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Strategic Management is a continuous process of an organisation to plan, monitor, analyse, assess and evaluate everything which is important for a company to meet its business objectives effectively(Doz, 2017). It is imperative for companies as it allows a firm to assess future opportunities and apply necessary plan of action to acquire these in a healthy and fostering way. The report below is based on Microsoft Corporation, which is a multinational company headquartered in Redmond, Washington. It covers identification as well as critical analysis of issues related to the strategic management of the company. The report undertakes certain theories and their applications which help in determining the ways in which Microsoft could appropriately implement effective strategic management.
Microsoft Corporation is considered as one of the biggest technological companies in the world. It was founded in 1975 by Bill Gates and Paul Allen. The firm has a range of business operations(Grunig, 2013). It undertakes developing, manufacturing and selling computer software, electronics and personal computers. The firm has its market all around the world and is considered one of the most trusted companies of all time in terms of speed, reliability and performance.
Philosophy of Microsoft
The vision of Microsoft is to make people and businesses realise their full worth and potential by their products. The mission statement of the firm emphasises on the worldwide reach that the company aims to achieve. Basically, the agenda of the company is to empower each individual and organisation so that they could effectively accomplish more and progress further(Hahn, 2013).
Current Business Scenario
Currently, Microsoft is a leading player in many electronic sub-sectors where other companies are struggling to make a mark. In 2018, the firm crossed $100 Billion mark by earning $110 Billion revenue(Hair And et. al., 2012). The firm has a huge global market and is continue to make an effective use of technology and enhancing its capabilities. The various aspects and creations by the company had a huge role in such effective performance of the firm.
“Commercial cloud”, for instance, is a category that is developed by Microsoft which includes Office 365, Azure, Dynamics 365 and so forth. The firm has focused its strategy towards enhancing performance of cloud computing. Another sources of its performance were Windows Pro, Surface and LinkedIn. In addition to this, the firm has effectively managed to stay firm in terms of Gaming by earning a worth of almost $10 Billion (Microsoft Annual Report 2018, 2019).
However, each company is required to develop and implement strategic management in order to stay ahead in the market and enhance their effectiveness(Hill, Jones and Schilling, 2014). Microsoft, before developing the strategies, must conduct a detailed analysis and critical evaluation of the industry. The reason behind this is that such analysis provides a clear pathway of the potential threats as well as opportunities for the firm that help them in conducting better strategic management. For this purpose, Porter's Five Forces Model is an appropriate approach for Microsoft to analyse the industry. assignment writing help australia
Porter's Five Forces Model
Michael E. Porter developed this model in his 1980's book named, “Competitive Strategy: Techniques for Analysing Industries and Competitors”. After that, this model till date has been widely used to determine the structure of the industry as well as company's corporate strategy(Hill, 2017).
According to Porter, there are five competitive and effective forces that shapes a market and industry. These forces help in analysing each and every aspect from intensity of competition in the market to attractiveness and profitability of an industry. These forces are, Threat of New Entrants, Power of Suppliers, Power of Buyers, Threat of Substitutes and Competitive Rivalry. All these factors have an impact on the industry and could be effective factors for a firm to develop its strategies to ensure long term sustainability and future growth(Hitt, Ireland and Hoskisson, 2012). Microsoft could effectively use this model to determine profitability and industrial attractiveness. This model in context with the firm is described below:
- Power of Suppliers: Suppliers are the individuals that provide the firm with effective materials and components to help them conduct their business operations in an appropriate and better manner. These are an essential stakeholder of a company which provides immense support to the firm in developing its services and products in a systematic and a timely manner. In case of Microsoft, supply conditions play a major role in determining the business of Microsoft(Hitt and Duane Ireland, 2017). The software as well as hardware business environment of the firm has a clear influence of the suppliers. However, in case of Microsoft, the size and population of suppliers is quite moderate. This induces moderate influence of them on the company and its operations. One of the most relevant examples would be that if some moderate sized suppliers dealing in computer hardware components change their pricing for the firm, it might bring a slight change in the pricing of the firm as well. The suppliers induces a limited force on the company. Another major factor for their limited force is that Microsoft Corporation is fully capable to develop its own software. With its skilled and talented R&D team, the firm could reduce the impact of the suppliers in their business. Thus, the bargaining power of suppliers is moderate for Microsoft.
