Project on Microsoft

Vijaykumar Nishad
Vijaykumar NishadAnalyst um JP Morgan Chase

Black Book (includes primary and secondary data)

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Chapter 1
INTRODUCTION
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1.1 INTRODUCTION
Microsoft Corporation is a multinational computer technology corporation that develops,
manufactures, licenses, and supports a wide range of software products for computing devices.
Headquartered in Redmond, Washington, USA, its most profitable products are the Microsoft
Windows operating system and the Microsoft Office suite of productivity software.
The company was founded to develop and sell BASIC interpreters for the Altair 8800. Microsoft
rose to dominate the home computer operating system market with MS-DOS in the mid-1980s,
followed by the Windows line of operating systems. One commentator notes that Microsoft's
original mission was
"A computer on every desk and in every home, running Microsoft software."
The company also markets both computer hardware products such as the Microsoft mouse as
well as home entertainment products. The company's initial public stock offering (IPO) was in
1986; the ensuing rise of the company's stock price has made four billionaires and an estimated
12,000 millionaires from Microsoft employees.
Throughout its history the company has been the target of criticism, including monopolistic
business practices and anti-competitive strategies. The U.S. Justice Department and the
European Commission, among others, have ruled against Microsoft for various antitrust
violations.
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1.2 ORGANISATION STRUCTURE
Bill Gates (CEO) and Steve Ballmer (President) are Microsoft’s most visible leaders. They work
with a Business Leadership Team to make sure Microsoft is responsive to its customers and
creating great technology.
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1.3 OBJECTIVES
As in the growing world the technology is also increasing on rapid speed. As the world is now a
days totally based on the technology so I decided to do a research on a company from IT sector.
The main objective of conducting a research on Microsoft Corporation is:
To know why Microsoft is far ahead from other software companies?
To know the financial growth of Microsoft from starting to present?
To make different – different analysis on Microsoft e.g. SWOT analysis, Five Force analysis etc.
To know the marketing mix of Microsoft corporation.
To make comparison between Windows and Linux and also
To know there strategies, future plans, & various CSR done by Microsoft.
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Chapter 2
COMPANY PROFILE
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2.1 Mission & Vision of Microsoft
“A computer on every desk, and in every home.”
"Create experiences that combine
the magic of software with the power of Internet services
Across a world of devices."
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2.2 HISTORY of MICROSOFT
Microsoft was formed by a Harvard College Dropout called Bill Gates. Bill Gates was born
William Henry Gates III on October 28, 1955. He was born to a family that was successful in
business, living a comfortable upper middle class life in Seattle, Washington.
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Early in his elementary school days, Bill Gates quickly shot to the head of the class, consistently
outscoring his peers in most subjects, but especially math and science. His parents soon enrolled
him in Lakeside Prep School, where the atmosphere was intellectual enough to stimulate the
young Gates. This move to Lakeside would prove historic, for it was here, in the spring of 1968,
that he was introduced to computers.
At that time, computers were still too large and expensive for the school to purchase one of its
own. Over the next ten months or so, the school struck agreements with various corporations who
allowed the students to use their computers. Bill Gates, his buddy Paul Allen and a handful of
others quickly took to computing. In fact, they began to skip classes, opting instead to stay in the
computer room and write programs, read computer books and find out exactly how these machines
worked. They soon learned to hack the system, and altered and crashed valuable files until they
were banned from the computer. Soon, however, Bill and his friends were actually hired by the
computer company to find bugs and explore weaknesses in the system, which kept causing the
computers to crash. Instead of paying the boys for their time, they were granted something even
better--unlimited computer time.
Gates has been quoted as saying that, that was the time when he got into computers fulltime.
"I mean, then I became hardcore. It was day and night," he said.
The boys used their time eating, drinking and breathing computers. They studied manuals,
explored the system, and hounded the employees with questions until they had formed a base of
knowledge that would eventually lead to the formation of Microsoft.
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The computer company that was hiring the group went out of business in 1970, and the boys had
