Microsoft is a multinational technology corporation based in Redmond, Washington, United States. The company is involved in developing, manufacturing and providing support services for its software products, software licenses, consumer electronics, and PCs. The aim of this strategic audit report is to conduct an analysis of Microsoft’s operations, the current performance, market share, profitability, corporate governance, and organizational culture. This audit report will also analyze the internal and external environments where Microsoft operates conducting SWOT and PESTEL analysis to understand the position of the company in the market and future opportunities available for the company. The report will also examine the various long and short term strategies deployed by Microsoft and propose alternative strategies to further improve the company and continue making it the most competitive hardware and software manufacturer in the future. The methods of analysis to be used in conducting the corporate audit include vertical and horizontal analysis of company operations, and analyzing secondary and primary sources that contain up to date information on the company.
Furthermore, the audit report on Microsoft analyzes its profitability margins using financial ratios like gross profit margin for the year 2016, operating profit and net profit margins, for 2016 as well as return on equity (ROE) and return on assets (ROA) ratios. This will provide a clear picture of the financial situation at Microsoft and whether the company promises a good investment for potential investors while examining the returns and dividends earned by Microsoft shareholders. The audit report indicates that at the moment Microsoft is a leader in IT hardware and software industry with a strong innovative and future looking corporate strategies that have ensured continual development in software technology and systems development.
The company has also managed to expand its product portfolio by launching the Lumia brand of phones further opening up the company to the expanding mobile phone and services market. The company has also increased its presence and competitive edge in cloud computing through its Microsoft Azure platform and thus promises increased profitability in the near future. Microsoft is thus in a positive position in the hardware and software market and it is recommended that it increases its investment in research and development of its mobile devices platform to produce better mobile phones to compete with Apple and Samsung products which continue to dominate the mobile technology industry. The limitations of this audit is the lack of sufficient financial information which limits the scope of the report.
- Current Situation
- Current Performance
Since the foundation of Microsoft by Bill Gates and Paul Allen in 1975, the company has proven to be a market leader and one of the most successful manufacturer and seller of consumer and business software, operating systems, cloud service provider, hardware manufacturer and electronics seller. The company has continued to report increased global revenue each year since formation (Daidj, 168). Microsoft’s net income reached U.S. $ 16 billion and increase from the 2015 net income (Daidj, 113). The 2016 net income high of U.S. was however short of the 2011 high of U.S. $ 23 billion net income.
The company reported 61.58% gross profit margin significantly dropping from the previous gross profit margin of 64.70% attained in the year 2015, 68.82 % recorded in 2014 and 73.99 % in the year 2013. This indicates that for the past 3 years Microsoft has consistently been recording reduced gross profit margins due to increased cost of goods sold COGS (Ferrell and Hartline, 109). In other words most revenue generated by Microsoft does not translate to increased profits since most of this funds are ploughed back to product development and service provision and support which has increased the cost of goods sold and prices compared to Microsoft competitors. The reason for the continued drop in gross profit margins by Microsoft to a low of 61.58% in 2016 is due to revenue deferrals, product impairment, integration and restructuring expenses incurred as the company introduced and adjusted to the new Microsoft Windows 10 (Ferrell and Hartline, 243).
The adjusting for Windows 10 has seen restructuring revenues reach $ 92.0 billion with a U.S. $ 27.9 billion operating income. In 2016, Microsoft recorded 23.65% operating profit margin. The 23.65% operating profit margin was an increase from 19.41 % operating profit margin recorded in 2015, 31.97 % in 2014 and 34.38 % operating profit margin reported in 2013. This means that the company has increased revenue left after covering variable costs of production of its products and services including wages and raw materials needed for production of goods and services (Ferrell and Hartline, 267). The company has thus improved its operating efficiency significantly by over 4 % in 2016 and thus it is doing well in its financial production operations.
