Wk 5 - Signature Assignment: Strategic Plan - Implementation Plan, Strategic Controls, and Contingency Plan Analysis - TDMaddox
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Microsoft-Corporation-Report-2019.pdf
Microsoft Corporation
Company Report
2019
Contents 1. Executive Summary ..................................................................................................................... 1
2. Business Strategy ............................................................. ............................................................2
3. Leadership ................................................................................................................................... 3
4. Organisational Structure .............................................................................................................. 5
5. Organizational Culture ................................................................................................................ 7
6. Microsoft and Ansoff Matrix ....................................................................................................... 8
7. SWOT Analysis ......................................................................................................................... 10
7.1 Strengths .............................................................................................................................. 11
7.2 Weaknesses .......................................................................................................................... 13
7.3 Opportunities ....................................................................................................................... 14
7.4 Threats ................................................................................................................................. 16
8. PESTEL Analysis ...................................................................................................................... 17
8.1 Political Factors ................................................................................................................... 18
8.2 Economic Factors ................................................................................................................ 19
8.3 Social Factors ....................................................................................................................... 20
8.4 Technological Factors .......................................................................................................... 20
8.5 Environmental Factors ......................................................................................................... 21
8.6 Legal Factors ........................................................................................................................ 22
9. Marketing Strategy .................................................................................................................... 23
9.1 7Ps of Marketing .................................................................................................................. 24
9.2 Segmentation, Targeting & Positioning ............................................................................... 28
9.3 Marketing Communication Mix .......................................................................................... 30
9.3.1 Print and Media Advertising ............................................................................................. 30
9.3.2 Sales Promotions ............................................................................................................... 31
9.3.3 Events & Experiences ....................................................................................................... 32
9.3.4 Public Relations ................................................................................................................ 33
9.3.5 Direct Marketing ............................................................................................................... 33
9.3.6 Personal Selling ................................................................................................................ 34
10. Porter’s Five Forces Analysis .................................................................................................. 34
10.1 Threat of new entrants ....................................................................................................... 35
10.2 Bargaining power of buyers ............................................................................................... 35
10.3 Bargaining power of suppliers ........................................................................................... 36
10.4 Threat of substitute products or services ........................................................................... 37
10.5 Rivalry among existing firms ............................................................................................ 38
11. Value-Chain Analysis .............................................................................................................. 39
11.1 Microsoft Primary Activities ............................................................................................. 39
11.1.1 Microsoft Inbound logistics ........................................................................................ 39
11.1.2 Microsoft Operations................................................................................................... 40
11.1.3 Microsoft Outbound Logistics .................................................................................... 41
11.1.4 Microsoft Marketing and Sales ................................................................................... 42
11.1.5 Microsoft Service ........................................................................................................ 43
11.2 Microsoft Support Activities ............................................................................................. 43
11.2.1 Microsoft Infrastructure. ............................................................................................. 43
11.2.2 Microsoft Human Resource Management................................................................... 43
11.2.3 Microsoft Technology Development .......................................................................... 44
11.2.4 Microsoft Procurement ................................................................................................ 45
12. McKinsey 7S Model ................................................................................................................ 45
12.1 Hard Elements .................................................................................................................... 46
12.2 Soft Elements ..................................................................................................................... 47
13. Microsoft Ecosystem ............................................................................................................... 48
14. Corporate Social Responsibility .............................................................................................. 49
14.1 CSR Programs and Initiatives ............................................................................................ 49
14.2 CSR Criticism .................................................................................................................... 53
List of Figures
Figure 1 Microsoft Organizational Structure................................................................................... 6
Figure 2 Microsoft Ansoff Growth Matrix ...................................................................................... 9
Figure 3 Annual lobbying by Microsoft Corporation .................................................................... 19
Figure 4 Microsoft's 'Scroogled' Marketing campaign .................................................................. 23
Figure 5 Example of Microsoft print advertisement ..................................................................... 31
Figure 6 Porter's Five Forces ......................................................................................................... 35
Figure 7 Value chain analysis ........................................................................................................ 39
Figure 8 Microsoft production supplier locations ......................................................................... 40
Figure 9 McKinsey 7S model ........................................................................................................ 46
List of Tables
Table 1 Microsoft SWOT analysis ................................................................................................ 11
Table 2 Microsoft product categories and products ...................................................................... 25
Table 3 Microsoft segmentation, targeting and positioning .......................................................... 30
Table 4 Products and services within Microsoft Ecosystem ......................................................... 48
1. Executive Summary
Microsoft Corporation is a US-based global technology company with headquarters in
Richmond, Washington. Founded in 1975, Microsoft’s mission is ‘to empower every person and
every organization on the planet to achieve more’. Microsoft employs more than 130 000 people
internationally.1 During the fiscal year 2018 the tech giant generated USD 110.4 billion in
revenue and USD 35.1 billion in operating income.
Microsoft produces a wide range of products and services related to productivity and business
processes and to support digital work and life of customers. Some of its products and services
have become highly popular in the global scale. For example, more than 135 million people use
Office 365 commercial every month and Outlook Mobile is installed into more than 100 million
iOS and Android devices worldwide.2 Similarly, Microsoft Teams is used by more than 300
organizations worldwide, including 87 of the Fortune 100 and nowadays there are nearly 700
million devices around the world with active Windows 10.3
In 2014, Satya Nadella replaced Steve Ballmer as CEO of Microsoft. Since taking over the top
job, Nadella has focused on ‘humanising’ the company by improving its organizational culture
and he also enhanced the coordination of efforts across the departments and groups of the
company.
Microsoft business strategy can be classified as product differentiation. The company develops
advanced technological products and services and sells them for premium costs. Moreover,
Microsoft business strategy is currently focused on “cloud-first, mobile-first”, growth through
mergers and acquisitions and exploring business opportunities related to augmented and virtual
reality. Recently, the multinational technology company has also included ‘tech intensity’ as one
of the important pillars of its business strategy.
1 Annual Report (2016) Microsoft Corporation 2 Annual Report (2018) Microsoft Corporation 3 Annual Report (2018) Microsoft Corporation
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2. Business Strategy
Microsoft business strategy integrates the following 3 elements:
1 “Cloud-first, mobile-first”. Intelligent cloud represents one of the solid sources of Microsoft
competitive advantage and Microsoft business strategy places a great emphasis on cloud segment
of the business. ‘Mobile first’ part of this strategy stands for the mobility of experiences4 and the
technology giant pays a due attention to this direction as well. Nadella’s bet on cloud has paid
off handsomely. By October 2018, Microsoft surprised Amazon in 12-month cloud revenues.
Specifically, while Microsoft earned USD 26,7 billion revenues, Amazon’s revenues totalled to
only USD 23,4 billion for the same period.5
2. Growing through mergers and acquisitions. Mergers and acquisitions play an important
role in Microsoft business strategy and the multinational technology company engages in
mergers and acquisitions to increase its capabilities, product range and value offering. The list of
the most notable recent acquisitions include Nokia Corporation’s Devices and Services business
for USD 9.4 billion in 2014 and Mojang Synergies AB the Swedish video game developer of the
Minecraft gaming franchise, for USD 2.5 billion.6
Moreover, in June 2016, Microsoft acquired LinkedIn for USD 196 per share in an all-cash
transaction valued at USD 26.2 billion.7 This particular acquisition plays an instrumental role to
connect the world’s professional cloud and the world’s professional network – creating new
experiences and new value for business users. With more than 1.2 billion Office users and 433
million LinkedIn members, the combined data graphs is expected to improve how Sales, HR, and
other professionals get work done.8 In 2018 alone, Microsoft completed 16 acquisitions of
companies ranging from video games producers to artificial intelligence to employee
engagement.
3. Focusing on augmented and virtual reality (VR). CEO Satya Nadella has placed augmented
and virtual reality at the core of Microsoft business strategy. It has been noted that “while a
4 Ward, J. (2017) “Microsoft leadership: Here's who is accountable for what in Redmond” Windows Central, Available at: https://www.windowscentral.com/whos-who-microsoft-success-or-failure-heres-whos-accountable 5 Evans, B. (2018) “#1 Microsoft Beats Amazon In 12-Month Cloud Revenue, $26.7 Billion To $23.4 Billion; IBM Third” Forbes, Available at: https://www.forbes.com/sites/bobevans1/2018/10/29/1-microsoft-beats-amazon-in-12- month-cloud-revenue-26-7-billion-to-23-4-billion-ibm-third/#510bdfb82bf1 6 Annual Report (2016) Microsoft Corporation 7 Annual Report (2016) Microsoft Corporation 8 Annual Report (2016) Microsoft Corporation
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majority of the augmented and virtual reality players are focused on consumer gaming,
Microsoft has spent considerable time and effort defining the potential business use cases for
HoloLens”9. Moreover, Microsoft has been able to demonstrate how VR could be used to
improve the shopping experience, in education and automotive design. It can be argued that
leadership in augmented and virtual reality in the global scale can become one of the solid
sources of Microsoft competitive advantage, similar to its leadership in cloud segment, with
positive implications on long-term perspective.
4. Promoting ‘Tech Intensity’. Focus on ‘tech intensity’ can be mentioned as a recent addition
to the business strategy of Microsoft. The term ‘tech intensity’ can be described as “ a fusion of
cultural mindset and business processes that rewards the development and propagation of digital
capabilities that create end-to-end digital feedback loops, tear down data silos and unleash
information flows to trigger insights and predictions, automated workflows and intelligent
services.”10
At the same time, it has been noted that “as encouraging as the buzzword "tech intensity" sounds,
it is not about empowering others for the sake of its own advancement.”11 Instead, the actual and
ultimate goal behind company’s ‘tech intensity’ idea is to make Azure world’s computer, by
adding increasing numbers of companies into this platform.
3. Leadership
Co-founder of the company, Bill Gates was at the helm of Microsoft leadership since its
inception in 1972 until 2000, when Steve Ballmer succeeded him as CEO. While Steve Job’s
leadership was rightly regarded as successful, Steve Ballmer was pointed to as the worst CEO of
a large publicly traded American company in 2012 by Forbes. This viewpoint is shared by many
business analysts and practitioners. It has been noted that Microsoft peaked at USD 60/share in
2000, just as Mr. Ballmer took the reins. By 2002 it had fallen into the USD 20s, and has only
9 Lopez, M. (2016) “7 Reasons to Give Microsoft's Strategy Another Look” Forbes, Available at: https://www.forbes.com/sites/maribellopez/2016/04/19/7-reasons-to-give-microsofts-strategy-another- look/#13558b4a7dd0 10 Evans, B. (2018) “Microsoft CEO Satya Nadella Unveils New Digital Strategy For Businesses: 'Tech Intensity'” Forbes, Available at: https://www.forbes.com/sites/bobevans1/2018/09/24/microsoft-ceo-satya-nadella-unveils- new-customer-weapon-tech-intensity/#14bed2124d2f 11 Ward, J. (2018) “Microsoft's 'tech intensity' is all about assimilating companies into its cloud” Windows Central, Available at: https://www.windowscentral.com/microsofts-noble-tech-intensity-push-really-about-building-its- global-cloud-computer
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rarely made it back to USD30s value, until Ballmer’s replacement by Satya Nadella as CEO in
2014.12
Currently, Microsoft leadership team comprises 21 members led by CEO Satya Nadella.
Specifically, there are 12 executive vice presidents responsible for various critical directions and
aspects of the business, along with chief technology officer, chief legal officer and CEO of
LinkedIn. Microsoft Board of Directors comprises 14 members, who are experienced senior
leaders across a range of industries.
Microsoft leadership practices are based on the following principles.
1. Focus on organizational culture. Leadership style exercised by Satya Nadella places a
great emphasis on developing and maintaining the right type of organizational culture.
Specifically, the leader of the tech giant cultivates the integration ‘learn-it-all’, rather
than ‘know-it-all’ mentality into Microsoft organizational culture.
