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Strategic Analysis and Corporate Planning at Microsoft

1.   The positive and negative impact of Strategy at Microsoft

Strategic analysis research a firm and its operating environment to produce a strategy (Landoll et al., 2021). However, both academic and business definitions of strategic analysis include finding and assessing data relevant to the company’s strategy. It then considers the company’s strategic contexts. This assignment is considered a report to the Board of Directors to consider the overall organizational situation and recommendation comprise a set of action plans required to be taken to improve the prospects of Microsoft Corporation. This consideration was formulated based on the corporate strategic policy, including in pron and corn, Microsoft’s competitive position across the industry, its business portfolio, and strategic tools adopted to align the performance with the organizational strategic plans, mission, and vision.

a)    Positive Impact of Strategy at Microsoft

Microsoft aims to enable people and organizations to accomplish. It endeavors to provide support to society, development, & influence in every country as corporate Social responsibility matters. Microsoft is pleased to be the global market leader in software technology, notably cloud computing (Nawi and Hamidaton, 2022). It is the world’s most extensive Windows Operating System and cloud developer. Cloud services include Azure, Office 365, and Dynamics 365. As a result of it. It has the highest market share growth of any top five providers as a cloud service provider, at 3 percent. AWS, IBM, Oracle, and Google are just a few examples of big data providers. Microsoft services a total of 190 nations and regions. Windows 10 has been downloaded for the first time by 700 million people.

The strategy identifies threats and opportunities while minimizing weaknesses. Microsoft’s latest earnings report reveals strong growth in the cloud business. Its worth may hit $2 trillion by 2022. It has only lately increased the number of brands it represents—billions invested on Microsoft 365 (Office 365 + Windows 10). Microsoft has 1.2 billion Office users and 60 million commercial Office 365 subscribers.

b)   Negative Impact of Strategy at Microsoft

One of the significant criticisms of Microsoft’s strategic management is that it requires the organization to foresee the future environment. The idea is that if the future does not go as planned, the plan is flawed. In recent private-sector research, companies that plan beat those that do not. For example, PC shipments often dip owing to increased vendor pricing and currency volatility. Microsoft is now exposed (Jocovic, Melovic, Vatin, and Murgul, 2014). Without strategic planning, successful plan alignment and integration may be limited. Structure, board, people, and incentive mechanisms are addressed in strategic alignment. An aligned organization may be more adaptive.

The plan should fix a fundamental organizational problem and challenges before allocating resources (time, money, people, opportunity, cost). Microsoft’s growth is hampered by a lack of new technology innovation and market leadership. Microsoft’s Surface Pro laptops and phones have failed to rise in sales. Microsoft is losing market share to Google, Safari, and Firefox in the internet browser area. Microsoft’s IE and Edge did not even reach the top 10 list in 2018.

2.   An assessment of Microsoft’s Competitive Position.

Microsoft is well-known in computing. Gates founded in 1975 A worldwide technological leader, Microsoft. Now it is Satya Nadella. The company’s products are utilized by millions globally. Microsoft’s ascent is a result of its edge. Its supremacy in the computer industry has several causes. It has numerous essential advantages. Apple, Google, and Amazon.com (Wonglimpiyarat, 2012). Microsoft has historically stressed product innovation to aid productivity. Microsoft has maintained a solid market position. Its primary competitive advantages are

a)    Global Presence

In addition to being a global company, Microsoft has operations in several countries. It is headquartered in Redmond, Washington, and has a worldwide network of offices. Ireland, Singapore, and the Netherlands are all home to important data centers. It has offices in China and France, as well as in India. Microsoft sells and distributes its products over the world. It also employs direct channels, distributors, resellers, and OEMs. There are various things its worldwide sales crew achieves. Microsoft has shown a long-term competitive advantage by effectively managing its worldwide presence. Microsoft’s worldwide network helped it. Improved customer management and comprehension (Dolata, 2017)

b)   Leadership

Recent leadership changes target crucial sectors, including cloud, AI, and gaming. Nadella made two critical organizational changes in March 2018: reprioritizing Windows and emphasizing artificial intelligence.