The net profit margin reported at Microsoft in 2016 is 19.69 %. The net profit margin has seen an increase from a low of 13.03 % recorded in 2015, but falls short of the net profit margin reported in 2014 and 2013 which stood at 25.42 % and 28.08 % respectively (Daidj, 185). The net profit describe the ratio of net profits to revenues generated by the entire Microsoft Company or specific business segment. The net profits have thus increased by more than 5 % compared to 2015 figures indicating a healthy financial situation and operations at Microsoft. The company has also recorded a significant increase in the return on equity which was reported at 23.33 % in 2016 compared to the 2015 ROE of 15.23 % (Ferrell and Hartline, 286). The company generates an additional 23.33 % for each dollar of shareholders equity.
The company has also increased its return on assets ROA in 2016 reported at 8.67 % which is an increase from the 2015 figure of 6.92 %. The company’s return on assets dropped from 2014 to 2015 but improved slightly in 2016. This indicates that Microsoft generated an 8.67 % profit relative to Microsoft’s total company assets. Microsoft recorded a 15.22 % return on investment which was a significant increase from the 2015 ROI of 9.65%. Investors at Microsoft Company recorded a 15.22 % return on investment related to the cost of investment. These financial ratios of Microsoft Company financial year 2016 indicates that investors have earned a good return on their investment at 15.22 % which is set to rise with the increased sales and market penetration of the Windows 10 which has consumed a significant amount of revenue through deferrals and research and development (Groot, 313). The net profits at Microsoft have also increased considerably to 19.69 % in 2016 from 2015’s net income of 13.03 %.
An increase of 50% in revenue collection in the cloud service category, which represented $12.1 billion gain, were reported in the year 2015. This was an outstanding performance among its competitors such as Amazon We services that reported a run rate of $10 billion. The revenue generated by the Microsoft Cloud Suite of services was recorded at $ 1.3 billion in 2016 and increase of 6 %. The cloud revenue was however lower than revenue generated by AWS cloud services which generated a revenue of $ 3 billion.
Another critical segment where Microsoft has interest is the gaming industry. In 2016, gamers globally generated revenues worth $ 99.6 billion an increase of 8.5 % compared to 2015 figures. Mobile based games have overtaken personal computer games generating a $ 36.9 billion or 21.3 % difference. At the same time, there is an anticipated growth rate of 6.6% per year until 2019 in the gaming industry. In this case, Microsoft plans to reach a target of $52.5 billion revenue (McKinlay, Andrew, and McVittie, 206). Microsoft which operates in the gaming industry under X Box brand ranks second in the gaming console market which is dominated by Sony PlayStation. In 2016, Microsoft’s X Box One consoles had sold over 24 million units in total. The annual number of X Box consoles sold in 2015 stood at 2.66 million which increased to 2.93 million consoles in 2016 accounting for a 10.2 % increase in console sales.
In the smartphone industry segment, Microsoft has performed poorly with the percentage of Microsoft Windows Phone OS having a market share of 0.7 % a decrease of 2.5 % compared to 2015 figures. Microsoft’s purchase of Nokia brand has not translated to improved revenue. Microsoft managed to sell only 2.3 million Lumia smartphones in 2016, a significant drop of 73 % compared to the 8.6 million Lumia smartphones sold in 2015 (McKinlay, Andrew, and McVittie, 113). The company has also recorded a 46 % decline in revenue from smartphone sales.
A majority of Microsoft’s revenue is generated from sale and licensing of software and related computer services. One critical segment of software development and systems management is the operating systems sector used by personal computer users, enterprises and government organization users to run their computer systems and mobile connected devices. In the past 10 years Microsoft Operating Market share have maintained a market share of over 90 % (McKinlay, Andrew, and McVittie, 401). The suite of Microsoft Operating Systems as per their market share of 2016 OS market are: Windows NT at 2.5 %, Windows 8 at 2.95%, Windows 8.1 at 9.17 %, Windows XP at 9.67 %, Windows 7 at 48.81 % and Windows 10 at 14.36 %. The other market share is shared by Mac OS X 10.11 at 3.96 % and other operating system providers such as Linux accounting for 8.59 % (Gilbert, et al., 404). The adoption of Windows 10 has been slow gaining a market share of 1.89 % from January to December 2016.
