Introduction
Microsoft is a multinational technology company that manufactures, licenses, and sells computers, software, and electronic devices. Paul Allen and Bill Gates founded Microsoft in 1975 and situated its initial headquarters in Mexico. The company has grown rapidly over the years due to its robust business strategies and vision to promote global development through innovative empowerment. Microsoft is currently the world’s largest maker of software, according to the 2016 list of Fortune 500 (Microsoft). Hence, this research paper evaluates Microsoft’s growth consistency by examining the company’s background and analyzing internal factors, and external factors, business, and corporate-level strategies, and offering recommendations to improve market competitiveness.
Company Background
Microsoft is a worldwide company founded in 1975 by Paul Allen and Bill Gates in Mexico. The company focuses on developing, manufacturing, selling, and licensing of computer software, computers, and electronic devices. Microsoft collaborated with International Business Machines and saw the development of its first computers with the 16-bit operating system in 1981. The incorporation improved the company’s business in America and led to the public trading of its stock in 1986. In the year 2000 to 2002, Microsoft developed Microsoft web services and launched Xbox, office, windows XP, and tablet PC promoting its business competitiveness in the global market (Microsoft). The company’s spirit of continued innovation led to the upgrading of its Xbox system in 2005 to Xbox360 and extended its services to the global market in 2007 with the launch of Windows Vista and 2007 Microsoft office system.
In 2012, the company broadened its business operations to include Windows software for phones with the development of Windows Phone 8 and Microsoft Surface. The objective to expand its business operations from 2013 to 2014 improved Microsoft’s acquisition of Nokia Company to fully manufacture Microsoft inbuilt phone devices. In 2016, Microsoft launched its largest milestone achievement by providing cloud services globally to the public and the acquisition of LinkedIn, a professional network.
The company’s mission to drive global development through innovative empowerment of world population and organizations is the backbone of continued innovativeness and sustained business growth. In this regard, Microsoft is a competitive leader in the innovative development of software that includes Visual Basic and SQL server, computers such as Surface Book, and Pro 4 with their accessories. The company extended the objective to advance knowledge among the global population through education and event resource sharing in Microsoft virtual academy, MSDN forums, and Microsoft press social platform. In this view, Microsoft strives to facilitate technological accessibility among the world population through research and development.
Microsoft believes in people’s potential that drives the goal of building a sustainable future. To achieve this goal, the company’s objective is to minimize pollution in their operational processes and foster environmental sustainability through the adoption of improved technology and research. In 2014, Microsoft fully adopted the use of renewable energy and effectively influenced its suppliers to prioritize investment in renewable energy. Microsoft values diversity and inclusion in the development and social responsibility through the creation and the adoption of accessible technology opportunities, education, and careers among the world population. Growth and expansion of Microsoft in the global market have, therefore, been driven by a culture of involvement and innovative spirit of inclusion in the development of the entire world population. In 2016, Fortune 500 ranked Microsoft as the world’s largest software manufacturer and the most valuable company because of these great business objectives and gains.
External Analysis
Porter’s five forces act as a model for analyzing external factors affecting the company’s operations. According to Majumdar and Bhattacharya, industry analysis of external factors guides strategic planning and enhances market dominance over rival companies (146). Companies utilize Porter’s analysis of external factors to guide in the decision-making process. The five forces include competitive rivalry, buyers’ bargaining power, suppliers’ bargaining power, the threat of substitutes, and the threat of new entrants. Microsoft faces a strong rivalry from established competitors that include Apple, Google, and Open Source Communities offering diversified products and services. Bargaining power of buyers is moderate because Microsoft offers effective and efficient user-friendly products with low switching costs to substitute products from competitors making the bargaining power relatively moderate. Additionally, the bargaining power of suppliers is moderate because Microsoft requires skilled and advanced labor. The nature of the labor force required has a moderate influence on the company’s business activities.
The threat of substitute products on the company’s business is weak due to a limited number of suppliers of substitutes and low performance of those substitutes in the market. The global adoption of expensive and advanced technologies reduces the availability of substitute products from new entrants. The threats by new entrants are substantially low due to the high-cost requirement for brand development. The cost requirements to enter the industry and product design and development with limited expertise are high making it hard for new entrants to penetrate markets and sustain competition.
PESTEL’s framework is the appropriate tool for analyzing Microsoft’s macroenvironment. Macroenvironment refers to legal, political, economic, socio-cultural, environmental, and technological factors that affect daily business activities. According to Dockalikova and Kashi, the macro-environment is dynamic and presents a lot of risks that hinder business growth (334). Companies, therefore, require serious consideration of the macro-environment in decision-making and strategic business planning to enhance market dominance and business growth. The most significant political factors affecting Microsoft include political stability and government support for the adoption of advanced technology in several foreign markets that create investment opportunities. The stable political climate creates a good business macro-environment that increases the company’s global sales. The effects of economic factors depend on economic stability and the economic growth of developing countries. The exponential growth and economic stability in the global market enhance expansion in the industry. The sociocultural factors affecting the company’s business activities include lifestyle changes and cultural diversity. The advancement in technology and modernization in the entire world leads to lifestyle changes that include high demand for leisure activities and communication. Sociocultural changes thus result in more opportunities for advanced software and leisure of products.