- Power of Buyers: Buyers are those individuals and organisations that acquire the ownership of a company's products and services in exchange of its worth(Keupp, Palmié and Gassmann, 2012). As one of the crucial components of strategic management, a firm develops its strategies according to its buyers in the market. These individuals, groups and organisations are lifeblood of a business organisation and a reason for their existence. In addition to this, companies moulds its operations and produce different and innovative products to satisfy demands of these customers in a healthier way. Microsoft Corporation has customers all around the world and has a quite vast range of markets in many developing as well as developed countries. Performance of the firm is influenced by its buyers. In this customer oriented market, Microsoft is required to produce more capable products and services to enhance their customer base and fulfil their current technological requirements. In case of the firm, there are few external factors that could effectively enable the company to determine power of buyers. One of the external factors is the substitute availability. The major strength of Microsoft is that its software are user-friendly and convenient for customers to use. In addition to this, the software used by the firm is quite familiar to majority of the customers. This makes the probability of switching to a new software of a competitive firm very low. This means that even if the firm decides to raise the prices of its software, customers will have no major issue in buying the same as it is quite convenient to them. However, this is not the case with the hardware. Switching to a competitor's component is quite easy for customers if hardware provided by Microsoft is available at a higher price. Another external factor is the availability of information that easily helps customers to compare the firm's products and services with that of other competitive firms. All these factors make the bargaining power of customers quite moderate for Microsoft.
- Threat of Substitutes: Substitutes are the products that provide the same benefits and usage to the customers. These are similar to a company's offerings and are developed for more or less the same purpose. Substitutes could reduce a company's market share to a great extent. Effects that substitutes have on firm are quite large. In case of Microsoft, the substitutes could be manual or non-online processes(Meyer, Neck, and Meeks, 2017). These do not match the performance levels of Microsoft processes. In addition to this, the firm has less availability of substitutes in the market which even reduces the threats of substitutes. However, switching costs of the ones which are already present in the market is moderate. Thus, the threat of substitutes in case of Microsoft is low.
- Threat of New Entrants: In a business market, entry of new organisations is inevitable. These companies have a severe impact on the existing businesses and are a crucial factor due to which a firm develops its strategies. Where software businesses are concerned, it could be quite costly for a firm to develop effective software that could satisfy the demands of the customers better than Microsoft Corporation (Priem and Carr, 2012). It takes a huge investment to establish such a business which weakens the force of new entries. However, if such a company is established, it takes moderate cost to conduct and manage the enterprise. But it is very difficult for any new firm to compete with an existing market giant like Microsoft Corporation. All these factors make this threat quite low for Microsoft.
- Competitive Rivalry: Competitors in a business scenario are those companies that are engaged in giving similar services to the customers. These companies are quite a threat as their strategies are unpredictable and so are their methods of working. They might produce something or develop a new strategy that might give them an edge in the marketplace. Thus, it is crucial for companies to keep modifying their operations and enhance their capabilities to gain a better position and market share in the business. As of Microsoft Corporation, there are various competitors in the market such as Apple, Google, SAP, IBM, Oracle and so forth. All these companies have an impressive market share and a strong customer base all over the world. A factor that makes them a strong threat for the company is the technologies they use effectively satisfy present demands of customers and some are even designed to fulfil the anticipated future wants. These firms are quite aggressive when it comes to diversity too. Apple has a range of products and services and is quite diverse in nature and so is Google. These companies are investing a lot on their R&D to determine the exact value to be created in their offerings. In addition to this, these firms have strong marketing campaigns that help them in gathering strong customer attention. These aspects make the threat of existing competition very high for Microsoft Corporation.
From this analysis, it was found that out of all the industrial forces, existing competition seems to be a major threat for the firm. The firm must develop effective long-term strategies to sustain in the market and ensure future growth despite the competition. To effectively overcome this threat, Microsoft Corporation could implement Porter's Generic Strategies Model.
Porter's Generic Strategies
Michael E. Porter developed these strategies in 1980. These strategies could be applied to any business organisations regardless of their size and operations. However, Porter himself gave an insight and advised that out of all the three strategies, the firm should opt only one to reduce wastage of resources. These strategies focus on helping firms gain a competitive advantage. It depends on types of customers that companies want to target. However, each strategy has its own uniqueness and purpose that is essential for a firm to determine before choosing the right type of strategy as a recovery plan.
For Microsoft Corporation, these strategies are described below(Vogel and Güttel 2013):
- Cost Leadership Strategy: Under this strategy, firms adopt the strategy of low-cost production and try to appeal price sensitive and cost conscious customers. The firm offers lowest prices to their target markets or at least they provide lowest prices in comparison of what the buyers generally receive in the market. The agenda of companies in adopting this strategy is to achieve high return on investments (ROI) on their products and services. To achieve this, it is imperative that firms operate at a lower cost than that of their competitors. Microsoft Corporation could achieve that by deploying three ways. The first way for the company is to take effective advantage of economies of scale. In other words, the firm must work towards attaining high utilisation of assets. Microsoft could produce their services and products in large volumes resulting in lower unit costs. Another way would be to work towards attaining lower operating costs. The firm could provide customers with highly standardised offerings and must distance themselves from personalisation or customisation of their offerings. The third dimension requires the firm to effectively gain control over value chain of all its functional groups, i.e., marketing, finance, information technology and so forth. All these dimensions could help Microsoft Corporation in implementing this strategy.
