitability of some products (such as Bing), and cybercrime

vulnerability. These weaknesses can be addressed by enhancing hardware development and

upgrading product features (Wheelen, 2012). Microsoft has various opportunities for stronger

cybersecurity, innovative computer hardware products, and business diversification. Business

diversification can be achieved through acquisitions/mergers and new business development.

The threats that tend to compromise business in Microsoft include intensified competition,

piracy (for instance its Windows operating system has been widely cracked) and cybercrime.

According to Gawer and Cusumano (2008), Microsoft has the potential to remain as the

dominating player in the industry of computer software and hardware. It must enhance its

brand further and improve on alliances so as to improve positive externalities.

PESTEL analysis

The PETSEL analysis of Microsoft identifies the macro-environment of the firm- in

this case, the performance of the market for computer hardware and software. Political

factors include more trade agreements in the international arena (threat and opportunity);

growing support for automation from the government (opportunity); most markets are

gaining political stability (opportunity). The economic factors- all of which are opportunities-

include an increasing disposable income of the middle class; developing countries achieving

high growth; most developed countries having economic stability. Social/sociocultural factors

which provide opportunity include- the demand for high-quality customer service has

stabilised; growing diversity in culture (however, this also presents a threat); a stable

perspective of leisure. The technological factors- most provide both opportunity and threat-

include- the growth of automation in business; increased online transacting; rapid growth of

mobile technology.

From the PESTEL analysis, there are various opportunities that can enable the

company to grow and expand in the global market for computer hardware and software.

There are numerous advantages for Microsoft in the macro-environment with regards to the
A CASE STUDY OF MICROSOFT CORPORATION 18

opportunities that are available in the markets worldwide. However, competition resulting

from expanding foreign firms through international trade agreements poses a major threat

against Microsoft. For instance, Asian firms are posing competitive rivalry against Microsoft.

Microsoft can address this threat by developing products that are innovative and outdo those

from the rivals. Also, Microsoft can increase its competitive strength in these overseas

markets by developing more strategic alliances with other firms. From this external

(PESTEL) analysis, for Microsoft to maintain its dominance in the computer-technology

industry, there must be adequate opportunities in the industry environment.

Conclusion

Microsoft has steadily grown its revenues; however, the dull performance of the

company’s stock -especially compared to the soaring stock value of Apple- is a

disappointment to the shareholders (investors and employees). A shift in user preferences,

high competitive intensity, the emergence of cloud computing, and the increasingly popular

Web-based software weaken the dominant position of Microsoft in the software market and

risks to jeopardise its distribution mix. The company must establish strategic actions to regain

its focal position in the emerging computing industry.

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