Based on these developments, Microsoft seems to have three AI initiatives.

  • First and foremost, it will make AI developer tools and services available in Azure to customers that desire to incorporate AI capabilities into their applications.
  • Microsoft will use AI in its software and computers to enhance the consumer experience.
  • The corporation will use AI to enhance internal processes, which will generate the bulk of income. Hence Microsoft prioritizes AI in these areas..

c)    Product

The Productivity & Division Processes (P&BP) business has received many new products and services from Microsoft. There are several other types of Office 365, including “Dynamic 365,” which includes features like “Skype” and “LinkedIn.” Windows operating income was $3.9B in the most recent quarter, with sales approaching $9.8B, according to Microsoft’s most recent financial results. According to the most recent quarterly sales figures and operational profit results, P&BP beat out More Personal Computing. The corporation can afford to make higher profit margins because of the nature of the software and Microsoft’s role as a cloud provider.

Microsoft’s efforts in enterprise software have generated the most transactions overall. 48 of Microsoft’s 61 total commercial transactions were funded by M12, while Microsoft Corporate backed the other 13 deals. There are several well-known companies that M12 has helped fund in the past. Microsoft ScaleUp has invested in technology, although its investments are less deliberate and focused than Microsoft M12 or Microsoft Corporate. ScaleUp, Microsoft’s early-stage investment arm, often invests in various industries to forge long-term strategic alliances with companies. (Bresnahan, 2002).

d)   Investments

Microsoft has invested in the cloud via its VC and accelerator units and straight off its financial sheet. Microsoft invests in startups that directly serve Azure, while other investments target well-capitalized cloud clients. Azure’s infrastructure, platforms, and services are often offered for free to portfolio firms. Some of Microsoft’s investment vehicles include container management platform Mesosphere, private cloud infrastructure provider Cloud Simple, and container development tool Code Fresh. However, Microsoft’s primary cloud expenditures have been made domestically, most notably in data centers throughout the globe. Azure data centers are now accessible in 44 areas worldwide, with plans for ten more in the following months and years.

e)    Innovation.

Microsoft’s focus on innovation gives them a competitive edge. Microsoft’s rivals are fierce. So the brand emphasized R&D. Research and development have benefited the company’s growth. In R&D, it was a leading technology company—$ 14.7 billion in R&D in 2018. Windows, Microsoft’s products, and services have all improved over time. People and businesses must be more productive globally. Microsoft now reaches a significantly more extensive audience. A tech advantage is easy to get but difficult to maintain. So all big internet businesses must invest billions to be competitive.

f)     Financial performance

Microsoft’s market worth is $800 billion. For the previous three years, its financial performance has improved. Product portfolio expansion and consumer growth boost financial success. Microsoft has a significant cloud presence with three primary cloud businesses, i.e., Office 365, Azure, and Microsoft Dynamics 365. Microsoft’s EPS for March 31, 2022, was $2.22, up 9.36 percent year-on-year. Microsoft’s EPS for March 31, 2022, was $9.58, up 30.34 percent year-on-year. Gaming and search advertising saw massive revenue growth.

g)   Acquisitions

Since that year, Microsoft has been one of the most active purchasers of cloud computing technologies. It has been just as active as AWS and GCP combined in the cloud. Microsoft has eclipsed Amazon and Google in cloud acquisitions. With the acquisition of Cloud, Bonsai, and GitHub, Microsoft has spent $7.5 billion on cloud services. According to CB Insights’ Deal Search, this was the most critical M&A exit in enterprise software history. Here is a summary of Microsoft’s acquisition strategy in the cloud. Amazon’s cloud supremacy is under threat as a result of its M&A strategy.