- Differentiation Strategy: In this strategy, companies focus on developing their products and services in a way that they become more attractive, useful and different from competitors' offerings. Companies in this strategy tend to produce their offerings in a way that they are treated in a unique manner in the industry. To achieve this, companies determine the aspects which are perceived as quite imperative and position themselves in a way which help them aid the purpose. Microsoft Corporation must adopt this strategy only when it targets customers that are not so price sensitive and when they deal in a competitive environment where there are unique and under-served demands of the market. Microsoft Corporation, under this strategy, could charge premium prices for their services and must work effectively to create brand loyalty.
- Focus Strategy: This strategy specifies that the companies those who consider this strategy mainly concentrate on niche market segment. In addition to this it can be said that focus generic strategy specifically focuses on the choice of a narrow competitive scope within an business enterprise. Microsoft corporation can adopt this strategy when they want to target narrow or niche market segment. Additionally, focuser while using this strategy will select a section or group of section in industry and then tailor its strategy accordingly so as to serve them to the exclusion of others. Further more for Microsoft corporation this strategy terms to be appropriate strategy specially when they want to avoid competition edge with the big corporations. Once the organisation select focus strategy then it is essential to decide whether the company wants to pursue cost leadership or differentiation strategy. But whether the company select cost focus or differentiation focus, the main success of focus generic strategy will be to ensure that they are adding something extra or new in order to serve only specific niche market segment. But in cost focus a firm seeks a cost advantage in its target segment whereas in differentiation market a first seeks differentiation in its target market segment. Thus, both the elements of focus generic strategy rest on the differences between a focuser's target market segment and on the other segments in the industry.
Therefore it can be critically analysed that for Microsoft corporation the best strategy can be differentiation as it is termed to be the specific generic strategy for competitive advantage. In addition to this differentiation strategy involves unique products which is sold to a wide variety of customers. In case of Microsoft products are termed to be unique as per their features like software products which is specifically designed for business administration. Moreover through differentiation strategy Microsoft company builds its competitive advantage in order to attract large number of population of customers at a global level. Most important of all is that this strategy also aligns Microsoft mission and vision statements which lays emphasizes on capturing a international market. Whereas other too are not useful for Microsoft because as focus strategy focuses only on niche market which is not the mission or vision of the company. On the other hand cost leadership strategy is not useful for Microsoft corporation because this strategy is useful only for short period of time as the company cannot set to be low cost producer for long period of time. Thus, it can be analysed that differentiation strategy termed to be best for Microsoft corporation.
It can be analysed that in this report Porters five forces of model is being taken into consideration by Microsoft corporation in order to determine the company's corporate strategy and structure of the industry. It can be recommended that Microsoft corporation must takes this model into consideration in order to survive for long term in the market. As this model will help the company to analyse about which factors can threat the company profitability index. Threat can take place in any form like threat of new entrant, substitute, bargaining power of buyers, suppliers and main element which can threat a organisation is its competitive rivalry. All these are the factors which should be analysed and identified by the company so as to ensure long term success and future growth of the company in marketplace. Therefore it can be recommended that Microsoft company must take this model into consideration so as to determine the profitability and industrial attractiveness. Moreover in order to determine the impact of this factor it cab be recommended that Microsoft company must make investment in research and development department so as to that by analysing their impact company can make their strategy accordingly so as to increase the profitability ratio of the company in future. In addition to this it can also be recommended that company must use differentiation strategy so as to achieve increase in market share at a global level. As this strategy also aligns Microsoft mission and vision statements which lays emphasizes on capturing a global market.
From the above report it can be concluded that strategic management terms to be an essential element for every organisation in order to achieve organisational aims and objectives on a specified time period. As it is termed to be the universal process of an organisation which is used to plan, monitor, assess, analyse and evaluate each activity which is essential for the organisation to accomplish its business objectives effectively and effectively. Moreover company must also takes into consideration porters five forces of model in order to evaluate the factors affecting the market segment. In addition to this it can also be concluded that a recommendation has been given that Microsoft company must adopt the differentiation strategy so as to capture market at a global level.
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