In the cloud service provision sector the Microsoft Azure is the second biggest provider of individual and enterprise cloud services. The Microsoft Azure follows Amazon Web Services cloud segment as per 2016 figures. The Amazon Web Services AWS cloud provider has a market share of 31 % followed by Microsoft azure which stands at 11 % (Gilbert, et al., 457) In terms of year over year growth Microsoft Azure leads the pack of cloud service providers at 162 % with Amazon Web Services having a year to year growth of 53 %.
- Strategic Posture
Microsoft Company’s mission is “to empower every person and every organization on the planet to achieve more.” Microsoft core business activities is development of computer technology and provision of software services for businesses and individuals. As stated in Microsoft’s mission statement, the company aims to empower individual persons and organizations to achieve their full potential by providing them with computer technology and software services which are aimed at optimizing the individual and organization processes through automation provided by the various suite of Microsoft hardware and software products (McKinlay, Andrew, and McVittie, 113). The company is in the computer technology and software development and service provision due to the increasing automation and usage of computer technologies in daily life and processes by individuals and organizations alike. Among the businesses that Microsoft has interest in is hardware and software development, gaming, cloud service provision and business software licensing.
The company stays true to the mission of empowering individuals and organizations in the entire globe by its consistent and continued investment in research and development and production of innovative and state of the art hardware and software products which enables faster processing of information in offices or business organizations, enhanced and improved access to information by organizations and individuals and information sharing and other networking needs. Microsoft continues to invest and develop software and hardware products to enable individual and business users to achieve more (McKinlay, Andrew, and McVittie, 288). An example is the Microsoft Azure’s Platform as a Service cloud platform which enables businesses both large and small to transform their business processes and functions digitally.
Microsoft Corporation lists its objectives as:
- Reinventing productivity and business processes
- Building an intelligent cloud platform
- Creating more personal computing services
The corporate objectives of Microsoft is to continually invest in research and development in order to ensure that it remains a market leader in the development and production of hardware and software technologies for businesses and individuals. The business objectives of Microsoft is to reinvent and restructure its productivity functions and business processes (McKinlay, Andrew, and McVittie, 119). In the past the company has registered losses in revenue and market share by developing and introducing new technology products in the market without efficient research and testing. A case in point is Microsoft Windows 8 which consumed vast resources in its development but was poorly received due to defects and vulnerabilities (McKinlay, Andrew, and McVittie, 109). The company aims to enhance its production function to ensure production of efficient and competitive technology products that promise good returns. The company also plans to transform its business processes to increase penetration of Microsoft products and make Microsoft product prices competitive and attractive to computer and mobile users while enabling automatic updates without the need for replacement (McKinlay, Andrew, and McVittie, 128). The functional objectives is to create an easy to develop, secure and accessible cloud platforms for businesses and individuals. The company also aims to increase and enhance personal computing as seen by their development of Windows 10 and development of mobile applications and futuristic gaming platforms.
The Microsoft objectives are consistent with the company’s mission of creating technology products that empower businesses and individuals throughout the globe. The cloud products and Windows 10 continue to transform businesses and individuals by providing improved services and faster processing and hosting business cloud platforms. The objectives are consistent with the current internal and external environment since more businesses small and large are investing heavily in cloud to provide all time access to their business digital platforms without the need to install in house networking infrastructure (Singh, 489). The company has also continued to recruit and buy out talents from other technology giants to improve the internal environment by employing more innovative and tech savvy employees. The company’s internal environment appreciates the critical importance of continual development and thus invests heavily in research and development while rewarding innovations from internal employees. As the use of smartphones as connecting devices by a majority of mobile phone users throughout the globe, it is important for Microsoft’s objectives to consider this trend (Singh, 513). As a result Microsoft has considered this trend in the external environment and continued to aid in development of applications, personal computing and mobile gaming platforms to take advantage of this trend.