3.   An evaluation of Microsoft Performance

Microsoft strives to help people and businesses succeed. Globally, it is assisting customers with technology and resources. With the same mentality, cloud service providers raised sales 34% to $69.1 billion in 2021. An increase of 22% in Office 365 Commercial earnings fueled commercial products and services. Microsoft 365 Consumer subscriptions jumped 10% to 51.9 million, while LinkedIn income increased 27%. A 25% growth in Dynamics products and cloud services revenue was led by Dynamics 365 (Forsstrom and Jennehag, 2017).

Server and cloud revenue increased 27%, led by Azure’s 50% growth. Sales rose 14%. Excluding traffic acquisition expenditures, search advertising revenue grew 13%. Our revenues grew by 25.1 billion, or 18%. Cloud revenues increased. The expected usable lifespan of our server and network equipment cut our depreciation costs. They were extending the life of our servers and networks and raised the gross margin by $18.9 billion along with equipment’s projected lifespan has changed. Without it, More Personal Computing’s gross margin % fell little. With Azure, we have better gross margins and longer estimated usable lifetimes for our server and network infrastructure. Overhead costs connected with shutting Microsoft Store locations and reducing lousy debt offset the rise in operating expenditures. This represents an 8% increase in R&D investment, and commercial sales profits rose 3% to $519 million, which was offset by lower bad debt costs. Sales and marketing impacted currency by 2%. This was attributed to faster sector expansion and longer server and network equipment useful lifetimes. By increasing withholding taxes by $620 million, the Supreme Court of India increased net income by $0.08. Revenue, gross margin, and operating income increased by 3% (Seeling, 2011).

4.   An Assessment of Microsoft Portfolio of Businesses

a)    Microsoft Productivity & Business Processes

It is part of the Microsoft Productivity & Business Processes division, which comprises offerings for several devices and platforms. Among them are:

  • Microsoft 365 Consumer and commercial subscriptions with Office licensed on-premises;
  • Office Consumer Services like Skype and One Drive;
  • Talent Solutions, Marketing Solutions, Premium Subscriptions, Sales Solutions, and e-Learning all have LinkedIn connections (Violeta and Diana, 2018). With the help of these Talent solutions, it can better organize, attract, train, and retain personnel. Professionals can utilize Premium Subscriptions to manage their professional identification and build their network.
  • Microsoft Dynamics delivers cloud and on-premises financial management, ERP, CRM, and supply chain management solutions to SMBs, large companies, and corporate divisions worldwide. Microsoft owns Dynamics. In addition to Power Apps and Power Automate, Dynamics 365, a unified set of cloud-based intelligent business software, helps firms maximize revenue per user and adoption.

b)   Microsoft Intelligent Cloud

Microsoft has solutions and services suitable for contemporary businesses and developers in our Intelligent Cloud category. These include public, private, and hybrid server systems and cloud services. The following are the primary components of this segment:

  • Client Access Licenses (“CALs”) for SQL Server,
  • Servers for Windows
  • Visual Studio
  • System Center
  • Nuance and GitHub are available as other cloud services like Azure.
  • Services in the enterprise, such as Enterprise Support Services,
  • Microsoft Consulting Services and Nuance professional services

c)    Personal Computing

Microsoft, Personal Computing category includes products and services that put the customer at the heart of their technological experience. This segment’s main components are as follows:

  • Patent licensing;
  • In addition to patent licensing, a Windows OEM license is also available.
  • Windows Business, which covers volume licensing of the Windows operating system,
  • Windows cloud services and other Windows commercial solutions
  • Games, video game royalties from third-party developers, advertising, and cloud services are all part of the gaming business.

5.   The use of 4 Strategic tools

It is achieving Microsoft’s competitive advantage aim. A firm’s generic strategy explains its overall competitive approach. Microsoft uses a general competitive process to distinguish in a crowded market. Intensive growth plans for a company outline the procedure to ensure corporate growth. Microsoft adopts the current aggressive market penetration strategy (Person, 2014). Other systems in computer hardware and software are ancillary. Because of Microsoft’s broad market reach, it can compete effectively. Market penetration is its primary aggressive growth strategy in a highly competitive worldwide computer hardware and software industry.

a)    Microsoft’s Generic Strategy.