2. Efficiency and practicality. Microsoft leadership at the most senior level has been
praised for being practical and CEO Satya Nadella told employees “to stop wasting their
times at pointless meetings”13.
3. Regular coordination of efforts across the departments and groups. CEO Satya
Nadella has 8-hour meeting with his leadership team every month and he runs 4-hour
meetings other three weeks.14 These meetings involve performance review of top
executives on the basis of dashboards and integration of activities according to the overall
business strategy.
4. Unrestricted path to leadership within the company. It is not unusual at Microsoft for
team members to step into leadership roles even if they weren’t already on that path. For
12 Hartung, A. (2012) “Oops! Five CEOs Who Should Have Already Been Fired (Cisco, GE, WalMart, Sears, Microsoft)” Available at: https://www.forbes.com/sites/adamhartung/2012/05/12/oops-5-ceos-that-should-have- already-been-fired-cisco-ge-walmart-sears-microsoft/3/#fdf3148783df 13 Yarow, J. (2015) “Microsoft's CEO is telling employees to skip pointless meetings” Business Insider, Available at: http://www.businessinsider.com/microsofts-ceo-is-telling-employees-to-skip-meetings-2015-2 14 Lebowitz, S. (2015) “The CEO of Microsoft has an 8-hour meeting with his leadership team every month” Business Insider, Available at: http://www.businessinsider.com/how-microsoft-ceo-satya-nadella-runs-meetings- 2015-10
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example, “employees from the hack team that created Learning Tools for OneNote are
now overseeing the product’s market expansion”15
Moreover, Nadella is an acknowledged and effective business leader, who can attain focus to
solve complex problems, knows how to give his team confidence and he announced his mission
to transform Microsoft organizational culture to infuse the values of innovation.
4. Organisational Structure
Microsoft organizational structure can be classified as divisional. In June 2015, the senior
management announced a change in Microsoft organizational structure to align to its strategic
direction as a productivity and platform company. This restructuring initiative resulted in
elimination of approximately 7,400 positions in fiscal year 2016.16 The current divisional pattern
of Microsoft organizational structure is the result of this restructuring initiative.
As it is illustrated in Figure 1 below, Microsoft organizational structure is divided into divisions
according to engineering groups and business functions. Specifically, on the basis of engineering
groups, the company is divided into three divisions, whereas according to business functions it is
divided into 9 divisions:
15 Dweck, C. & Hogan, K. (2016) “How Microsoft Uses a Growth Mindset to Develop Leaders” Harvard Business Review, Available at: https://hbr.org/2016/10/how-microsoft-uses-a-growth-mindset-to-develop-leaders 16 Annual Report (2016) Microsoft Corporation
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The latest restructuring of Microsoft organizational structure and shift to divisional
organizational structure offers the following advantages to the business:
Firstly, under the new organizational structure, heads of engineering groups directly report to
CEO Satya Nadella with positive implications on new product development initiatives and
innovation potential. This is particularly important to be able to introduce new products and
services to the marketplace in the short duration of time. Moreover, a clear distinction between
engineering groups and business functions, as illustrated in Figure 1 above, is an indication of
the technology giant ‘s focus on business directions under engineering groups such as cloud and
artificial intelligence.
Secondly, organizational restructuring eliminates bureaucracy in business processes and
procedures to a great extent, increasing the flexibility of the business to adapt to changes in the
external marketplace.
Thirdly, the initiative resulted in the elimination of approximately 7,400 positions, thus saving
considerable amount of financial resources that can be channelled for new product development
and increasing the competiveness of the business in many other ways.
CEO, Satya Nadella
Engineering Groups
Cloud and AI Group
Experiences + Devices
Artificial Intelligence and Research
Busines Functions
HR Group
Business Development Group
Global Sales, Marketing and Operations
Corporate, External, and Legal Affairs
Corporate Strategy & Planning
Finance Group
Marketing Group
Worldwide Commercial Business
Figure 1 Microsoft Organizational Structure
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Another important aspect of corporate culture at Microsoft refers to a high level of dynamism.
Specifically, the CEO of the tech giant Satya Nadella is continuing with simplification and de-
layering initiative of Microsoft operations in the global scale and these initiatives are expected to
further impact Microsoft organizational culture.
5. Organizational Culture
The origins of Microsoft organizational culture have been laid by founders Bill Gates and Paul
Allen as an innovative, but performance-obsessed. From its founding in 1972, the technology
company became a market leader in a range of segments partially thanks to its corporate culture
associated with efficiency and creativity. However, this changed during Steve Ballmer leadership
era covering 2000-2014 with negative implications on company’s market share and stock prices.
After assuming the top job in 2014, rebooting Microsoft organizational culture was one of the
key tasks for the new CEO Satya Nadella.
Currently, the global technology company is actively placing One Microsoft concept at the core
of its organizational culture. Microsoft organizational culture combines the following three key
features.
1. Learn-it-all mentality. Nadella is credited with transforming Microsoft’s historical ‘know-it-
all’ culture into ‘learn-it-all’ curiosity.17 Nowadays, Microsoft corporate culture accepts that no
employee can know everything about the industry and their specialty. At the same time,
organizational culture at Microsoft encourages its employees at all levels to maintain an open
mind towards learning new skills and capabilities that will help them to do their jobs better in a
systematic manner.
2. Openness. CEO Satya Nadella told in an interview that anyone should be able to tell him
anything and that's the culture they strive for18. Moreover, industry analysts also note that “since
17 McCracken, H. (2018) “Transforming culture at Microsoft: Satya Nadella sets a new tone” In The Black, Available at: https://www.intheblack.com/articles/2018/06/01/satya-nadella-transforming-culture-microsoft 18 Lebowitz, S. (2015) “The CEO of Microsoft has an 8-hour meeting with his leadership team every month” Business Insider, Available at: http://www.businessinsider.com/how-microsoft-ceo-satya-nadella-runs-meetings- 2015-10
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chief executive Satya Nadella was appointed in February 2014, Microsoft has become a far more
open place”19
3. Value for innovation. Under the leadership of former CEO Steve Ballmer, the global
technology company was often criticized for the lack of innovations in its product portfolio.
Satya Nadella has announced his commitment to change this perception by integrating the values
of innovation and creativity into Microsoft organizational culture.
4. Diversity and inclusion. The company attempts to promote the culture of diversity and
inclusion to all organizational stakeholders through multiple communication channels. Microsoft
declares “we strive to create an environment that helps Microsoft capitalize on the diversity of
our people and the inclusion of ideas and solutions to meet the needs of our increasingly global
and diverse customer base”.20
6. Microsoft and Ansoff Matrix
Microsoft Ansoff Matrix is a marketing planning model that helps the multinational technology
company to select its product and market strategy. Ansoff Matrix distinguishes between four
different strategy options available for businesses. These business growth strategies are market
penetration, product development, market development and diversification.
19 Heffernan, M. (2016) “Microsoft has become richer through its culture shift” Financial Times, Available at: https://www.ft.com/content/82e6ff92-46c6-11e6-8d68-72e9211e86ab 20 The Business of Inclusion (2017) Microsoft, Available at: https://www.microsoft.com/en-us/diversity/business-of- inclusion/default.aspx
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Figure 2 Microsoft Ansoff Growth Matrix
Microsoft uses all four strategy options within the scope of Ansoff Growth Matrix in an
integrated way.
1. Market penetration. Market penetration refers to selling existing products to existing
markets. Microsoft uses market penetration strategy to sell its Windows software and devices
and other products in 116 Microsoft stores worldwide as well as through online channels and
authorised distributors. The multinational technology company uses Microsoft Rewards loyalty
program to pursue its market penetration strategy.
2. Product development. This growth strategy involves developing new products to sell to
existing markets. Microsoft engages in product development strategy systematically. The tech
giant’s research and development expenses increased USD 1.7 billion or 13% in 2018 compared
to the previous year.21
Microsoft develops most of its products and services internally through three engineering groups.
• Applications and Services Engineering Group, focuses on broad applications and
services core technologies in productivity, communication, education, search, and other
information categories.
21 Annual Report (2018) Microsoft Corporation 9
• Cloud and Enterprise Engineering Group, focuses on our cloud infrastructure, server,
database, CRM, enterprise resource planning, management, development tools, and
other business process applications and services for enterprises.
• Windows and Devices Engineering Group, focuses on our Windows platform across
devices of all types, hardware development of our devices, and associated online
marketplaces.
3. Market development. Market development strategy is associated with finding new markets
for existing products. Microsoft enters a new market whenever it sees there potential for its
products and services. For example, HoloLens was made initially available only in 10 countries
such as United States, United Kingdom, Canada, Australia and Germany. Once demand for this
product increased in the global scale, the company made HoloLens available to an additional 29
markets with comparably lesser purchasing power such as Croatia, Poland and Turkey starting
from November 2017.22
4. Diversification. Diversification involves developing new products to sell to new markets and
this is considered to be the riskiest strategy. Microsoft uses diversification strategy occasionally.
Entering the cloud business in 2006, the same year as its rival Amazon launched Amazon Web
Services can be mentioned as the most notable example of diversification strategy engaged by
Microsoft. This bet proved to be highly successful though.
By October 2018, Microsoft surpassed Amazon in 12-month cloud revenues, becoming an
undisputed leader in cloud in the global scale. Specifically, while Microsoft earned USD 26,7
billion revenues, Amazon’s revenues totalled to only USD 23,4 billion for the same period.23
7. SWOT Analysis
SWOT is an acronym for strengths, weaknesses, opportunities and threats related to
organizations. The following table illustrates Microsoft SWOT analysis:
22 Bowden, Z. (2017) “Microsoft is bringing HoloLens to 29 new markets starting today” Windows Central, Available at: https://www.windowscentral.com/microsoft-bringing-hololens-29-new-markets-starting-today 23 Evans, B. (2018) “#1 Microsoft Beats Amazon In 12-Month Cloud Revenue, $26.7 Billion To $23.4 Billion; IBM Third” Forbes, Available at: https://www.forbes.com/sites/bobevans1/2018/10/29/1-microsoft-beats-amazon-in-12- month-cloud-revenue-26-7-billion-to-23-4-billion-ibm-third/#510bdfb82bf1
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Strengths
1. Global leadership in cloud sector 2. Effective leadership by Satya Nadella 3. High profitability of the business and solid financial position 4. The most valuable company in the world 5. Diversified product portfolio
Weaknesses
1. Lack of innovation 2. Weak position of Microsoft Edge browser application 3. Occasional technical issues with Windows updates 4. Dependence on hardware manufacturers 5. Security issues of Microsoft products
Opportunities
1. Engagement in mergers and acquisitions 2. Developing innovative products and services 3. Focusing on smartphone segment 4. Developing mobile advertising 5. Enhancing security against cybercrime
Threats
1. Exchange rate risks 2. Emergence of new competitors 3. Anti-monopoly and other lawsuits 4. Economic crisis 5. Emergence of CSR-related scandals
Table 1 Microsoft SWOT analysis
7.1 Strengths
1. Microsoft is an undisputed leader in global marketplace in cloud segment. The technology
giant offers a wide range of cloud-based computing services that include Bing, Microsoft Azure,
Microsoft Dynamics CRM Online, Microsoft Office 365, OneDrive, Skype, Xbox Live, and
Yammer. In 2018, Microsoft had global datacenter footprint to 54 regions – more than any other
cloud provider. In the same year, the revenues of Azure hyperscale cloud grew 91 percent year-
over-year. Moreover, Microsoft added nearly 500 new Azure capabilities in 2017 alone.24
24 Annual Report (2018) Microsoft Corporation 11
2. Effective and visionary leadership by Satya Nadella is one of the factors that set apart
Microsoft from competition in positive terms. Since taking over from Steve Ballmer as
Microsoft CEO in 2014, Nadella has been bold and effective in restructuring and reinvention of
the company. Initiatives such as refocusing Microsoft 's mobile-based efforts and expanding
many of its services to be offered on other platforms like Mac introduced by Nadella has proved
to be effective up to date. It has been noted that leadership principles of Satya Nadella are based
on the values of learning, choosing to create a positive, impact, finding ways to innovate and
making meaning a priority.