Microsoft uses a mix of two strategies to drive its growth and operations. The first strategy is a generic strategy that is meant to increase Microsoft’s competitive advantage against competitors in software and hardware development, gaming and cloud service sector. The other strategy deployed by Microsoft are intensive strategies that are meant to foster and increase growth by the tech giant. Microsoft’s generic competitive strategy and the company’s intensive strategies are aligned together to optimize organization performance at the company.
Microsoft’s generic competitive strategy focuses on increasing the attractiveness of Microsoft hardware and software products. In order to increase the attractiveness of Microsoft hardware and software the company has invested heavily in research, development and innovation for its products to improve functional requirements, product capacity, efficiency and automated updates to keep the hardware and software products updated with current technologies without the need for regular replacement or purchased updates (Singh, 417). This generic competitive strategy has ensured that Microsoft continues to be a leader in the development of operating systems which have attractive and functional features as compared to its competitors (Singh, 613). The company’s Microsoft Azure cloud platform has also been recognized for its continued development and improved features for PaaS and other as a service cloud platforms.
Microsoft also implements the broad differentiation strategy to increase its competitive advantage. The broad differentiation strategy involves developing unique software and hardware products which are sold to a wide variety of customers. At Microsoft the company has successfully implemented broad differentiation as observed by the number of Windows operating systems OS which range from Windows 7, 8, 8.1, Windows NT and Windows XP. These products have unique features each and are designed specifically for either individual or business use. This broad product portfolio targeting businesses, households and organizations have further increased Microsoft’s competitive advantage and enabled it to attract a large share of the global market. Microsoft also implements the strategy of unique product designs as its products include unique features like cloud backup, and unique computer hardware that only uses Windows operating systems. This strategy has enabled Microsoft to retain a significant market share as a result of these generic competitive strategies.
Microsoft’s intensive strategies are the approaches the company is using to increase business growth and development. Currently Microsoft’s intensive strategies are aimed at increasing market penetration for the various Microsoft hardware and software products. The company is talks with smartphone manufacturers in Asia and Europe to integrate Microsoft Windows mobile operating systems, a sector that is dominated by android operating system (Singh, 119). The other intensive strategy for market penetration is reduced costs for Microsoft Azure cloud platform to attract businesses which are migrating their functions and processes to cloud. Another market penetration strategy deployed by Microsoft is the provision of Windows 10 operating system for free to increase its penetration in the OS market.
The company also utilizes the intensive strategy of product development as a secondary strategy. The company continually creates new software products which facilitates growth of the company from sales of these set of new software products to further increase revenue and support the generic strategy. Microsoft also implements diversification strategy as a support strategy to generic and intensive strategies. The company diversified its operations by buying Nokia mobile to enter the growing smartphone market. The Lumia line has however been growing slowly and contributes insignificantly to the entire Microsoft revenue. The company’s acquisition of X Box and Microsoft which has increased the market share of the gaming market by 62 % in 2016 (Tricker, 662). The company also implements market development by seeking new markets. Currently Microsoft products are used globally making this strategy least effective. The marketing department has however launched aggressive marketing and sales campaigns to increase the customer base of Microsoft products globally.
Microsoft’s generic and competitive strategies align with the internal and external business environment which is always demanding for newer and more improved computer, gaming and cloud technologies (Tricker, 515). The information technology industry where Microsoft operates changes rapidly and is dynamic. Customer preferences and demand are also dynamic as a majority of the global market are always seeking the most current technology or added feature when purchasing technology products or services. The mix of strategies deployed at Microsoft are also in line with the company’s mission and vision of creating innovative products targeted at the entire global market to empower and improve their potential and processes.
- Do the Current Mission, Objectives, Strategies and Policies Reflect the Corporation’s International Operations, Whether Global or Domestic?
Microsoft’s international operations are present on all areas of the globe providing software and hardware products and technologies to businesses, homes and individuals. In line with its mission of empowering organizations and individuals by providing them with state of the art, updated and functional features in its hardware and software products, the company operates aggressive global marketing campaigns to increase penetration of its technology products (Förstner and Wrobel, 238). In Microsoft’s domestic operations, the company runs operation centers in major regions and cities in the United States.
