Microsoft Corporation’s Strategic Management

Corporation Identification

Corporation, Product Portfolio, and Service Portfolio

Initially, a corporation was regarded as an association of shareholders, who have a legal form of partnerships. Today, however, corporations are considered more broadly. It is a business group combining several legally authorized persons and including financial, industrial, commercial, administrative, and other units (Freeman 2010).

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The goal of the corporation is to develop common policies and strategies, integration of production, investment and competitiveness, and sustainable development of the whole company. In this regard, this paper aims at precise examining of corporation strategic management concepts on the example of Microsoft Corporation.

First, it seems appropriate to provide several aspects concerning the term of the corporation. The corporation is an association with the economic objectives of the activity. Legal status and legal capacity of it are determined by the place of its creation.

Thus, the corporation is a commercial organization with the status of a legal entity as a result of state registration and founded primarily on the joint capital for the implementation of a certain socially useful activity (Hubbard, Rice & Galvin 2015). As a rule, the number of employees of the parent company is at least 1,000 employees, all of which have an appropriate corporate status that is a set of rights and responsibilities that should be carried out following the objectives of the corporation.

Every corporation possesses product portfolio and service portfolio. A product portfolio refers to a collection of products offered by the organization while a service portfolio consists of several services provided by the corporation (David 2011). It is essential to emphasize that an analysis of both portfolios is one of the most significant tools of strategic management.

According to Proctor (2013), it gives a visual representation of what parts of the business are interrelated. However, portfolios’ analysis is considerably different from the simple sum of the corporation parts and much more important for the company than the state of its parts. For instance, such vital business factors as risk, cash contribution, or costs might be balanced with the help of portfolios’ analysis. Thus, product portfolio and service portfolio serve as the basis for strategic planning, both short-term and long-term ones.

Microsoft Corporation

Nowadays it is almost impossible to find a person who knows nothing about Microsoft. It is quite difficult to find a computer without software produced by the corporation. Microsoft enters the list of the greatest global companies having its offices in more than 112 countries and 127, 000 employees all over the world. Moreover, Microsoft brand is regarded as one of the most luxurious ones in the world: according to Interbrand (2015) research, its value accounts more than $ 67 billion.

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In 1975, Bill Gates and Allen Paul began an outstanding history of Microsoft releasing Basic language interpreter for the Altair computer. Signing a licensing agreement with Altair, two friends secured their rights to utilize the software they produce. In 1985, Microsoft issued its the most renowned product – version 1.0 of Microsoft Windows (Musolf 2013). In succeeding years, the corporation develops and presents to the market different versions of the operating system including Windows 95/98, Windows Vista, Windows 7, and Windows 10. Also, Microsoft develops Office programs representing the market the most successful office products.

Today among the products of Microsoft Corporation, there is software for computers along with various computer equipment, PDAs, mobile phones, and other gadgets. The corporation also manufactures an assortment of computer accessories. The operating system and software suite for editing Microsoft Office documents, spreadsheets, and presentations seem to be the most renowned products. Software for mobile devices as well as server software constitutes an important part of the corporation’s activity. Among services of the company that are worth noting, there is Internet services and search engines.

Corporate Research

Business Unit, Product Lines, and Service Lines

The concept of a business unit is considered as a separate organizational and legally admissible active business structure with a distinct vision and direction (Proctor 2013). It is fully or partially cost-apart and is responsible for a specific type of activity needed to carry out the functions of the corporation. The business unit might be responsible for building a profit, for the realization of coordinated activities, or policy improvement.

However, it depends on the organizational structure of the unit. Hill and Jones (2013, p. 342) state that “in each industry a company enters, it establishes an operating division or a business unit”. In other words, the business unit is a division of the parent company. Each business unit possesses the following aspects:

  • responsibility for carrying out strategic analysis;
  • accountability for the maintenance of business policies;
  • responsibility for the operational activities;
  • accountability for the business plan design and its subsequent implementation (Parmigiani & Holloway 2011).

A product line is a group of related products established for different levels of consumers’ needs. Also, the product line products might be integrated by one of the following characteristics: joint use, sale through the same store, the same production process, and the same price range (Hubbard, Rice & Galvin 2015).

For instance, Bayer Select product line includes analgesics for headache, arthritis, sinus pain, and night pain. In its turn, a service line is a grouping of all the services associated with the company’s business unit or the company in general (David 2011). Service lines allow satisfying the requirements of different customers, namely, different work, entertainment, or other needs.

Microsoft Business Units and Product and Service Lines

Speaking of Microsoft business units, it is essential to pinpoint that there are three of them: platform products and services, business, and entertainment and devices. The first business unit of platform products and services produces the family of Windows operating systems. Furthermore, the division develops Microsoft Visual Studio that is a set of programs focused on the graphical user interface and Windows Server System that is an operating system for servers. This business unit also includes MSN online service, MSNBC cable television station, and online Microsoft Slate store.