Technological factors include the global adoption of improved technology and automation of organizations that result in an increased need for mobile technology with advanced features and online activities presenting an opportunity for investment. However, these activities result in cyber crimes threatening the company’s business activities. The impact of environmental factors on Microsoft includes the global objective for green products. Microsoft fully adopted the Going Green Policy in 2014 that enhances its brand loyalty in the global market. The company faces legal regulations that include disposal policies, patent laws, and energy consumption. The implementation of these factors is an opportunity for sustainable business through enhanced brand loyalty.
Opportunities and threats are forces that determine a company’s sustainable growth. Gupta, Shri, and Agrawal explain that opportunities and threats from SWOT analysis of a company describe the attractive industry characteristics and setbacks that determine the potential for business sustainability (66). Microsoft has a great opportunity for growth as it majorly offers Windows operating system only, and thus, there is an opportunity to diversify into other product lines. Advanced technology also broadens the opportunity to diversify to hardware products. Improved security features and patent regulations efficiently enhance the company’s product brand and customer loyalty and act as an opportunity for market expansion. However, the company faces several threats that include cyber crimes and competitive rivalry. Cyber-attacks compromise customer privacy and damage brand image. Competitive rivalry from other established hardware and software firms that include Apple offering diverse products, threaten Microsoft’s market share. Additionally, substitute products such as Linux pose a threat to the existence of Microsoft.
Internal Analysis
Microsoft Corporation has realized its market growth through value chain activities with other firms that include Dell, Samsung, and Nokia. Alnawaiseh, Al-Rawashdi, and Alnawaiseh describe the value chain as strategic business activities of a company directed towards delivering a high-value product in the market (179). Microsoft value chain activities include outbound and inbound logistics, operations, product marketing and sales, and service provisions. Microsoft outbound logistics refers to product pre-installation and license distribution services that enhance competitive advantage over rival firms as it eases market penetration. Microsoft solely produces software products and ensures all hardware products from the affiliate companies have pre-installed Windows software before market delivery. License distribution agreements with affiliates firms that include Wal-Mart and Dixons enhance the global availability of Microsoft products. Inbound logistics involve agreements with suppliers on business ethics and code of conduct that include environmental sustainability. The agreement promotes the global brand image and builds brand loyalty and acceptance in the market leading to increased global sales.
The company’s operation services in the value chain involve the global availability of manufacturing units that enhance accessibility by suppliers due to reduced transport congestion. Global accessibility promotes job creation for the global population and positively influences the market perception of Microsoft products and brand image, which subsequently enhances competitive advantage over rivals. The integration of both online and manual marketing channels in Microsoft values of effectiveness and efficiency increases market share competition. Microsoft uses brand marketing value to enhance competition. In service delivery, the company provides timely responses to customers via online services. The timely services provide support on purchases, product installation, and proper utilization of the company’s products and services, which result in enhanced friendly collaboration with customers and improved customer loyalty.
Microsoft has enhanced business strength that contributes to business growth and sustainability. The company’s business activities strongly depend on brand image, license agreements with affiliate firms, and strong financial position. A brand image enhances product reputation in the global market and builds customer loyalty as new customers relate brand image with product reliability. License agreements with other firms enhance market penetration through the positive influence of the affiliate firms in the existing market share. Computer companies that include Dell and Samsung have an existing good market acceptance, and Microsoft agreement with these companies promotes brand image and customer acceptance. Moreover, Microsoft poses a strong financial position that enhances its market share through acquisitions, additional retail outlets, and increased research and product development to supply dynamic market needs.
Nevertheless, Microsoft Corporation faces factors that reduce business growth. The organization’s weaknesses include inadequate security features, a single major product line, and improper acquisitions and investments. Security flaws in the Windows operating system have enhanced cybercrimes that compromise customer privacy and significantly reduce Microsoft’s global sales and market share. The company’s dependence on hardware products weakens competition against rival firms that include Apple with established hardware and software products. In this regard, rival firms offering a free operating system that include Linux and other Open Source software poses a great threat to Microsoft’s market existence. Additionally, improper investments and acquisitions have significantly damaged brand image. The shutdown of various acquired firms such as WebTV has affected Microsoft’s finances and global brand image, reduced customer loyalty, and led to low sales.