The operation centers are vital to the execution of the company operational activities. They facilitate delivery of services such as processing of information, processing of orders, logistic management and collections of credit facilities, among other transactional services (Förstner and Wrobel, 306).There are regional data operations that the company run which are used to support its functions across different countries, settlements and cities in the United States, Washington, Redmond and Puerto Rico. The aim is to support customer bases in Canada, Latin America and the U.S regions.
For international operations, Microsoft runs operation centers in Ireland to support customers in Europe, Middle East and Africa. The company’s Singapore operation center provides support to customers in India, Japan and the larger Asia region (Förstner and Wrobel, 101). These operation centers also have data centers to provide data storage and backup for individual and business customers. In order to increase usability of Microsoft products throughout the globe as per its mission, the company integrates local languages and conventions to localize products for easier usability (Förstner and Wrobel, 103). The current mission, objectives, strategies and policies deployed at Microsoft are aligned with the company’s global and international operations to ensure success for Microsoft operations.
- Corporate Governance
- Board of Directors
- Board Members
The Microsoft board of directors is made up of 12 members. This include Bill Gates who has been in the board since 1981 and is the company founder. Gates served as Microsoft chairman from 1981 to 2014 and currently acts as a director and technology advisor to Mr. Nadella the current chief executive officer. The other member is Satya Nadella who acts as the chief executive officer and director occupying this position since 2014 (Förstner and Wrobel, 210). Before his appointment as CEO and director, Nadella served as the executive vice president at Microsoft’s Cloud and Enterprise segment. The other member is John Stanton who serves as an independent director since 2014. Before taking up the director role at Microsoft, Stanton founded the Trilogy International Partners Inc. The next member of the Microsoft’s board of directors is Helmut Panke who has served as an independent director since 2003 (Förstner and Wrobel, 209). Previously Helmut was the chairman of BMW management board from 2002 to 2006.
The next director was Charles Scharf (Förstner and Wrobel, 209). He has served in the capacity from 2014. Previously Scharf served as the CEO and director of Visa Inc. from 2012. The other member is Charles Noski who serves as an independent director since 2003 (Förstner and Wrobel, 266). At the same time, P. Warrior served on the board from 2015 after taking over from Terry List Stroll who was one of the independent directors from 2014. Apart from serving Microsoft’s Board of Director’s, Stoll served as the executive vice president and chief financial officer of Dick’s Sporting Goods from August 2015 to September 2016 (Förstner and Wrobel, 339). The other member is Mason Morfit who serves as an independent director since 2014. Mason still serves as the president of ValueAct Capital which has significant shares in Microsoft, and has been a ValueAct Capital partner since 2004.
The other member of the board is John Thompson who serves as the chairman of the Microsoft board since 2012. Before then, Thompson served as CEO of Virtual Instrument since 2010. The other member is Sandra Peterson who serves as an independent director since 2015 (Tricker, 318). Before starting engaging Microsoft in this position as director, Sandra worked as the group chairman and the member of the executive committee of Johnson and Johnson Company. The last board member is Reid Hoffman who serves as director since March 2017. Reid is a partner at Greylock Partners and cofounded LinkedIn back in 2002. Apart from Satya Nadella and Bill Gates who were internal Microsoft employees, all the other board of director members were sourced externally apart from Mason Morfit who is a Microsoft shareholder through his company, ValueAct.
- Board Members Contributions
Bill Gates has vast knowledge in computing technology and organization development and strategic management moving Microsoft from a garage startup to a tech giant. Bill Gates is an international icon and brand and thus contributes in improving the company brand and public image through his global charitable organizations and connections (Reid, 115). Nadella brings cloud management and enterprise development skills and knowledge to the board of directors and as the CEO leads Microsoft’s quest to dominate the cloud service industry. Stanton has vast skills in management and wireless technology knowledge which he brings to the board. Using his past operations in South America, Central America and New Zealand, he brings in international connections and better understanding of these markets to the board of directors (Förstner and Wrobel, 336). Helmut Panke brings in vast experience in global business management gained through his 40 years’ experience in business management and international relations. Scharf brings to the board financial knowledge and international business management knowledge gained by his work experience at Visa and other international firms. Noski provides the board with financial knowledge and expertise gained from his experience in the banking industry.