3. High profitability of the business and solid financial position is a notable strength possessed
by Microsoft. During the fiscal year 2018 the company generated USD 110.4 billion in revenue
and USD 35.1 billion in operating income. Microsoft’s high level of profitability and solid
financial position of the company is a considerable strength from multiple points of view.
Particularly, solid financial position of the business can play an instrumental role in terms of
facilitating new product development with positive implications on the long-term growth of the
business.
4. Microsoft became the most valuable company in the world in 2018, getting the title away from
one of its main competitors – Apple. In November 2018, Microsoft briefly reached a market
capitalisation value of USD812.93 billion today, followed by Apple at a market capitalisation of
USD812.60 billion25. At the end of 2018, Microsoft's market capitalisation stood at USD779.7
billion as the stock closed at USD101.57 per share.26 A high level of market capitalisation is an
important strength for any business as it is an evident indication of trust of investors and
customers on the company.
5. Diversified product portfolio is another considerable strength possessed by Microsoft. Unlike
the portfolio of some of its direct competitors such as Apple and Samsung, Microsoft’s portfolio
of products and services is vast comprising operating systems for computing devices, servers,
phones, and other intelligent devices; server applications for distributed computing
environments; productivity applications; business solution applications; desktop and server
management tools; software development tools; video games; and online advertising.
Additionally, Microsoft designs and sells hardware including PCs, tablets, gaming and
25 Warren, T. (2018) “Microsoft briefly overtakes Apple to become the world’s most valuable company” The Verge, Available at: https://www.theverge.com/2018/11/26/18109784/microsoft-apple-market-cap-2018-valuable-company 26 Novet, J. (2018) “Microsoft closes out 2018 as the top public company” CNBC Markets, Available at: https://www.cnbc.com/2018/12/31/microsoft-finishes-2018-as-the-top-public-company.html
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entertainment consoles, phones, other intelligent devices, and related accessories. Such a
diversified portfolio protects and company against downturns in any specific product or service
segment.
7.2 Weaknesses
1. Lack of innovation is one of the Microsoft’s major weaknesses. It has been noted that “right
now people are sitting on a huge installed base of old Windows XP and Windows 7 computers.
These users seem to be happy right now even though Microsoft has virtually abandoned
Windows XP, their most solid operating system ever. They are temporarily happy because
nothing on the market has shown them a good reason to upgrade.”27
In other words, Microsoft has lagged behind of its major competitors such as Apple and
Samsung in terms of introducing innovative products and services and adding innovative
features and capabilities to its current portfolio of products and services. While competitors have
been busy to introduce innovative products such as Apple Watch and Samsung SMART TV,
Microsoft has not launched an innovative product or services during the past several years.
2. Loss of leadership position in internet browser segment is a noteworthy weakness associated
with Microsoft. Microsoft’s Internet Explorer was a leading browser application with market
share of more than 90% for about two decades since the beginning of the 1990s. However,
Internet Explorer was quick to lose its market share since the launch of Google Chrome in
September 2008. In 2015 the company launched Microsoft Edge, as a successor of Internet
Explorer, but this browser is also far behind market leaders such as Chrome, Safari and Firefox.
3. Occasional technical issues with Windows updates is another weakness related to Microsoft
brand. There are number of occasions where Windows updates caused technical disadvantages to
users with negative implications to their brand image. The most notable case is the Windows 7
update of KB 3004394 in December 2014 that automatically blocked the installation or update of
graphics drivers such as AMD’s new Catalyst Omega and caused difficulties in installing
27 HAVE HP, DELL, APPLE, MICROSOFT AND OTHERS FORGOTTEN HOW TO INNOVATE? HOW CAN STARTUPS BENEFIT? (2016) 3R Cubed Group, Available at: http://rcubedgroup.com/have-hp-dell- apple-microsoft-and-others-forgotten-how-to-innovate-how-can-startups-benefit/
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GeForce drivers and a set of other drivers and software.28 Such user inconveniences have
inevitable negative implications on brand image.
More recently, “Microsoft has advised Windows 10 users against downloading the Creators
Update before their computers become eligible for it. The company released the new software
two weeks ago, but has decided to roll it out to users in stages, partly because it doesn’t want to
overwhelm its servers.”29
4. Windows desktop operating systems is a significant source of revenues for Microsoft. The
sales of Microsoft Office system and Windows PC operating system constitute a significant
portion of Microsoft revenues. However, the volume of this specific source of revenue is
dependent on external hardware manufacturers such as Dell, HP, Asus, Compaq, Acer and
others. Specifically, Microsoft’s revenues decrease if hardware manufacturers do not ensure
compatibility of their products with the Windows desktop operating system. Moreover, it can be
argued that the popularity of traditional desktop computers as opposed to smart phones and
tablets are rapidly decreasing and this tendency can be specified as a considerable weakness for
Microsoft, taking into account dependence of considerable parts of its revenues on desktop PCs.
5. Security issues associated with Microsoft products remain as one of the major weaknesses of
the brand. In 2015, “the German-based testing firm pitted 28 antivirus programs (a mix of free
and paid offerings) against 153 pieces of zero-day malware and 12,327 pieces of known malware
on Windows 7 machines in a three-part test that scores on protection, performance and usability.
The tests, which were conducted in December, not only had Microsoft's free antivirus tool
(version 4.6) coming in dead last among 28 competitors, but it scored 0 out of 6 points in the
category of malware protection. It fared a better when it came to performance (4 out of 6) and
scored a perfect 6 points when it came to usability.”30
28 Evangelho (2014) Forbes, Available at: http://www.forbes.com/sites/jasonevangelho/2014/12/13/new-windows- 7-patch-is-effectively-malware-disables-graphics-driver-updates-and-windows-defender/ 29 Sulleyman, A. (2017) “Windows 10 Creators Update: Microsoft Warns Users of ‘Issues’”, Independent, Available at: http://www.independent.co.uk/life-style/gadgets-and-tech/news/windows-10-creators-update-issues-microsoft- user-problems-manual-download-a7705091.html 30 Paoli, C. (2015) “Microsoft's Security Essentials Fails Latest Antivirus Test” Redmond Magazine, Available at: https://redmondmag.com/articles/2015/01/27/security-essentials-fails-antivirus-test.aspx
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7.3 Opportunities
1. Microsoft has initiated a set of significant mergers and acquisitions that include acquisition of
Skype Global S.á r.l. (“Skype”), a leading global provider of software applications and related
Internet communication products for USD 8.6 billion in 2011, acquisition of Yammer, Inc.
(“Yammer”), a leading provider of enterprise social networks, for USD1.1 billion in 2012 and
Nokia’s Devices and Services business in 201431. Moreover, the list of the most notable recent
acquisitions include Nokia Corporation’s Devices and Services business for USD 9.4 billion in
2014 and Mojang Synergies AB the Swedish video game developer of the Minecraft gaming
franchise, for USD 2.5 billion.32
Nevertheless, there is an opportunity for Microsoft to further diversify its portfolio via engaging
in mergers and acquisitions with other businesses in consumer electronics industry. Specifically,
Microsoft should target companies that will assist in addressing weaknesses of the company as
discussed above.
2. Microsoft research and development expenses increased USD 1.7 billion or 13% in 2018
compared to the previous year, primarily due to investments in cloud engineering and LinkedIn
expenses.33 It has been noted that Surface, Surface Hub, and Microsoft HoloLens have pushed
the boundaries of how personal the computing experience can be, with Surface Book and Surface
Pro 4 released in the last year.34 Nevertheless, the company is rightly criticized for the lack of
innovative products and services on its pipeline. The company needs to increase the
effectiveness of its research and development initiatives via promoting the culture of creativity
and innovation, thus ensuring the launch of innovative products and services.
3. Despite increasing popularity of Smartphone market segment and its emergence as a substitute
to desktop computers, Microsoft is yet to offer competitive alternatives to Apple’s iPhone and
Samsung Galaxy smartphones. Microsoft is presented with an opportunity to satisfy growing
demand for smartphones by developing competitive products of this category.
4. Increasing popularity of smartphones as discussed above has triggered the surge of popularity
of mobile advertising. Microsoft’s direct competitors such as Apple and Samsung have been
successful in offering hundreds of thousands mobile applications free of charge thanks to mobile
31 Annual Report (2014) 32 Annual Report (2016) Microsoft Corporation 33 Annual Report (2018) Microsoft Corporation 34 Annual Report (2016) Microsoft Corporation
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advertisements integrated in those applications. Microsoft has an opportunity to also adopt this
strategy with positive implications on the volume of sales of its smartphones.
5. Enhancing security against cybercrime is an additional important opportunity to be explored
by Microsoft. The multinational technology company needs to invest considerable amounts of
resources of this purpose and attract highly qualified industry experts. The company already has
a Digital Crime Unit staffed by a 100-strong team of specialists.
“Set up in 2013, the Digital Crimes Unit has taken on the task of trying to fight the tide of online
crime, ranging from spam attacks spreading malware through zombie computer networks to
software piracy that impacts Microsoft’s own bottom line. Located in a restricted area of
Microsoft’s Redmond campus in Washington, the unit works with companies and organisations
to track down and eliminate threats.”35 Nevertheless, these initiatives may not be enough and
there is an opportunity for Microsoft to further invest in dealing with cyber crime with positive
implications on the brand image and the bottom line.
7.4 Threats
1. Microsoft has offices in more than 100 countries around the globe and it generates substantial
proportion of its revenues from international markets. Accordingly, Microsoft’s financial results
might be negatively impacted by the volatility in exchange rates between USD and local
currencies. Specifically, there is a threat that further strengthening of USD will decrease the
amount of reported profits generated by Microsoft in the global marketplace.
2. Emerging competition from east in general and from China and India in particular represent
substantial threat for Microsoft. Microsoft’s current and future competitors from emerging
economies will have a substantial competitive advantage associated with access to cheaper
resources and it might be difficult for Microsoft to address this issue. Moreover, taking into
account unique aspects of e-commerce and IT industry, it can be argued that any new market
entrant from any place can represent threat to Microsoft’s market share if they come with
innovative business idea and implement the idea in practice efficiently.
3. Microsoft is faced with a threat of being in a disadvantaged position due to the implications of
anti-monopoly lawsuits. For example, in China, the company was given 20 days by the State
35 O’Brien, C (2016) “Microsoft leading the fight to counter cybercrime” The Irish Times, Available at: http://www.irishtimes.com/business/technology/microsoft-leading-the-fight-to-counter-cybercrime-1.2566206
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Administration for Industry and Commerce “to explain what they called compatibility and
bundling issues with its software, putting pressure on the software maker as it faces an antitrust
probe into its business practices here”36. There is a threat for similar incidents to take place in
other international markets where Microsoft operates.
4. There are warnings of another economic crisis from a number of respected business
practitioners such as Chairman and CEO of JP Morgan Chase Jamie Dimon and Chairman of
Berkshire Hathaway Warren Buffett37. It has been noted that “the world’s banks are mostly
stronger now than they were on the eve of the last financial crisis, but there are important
exceptions. The stock of Deutsche Bank, Germany’s biggest, has fallen 62 percent from its 2015
high, and Chief Executive Officer John Cryan has so far resisted an obvious solution to shore up
the bank, namely raising money by issuing new shares, which would dilute the ownership of
current shareholders. The German government, having inveighed against bailouts for southern
European banks, is insisting it won’t reverse course now for its own bank. In Italy, meanwhile,
troubled loans on banks’ books equal about one-quarter of the nation’s GDP.”38. If materialized,
an economic crisis may have severe implications on Microsoft operations in the global
marketplace.