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The second business division creates business and financial applications for a variety of customers. Microsoft Office, a family of Office applications, comprises this business unit and includes Word (text processor), Excel (spreadsheet processor), Access (Database Management), Outlook (e-mail and shared access services such as Microsoft Exchange), Microsoft FrontPage (HTML editor), and PowerPoint (presentation processor) (Microsoft 2016). Finally, the third business unit provides customers with entertainment and devices. It creates a line of smartphones based on Windows Mobile, Xbox console, and other gadgets.

As it was discussed before, Microsoft has several product lines corresponding to a particular business unit. However, several corporation’s line services should be mentioned as well. In particular, Windows Server composes the heart of Microsoft Cloud platform concept designed for virtualization, networking, information security, and plenty of other tasks. Bing search engine also plays an integral part in the company’s service lines. The user-friendly interface, velocity, and accuracy of search make Bing one of the most utilized engines worldwide.

Corporation Revenue Centres

Revenue centres are “divisions gaining revenue from product or service sales” (Linton 2014, par. 2). Revenue is the major financial category that reflects the financial result of the corporation’s activity. At the level of the corporation, revenues take the form of profits. In the market, corporations appear as relatively isolated commodity producers. By setting a price for the products, they sell it to the consumer to obtain revenue.

Using a traditional source of revenue – a sale of operating systems and business applications, Microsoft also works to develop a new revenue centre of entertainment devices such as Xbox 360 console and its Kinect controller, a peripheral contactless device. In 2015, the share of entertainment and devices division increased by 15 per cent in the total amount of Microsoft revenues compared with the previous reporting period and amounted to nearly $ 4 billion (Microsoft 2016).

The unit of MS online services demonstrates excellent results, too: its net income achieves $ 784 million compared to last year. Microsoft’s search engine – Bing – wins 27 per cent of the US search advertising market (Microsoft’s revenue from 2012 to 2015 financial years, by segment (in billion U.S. dollars) 2015). Revenue from advertising in Bing also grew by 21 percent.

However, a sale of business software as well as of networking plays a much more important role for the company. In total, they generate more than half of Microsoft’s total revenue. At the same time, a significant part of the personal computers sold before operates under Windows system. Therefore, it is this part of the market that provides a constant flow of customers in Microsoft business unit and server and tools unit.

Nevertheless, Microsoft continues to move away from Windows as one of its main sources of revenue and earn more on cloud services. Particularly, revenue generated by Office 365 is increased by 70 per cent and Azure’s by 140 per cent in 2015 (Cloud business lifts Microsoft’s quarterly revenue 2015). Besides, the recent purchase of Skype brings Microsoft new opportunities. They are expressed in the fact that the corporation seeks to improve voice communications benefiting customers’ needs, partners’ expectations, and its value.

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External Environment Analysis

Operating Environment

An operating environment is several components, circumstances, aspects, and forces that influence the company from the outside altering its behaviour (Jain, Trehan & Trehan 2010). The external environment has considerable practical significance. In the context of the market economy, it is very volatile, so its learning helps a company to adapt to changing conditions that, in its turn, ensures the effectiveness of the functioning and competitiveness (Thompson & Martin 2010).

For example, in conditions of change of consumers’ preferences and improving technology, an organization gains momentum and begins to change as well. The principal characteristics of the operating environment are interconnectivity, complexity, and mobility (Jain, Trehan & Trehan 2010). The external environment consists of political, economic, social, and technological environments. Let us consider each of them individually.

The economic environment comprises factors that establish the development of economic processes in the economy such as GDP growth, external debt, the impact of fiscal and tax policy of the state, investment attractiveness of the national economy, the stability of the national currency, the rate of inflation, and taxation rules.

The political environment includes factors that determine the development of political processes, the stability of legislation in the economy, political ideology, government policy, and other political issues (Keillor 2013).

The technological environment focuses on ways of converting resources into results and on factors that determine the development trends of scientific and technological progress as well as the associated changes in the technological basis of production.

The social environment includes the factors that determine the demographic structure of the population and development trends, regulations, customs and values ​​of the population, people’s attitude to work and quality of life, and population growth (Albaum & Duerr 2008). The social environment largely determines the state of the labour market and the working-age of the population.

Microsoft Operating Environment

Since Microsoft Corporation focuses on three business units, it seems appropriate to consider the operating environment corresponding to each of them.

Likewise plenty of companies operating in the field of digital technology, Microsoft is “shifting its focus from acquisitions to partnerships” (David 2011, p. 156). In particular, the case with Skype acquisition clearly illustrates the above statement. However, all three business units that were identified before being influenced by the same external environment.

One of the determining factors of economic activity is the target audience. Since the company is engaged in production and sales of high technology, it has a very high demand for its products. The next factor worth considering is competition. Due to the wide range of Microsoft products and services, there are many competitors in each direction. Ungson and Wong (2014) state that in the field of development of the operating systems, the main competitor is Linux Foundation, while in the field of video game consoles—Sony.