Warrior provides the board with vast experience in product research and development gained during his work at NextEV and international relations gained during her time as global CEO of NextEV. Stoll brings to the board financial knowledge and skills gained from her time as CEO of Dick’s Sporting Goods (Groot, 303). Thompson the current chairman of the Microsoft board brings to the table vast leadership and management skills gained from his many years of experience as a business leader. Sandra brings to the board vast experience in international relations gained from her time as chairlady of Johnson and Johnson (Alexander, et al., 113). Reid brings into the table vast knowledge in financial management and also connections to LinkedIn which he co-founded in 2002. Microsoft is currently seeking for a strategic alliance with LinkedIn to promote Microsoft’s business technology products to the wide network of business professionals at LinkedIn. Microsoft’s organizational policy and culture requires the company to continually develop environmentally friendly and sustainable products (Groot, 298). As a result all members appointed to the board must consent and promote environmental sustainability when leading Microsoft Corporation to the future.
- How long have board members served on the board?
The longest serving member of the board of directors is William (Bill) Gates. He has served the board since 1981 serving the board for 36 years. Charles Noski and Helmut Panke become board members in 2003 and have served the board for 14 years (Alexander, et al., 107). John Thompson who is the current board chairman has been a director since 2012 and thus served the board for 5 years. Mason Morfit, Charles Scharf, Satya Nadella and John Stanton become directors in 2014 and have thus served the board for 3 years (Groot, 206). Padmasree Warrior and Sandra Peterson served in the company (Alexander, et al., 156). The newest member of the board of directors is Reid Hoffman who has served the board for a month after his appointment in March 2017 (Reid, 118).
- Top Management
- What Person or Group Constitutes Top Management?
The top management at Microsoft Corporation include the chief executive officer CEO chaired by Satya Nadella, Global Sales, Marketing and Operations Executive led by Jean Philippe Courtois, Worldwide Commercial Business head led by Judson Althoff. These two roles were created to replace the position of chief operating officer COO led by Kevin Turner who is moving to another company (Tricker, 69). The other top management is made up of Worldwide Marketing Executive led by Chris Caposella, IT executive led by Kurt Delbene and a chief financial officer CFO led by Amy Hood.
- What Are Top Management’s Chief Characteristics?
The requirements for the top management team at Microsoft Corporation include leadership and strategy skills to lead the company on the future state of the IT industry and enabling efficient decision making using qualitative and quantitative analysis to advise the CEO and board of directors (Alexander, et al., 137). The top management should also have administrative skills, project management and managing cross functional teams. The candidates for top management must be self-starters equipped with business analytic skills, be a team performer, good and efficient communicator, be creative and innovative, be able to work in high intensity environment and be independent in handling multiple high priority work flows (Alexander, et al., 133). The top management should also have personal initiative, have desire to succeed, be demanding and have good judgment skills. The top management candidates must be holders of bachelor in administration BA or BS with strong academic credentials from verified institutions. The members should also possess 2 to 4 year experience in a top tier position in investment banking, institutional investor, be part of a strategy or management consultation firm or in house corporate strategy team (Reid, 103).
The current top management team under Satya Nadella have vast experience in international relation skills gained from past international operations. Microsoft is an equal employment partner and does not discriminate employees in terms of sex, religion, age or sexual preferences. The top management consists of employees sourced from the internal Microsoft workforce (Reid, 89). One can also be recruited as part of Microsoft top leadership even if they come from companies acquired by Microsoft as long as they possess the necessary skills and qualifications required for these positions (Reid, 93).
- What Is Top Management’s Level of Involvement in the Strategic Management Process?
Microsoft’s top management play a critical role and are directly involved in the strategic management process. They are required to conduct quantitative and qualitative analysis on alternative decisions and offer support to the CEO on matters of high priority and cross company strategic issues (Alexander, et al., 441). The top management at Microsoft are directly involved in strategic evaluation for acquisitions, assessment of the value chain, sizing white space opportunities, analyzing business models, conducting competitive analysis and governance roles (Alexander, et al., 397).