Customers shop from a variety of businesses. Microsoft’s products include distinguishing features, such as business-oriented software. The firm also caters to a wide range of markets. Individuals, houses, and corporations buy Microsoft products. Global consumer appeal is the company’s competitive advantage. Microsoft’s broad differentiation generic approach aims for constant product innovation, which is crucial to Microsoft’s long-term success in a rapidly changing industry. This advantage is based on both tangible and intangible product attributes.

b)   Market Penetration.

Its primary strategy is market penetration. This rapid growth strategy involves expanding current markets. For example, the company increases marketing and sales throughout Asia. In the IBM PC-compatible operating system market because of its quick growth. The company effectively uses vast differentiation to acquire consumers from various markets. This strict strategy aims to ensure Microsoft’s sales and marketing growth.

c)    Product Development

Microsoft’s second-most important growth strategy revolves around its products. This aggressive strategy boosts new product development and sales. A good example is Microsoft’s constant development of new software products. New products must stand out from the rest of the pack to compete. Microsoft’s growth via product innovation is made possible by this aggressive strategy.

d)   Market Development.

This growth strategy has a significant yet little impact on Microsoft’s current performance. Microsoft utilized this aggressive strategy early on to sell software outside the US. Because these things are already globally popular, the market expansion is less critical. Intense market development is possible with Microsoft’s vast genetic differentiation. Like specialist business computer items, the company entered global markets. To increase Microsoft’s market share by entering new markets, maybe in developing countries.

e)    Diversification / Adaption’s

Microsoft views diversity as a strategy to progress quickly. This aggressive approach helps the company grow. Microsoft, for example, acquired Nokia’s devices and services division. The organization may effectively apply this aggressive growth strategy based on broad differentiation in new company operations. This intensive strategy tries to help Microsoft grow via merger or acquisition.

6.   Outlook and suggestions for Microsoft’s Future performance for revolution.

a)    Performance Aspects

Microsoft has been making money for over 45 years. Despite this, our data shows that Microsoft is growing and profitable. In today’s economy, loss fear is growing to surpass loss fear. This drives us to seek safe havens and stabilize our portfolios before venturing out. Ever since Microsoft CEO Satya Nadella took Office in 2014, the company seemed to have matured. This prompted new projects and acquisitions that aided Microsoft’s development.

To justify low stock prices, investors need future growth. The current P/E and P/S ratios are 30.6 and 11.8. Microsoft is an excellent example of a company that expects significant future growth. Our 26 analysts expect Microsoft’s annual revenues will hit $257.8 billion in the first half of 2024. That is a 39% raise, or 12.4% each year. Microsoft seems to be lagging behind the industry (14.6%), but Microsoft outperforms when measured by size and future growth possibilities. According to Microsoft’s annual report, net income climbed 38.7% over the previous year, exceeding the company’s yearly growth rate of 28.1 percent. Analysts estimate a 12% yearly profit growth.

b)   Quality of Decision-Making

Growth comes from smart investments and reinvestment. The idea is that a company with superior project selection and operations would have a greater return on capital. Return on Capital Employed is an outstanding statistic since Microsoft employs both loan and equity capital. ROCE measures a firm’s return (pre-tax profit) on money.

We get ROCE as:

Return on Capital Employed = EBIT Divided by (Assets (Total) – Liabilities(Current in nature))

EBIT = $ 79 Billion

Total Assets = $ 340 Billion

Current Liability = $ 78 Billion

So Microsoft has a 30% ROCE.

That is a fantastic return, above the industry average of 9.5%. Microsoft shows promise. Returns on capital employed rose from 19% to 30% in five years. The corporation is making more money per dollar invested, and wealth has increased by 71%. This may indicate room to raise internal capital investment rates.

c)    Key Takeaways

Microsoft’s sales and profitability are likely to climb double-digits. This perspective is shared by the company’s analysts and is based on the company’s strong capital return rate. Microsoft seems to be a well-run company, with a new CEO making intelligent financial choices. Due to its extensive market size, the company may not generate significant returns, but it is guaranteed to be appealing to investors seeking to stabilize their portfolios with robust firms. Cloud computing is a demanding industry to measure since it is pervasive and can enhance operations across sectors. Technological Revolutionize Measure as Future Recommendation

  1. Cloud-based services.

Cloud services Microsoft may extend its cloud-based services and software offerings as demand grows.

