Microsoft Company’s Porter’s Five Forces Analysis

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Introduction

The modern high-tech sector has reached a very deep level of development. The sector contains dozens of different industries and thousands of segments. However, software development is a key area for the entire sector, which makes a normally functioning device out of an iron box. The world leader in software development is Microsoft Corporation. This paper evaluates Microsoft’s business and corporate strategies according to Porter’s Five Forces Model.

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Microsoft’s Competing Industry

Microsoft is a global leader in information technology, delivering a wide range of devices and services, software and IT services. It is one of the largest corporations in the world, operating in more than 190 countries worldwide. The company has a product-type divisional organizational structure, where each division specializes in a certain line of products and services. Thus, the range of Microsoft products is unprecedentedly wide for the IT industry. There are desktop and network operating systems, server applications for client-server environments, desktop business applications and office applications for users, interactive programs and games, Internet tools, development tools, and, finally, innovative technologies. The official Microsoft site (2021) states that “on July 2021, operating income was $19.1 billion and increased 42%, while the net income was $16.5 billion and increased 47%” (para. 3-4). The company managed not only to stay afloat but also to increase its income during the pandemic.

The main product of the company is Microsoft Office – a software package that contains applications for editing text files, creating presentations, sending messages by e-mail, and other functions. Particular attention should be paid to the Excel program, which is unique and currently has no alternatives in the world. In fact, Microsoft is a monopoly in its segment of the software market – there also were instances where antimonopoly cases were initiated against the company. As an established leader in the software and accessibility market, Microsoft strives to implement the principle of universal accessibility in the field of innovative technologies. Despite the company being private, it actively invests in innovative technology projects from non-profit organizations such as universities – like the University of Washington, together with which the company created the first DNA storage device.

Microsoft’s Business Level Strategies

Microsoft’s business model has historically been based on a few key strengths. The first and most important has been the license fees for using the Windows operating system and Microsoft Office. After years of growing futility in a race against Google and Apple, Microsoft unveiled a new vision in April 2014, instantly shifting the focus to making Windows software more compatible with competing products. Going forward, however, Microsoft has realized that paid software is harder to sell in an era of low-cost alternatives. Thus, Microsoft’s new business model focused on product integration, freemium software, and the cloud computing business.

Microsoft is constantly introducing new technologies into its operations. Technological innovation affects the efficiency with which products can be manufactured and sold, the rate at which the product becomes obsolete, and how information can be collected, stored and distributed. In modern market conditions, the only principle that guarantees to obtain competitive advantages is to create better information products, systems and management technologies significantly faster than competitors. For example, Kah Chon (2019) states that, in 2013, Microsoft had problems in the field of operational risks in the PC market, as the launch of Windows 8 resulted in lower profit rates. So the defining perspective development of the IT industry today is the development through establishing unique, innovative products, systems and control technologies.

Microsoft’s Corporate Level Strategies

For successful development, the organization must constantly identify the existing and potential opportunities concerning the most effective use of its internal resources – intellectual, informational, labor, material, financial, and other. Today’s international competition in high-tech industries such as semiconductor manufacturing, information services, and computer software development is a tough fight. To win and survive, companies need an overarching vision that clearly articulates the rules for how to gain and strengthen competitive advantage.

The corporate logic of Microsoft company’s leaders is that static structures sooner or later fall into decay. The only possible way of survival is the constant adaptation of the strategy to new conditions and changes in the external environment itself. Kraśnicka et al. (2017) state that an “innovation supportive culture stimulates the generation of new solutions or their absorption from the outside and contributes to the more effective implementation of creative ideas” (p. 745). The search and creation of new sales markets, the development of new products, and the formation of new alliances and new network structures are required for business growth. However, the process of changing companies itself can be of a different nature. It is either a passive response to a sharply reduced sales volume and increased competition, or it is active action in order to adapt to new conditions.

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Recent Major Changes in Strategy

At the beginning of 2019, Microsoft developed and began to implement a new strategy in several key areas. One of them is helping the companies that use Microsoft software solve digital transformation issues. The second is participation in the development of the global IT ecosystem through strategic coalitions, a focus on industrial solutions and assistance to foreign partners in global advancement. Finally, Microsoft strives to contribute to the growth of the number of highly qualified IT personnel in the industry.