Business-Level and Corporate-Level Strategy
Microsoft Corporation utilizes a differentiation strategy in business operations to gain a competitive advantage over rival firms. Tai and Chuang hold that differentiation strategy aims to increase product value through improved design and innovative measures intended to attract a large customer base and increase market penetration (130). Microsoft has adopted a differentiation strategy in both production and distribution of its software product. In production, Microsoft focuses on the software business and chiefly relies on the Windows operating system. The company has enhanced Windows operating system functional features making the product compatible with several hardware products from other companies. In product distribution, Microsoft employs a differentiation strategy by entering into contract agreements to have Microsoft Windows operating system pre-installed with hardware products from firms that include Samsung and Dell. This approach enhances market penetration and promotes the competitive advantage of Microsoft.
Differentiation increases the cost of production and ultimately leads to the high product cost. The process of redesigning product features involves extra-labor, research, and materials that lead to increased production costs. The increased production cost in value addition leads to the high cost of the product and impacts on market competition. Additionally, customers are less sensitive to the difference in product features and more concerned with product cost; hence, limiting brand reputation. Differentiation also negates the expansion of product line and leads to over-reliance on one product. However, differentiation reduces the threat of new entrants and substitute products by raising switching costs and setting high requirements for products from new entrants to compete in the market.
Differentiation strategy leads to the high product cost. The high product cost reduces product affordability to customers. In this regard, customers are unable to assess the differentiated products and switch to substitutes. Moreover, customers do not enjoy the benefits of using quality products thus affecting the entire quality of services in the entire population. High product cost reduces market penetration and product sales, resulting in a reduced company’s profit margin. The reduced income significantly affects shareholders’ dividends and employee income. Shareholders receive reduced dividends while employees face job security risk and reduced wages as the company strategizes to cut on costs. Overall, differentiation negatively affects product utility by customers and shareholders and employee income.
Recommendations
Differentiation strategy significantly increases production, reduces product cost, and increase sales. In this view, Microsoft should employ a cost leadership strategy to control production expenses and reduce its product prices. The cost leadership strategy enhances market competition through attractive product prices and influences license agreements with other firms with interest to offer their products at an affordable price to customers.
Since Microsoft has chiefly relied on software product only, it should broaden its product lines to include serious investments in hardware computer products and mobile devices. The business objective should involve innovative strategies targeting the mobile market for the computer market that has already reached the maturity phase. The growth potential, however, in the mobile market is attractive and provides an alternative expansion business area that needs full exploitation for sustainable growth.
The company should utilize proper investment processes in the acquisition of new companies. Microsoft should engage proper research in investment to reduce problems of acquiring collapsing firms as it has been in the past that include WebTV that later got shut down. Proper investment procedures help cut down losses and build the company’s financial position that enhances market competition and expansion. Additionally, Microsoft should reduce high-cost investment on unprofitable products that include Bing Search Engine as these products reduce the company’s revenue income and market competitive advantage.
Microsoft has fostered market leadership in strategic alliances. The company should, therefore, continue to strengthen and enlarge strategic alliances with other firms in the industry. Strategic alliances enhance market dominance and increase market share leading to increased sales. Affiliate companies act as distribution and product market penetration channels that enhance product accessibility and build customer loyalty. Thus, Microsoft should strengthen its existing partnership while planning to enter into new alliances to gain a competitive advantage over its rivals.
Conclusion
Microsoft is a multinational technology company founded in 1975 by Paul Allen and Bill Gates with its mission to enhance global development through the empowerment of the global population and the adoption of improved technology. The company utilizes a differentiation strategy in its business activities to enhance its competitive advantage, but it faces strong competition from established hardware and software firms that include Apple and Google. The company enjoys a strong brand image and customer product loyalty enhanced by value chain activities and alliances with hardware firms.
However, Microsoft faces numerous problems in the market due to product security flaws and improper investment procedures leading to massive losses. Therefore, the company must strategize to utilize business opportunities including diversification, innovation, and cost leadership while reducing its weaknesses that include improper investment and security flaws to enhance market competition and sustain business expansion in the industry.
Works Cited
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Dockalikova, Iveta, and Katerina Kashi. “MCDM Methods in Practice: Determining Importance of PESTEL Analysis Criteria.” Journal of Vacation Marketing, vol. 2, no. 1, 2014, pp. 334-343.
Gupta, Mahima, Shri Charu, and Anshu Agrawal. “Strategic Formulation for Performance Improvement of Indian Corrugated Industry: An application of SWOT Analysis and QSPM Matrix.” Journal of Applied Packaging Research, vol. 7, no. 3, 2015, pp. 60-73.
Majumdar, Subhasish, and Partha Bhattacharya. “Porter Five Forces Analysis of the Leading Mobile Cellular Telephony Service Provider in India.” International Journal of Computer Science and Mobile Computing, vol. 3, no. 2, 2014. pp. 146-152.
Microsoft. About Microsoft. 2017. Web.
Tai, Fang-Mei, and Po-Yao Chuang. “Strategic Differentiation Management: A Transnational Study of Costco.” The Journal of International Management Studies, vol. 9, no. 2, 2014, pp. 126-140.