5. Emergence of CSR-related scandals represents another threat that can cause damage to
Microsoft at multiple levels. In the past, the multinational technology company had CSR-related
issues such as “use of permatemp employees (employees employed for years as "temporary," and
therefore without medical benefits), use of forced retention tactics, where departing employees
would be sued to prevent departure, as well as more traditional cost-saving measures, ranging
from cutting medical benefits, to not providing towels in company locker rooms.”39 The
company is not ensured in any ways against new CSR-related scandals and this fact constitutes a
major threat for the business.
36 Jie, Y. (2014) Wall Street Journal, Available at: http://www.wsj.com/articles/china-asks-for-explanation-from- microsoft-1409551006 37 Lenzner, R. (2015) “The Ten Reasons Why There Will Be Another Systemic Financial Crisis” Forbes, Available at: http://www.forbes.com/sites/robertlenzner/2014/12/08/the-ten-reasons-why-there-will-be-another-systemic- financial-crisis/ 38 Coy, P. (2016) “Where the Next Crisis Will Come From” Bloomberg, Available at: https://www.bloomberg.com/news/articles/2016-10-20/where-the-next-crisis-will-come-from 39 Troubling Exits At Microsoft (2005) Bloomberg, Available at: https://www.bloomberg.com/news/articles/2005- 09-25/troubling-exits-at-microsoft
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8. PESTEL Analysis
PESTEL is a strategic analytical tool and the acronym stands for political, economic, social,
technological, environmental and legal factors. Microsoft PESTEL analysis examines effects of
these factors on the bottom line of the multinational technology company.
8.1 Political Factors
There are many political factors within the scope of Microsoft PESTEL analysis at
governmental, regional and international levels. Apart from the impact of a regular set of
political factors such as political stability in the market, impact of activities of lobby groups and
the government attitude towards the organization and the industry, Microsoft activities during
the past years have brought upon the company other set of political issues.
Most notably, Microsoft has attracted the attention of governments and political parties due to
antitrust-related issues. A recent probe by China’s State Administration for Industry and
Commerce into the ways Microsoft distributes its Internet Explorer browser and Windows Media
Player and sells its Office and Windows software in China40 can be mentioned as a relevant
example of impact of a political factor.
Similar to major international corporations, Microsoft engages in political lobbying in order to
contribute to the formation of political environment favourable to its business. As illustrated in
Figure 3 below, the amount of annual political lobbying by Microsoft has ranged between USD
3,92 million and USD 7,25 million during the last 10 years.
40 Reuters (2014) Available at: http://www.reuters.com/article/2014/08/26/china-antitrust-microsoft- idUSL3N0QW1C520140826
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Figure 3 Annual lobbying by Microsoft Corporation41
8.2 Economic Factors
There is a range of economic factors that affect Microsoft revenues directly or indirectly. These
include economic growth or recession in the market, changes in interest rates and currency
exchange rates, changes in taxation rates and policies, inflation rates, changes of labour costs and
costs of other resources and others. Particularly, the global economic and financial crisis of 2007
– 2009 had proved to have highly detrimental impact on Microsoft, leading to layoffs of more
than 5,000 employees in 200942 and this illustrates the potential impact of economic factors on
business performance.
Furthermore, monetary and fiscal policies of the United States and other countries where
Microsoft operates can have direct or indirect impact on the performance of the multinational
technology company.
Changes in exchange rates between USD and other currencies is another significant factor
affecting Microsoft profit reports due to the fact that the company generates substantial part of its
revenues from international markets. Strengthening of USD relative to certain foreign currencies
throughout fiscal year 2017 negatively impacted reported revenue and reduced reported expenses
from Microsoft international operations. This trend reversed in fiscal year 2018. Strengthening of
foreign currencies relative to the U.S. dollar positively impacted reported revenue and increased
reported expenses from company’s international operations.
41 Open Secrets (2018) Available at: https://www.opensecrets.org/lobby/clientsum.php?id=D000000115 42 Goldman, D. (2014) CNN Money, Available at: http://money.cnn.com/2014/07/17/technology/enterprise/microsoft-job-cuts/
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Cost of labour can be mentioned as another economic factor with potential effects on the bottom
line for the technology company. Microsoft employs approximately 131,000 people on a full-
time basis including 78,000 people in North America.43 Accordingly, increases in the cost of
labour decrease the total net profit for the company.
8.3 Social Factors
Microsoft is greatly impacted by a range of social factors such as demographic changes, changes
in consumer attitudes and opinions towards consumer electronics products and services, media
perception of the brand and health and welfare of target customer segment. It can be argued that
the impact of the majority of modern social factors can be positive in relation to Microsoft
products and services.
For example, a social change of increasing popularity of same-sex marriages in the US and other
developed countries is causing heated debates and discussions around the globe. Engagement in
these debates and discussions involve extensive usage of products and services offered by
Microsoft and other businesses operating in internet and consumer electronics industry.
Specifically, millions of people around the globe use internet browsers including Microsoft Edge
to get information and share their opinions about social changes; use Windows Phone, Skype and
other related technologies for the same purpose. Similarly, a social change of increasing
popularity of alternative working patterns such as working from home involves an extensive
utilization of a range of products and services offered by Microsoft such as Microsoft Edge,
Windows Phone and Skype. Similarly, changes in consumer purchasing habits in general and
increasing popularity of online purchases in particular increases ten demand for a wide range of
products and services within Microsoft portfolio.
8.4 Technological Factors
Due to the technological nature of Microsoft products and services, the impact of technological
factors might be greater for Microsoft compared to businesses operating in other industries.
Generally, prominent technological factors that impact Microsoft include industry-specific
43 Annual Report (2018) Microsoft Corporation 20
technological innovations and breakthroughs, decreasing life cycle of technology, changes in
energy consumption practices, shifts in manufacturing maturity and capacity and others.
Moreover, information technology and consumer electronics industry is currently undergoing
massive changes that include shift from PC to tablets and other mobile devices, increasing
importance and popularity of cloud business, drive for product customization and personalization
of experiences and others. Microsoft’s long-term growth prospects depend on company stance
towards these dynamic changes in a direct manner.
Microsoft senior management duly acknowledge the importance of technological factors for the
long-term growth prospects of the business. Accordingly, the company engages in research and
development in an extensive manner. Specifically, research and development expenses increased
USD1.7 billion or 13% in 2018 compared to the previous year, primarily due to investments in
cloud engineering and LinkedIn expenses.44
Microsoft research and development efforts focus on three interconnected ambitions45:
• Reinvent productivity and business processes.
• Build the intelligent cloud platform.
• Create more personal computing.
8.5 Environmental Factors
Performance of Microsoft can be indirectly impacted by a set of environmental factors such as
global warming, air pollution, thickening of ozone layer and others. Moreover, the impact of
environmental factors on Microsoft performance can be direct as well in cases of environmental
disasters such as earthquakes, flooding, tornados etc.
For example, in UK a “natural capital” stress test found that flooding in 2050 on a similar scale
to the winter of 2013/14 would affect more than twice as many homes.46 Such a natural disasters
can have negative implications for Microsoft via damaging company’s properties in UK and
reducing customer purchasing power in this important market.
44 Annual Report (2018) Microsoft Corporation 45 Annual Report (2018) Microsoft Corporation 46 Johnston, I. (2017) “Extreme weather to cost UK billions and leave 2.5m homes at risk of flooding unless ministers take action, warns WWF” Independent, Available at: http://www.independent.co.uk/environment/climate- change-global-warming-extreme-weather-flooding-homes-drought-uk-economy-a7964851.html
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Similarly, air pollution is a serious environmental factor that can affect Microsoft via decreased
employee performance. It has been estimated that air pollution is responsible for 656,900 sick
days a year in Central London. Employee productivity across 190 Chinese cities would rise by
about 4 per cent per year if the amount of fine-particle pollution in the air was cut to fall within
World Health Organization standards.47
Any corporation of a size of Microsoft is expected by stakeholders in general, general public and
non-governmental organization in particular to behave in a socially responsible manner and to
illustrate commitment in dealing with a wide range of environmental issues. Neglecting this
expectation may result in damage to the brand image via negative online and offline press
coverage. Microsoft addresses this issue according to its corporate social responsibility (CSR)
programs and initiatives.
8.6 Legal Factors
Microsoft is directly impacted by a set of legal factors such as trade regulations, anti-trust rules
and regulations, data protection regulations and others. Additionally, there is a wide range of
rules and regulations related to employee health and safety, consumer protection laws,
employment laws, and competitive rules and regulations that need to be fully adhered to by
Microsoft. Changes in these rules and regulations are most likely to impact Microsoft
performance in direct and indirect manner and in ways that are difficult to predict.
Legislators and regulators may make legal and regulatory changes, or interpret and apply
existing laws or policies, in ways that make Microsoft products and services less useful to its
users, require the company to incur substantial costs, expose it to unanticipated civil or criminal
liability, or cause it to change its business practices.
Microsoft experiences the impact of legal factors in the areas of patent infringement, antitrust,
and monopoly in a regular manner. One of the most complex legal proceedings involves the case
where “a US judge has agreed that Microsoft should release under a US search warrant an email
that is being stored on servers in Ireland. Yet European Union (and thus Irish) law on such
47 Phillips, R. (2017) “Air pollution: The business concern” Eco-Business, Available at: http://www.eco- business.com/opinion/air-pollution-the-business-concern/
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matters says that only a court local to that jurisdiction can make such a decision”48. Additionally,
Microsoft had to deal with accusations on the grounds of antitrust in EU and China along with
many patent infringement cases either as a claimant or defendant during past years.
9. Marketing Strategy
Since the appointment of Satya Nadella as CEO, Microsoft marketing strategy has changed to
become less ‘hostile’ abandoning kinds of advertising that ‘attacked’ competitors in a direct
manner. For example, a marketing campaign known as ‘Scroogled!’ launched in 2012 informed
about Google’s decision to display paid advertisements to search results related to shopping
(Figure 4). ‘Scroogled’ was launched to ensure the shift of some Google users to use
Microsoft’s Bing search engine, but Nadella stopped this and some other similar campaigns as an
attempt to improve the image of the company.49
Figure 4 Microsoft's 'Scroogled' Marketing campaign
48 Worstall, T. (2014) Forbes, Available at: http://www.forbes.com/sites/timworstall/2014/08/01/us-judge-insists- microsoft-break-eu-law-to-obey-us-law-over-email-in-ireland/ 49 Hildenbrand, J. (2014) Windows Central, Available at: http://www.windowscentral.com/microsoft-s-scroogled- campaign-may-finally-be-coming-to-an-end
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In other words, since his appointment on the top job, Satya Nadella has been focusing on
humanising the brand and taking a customer-centric approach with direct implications on the
marketing strategy of Microsoft.
Microsoft sales and marketing expenses amounted to USD 17,469 billion, USD 15,461 billion
and USD 14,635 billion for the fiscal years of 2018, 2017 and 2016 respectively . In 2018 the
tech giant’s sales and marketing expenses increased USD2.0 billion or 13% compared to the
previous year.50
Microsoft marketing strategy is based on the following principles:
1. Investing in the communication of marketing message through various marketing
communication channels in an integrated manner. The technology giant uses a range
of marketing communication channels such as advertising, sales promotion, events and
experiences, public relations, direct marketing and personal selling in an integrated way
to communicate its marketing message to its target customer segment.
2. Focus on product element of the marketing mix. Microsoft 7Ps of marketing focuses
on the product element of the marketing mix to a greater extent compared to other
elements. Accordingly, the multinational technology company has accepted high level of
user convenience of its products and services as unique selling proposition associated
with the brand.
3. Targeting customers that value effectiveness and efficiency. Microsoft segmentation
targeting and positioning focuses on specific group among the population that value
efficiency speed of operations and advanced features and capabilities of technological
products and services.
9.1 7Ps of Marketing
Microsoft marketing mix (Microsoft 7Ps of marketing) comprises elements of the marketing mix
that consists of product, place, price, promotion, process, people and physical evidence. The
multinational technology company manipulates with elements of the marketing mix according to
its marketing strategy, as a part of its business strategy.