As part of the company’s global transformation strategy, the employees of Microsoft’s offices no longer focus exclusively on local tasks. Experts from different countries can now be involved in large international projects. For example, the experts from the Microsoft office in Moscow, Russia, work on the implementation of projects for H&M and the Australian supermarket chain Coles. The company has also radically changed its approach to collaborating with independent developers using Microsoft technologies. The main goal of the transformation is to ensure the reliability of the final product. Now the vendor goes through the entire cycle of creating solutions with the developer: from determining the demand, technical creation and validation of the solution, piloting, to bringing it to the market. Microsoft employees are personally motivated by selling partner solutions.

Impact of the COVID-19 Pandemic

In 2019-2021, in addition to looking for an answer to the strategic question of how to stay afloat, Microsoft was forced to solve a tactical problem: how to ensure uninterrupted operation during a pandemic. With the transition of companies to a remote mode, not only the number of information security incidents and their sophistication has grown, but also the scale of the consequences. The coronavirus left the company no choice but to provide employees with reliable and efficient remote access to their workspace. In the spring of 2019, IT departments were thrown off their feet, doing a tremendous job of providing access to business applications and communication tools, and Microsoft, in turn, gave them comprehensive support. Practice showed that it was easier for flexible companies to transfer work to remote rails than for organizations that reigned an outdated approach to information security.

For an IT giant like Microsoft, remote access was certainly not something entirely new. A hybrid approach to organizing work processes has been foreseen and practiced for a long time by the company’s employees. However, during the pandemic, this approach has spread to almost all personnel. With the help of Microsoft’s own IT solutions, the employees were able to not only save but also increase labor productivity and, at the same time, remain safe.

The uniqueness of the Microsoft example lies in the fact that before the pandemic started, the company had already built an organizational architecture for the implementation of a new corporate strategy. Mitra (2020) adds that the diversity of approaches based on communication is the key to understanding the concepts of entrepreneurship, innovation, and development, as they are linked with people, organizations, and the environment. This architecture helped the company not only complete the strategy restructuration program despite the pandemic but also gave it the ability to change corporate strategy, creating new technological and organizational competencies.

Conclusion

Microsoft itself has become an impressive example of realizing potential opportunities for both businesses and people. In many ways, determining the current state of the world information technology market, Microsoft Corporation is one of the main generators of its growth. For a number of years, Microsoft has been working on a unified platform, the components of which would not only solve the client’s business problems but would also perfectly integrate.

Thus, the complete description of Microsoft’s business strategy is a combination of a concentrated growth strategy and a diversified growth strategy. The company gains the best position in the market with an existing product while developing both the market and the product. Subsequently, it expands through the production of technologically unrelated products and the search for new markets. Regarding corporate strategy, Microsoft supports a strong organizational culture that provides healthy and innovative supportive work conditions.

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References

Kah Chon, O. (2019). Impacts of firm-specific factors and macroeconomic factors against Microsoft’s performance. Munich Personal RePEc Archive. Web.

Kraśnicka, T., Głód, W., & Wronka-Pośpiech, M. (2017). Management innovation, pro-innovation organizational culture and enterprise performance: Testing the mediation effect. Review of Managerial Science, 12(3), 737–769. Web.

Mitra, J. (2020). Entrepreneurship, innovation and regional development an introduction. London, UK: Routledge.

Microsoft. (2021). Microsoft Earnings Release FY21 Q4. Microsoft. Web.

Warner, J. P. (2019). Microsoft: A Strategic Audit (thesis). University of Nebraska-Lincoln, Lincoln.

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BusinessEssay. (2022) 'Microsoft Company’s Porter’s Five Forces Analysis'. 5 November.

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BusinessEssay. 2022. "Microsoft Company’s Porter’s Five Forces Analysis." November 5, 2022. https://business-essay.com/microsoft-companys-porters-five-forces-analysis/.

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BusinessEssay. "Microsoft Company’s Porter’s Five Forces Analysis." November 5, 2022. https://business-essay.com/microsoft-companys-porters-five-forces-analysis/.