  1. Mobile advertising. 

The mobile advertising business is predicted to increase by double digits over several years, and Microsoft’s mobile OS might help it flourish.

  1. Mobile device industry. 

Microsoft may capitalize on the growing Smartphone and tablet industries by launching additional tablets and a new business phone.

  1. Growth through acquisitions. 

An enormous cash reserve would allow Microsoft to start purchasing new firms with cutting-edge technologies and competencies.

d)   BCG Matrix Applicable to Microsoft Strategy

Microsoft has many operational segments in different industries. Top-level management may find strategy development difficult in such a company. Senior managers utilize tools to create separate strategies for each section to solve the challenge(Chiu and Lin, 2019). BSG Matrix helps top-level managers decide which approach to utilize for the section. A Boston consulting company created BCG Matrix. This matrix is for firms with several profit centers or industries. BCG Matrix is a four-quadrant graph of several categories that may be analyzed by Market share and Industry sales growth rate. Cash cows, Dogs, Question marks, and Stars are BCG matrix segments. Here is Microsoft’s BCG matrix.

  1. Question Mark

Question mark sectors have low market share and fast sales growth. Microsoft makes Lumia and non-Lumia phones in the Phone hardware sector(Torquati et al., 2018). When android phones were debuted, most Windows consumers went to Android, which practically occupied Microsoft Lumia’s market share. Microsoft should employ product development to expand its market share and start this category.

  1. Stars

Stars are high-market-share categories in high-sales-growth industries. Microsoft’s device and consumer sectors are stars. Windows OS, word processor (MS office), mobile apps, and Windows-related applications are included. Microsoft’s D&C rivals include Apple and Google. Stars sector BSG matrix suggests market and product development options.

  1. Cash Cow

Microsoft’s computers and gaming are cash cows. Cash cows are low-growth, high-market-share categories. Such sectors help organizations maintain long-term financial health. Xbox One and Xbox 360 have a large market share, yet Sony is the industry leader. Horizontal integration helps companies gain market share. Microsoft’s computer and gaming business includes gaming consoles, video game royalties, Xbox platform devices and accessories, and Microsoft PC accessories.

  1. Dogs

Microsoft’s segments are not dogs, luckily. Dogs are low-sales-growth, low-market-share categories. Such portions are a liability. BCG matrix recommends liquidating these portions.

e)    Diamond Strategy at Microsoft

Donald Hambrick and James Fredrickson are the ones who first conceived the notion for the Strategy Diamond as a method of showing what the component pieces of a strategy truly are and how those parts interact with one another(Burgelman and Siegel, 2008). The Strategy Diamond is also known as the Strategy Quadrant. Strategy is all about making big choices. The real value of a Strategy Diamond is that it integrates significant decisions into a wider picture instead of adopting a piecemeal approach to the issue, which is where most strategies fall short of their potential.

Utilizing strategy diamonds has proven to be a successful method for the Microsoft patterns & practices team when properly thinking about strategy. We developed a more efficient strategy by just walking the diamond, asking and answering challenging questions, and seeing how other people handled similar situations. You may utilize a Strategy Diamond whether you are a solopreneur, a corporate citizen, or you just want to acquire a new perspective on life on how to survive and flourish in today’s society(Silva et al., 2008). The Strategy Diamond is designed to help people in these different situations. The beauty of a Strategy Diamond lies in this aspect. It does not matter who you are to utilize it. The five fundamental components necessary to a plan are arenas, vehicles, difference, staging, and economic value. If you provide thoughtful answers to the significant points raised in each part, you will be able to paint an accurate picture of the method you intend to take.

7.   References