50 Annual Report (2018) Microsoft Corporation 24
Product
The majority of Microsoft’s products relate to productivity and business processes and to support
digital work and life of customers. The company also builds the platforms upon which others
build their own digital platforms. Some of Microsoft products are clear leaders in the global
marketplace.
For example, more than 135 million people use Office 365 commercial every month and Outlook
Mobile is installed into more than 100 million iOS and Android devices worldwide.51 Similarly,
Microsoft Teams is used by more than 300 organizations worldwide, including 87 of the Fortune
100 and nowadays there are nearly 700 million devices around the world with active Windows
10.52
Generally, Microsoft products and services can be divided into three broad categories as
illustrated in Table 2 below:
Category Products and services
Productivity and Business Processes
Microsoft 365, SharePoint, Skype for Business, Outlook Mobile, One Drive, Dynamics 365, Microsoft Teams, Linked In
Intelligent Cloud Server products and cloud services, including SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure Enterprise Services, including Premier Support Services and Microsoft Consulting Services
More Personal Computing Windows Devices, including Microsoft Surface (“Surface”), phones, and PC accessories. Gaming, including Xbox hardware; Xbox Live, Search advertising.
Table 2 Microsoft product categories and products
Place
Microsoft sells its products and services through the following three channels:
1. Official website: www.microsoftstore.com/store. Microsoft online store is a convenient
platform where customers can choose products and services according to categories such as
51 Annual Report (2018) Microsoft Corporation 52 Annual Report (2018) Microsoft Corporation
25
Devices, Software & Apps, Games & Entertainment etc. The website also includes information
about special deals in relation to specific products or special dates and occasions.
2. Microsoft stores. There are 116 Microsoft stores worldwide: 106 stores in the USA, 8 stores
in Canada, 1 store in Australia and 1 store in Puerto Rico. Similar to Apple Store, in Microsoft
stores customers have an opportunity to use products helpful ‘technical advisers’ in stores are
happy to assist.
There are 3 types of Microsoft stores:
i) Specialty stores provide a limited selection of products, for a quick and convenient
shopping trip;
ii) Full line stores offer Answer Desk services, and complete product offerings;
iii) Flagship stores focus on more exclusive experiences and features. These are located in
are located in New York City and Sydney.
3. Authorised distributors. Distributors and resellers of Microsoft products and services include
retail outlets, such as Wal-Mart, Dixons, and Microsoft retail stores, as well as, license solutions
partners (“LSPs”), web agencies, and developers and others.
Price
In 2014 Microsoft pricing strategy was subjected to a major change. Instead of charging
companies for software on a per-device basis, it started to price subscriptions and licenses based
on who actually uses them. Microsoft also emulated Apple’s strategy of free operating system
updates with the Windows 10 release.53
Freemium pricing represents an important element of Microsoft pricing strategy. For example,
“Skype VoIP product is free for consumers but enterprises have to pay to use it for business
purposes. The principal is still the same though – get people using the product as consumers, and
then rely on them to drive its adoption in the workplace”54.
Product line pricing can be mentioned as another noteworthy aspect of Microsoft pricing
strategy. In product line pricing, companies offer different categories of the same products with
different qualities and different prices. Windows Virtual Machines start with USD 0.004/hour for
53 Clancy, H. (2015) “Why Microsoft’s ‘buy only what you use’ pricing strategy is a big deal” Fortune, Available at: http://fortune.com/2015/02/04/microsoft-buy-what-you-use/ 54 Rubens, P. (2016) “Why Microsoft continues to embrace the freemium model” CIO, Available at: http://www.cio.com/article/3029322/software/why-microsoft-continues-to-embrace-the-freemium-model.html
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only 1 vCPU. More advanced version with 2 vCPU that uses Intel Skylake processor costs USD
0.031/hour. The premium version with database servers, caches, and in-memory analytics costs
USD 0.049/hour. Additional pricing strategies used by Microsoft at various extends include
penetration pricing, price skimming, psychological pricing and promotional pricing strategies.
Promotion
Microsoft uses a range of elements of the marketing communication mix such as print and media
advertising, sales promotions, events and experiences, public relations and direct marketing in an
integrated manner in order to communicate the marketing message to the representatives of the
target customer segment. The marketing message attempts to associate the consumption of
Microsoft products and services with the perceptions of efficiency, modern and staying in tune
with the latest technological developments.
Print and media advertising is placed at the core of Microsoft marketing strategy and the
multinational technology company spends more than USD 1 billion on the print and media
advertising annually. The company uses annual sales promotions, discount codes, free gifts and
Microsoft Reward loyalty program sales promotion techniques. Microsoft is also famous for
sponsoring and hosting various events and experiences that promote specific products and the
brand in general.
Process
The range of processes critical to Microsoft’s success include employee recruitment and
selection, marketing research, new product research and development, sales, product return,
customer service processes and others. The technology company attempts to gain efficiency in
relation to each of these processes. Research and development process can be highlighted as one
of the most critically important aspects of business for the technology giant. Accordingly,
Microsoft research and development expenses increased USD1.7 billion or 13% in 2018
compared to the previous year.55
55 Annual Report (2018) Microsoft Corporation 27
People
Microsoft has been recognized as the World’s Best Multinational Workplace in Europe for 2014
by Great Place to Work Institute. Sales assistants in 116 Microsoft stores worldwide are referred
to as technical advisers and they are highly competent in advising store visitors about features
and capabilities of Microsoft products and services.
As of June 30, 2018, Microsoft employed approximately 131,000 people on a full-time basis,
78,000 in the U.S. and 53,000 internationally. Of the total employed people, 42,000 were in
operations, including manufacturing, distribution, product support, and consulting services;
42,000 were in product research and development; 36,000 were in sales and marketing; and
11,000 were in general and administration. Certain of our employees are subject to collective
bargaining agreements.56
Physical evidence
Physical evidence refers to items related to the recognition of brands within Microsoft portfolio.
Microsoft logo consisting of a square divided into four squares with four different colours, with
the company name written on the right side of it is an integral component of the brand’s physical
evidence. As additional elements of physical evidence, Microsoft stores are designed as specious
and attractive, where people can experience using Microsoft products and services.
9.2 Segmentation, Targeting & Positioning
Microsoft segmentation, targeting and positioning can be explained as a set of activities that
constitute the core of marketing efforts for the multinational technology company. Segmentation
involves dividing population into groups on the basis of certain characteristics. Businesses focus
on certain customer segments and position their products and services to satisfy needs and wants
of these particular segments.
Microsoft uses the following types of positioning:
• Multi-segment positioning. The company targets more than one customer segments at
the same time with different product and service packages. For example, Dynamics 365,
56 Annual Report (2018) Microsoft Corporation 28
a software for building and supporting customer relationships starts with USD 115/month
Customer Engagement Plan for cost-conscious customer segment. Unified Operations
Plan starting from USD 190/month, on the other hand is developed for a different
customer segment that do not mind to pay extra for additional set of functions and
features within Dynamics 365.
• Standby positioning. Standby positioning technique involves the development of
products and services that can await changes in the market to find demand in the future.
When Microsoft announced its ‘cloud-first, mobile-first’ business strategy in 2014, cloud
data storage was a new segment. CEO Satya Nadella saw a potential in cloud business,
focused on the development of cloud services using standby positioning technique. The
demand for cloud consistently increased and in Q2, 2018 alone, Microsoft commercial
cloud revenues reached USD 6.9 billion, a growth of 53% compared to the previous
period.57
The following Table 3 illustrates Microsoft segmentation, targeting and positioning:
Type of segmentation
Segmentation criteria
Microsoft target customer segment
Geographic
Region Global marketplace Density Urban and rural
Demographic
Age 16 and older Gender Males & Females Life-cycle stage Bachelor Stage young, single people not living at home
Newly Married Couples young, no children Full Nest I youngest child under six Full Nest II youngest child six or over
Occupation Students, employees, professionals Behavioral Degree of
loyalty Hard core loyals Soft core loyals
Benefits sought Efficiency, accuracy, speed Personality Deatermined and ambitious User status non-users, potential users, first-time users, regular users and
ex-users Psychographic Social class Lower class, working class, middle class and upper class
Lifestyle58 Mainstreamer Aspirer
57 Evans, B. (2018) “'Legacy' Tech Vendors Rock The Cloud As Microsoft, IBM And SAP Boom In Q2” Forbes, Available at: https://www.forbes.com/sites/bobevans1/2018/07/20/legacy-tech-vendors-rock-the-cloud-as-microsoft- ibm-and-sap-boom-in-q2/#3c8e30e946fa 58According to Cross Cultural Consumer Characterization by Young & Rubican
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Succeeder Explorer Reformer
Table 3 Microsoft segmentation, targeting and positioning
9.3 Marketing Communication Mix
Microsoft marketing communication mix explains the patterns of use of elements of marketing
communication such as advertising, sales promotion, events and experiences, public relations,
direct marketing and personal selling by the multinational technology company.
9.3.1 Print and Media Advertising
Print and media advertising is placed at the core of Microsoft marketing strategy. Microsoft print
and media advertising expenses amounted to USD 1.6 billion, USD 1.5 billion, and USD 1.6
billion in fiscal years 2018, 2017, and 2016, respectively59. As illustrated in Figure 5 below,
Microsoft’s print and media advertising campaigns make an appeal to needs, wishes and
aspirations of target customer segment and positions Microsoft products and services as efficient
tools to be used to satisfy them.
59 Annual Report (2018) Microsoft Corporation 30
Figure 5 Example of Microsoft print advertisement
Some of Microsoft’s TV advertisements such as “the apps you want” 30-second commercial that
promotes unified Windows Store within Windows Phone and Windows 8 have become viral
videos in social networking sites mainly due to engaging presentation of information. Moreover,
as an unprecedented move the company has placed a Wi-Fi-Enabled print advertising promotion
in a special edition of Forbes magazine targeting a selected group of subscribers. Ultra-thin
router and battery placed within pages of magazine granted the possibility of free internet
browsing for about 3 hours. Moreover, the global technology company has been gradually
shifting its focus from traditional media such to the social media and other online platforms.
9.3.2 Sales Promotions
Sales promotion is used by Microsoft in a frequent manner in both store formats – physical and
online. Microsoft sales promotions include the following:
1. Seasonal sales promotions. Microsoft offers 12 Days of Faves promotions, during Christmas
and New Year holidays. Additional seasonal sales include Black Friday and Cyber Monday. 31
2. Discount codes. The company offers special education-designated Microsoft coupons for
students, parents, faculty, and staff, as well as discounts for members of the military.
3. Free gifts. Microsoft uses the distribution of free gifts as a sales promotions technique in an
occasional manner. The company offers free apps, games, music, movies, etc. when customers
send digital gift cards for Xbox and Windows.
4. Loyalty program. Microsoft Rewards allows customers to earn at least 1 point for every
USD1 spent in the Microsoft Store. Moreover, Level 1 members earn up to 5 points a day, 150
points a month, when searching Bing in Microsoft Edge on PC or mobile. Level 2 members earn
up to 20 points a day, 600 points a month, when searching Bing in Microsoft Edge on PC or
mobile. Customers can redeem earned points for gift cards, sweepstakes entries, and nonprofit
donations.
5. Point of Sales Materials. The multinational technology company uses posters, display stands
and other promotional tools in its more than 116 physical stores worldwide.
9.3.3 Events & Experiences
Microsoft is famous for sponsoring and hosting various events and experiences that promote
specific products and the brand in general. Microsoft events and experiences are aimed at
increasing the level of brand awareness among the public in general and the target customer
segment in particular. Moreover, Microsoft attempts to communicate the brand value offer to the
target customer segment in indirect manner via such events.
Microsoft official website contains detailed information about special events. On this website,
users are able to filter information about upcoming special events according to audience,
category, products, language and country. Furthermore, the launch of each new update of
Windows is accompanied with a spectacular special event. For example, the last special event
organized for the launch of Windows 10 on January 21, 2015 has attracted extensive media
coverage with positive impact on the level of product awareness.