- Are Strategic Decisions Made Ethically in a Social Responsible Manner?
Strategic decisions at Microsoft involve the top management conducting quantitative and qualitative analysis on possible solutions and strategic decisions this analysis involves analyzing all possible decision and alternatives in terms of financial and economic viability, ethical implications, environmental impact, sustainability and impact on the immediate and global society (Alexander, et al., 407). Microsoft strategic decisions have so far been conducted ethically in a social responsible design to maintain the good reputation and global image of Microsoft Corporation.
- Are strategic decisions made in an environment sustainable manner?
Strategic decisions at Microsoft involve well detailed research and analysis of various outcomes of each alternative. As a result, strategic decisions at the firm must be environmentally sustainable as required by Microsoft environmental policies and culture of promoting sustainable environments in all its decisions.
- Involvement of Top Management With Lower-Level Managers and With The Board
Microsoft board of directors is independent and does not interfere with the normal operations of the company. It is made up of fully independent directors in order to ensure there is no conflict of interest in any manner (Bai, 313). However, it implements and forms public policy that direct how both senior and lower managers operate. Precisely, its role on public and internal policy such as in audit and operations influence the duties and factions of managers.
- Ethical Formulation of Strategic Decisions
One of the main commitments of Microsoft is ensuring that all its activities are made with the company having concern for the society. In this regard, the company’s bylaws, policies on governance, and committee charters, and requirements on code of conduct adhere to guidelines on corporate governance (Bai, 301). Therefore, environmental ethics is required when formulating policies that affect its operation.
- Environmental Concern in Decision Making
One of Microsoft’s main concern is on the global use of energy in all IT related activities. On its part, the company believes that energy should be used prudently to avoid waste and minimize environmental damage, especially when non-renewable sources of energy are used. In this regard, Microsoft highlights how its operating systems and computer programs can be used to minimize energy waste (Bai, 417). In particular, the company’s Microsoft Project software is popular for reducing the time taken to complete certain essential tasks and resources needed in each project. This software achieves this goal through the development of Gantt charts and scrum-boards, task assignments, and feedback tools (Office Team, 2016).
- External Environment
- Natural Physical Environment: Sustainability Issues
Microsoft faces challenges that other IT companies encounter in their operations. These includes the availability of fresh water and effects of global warming. The challenges threaten the civilization of human beings (Reid, 413). Besides, being the top company in the Information Technology, it is its responsibility and should consider the challenges affecting the environment as major opportunities that can facilitate its expansion into new markets by creating new products, identifying new means of operation and expanding its market share (Mount, 163). The following table outlines several threats and opportunities that are imperative towards enhancing the development of new strategies to encounter the environmental challenges.
Table 1: Threats and Potential Opportunities for Microsoft
|Availability of fresh water||Implement wind energy projects|
|Scarcity of fossil energy||Implement city smart project|
|Global warming||Implement carbon natural projects|
Considering the environmental challenges being faced by the company, plans are underway that are focused on fostering partnership and collaboration with customers, environmental organizations and government to develop cloud computing programs and information technology systems that can address the challenges (Reid, 456). The goal is to achieve a sustainable environment which is being channeled through three major projects that are discussed below;
- Wind Power Projects
The company has made an agreement to purchase wind energy that is financed by its proceeds (Reid, 467). The projects are expected to help the company meet global commitment towards ensuring a carbon free environment and transform the supply of energy in an efficient way to reduce possible negative effects to the environment (Mount, 112).
- Carbon natural projects
Starting from 2012, the company committed itself to ensure that its products are carbon free and achieve zero emission in its data production centers, offices and in the development of software (Reid, 479). In order to ensure that it achieves this objective, the company implemented an internal system that expenses carbon production and has constantly been targeting to improve efficiencies in energy through embracing purchase of renewable energy (Mount, 142).