Microsoft also competes with Apple, IBM, Intel, Hewlett-Packard, and others. Suppliers as a factor also have a significant impact on the company’s activities. Microsoft has managed to choose the most trusted suppliers (Management the Microsoft way 2012). Also, as a part of the company, there is a finance committee, which supervises and regulates the financial activities of the company. Also, about half of the company’s shares are traded. Besides, there is a close relationship with the US Central Bank and various global commercial banks.

Speaking of the economic forces, it is necessary to point out their effect on the company’s activities as well as on many other activities of transnational corporations. Particularly, the world financial crisis, which began in fiscal 2008, has dropped sales decreasing revenue. Nevertheless, Microsoft successfully recuperates from it. Scientific and technological progress is the most important of all the circumstantial factors since the corporation performs high-tech manufacturing.

Source of Sustainable Competitive Advantage

Four Factors of Sustainable Competitive Advantage

Michael Porter is recognized to be a pioneer in studying the concept of sustainable competitive advantage. Porter (2008) believes that the product acquires a competitive advantage in case it possesses some unique characteristics that promote receiving such revenue from sales that is higher than the market average. Montgomery and Porter (2009) developed a system of the four essential sources of competitive advantage that includes effective supply chain management, organizational responsiveness, product differentiation and innovation, and cost leadership.

Supply Chain Management (SCM) consists of several approaches to effectively incorporate suppliers, distributors, manufacturers, and retailers. It pays attention to the customers’ service expectations and ensures the availability of the appropriate product on time with a minimum of costs. In other words, it is a process of planning, control, and provision of well-organized and rapid service due to receiving well-timed information related to goods’ displacements. SCM solves problems of coordination, development, and management of distribution, production, procurement, and storage of goods and services.

Product differentiation and innovation represent the connection of the customer, the company, and the competitor circles and seven areas of their interconnection. However, the area of the customer and the company contiguity is the most important. It should be stressed that the competitive advantage focuses on the value that the company creates for customers. Therefore, the company should determine its competitive originality to attract customers’ and succeed.

Organizational responsiveness plays a principal role in the establishment of the competitive advantage as successfully operating departments enhance the company’s profit and allows receiving accurate information about markets, competitors, products, and technologies. An important competitive advantage is determined by the goals and motivation of managers and staff of the company. According to Hitt, Ireland, and Hoskisson (2015), there is also the regional dimension of the competitive advantage acquisition. Consequently, the organizations operating in the areas that allow rapid accumulation of required resources and skills are the most likely to obtain a competitive advantage.

Also, when implementing a strategy of leadership costs competitive advantage might be based on economies of scale, access to limited resources, low labour costs, business automation, or the presence of a patented technology that allows producing goods at a low price.

Sources of Sustainable Competitive Advantage

Microsoft seeks to maintain and develop its competitive advantages applying several techniques. The corporation controls standards. Microsoft successfully creates product standards in various fields of operation (Cusumano 2010). Microsoft experiences fewer and fewer problems with the increase in sales volume as its products become more and more demanded as customers value tradition and quality most of all. Microsoft’s flexibility is expressed in the ability to quickly adapt to market changes ensuring leadership position in the global software market.

System compatibility allows Microsoft manufacturing products that can work together. Consumers purchasing Microsoft Office suite aware that all products are compatible and might cooperate with Windows system (Lam 2013). Microsoft is developing supplementary programs for its focal products. Many other programs are essential, but Microsoft tends to advance its core products as well (Sultan 2013). Partially, it is explained by the company’s pursuit to put up the money, not in the development of expensive add-ons, yet the increase of the functionality and networking of Windows.

Microsoft strives to increase customers’ confidence and loyalty. David (2011, p. 139) considers that “Microsoft wants to learn firsthand about what consumers want and how they buy”. In particular, it opens retail stores utilizing a forward integration strategy to meet customers’ requirements. Knowing that the organization uses only genuine software and has all the necessary licenses, prevents the problems associated with the audit of the software or a lawsuit (MacCormack & Iansiti 2009). It also reduces the risk of distortion of confidential data organization due to the use of genuine software that protects from viruses and spyware.

Strategic Direction Recommendations

Today, computer and other accessories have become an integral part of life. Almost every home in the developed countries has a computer and other gadgets. This simplifies life and increases the efficiency of enterprises in various industries. This is not the fashion or luxury, but a part of life, firmly ensconced in it and permanently and constantly progressing. Consequently, a successful strategic direction of Microsoft should focus on the improvement of current products, the establishment of fundamentally new software, and access to new markets.

Based on the analysis conducted above, it is possible to take a look into the future of Microsoft Corporation and provide several recommendations for its successful development. In the framework of globalization that offers a great diversity of products and service, Microsoft should continue to evolve in several directions. In addition to the existing products, the company might actively promote its gaming, mobile, and computer markets.

For example, the enhanced Xbox game console, which is currently played by millions of users, might attract even more customers. Moreover, outdated laptops might be replaced by more convenient and fast tablets and other gadgets. Additionally, it seems appropriate to investigate the mobile communications sector preparing a series of smartphones as well as nurturing the concept of a living house, where all the devices will be combined into a single network.

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