Similarly, Digital Intelligence Event: Microsoft Experiences ’18 held in Paris on November 6-7,
2018 attracted more than 15,000 participants including C-level professionals, IT experts, and
32
data scientists flocked to the Palais des Congrès to hear the latest innovations in digital
intelligence.60
9.3.4 Public Relations
Public relations can be defined as a “discipline which looks after reputation, with the aim of
earning understanding and support and influencing opinion and behaviour. It is the planned and
sustained effort to establish and maintain goodwill and mutual understanding between an
organisation and its publics.”61
Microsoft facilitates public relation component of its marketing strategy via online press
releases, annual reports, speeches and seminars. Microsoft’s official website62 contains the list of
local Microsoft PR sites in more than 60 countries around the globe that deals with regional PR
issues, whereas, global public relations is dealt with from company’s head office in Richmond,
USA. An annual CSR report is also used by Microsoft as an effective PR tool.
Previously, Microsoft brand image was damaged to a substantial extent due to a PR crisis related
to the launch of its Xbox One. Specifically, after the initial announcement of the launch, PR
department issued no further communication to feed public curiosity and this led to speculations
about poor quality of the product and other technical issues with negative implications for
Microsoft in general, and Xbox 1 in particular.63
9.3.5 Direct Marketing
Direct marketing can be defined as “as a marketing strategy to build stronger, more personal
relationships between the buyer and selected customers directly”64. In other words, in direct
marketing there are no intermediaries between the buyer and the seller in terms of promotion and
distribution.
60 Revevol (2018) Available at: https://blog.revevol.com/microsoft-experiences-18-digital-intelligence-debriefing 61 Chartered Institute of Public Relations (n.d.) Available at: http://www.cipr.co.uk/content/careers-advice/what-pr 62 http://news.microsoft.com/worldwide-microsoft-pr-sites/ 63 Maunder, A. (2013) Brandwatch, Available at: http://www.brandwatch.com/2013/08/five-lessons-in-how-not-to- handle-a-pr-crisis-a-microsoft-case-study/ 64 Moore, K. & Pareek, N. (2010) “Marketing: The Basics” 2nd edition, Taylor & Francis, p.168
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Microsoft uses various forms of direct marketing. Starting from 2014, Microsoft partnered with
Dentsu Aegis and IPG to facilitate its direct marketing campaigns and other marketing efforts65.
The technological company previously cooperated with Publicis and WPP marketing companies.
Microsoft does not use cell phone text messaging, fliers, catalog distribution, promotional letters
and targeted television forms of direct marketing.
9.3.6 Personal Selling
Personal selling is “person-to-person communication with a prospective customer in order to
develop a relationship, identify customer needs, match goods/services with those needs,
communicate benefits to customers, and gain commitment to purchase goods/services that satisfy
customer needs”66. Microsoft engages in personal selling for its B2B business employing highly
professional salespeople. The company employs 36,000 people in sales and marketing in total.67
10. Porter’s Five Forces Analysis
Porter’s Five Forces analytical framework developed by Michael Porter (1979)68 represents five
individual forces that shape an overall extent of competition in the industry. These forces are
illustrated in Figure 6 below:
65 Bruell, A. (2014) “Microsoft Moves Ad and Media Business to Dentsu Aegis and IPG” Ad Age, Available at: http://adage.com/article/agency-news/microsoft-moves-ad-media-business-dentsu-aegis-ipg/292962/ 66 Siguaw, J.A. & Bojanic, D.C. (2004) “Hospitality Sales: Selling Smarter” Cengage Learning, p.2 67 Annual Report (2018) Microsoft Corporation 68 Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review
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Figure 6 Porter's Five Forces
10.1 Threat of new entrants
Threat of new entrants into technology, cloud and software industries is moderate. The following
factors affect the threat of new entrants into the industry:
1. Economies of scale. Due to the global scale of its operations, Microsoft derives
tremendous cost advantages out of the economics of scale and this advantage is not
available to new entrants, at least during the initial stages of operations.
2. Capital requirements. Personal computing and cloud are capital-intensive business
segments and substantial amount of financial investments are required to start business in
these segments. Accordingly, massive capital requirements can be specified as a
noteworthy entry barrier into the industry where Microsoft successfully operates.
3. Time of entry. Increasing popularity of cloud, personal computing and various
productivity and business software increases the threat of new competitors for Microsoft.
10.2 Bargaining power of buyers
Bargaining power of buyers of Microsoft products and services is high. At the same time, no
sales to an individual customer accounted for more than 10% of revenue in fiscal years 2018,
Rivalry among existing
firms
Threat of new entrants
Bargaining power of
buyers
Bargaining power of suppliers
Threat of substitute
products or services
35
2017, or 201669. Microsoft brand identity can be specified as an important factor that can be used
to control buyer bargaining power to a certain extent. Microsoft strategic level management can
further cultivate brand value and brand loyalty in order to decrease bargaining power of buyers.
Buyer bargaining power is determined by the following and other set of factors:
1. Availability of substitution. Microsoft operates in a highly competitive industry with the
abundance of choice for consumers. The presence of direct and indirect substitutes for all
products and services offered by Microsoft increases bargaining power of buyers to a
significant extent.
2. Switching costs for consumers. There are some switching costs for customers if they
decide to leave Microsoft server products and cloud services, including SQL Server,
Windows Server, Visual Studio, System Canter, and related CALs, as well as Azure. The
existence of the switching costs decreases buyer bargaining power to a certain extent.
3. Buyers’ price sensitivity. Unlike Apple customers, users of Microsoft products and
services are highly price sensitive and it can be argued that buyer price sensitivity
contributes to their bargaining power.
10.3 Bargaining power of suppliers
Bargaining power of Microsoft suppliers is low. The technology giant exercises its bargaining
power over suppliers extensively to secure low prices and to ensure supplier commitment to
other requirements. For example, as part of its CSR initiatives Microsoft started requiring its US
suppliers with more than 50 employees to to offer a minimum of 12 weeks of paid parental leave
at up to USD1,000 per week.70 At the same time, there is a small number of suppliers such as
Dell that have greater bargaining power compared to other suppliers mainly due to the unique
nature of their products and services.
The following set of factors play an important role in the formation of supplier bargaining
power:
69 Annual Report (2018) Microsoft Corporation 70 Salinas, S. (2018) “Microsoft will start requiring partners and suppliers to offer paid family leave, and it will help cover the costs” CNBC, Available at: https://www.cnbc.com/2018/08/30/microsoft-will-require-partners-suppliers- to-offer-paid-family-leave.html
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1. Great numbers of suppliers. There are large numbers of suppliers around the globe and
Microsoft is the biggest customer in terms of purchase volume for the majority of its
suppliers.
2. Low supplier switching costs. The multinational technology company can replace the
majority of its suppliers for little or no cost for the business. Such a situation has an
evident adverse impact on supplier bargaining power.
3. Cost of supplies relative to selling price of products. For Microsoft, the cost of
supplies relative to selling price of its products is low and this can be highlighted as
another factor that decreases supplier bargaining power.
10.4 Threat of substitute products or services
Threat of substitute products or services for Microsoft is low. The following factors determine
the level of threat of substitute products or services for the multinational technology company:
1. Lack of direct substitutes. Range of products offered by Microsoft include operating
systems for computing devices, servers, phones, and other intelligent devices; server
applications for distributed computing environments; productivity applications; business
solution applications; desktop and server management tools; software development tools;
video games; and online advertising. The company also designs and sells hardware
including PCs, tablets, gaming and entertainment consoles, phones, other intelligent
devices, and related accessories.
Additionally, Microsoft offers a wide range of software applications and cloud-based
computing services such as Bing, Microsoft Azure, Microsoft Dynamics CRM Online,
Microsoft Office 365, OneDrive, Skype, Xbox Live, and Yammer. There is no direct
substitution for these products and services, however, indirect substitution exists.
Indirect substitution for Microsoft products and services belonging to productivity and
business processes segment include a wide range of stationary products, planners and
organizers. Indirect substitution for Microsoft gaming and recreation products, on the
other hand, include but not limited to music, movies, sports, spending time with friends
and family members etc.
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2. Low buyer propensity to substitute. The level of buyer propensity to choose substitute
products or services to Microsoft’s products and services can be assessed as low. This is
because according to its mission ‘to empower every person and every organization on the
planet to achieve more’, Microsoft products and services are highly convenient to use.
3. Absence of switching costs to substitutes. Although, there is generally low buyer
propensity to choose substitute products and services as discussed above, the absence of
switching costs to substitutes may increase their threat to a certain extent.
10.5 Rivalry among existing firms
Rivalry among existing firms is fierce in technology and consumer electronics industry. The
following factors intensify the level of rivalry in the industry:
1. Large numbers of competitors. Microsoft products and services compete with a set
other well-known brands in global marketplace in respective segments.
In Productivity and Business Processes operating segment Microsoft competes with
software and global application vendors such as Apple, Cisco Systems, Facebook,
Google, IBM, and Slack, and many web-based and mobile application competitors as
well as local application developers. Major Microsoft competitors in Intelligent Cloud
segment include CA Technologies, Hewlett-Packard, IBM, and VMware.
In More Personal Computing segment, on the other hand, alternative platforms and
devices, mainly from Apple and Google, providers of entertainment services such as
Sony and Nintendo represent competition for Microsoft.
2. Rate of growth of the industry. Gartner research and advisory company forecasts
Worldwide Public Cloud Service Revenues to reach USD 302,5 billion by the year
2021.71 Personal computing, software and applications industries also have impressive
growth rates. It can be argued that high industry growth rate attracts more competitors in
the market and as such, the level of competition in the global marketplace is expected to
further intensify in the future.
71 Gartner Forecasts Worldwide Public Cloud Revenue to Grow 21.4 Percent in 2018 (2018) Gartner, Available at: https://www.gartner.com/newsroom/id/3871416
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11. Value-Chain Analysis
Microsoft Value chain analysis is an analytical framework that assists in identifying business
activities that can create value and competitive advantage to the business. Figure 7 below
illustrates the essence of Microsoft value chain analysis.
Figure 7 Value chain analysis
11.1 Microsoft Primary Activities
11.1.1 Microsoft Inbound logistics
Microsoft contracts with multiple suppliers internationally, as illustrated in Figure 8 below.
Accordingly, the company has to maintain highly complicated supply-chain operations without
any disruptions. It is compulsory of all suppliers to adhere to Microsoft Supplier Code of
Conduct and The Microsoft Supplier Requirements. The main sources of value for Microsoft
inbound logistics include the economies of scale, presence of strategic relationships with
suppliers and in-depth knowledge of supply-chain management practices due to selling relevant
software i.e. Microsoft Dynamics AX.
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Figure 8 Microsoft production supplier locations72
11.1.2 Microsoft Operations
Microsoft Corporation business is divided into the following three operating segments:
1. Productivity and Business Processes. This segment comprises Microsoft products and
services related to productivity, communication, and information services. The segment
comprises a range of devices and platforms such as Office Commercial, Office Consumer
LinkedIn and Dynamics.
2. Intelligent Cloud. This operating segment includes public, private, and hybrid server products
and cloud services that can power modern business. Intelligent Cloud segment comprises server
products such as SQL Server, Windows Server, Visual Studio, System Center, and related CALs,
and Azure, as well as, Enterprise Services, such as Support Services and Microsoft Consulting
Services.
3. More Personal Computing. This segment consists of products and services geared towards
harmonizing the interests of end users, developers, and IT professionals across screens of all
sizes.
72 Responsible Sourcing (2019) Microsoft Corporaton, Available at: https://www.microsoft.com/en- us/about/corporate-responsibility/responsible-sourcing
40
Microsoft’s regional centre in Ireland supports the European, Middle Eastern, and African
region; the centre in Singapore supports the Japan, India, Greater China, and Asia-Pacific region;
and the centres in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond,
Washington, and Reno, Nevada support Latin America and North America73
Microsoft devices except phones are mainly manufactured by third-party contract manufacturers.