Microsoft has initiated all of the above projects across major regions in the world (Mount, 177). The project aims to have same effect in the areas the company operates which is ensuring that its operations are environmentally friendly.
- Societal Environment
Being an active firm in the information technology, factors like Technological and Environmental forces are eminent in influencing the overall company activities. Each of these factors is analyzed below as a threat or opportunity.
- Economic forces
Microsoft Company trades in the New York Stock Exchange. Its stock is among the most traded. In this case, it implies that a small change in the economic condition affects the company performance (Curtis, 415; Mount, 187). At the same time, most of its brands are listed on the stock market and therefore they are prone to economic situation.
- Technological forces
Technology is key to the success of Microsoft. In fact, the current global environment is operated by Microsoft technologically since most of the variety of soft wares being used across the world are created by the company. Microsoft controls the Personal Computer operating systems especially through its Windows series (Mount, 202). Here, it implies that the company has a critical role in developing the Technological environment. Besides having a long influence in the industry, the market is changing with other big firms such as Apple, Google and Samsung coming up to take a significant share of the technology market (Mount, 217). In this case, the technology market still exists as an opportunity for the company given that it remains the leader, however, it will immediately become a threat once its influence is exhausted by competitors.
Considering the fact that it is a global environment where economies influence one another, it is worth noting that economic environment has similar influence across the world (Curtis, 211). At the same time, being a leader and well informed about the environment, it is also necessary to indicate that technology is likely to have same effect globally.
- Political – Legal forces
A wide range of political – legal factors affect Microsoft ranging from governmental and international. These includes political instability and activities of lobby groups. The factors are a threat especially in the case of political instability (Curtis, 116). However, they also present opportunities to develop new products in situations where the existing forces are faced by anti-trust issues (Curtis, 113).
- Social forces
Common social factors that influence Microsoft operations include change in demographics, attitudes of the consumer and varying opinions that customers provide on the company products and services (Wang, 179). However, the current social factors have a positive influence as they help the company find new means of entering the market.
- Task Environment
By critical examination of the Microsoft SWOT chart, it is possible to assess the major forces that are key towards influencing the direction of the industry across the company global framework of operation.
Table 2: SWOT Chart
|– Brand reputation
– Brand loyalty
– Ease of software use
– Excellent financial performance
|– Mature Personal Computer markets
– Slow to acquisition and investing
– Security flaws
– Slow innovation abilities
|– Mobile advertising
– Growth via acquisition
– Mobile industry growth
– Cloud computing
|– Potential lawsuits
– Source projects
– Changing habits and needs of consumers
– Software market competition
- Threat of new entrants
New entrants poses a significant threat to Information Technology industry. Its effect can be felt in the industry for a period until one main competitors is overtaken (Wang, 233). The threat often emanates from first world economies that are highly advanced.
- Bargaining power of the buyers
The power of bargaining among the consumers of the IT products is critical considering the fact that most of the products are above the purchasing ability of these customers (Wang, 123).
- Threat of substitute services or products
Although there is limited entry of substitutes, there are cases when the IT products face competition from other external markets especially from the non – substitute economies (Förstner and Wrobel, 203). In this case, the force is low because before a new product gains market, it often takes a longer period.
- Bargaining power of suppliers
Suppliers are key in facilitating performance of the IT industry. It changes across countries as it is concerned with accessibility and availability of the resources of labor (Förstner and Wrobel, 219). The force is high in influencing the direction and performance of Microsoft.
- Rivalry among competitors
There are major firms in the IT industry which poses rivalry especially in the development of products. The degree of rivalry differs from one country to another.
- Summary of External Factors
The factors below are regarded as the most influential towards speedy changes in the Information Technology industry and the price of products:
- Opening of new markets
- Development of the economy
- Increasing the regulations by governments
- New advances in technological products
- Stiff competition.
Besides, the company is likely to face other factors that would be key to its progress. They include:
- Demographic favor
- Trend to the super stores
- Cheap technology products
- Internal Environment
- Analysis of Strategic Factors
- Strategic Alternatives
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