Microsoft manufacturing plants are located all over the world ensuring proximity to suppliers at
the same time reducing transportation costs and negative environmental impact. Some of the
manufacturing plants are located in the poorest areas such as Brazil’s Manas and Mexico’s
Reynosa, thus creating jobs for local people. Interestingly, unlike many other corporations of
similar size, Microsoft does not provide detailed data about the numbers and other details of its
manufacturing plants around the globe. Cost advantage through outsourcing can be specified as
the main source of value in Microsoft operations.
11.1.3 Microsoft Outbound Logistics
Microsoft outbound logistics combines the following distribution channels:
1. Original Equipment Manufacturers (OEMs). OEMs serve as a vital distribution channel for
Microsoft via pre-installing Microsoft software on new devices such as PCs, tablets, servers,
smartphones, and other intelligent devices. These OEMs include Acer, ASUS, Dell, Fujitsu,
Hewlett-Packard, Lenovo, Samsung, Toshiba, and with many regional and local OEMs.74 Pre-
installation of Windows operating system on computing devices represents the largest
component of OEM distribution channel.
1. Distributors and resellers. Distributors and resellers of Microsoft products and services
include retail outlets, such as Wal-Mart, Dixons, and Microsoft retail stores, as well as,
license solutions partners (“LSPs”), web agencies, and developers and others.
2. Online sales. Microsoft provides online content services to consumers through Bing,
MSN portals and channels, Office 365, Xbox Live, Outlook.com, OneDrive, Skype, and
Windows Store. Additional range of services delivered by Microsoft online includes
73 Annual Report (2016) Microsoft Corporation 74 Annual Report (2018) Microsoft Corporation
41
online advertising platform with offerings for advertisers and publishers, as well as
Microsoft Developer Network subscription content and updates.
3. Microsoft Stores. There are 116 Microsoft stores worldwide: 106 stores in the USA, 8
stores in Canada, 1 store in Australia and 1 store in Puerto Rico. Similar to Apple Store,
in Microsoft stores customers have an opportunity to use products helpful ‘technical
advisers’ in stores are happy to assist.
The major source of value in Microsoft outbound logistics relates to effective use of multiple
shipment channels in an integrated manner.
11.1.4 Microsoft Marketing and Sales
Brand marketing message is closely associated with the values of effectiveness, efficiency and
convenience in dealing with a wide range of professional and personal tasks. Microsoft uses
licensing method to sell its products and services and organizations can choose from the
following forms of licensing depending on their size, scope of operations and resources:
• Enterprise Agreement Licensing
• Microsoft Product and Services Agreement Licensing
• Select Plus Licensing
• Open Licensing
Major sources of value creation for Microsoft marketing and sales activities include an effective
engagement in viral marketing and the use of licensing sales method to decrease cost of sales to a
considerable extent. Sales and marketing expenses increased USD2.0 billion or 13% in 2018
compared to the previous year, primarily due to LinkedIn expenses and investments in
commercial sales capacity, offset in part by a decrease in Windows marketing expenses.75
75 Annual Report (2018) Microsoft Corporation 42
11.1.5 Microsoft Service
Service primary activity within the framework of value chain analysis refers to support provided
to customers after the sales. Microsoft attempts to maintain the highest level of customer services
pre-purchase, during the purchase and after the purchase. Sophisticated online answer desk
offers timely customer services in the areas of account and billing, technical support, setup and
installation support and buying advice. Additionally, Microsoft offers support for businesses and
IT professionals in terms of deriving the maximum benefits from their products and services.
Microsoft aims to support its customers in terms of online security. The company has an online
security centre on its website and provides information about download security essentials.
Moreover, also offers an online Malicious Software Removal Tool to customers as a part of its
customer service program. The global technology company also has an online disability answer
desk to support customers with disabilities.
11.2 Microsoft Support Activities
11.2.1 Microsoft Infrastructure.
Microsoft’s infrastructure comprises its wide range of support systems and functions such as
finance, planning, quality control and general senior management. There are four Board
Committees at Microsoft - Audit Committee, Compensation Committee, Governance and
Nominating Committee and Regulatory and Public Policy Committee. CEO Satya Nadella is
aided by five Executive Vice Presidents and a Chief Operating Officer. Currently, the company
is undergoing the process of re-organization initiated by new CEO Satya Nadella aimed at cost-
cutting and improve flexibility and competitiveness of the business in general.
11.2.2 Microsoft Human Resource Management
As of June 30, 2018, Microsoft employed approximately 131,000 people on a full-time basis,
78,000 in the U.S. and 53,000 internationally. Of the total employed people, 42,000 were in
43
operations, including manufacturing, distribution, product support, and consulting services;
42,000 were in product research and development; 36,000 were in sales and marketing; and
11,000 were in general and administration. Certain of our employees are subject to collective
bargaining agreements.76
Microsoft has been recognized as the World’s Best Multinational Workplace in Europe for 2014
by Great Place to Work Institute. CEO Satya Nadella has made a public pledge to improve the
performance of human resources via improving organizational culture. However, Nadella also
became a reason for controversy for his remarks about payment gaps between men and woman.
Specifically, Microsoft CEO had stated in October 2014 that “women should trust “karma”
instead of asking for pay raises”77 and that they work will be rewarded by the ‘system’.
However, Nadella’s acknowledgement on the following day that his comment was ‘completely
wrong’ helped the incident to pass with least of damage to Microsoft brand image.
11.2.3 Microsoft Technology Development
Technology Development is a critical success factor for Microsoft primarily due to the
technological nature of its business operations. Microsoft’s technology development aspect of
the business is heavily impacted by rapidly decreasing life cycle of technologies accompanied by
regular innovations and technological breakthroughs.
Technology Development is rightly understood by Microsoft as one of the critical success factors
to survive in the contemporary marketplace. Accordingly, the tech giant’s research and
development expenses increased USD1.7 billion or 13% in 2018 compared to the previous year,
primarily due to investments in cloud engineering and LinkedIn expenses.78
Microsoft Research serves as a hub for technology development and innovations and the latest
technological developments initiated by the company include Microsoft Photosynth, a tool to
reconstruct a three-dimensional space from a collection of photos of a place or object, ClearFlow
technological innovation integrated into Bing Maps and others79.
76 Annual Report (2018) Microsoft Corporation 77 Chowdhry, A. (2014) Forbes, Available at: http://www.forbes.com/sites/amitchowdhry/2014/10/10/microsoft- ceo-satya-nadella-apologizes-for-comments-on-womens-pay/ 78 Annual Report (2018) Microsoft Corporation 79 Microsoft Research (2015) Microsoft, Available at: http://research.microsoft.com/en-us/about/brochure-7.aspx
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Internal development allows the company to maintain competitive advantages that come from
product differentiation and closer technical control over its products and services. It also gives
Microsoft the freedom to decide which modifications and enhancements are most important and
when they should be implemented.80
Microsoft research and development efforts focus on three interconnected ambitions81:
• Reinvent productivity and business processes.
• Build the intelligent cloud platform.
• Create more personal computing.
11.2.4 Microsoft Procurement
Procurement activity within Microsoft’s chain of support operations relates to the ways resources
are acquired for the business. Microsoft maintains e-procurement procedures that enable the
company to manage suppliers and enable Microsoft employees to find suitable suppliers, create
purchase orders, track order fulfilment, and set up e-mail and remote access accounts for
suppliers electronically.82 This system ensures that payments are deposited to supplier’s bank
accounts in a direct manner within 24 to 28 hours of delivery.
12. McKinsey 7S Model
Microsoft McKinsey 7S model shows how seven elements of businesses can be aligned to
increase effectiveness. According to this framework, strategy, structure and systems represent
hard elements, whereas shared values, skills, style and staff are soft elements. McKinsey 7S
model stresses the presence of strong links between elements in a way that a change in one
element causes changes in others. As it is illustrated in Figure 9 below, shared values are
positioned at the core of Microsoft McKinsey 7S model, since shared values guide employee
behaviour with implications in their performance.
80 Annual Report (2016) Microsoft Corporation 81 Annual Report (2018) Microsoft Corporation 82 Microsoft (2015) E-Procurement Available at: https://www.microsoft.com/about/companyinformation/procurement/process/en/us/online.aspx
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Figure 9 McKinsey 7S model
12.1 Hard Elements
Strategy. Microsoft business strategy can be classified as product differentiation. The company
develops advanced technology products and services and sells them for premium costs.
Moreover, Microsoft business strategy is currently focused on “cloud-first, mobile-first”, growth
through mergers and acquisitions and exploring business opportunities related to augmented and
virtual reality. As the latest addition to its business strategy, the multinational technology
company is focusing on the concept of ‘tech intensity’, which aims to position Azure as the
worlds’ computer with evident positive implications on the long-term growth prospects of the
business.
Structure. Microsoft organizational structure is divisional and such a structure resulted from a
restructuring initiative introduced by CEO Satya Nadella in 2015. Microsoft engineering group is
divided into three divisions: Cloud and AI Group, Experiences + Devices and Artificial
Intelligence and Research. Business functions, on the other hand, are divided into nine divisions.
Microsoft corporate structure is highly dynamic and ever-evolving to meet the demands of
changing external market place. 46
Systems. There is a wide range of systems that are critically important to run Microsoft
successfully. These include employee recruitment and selection system, team development and
orientation system, transaction processing systems, customer relationship management system,
business intelligence, system, knowledge management system and others. Since becoming CEO
in 2014, Satya Nadella has worked towards reducing bureaucracy at all levels and simplifying
organizational systems in order to foster creativity and increase the flexibility of the business.
12.2 Soft Elements
Skills. The range of skills and competencies required to be successful at Microsoft is vast and
include creativity, analytical thinking, teamwork, ability to work under pressure and the ability to
embrace change. Moreover, Microsoft employees are expected to possess interpersonal skills,
leadership skills, communication skills, customer orientation and forward thinking skills and
competencies. The CEO of the technology giant Satya Nadella attempts to integrate ‘learn-it-all”
curiosity83 into the organizational culture, with potentially positive implications on the level of
employee motivation to acquire new skills and competencies.
Staff. As of June 30, 2018, Microsoft employed approximately 131,000 people on a full-time
basis, 78,000 in the U.S. and 53,000 internationally. Of the total employed people, 42,000 were
in operations, including manufacturing, distribution, product support, and consulting services;
42,000 were in product research and development; 36,000 were in sales and marketing; and
11,000 were in general and administration. Certain of our employees are subject to collective
bargaining agreements.84
Microsoft has been recognized as the World’s Best Multinational Workplace in Europe for 2014
by Great Place to Work Institute. CEO Satya Nadella has made a public pledge to improve the
performance of human resources via improving organizational culture.
Style. Microsoft CEO Satya Nadella successfully practices visionary and hands on leadership
styles. Nadella is an acknowledged and effective business leader, who can attain focus to solve
complex problems and knows how to give his team confidence. Since becoming CEO in 2014,
83 McCracken, H. (2018) “Transforming culture at Microsoft: Satya Nadella sets a new tone” In The Black, Available at: https://www.intheblack.com/articles/2018/06/01/satya-nadella-transforming-culture-microsoft 84 Annual Report (2018) Microsoft Corporation
47
Nadella announced his mission to transform Microsoft organizational culture to infuse the values
of innovation and ‘learn-it-all’ mindset across employees at all levels.
Shared values. Microsoft strategic level management attempts to promote the values of
efficiency, innovation and creativity among the workforce at all levels. Microsoft’s shared values
are well aligned with its corporate mission of ‘empower every person and every organization on
the planet to achieve more’. This is a far cry from Microsoft’s old mission statement ‘a computer
on every desk and in every home’ which has been criticized as “a finite goal which the company
has now achieved, at least in the developed world”85
13. Microsoft Ecosystem
Microsoft ecosystem integrates the following types of products and services:
Category Products and services
Productivity and Business Processes
Microsoft 365, SharePoint, Skype for Business, Outlook Mobile, One Drive, Dynamics 365, Microsoft Teams, Linked In
Intelligent Cloud Server products and cloud services, including SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure Enterprise Services, including Premier Support Services and Microsoft Consulting Services
More Personal Computing Windows
Devices, including Microsoft Surface (“Surface”), phones, and PC accessories. Gaming, including Xbox hardware; Xbox Live, Search advertising.
Table 4 Products and services within Microsoft Ecosystem
It can be argued that Microsoft ecosystem is aimed at enterprise customers to a greater extent
compared to individual users. Specifically, Microsoft enterprise products and cloud services are
effectively tied together and this generates strong incentives for businesses to use Microsoft
products and services.
85 “SATYA NADELLA SAYS MICROSOFT’S OLD MISSION STATEMENT IS OBSOLETE” (2017) Media Marketing, Available at: http://www.media-marketing.com/en/news/satya-nadella-says-microsofts-old-mission- statement-is-obsolete/
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For example, OneDrive for Business leads into Sharepoint, Teams integrates with Outlook and is
about to swallow Skype for Business, Dynamics CRM and SQL Server can integrate and pull
data from Azure AD. Moreover, there are many Office 365 programs and services that integrate
with each other under a single sign-on.
Similarly, Windows ecosystem which includes the platform, games, apps, the Store, and
Minecraft, as well as the Windows 10 family of devices, including Surface, Xbox, and
HoloLens. the multinational technology company is expected to further invest into its ecosystem
to make it stronger in the medium-term and long-term perspectives.
14. Corporate Social Responsibility
Microsoft corporate social responsibility (CSR) is guided by the citizenship mission of the
company which is “to serve globally the needs of communities and fulfil our responsibilities to
the public”86. Moreover, charitable activities of Bill & Melinda Gates Foundation founded by
Microsoft founder Bill Gates is also associated with Microsoft in the perception of the general
public to a certain extent.
The technology giant won a number of awards and achievements for its responsible behaviour.
These include ranking #1 on Corporate Responsibility Magazine’s 100 Best Corporate Citizens
2018, ranking #1 for both, Environment and Social Score which measures corporate performance
using more than 200 factors. Moreover, Microsoft’s behavior as a socially responsible company
has earned number 2 spot on JUST Capital’s Top 10 Tech Companies.
14.1 CSR Programs and Initiatives
Microsoft Supporting Local Communities
• Microsoft employees donated USD158 million to non-profits serving its local
communities and the world
86 Microsoft Corporate Citizenship Report (2014) 49
• The Lagos Solar project in Nigeria uses batteries that are charged by solar panels, along
with intelligent inverters connected to Microsoft Azure Internet of Things technology
• International software provider Temenos relies on Microsoft Cloud services to reach
people across Myanmar who lack access to banking, giving them opportunities for more
financial stability and access to microcredit and other financial services.
• Microsoft’s 4Afrika Initiative provides a set of programs to empower African youth,
entrepreneurs, developers and business and civic leaders
• YouthSpark initiative aims to empower 300 million young people around the world with
opportunities for education, employment, and entrepreneurship
Microsoft Educating and Empowering Workers
• Microsoft collects employee feedbacks through multiple channels and acts on them. As
part of this initiative nearly 85 percent of our more than 117,000 employees responded
employee survey
• 92% of surveyed stated they feel proud to work at Microsoft and 87% of employees
would recommend Microsoft as a great place to work
• 90% of Microsoft’s employees are eligible for various bonuses
Labour and Human Rights at Microsoft
• Since 2016, Microsoft has had a formal commitment to respect human rights as a
signatory of the United Nations Global Compact
• The technology company adheres to its Global Human Rights Statement
• Microsoft provides health and wellness programs for families, paid vacation, paid sick
leave and paid time off for new parents
Employee Health and Safety at Microsoft
• The Microsoft CARES employee assistance program, offers free access to services
including personal and family counselling, stress management, and referrals for
child/elder care.
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• The Microsoft Ergonomics Program offers the workforce ergonomic assessment and
training programs and special furniture, equipment, and software for medical needs.
• The company conducts Voice of the Supplier Surveys in an anonymous manner to
monitor the adherence to health and safety and other important CSR-related principles.
Microsoft and Gender Equality and Minorities
• The company is one of the first Fortune 500 companies in the world to offer domestic
partner benefits for Microsoft LGBT employees
• Since 2016 the company has nearly doubled the number of women corporate vice
presidents – both overall and in technical roles
• African American/Black and Hispanic/Latino representation among the workforce
reached increased by 33% in 2017
• Microsoft spent USD3 billion with minority, disabled, veteran, and woman owned
businesses in FY18
Energy Consumption by Microsoft
• 44% of the electricity used by Microsoft data centres comes from wind, solar, and hydro
power electricity
• Air cooling techniques used at Microsoft data centres result in 20-30 percent lower
energy consumption
• Microsoft leveraged its corporate campus to help create an analytical software solution
that prioritizes maintenance and repairs our 125 Puget Sound buildings based on energy
and cost savings potential
• All new data centres of Microsoft have an average 1.125 Power Usage Effectiveness
(PUE), which is one-third less than the industry average data centre PUE of 1.7.
Water Consumption by Microsoft
• Air cooling techniques used at Microsoft data centres result in 90% lower water
consumption
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• In India, the company captures rainwater for irrigation, and on its Hyderabad campus, it
treats sewage for use in landscaping, resulting in zero sewer discharge.
• Paris office also uses captured rainwater for irrigation and flushes fixtures.
Waste Reduction and Recycling by Microsoft
• Microsoft Real Estate and Facilities teams around the world implement waste
minimization programs, including office supply reuse, recycling, and in many cases,
composting
• Company’s Redmond, Washington dining facilities divert 99 percent of the waste from
the landfill by recycling, using compostable tableware, and adapting our menu to
minimize food waste.
Carbon Emissions by Microsoft
• Since July 1, 2012, Microsoft’s global operations have been carbon neutral.
• The company has purchased more than 14 million megawatt-hours (MWh) of green
power and reduced company-wide emissions by more than 9 million metric tons of
carbon dioxide equivalent (mtCO2e).
• Microsoft has supported the lives of more than 7 million people in emerging nations
through carbon offset community projects.
• Company’s carbon offset project portfolio represents more than 600,000 metric tons of
carbon dioxide (CO2) emissions
Microsoft and Sustainable Sourcing
• The company evaluates the operations of its suppliers against 23 different ethical, social,
and environmental risks
• Microsoft’s Device Supply Chain group (DSC) and indirect purchasing group oversee
dedicated programs to ensure that its standards are met and to build partnerships with
suppliers that advance social and environmental goals
• Company’s Global Procurement Group created a formal responsible sourcing function in
2013 to consolidate and enhance its responsible sourcing activities with our indirect
suppliers
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• More than 100,000 device and packaging components provided by suppliers have been
evaluated for compliance by Microsoft
Microsoft’s other CSR Initiatives and Charitable Donations
• The International Association of Privacy Professionals (IAPP) has recognized Microsoft
for having the ‘second largest number of certified privacy professionals (CIPP) of any
company.
• Microsoft employs more than 50 people whose primary role is investigating potential
breaches of company policy, and an additional 120 people whose primary role is
compliance
• Microsoft has launched Office 365 for Nonprofits in 92 countries around the world,
providing USD55 million worth of Office 365 subscriptions to nearly 11,500 nonprofits
globally
• Microsoft completed the Global Network Initiative (GNI) Phase III Assessment,
conducted by an independent assessor, and the GNI Board determined that Microsoft is
compliant with the GNI Principles on Freedom of Expression and Privacy
• The company began the audit of its non-hardware suppliers against 23 different ethical,
social, and environmental risks by country and by commodity category
14.2 CSR Criticism
It is important to stress that unlike the majority of other global corporations there are only a few
CSR-related incidents associated with Microsoft. “In the late 1990s Microsoft Corp. ran afoul of
the IRS when auditors discovered it had used thousands of “temporary” contract engineers who
worked alongside regular employees for indefinite periods under similar conditions but didn’t
receive employee benefits. IRS auditors determined that the company supervised and controlled
the engineers’ work just like employees, and said they had to be treated as such for the purpose
of withholding Social Security, Medicare and unemployment taxes. Microsoft admitted the error
to the IRS, and was required to pay back taxes and overtime wages.”87
87 McQueen, MP & Spiezio, C. (2018) “The Birth of 'Permatemps' Corporate Counsel, Available at: https://www.law.com/corpcounsel/2018/11/01/the-birth-of-permatemps/?slreturn=20190026053357
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Microsoft’s stance to CSR has also been subjected to criticism a number of times. Generally, the
format and size of Corporate Citizenship Report changed starting from 2010 when it was
criticized by various parties for the lack of content in general and absence of details about
greenhouse gas emissions and emissions reduction target in particular.
Moreover, in a Special Report issued by Greenpeace International in 2011 Microsoft is given
Grade C on the issue of transparency because “Microsoft’s reporting of its corporate
environmental footprint does not provide a clear picture of its operational impacts, but has
provided basic information on the energy footprint of its major data centres”88. Moreover, the
company is graded C on the criteria of “Infrastructure Sitting” and “Mitigation” on the same
report. Additional CSR-related issues related to Microsoft include “use of permatemp employees
(employees employed for years as "temporary," and therefore without medical benefits), use
of forced retention tactics, where departing employees would be sued to prevent departure, as
well as more traditional cost-saving measures, ranging from cutting medical benefits, to not
providing towels in company locker rooms.”89
It has to be noted that despite a few incidents listed above, Microsoft performs comparably well
in terms of CSR, taking into account its large size and the scope of its operations.
88 “How dirty is your data? A Look at the Energy Choices That Power Cloud Computing” (2011) Greenpeace International 89 Troubling Exits At Microsoft (2005) Bloomberg, Available at: https://www.bloomberg.com/news/articles/2005- 09-25/troubling-exits-at-microsoft
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- 1. Executive Summary
- 2. Business Strategy
- 3. Leadership
- 4. Organisational Structure
- 5. Organizational Culture
- 6. Microsoft and Ansoff Matrix
- 7. SWOT Analysis
- 7.1 Strengths
- 7.2 Weaknesses
- 7.3 Opportunities
- 7.4 Threats
- 8. PESTEL Analysis
- 8.1 Political Factors
- 8.2 Economic Factors
- 8.3 Social Factors
- 8.4 Technological Factors
- 8.5 Environmental Factors
- 8.6 Legal Factors
- 9. Marketing Strategy
- 9.1 7Ps of Marketing
- 9.2 Segmentation, Targeting & Positioning
- 9.3 Marketing Communication Mix
- 9.3.1 Print and Media Advertising
- 9.3.2 Sales Promotions
- 9.3.3 Events & Experiences
- 9.3.4 Public Relations
- 9.3.5 Direct Marketing
- 9.3.6 Personal Selling
- 10. Porter’s Five Forces Analysis
- 10.1 Threat of new entrants
- 10.2 Bargaining power of buyers
- 10.3 Bargaining power of suppliers
- 10.4 Threat of substitute products or services
- 10.5 Rivalry among existing firms
- 11. Value-Chain Analysis
- 11.1 Microsoft Primary Activities
- 11.1.1 Microsoft Inbound logistics
- 11.1.2 Microsoft Operations
- 11.1.3 Microsoft Outbound Logistics
- 11.1.4 Microsoft Marketing and Sales
- 11.1.5 Microsoft Service
- 11.2 Microsoft Support Activities
- 11.2.1 Microsoft Infrastructure.
- 11.2.2 Microsoft Human Resource Management
- 11.2.3 Microsoft Technology Development
- 11.2.4 Microsoft Procurement
- 12. McKinsey 7S Model
- 12.1 Hard Elements
- 12.2 Soft Elements
- 13. Microsoft Ecosystem
- 14. Corporate Social Responsibility
- 14.1 CSR Programs and Initiatives
- 14.2 CSR Criticism