to find alternate sources for computer time. They were soon hired by Information Sciences Inc.
to write a program for payroll. This time they actually earned money as well as enjoying the
unlimited computer time. It was during this time that the group gained notoriety for their skill in
computer programming. They were hired or contracted by various organizations to find bugs and
fix them. Each job helped Gates and his friends learn their skill and delve ever deeper into the
world of programming.
In the fall of 1973, Gates left for Harvard University. He enrolled as a prelaw student, but spent
most of his time in the campus computer center, programming away. He stayed in touch with Paul
Allen and they continued to talk about future projects and the possibility of one day having their
very own business. Allen even moved to Boston to be closer to Gates, so they could continue
working on projects. Allen continually urged Gates to quit school and work with him full-time,
and Gates was unsure of what he wanted to do. This was soon to change.
One year later, Paul Allen saw the first microcomputer on the cover of a magazine. He bought the
magazine and went immediately to show it to Gates. They realized the time was right. The home
PC business was about to explode and someone would need to provide software for the machines.
By stretching the truth somewhat, Gates arranged for a meeting with the Altair manufacturers.
He had called them to let them know he had a program written for them. After the appointment
was made, Gates and Allen stayed up for nights, feverishly writing the program he had promised.
It worked perfectly at the meeting, and everyone was impressed.
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They sold the program, and saw that this was something they could do for real. Within a year,
Gates had dropped out of Harvard and Microsoft was formed.
The company went through some rough first years, but eventually were able to license MS-DOS
to IBM. The IBM PC took the public by storm, and its success signaled the success of Microsoft.
Microsoft continued writing software, for businesses as well as the consumer market. In 1986, the
company went public, and Gates became a 31-year old billionaire. The next year, the first
version of Windows was introduced, and by 1993 a million copies per month were being sold.
In 1995, Gates knew that the Internet was the next area of focus, and the course of Microsoft
shifted dramatically. The popular Internet Explorer browser soon became a bestseller. Today,
Microsoft software is everywhere.
In 2008, Microsoft wanted to purchase Yahoo (first completely, later partially) in order to
strengthen its position on the search engine market vis-à-vis Google.
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2.3 PRODUCT’S OF MICROSOFT
 Most Popular
 Business Software
 Design & User Experience
 Developer Tools
 Entertainment
 Hardware
 Home & Educational Software
 Macintosh
 Mobile Devices & Software
 Top 5 Best and Worst products of Microsoft
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Most Popular
 Bing
 Bing cashback
 Internet Explorer
 Microsoft Advertising
 Office
 Windows
 Windows Live
Business Software
 Bing Maps
 Microsoft Amalga
 Microsoft Dynamics Products
 Microsoft Forefront
 Microsoft Office Live
 Microsoft Online Services
 Windows Essential Business Server
 Windows Small Business Server
Hardware
 All PC Hardware
 Digital Communications
 Media Center Peripherals
 Microsoft Surface
 Mouse & Keyboard Products
 MSN TV
 PC Gaming Hardware
Design & User Experience
 Microsoft Expression
 Microsoft Silverlight
Developer Tools
 .NET Framework
 ASP.NET
 MSDN Subscriptions
 Robotics Developer Studio
 Visual Basic
 Visual C
 Visual C#
 Visual Studio
 XNA
Entertainment
 DirectX
 Microsoft Mediaroom
 MSN
 MSN Games
 Xbox Home
 Xbox Live
 Zune
 Xbox Gaming
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Home & Educational Software
 AutoCollage
 HealthVault
 Money
 MSN Direct
 MSN Internet Access
 Office Home & Student
 Songsmith
 Streets & Trips
 Windows Home Server
 Windows Live OneCare
 Works
Macintosh
 All Macintosh Products
 Mac Expression
 Mac Mouse & Keyboard Products
 Mac Office
Mobile Devices & Software
 Microsoft My Phone
 Microsoft Tag
 Mobile Software Catalog
 Ultra-Mobile PC
 Windows Mobile
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Top 5 best products of Microsoft:
#5 Best: Windows Media Player 11
#4 Best: Microsoft Office
#3 Best: Windows Tweak UI
#2 Best: Microsoft Windows
#1 Best: XBOX 360
Top 5 worst products of Microsoft:
#5 Worst: Internet Explorer 6
#4 Worst: Live Search
#3 Worst: MSN Smart Watch
#2 Worst: Microsoft Bob
#1 Worst: Windows Millennium Edition
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2.4 DIVISIONAL EARNINGS OF MICROSOFT
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2.5 BIGGEST LAUNCHES OF MICROSOFT
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2.6 MICROSOFT WINDOWS HISTORY
Year Event
.
1983 Bill Gates announces Microsoft Windows November 10,1983.
1985 Microsoft Windows 1.0 is introduced in November 20, 1985 and is initially sold for
$100.00.
1987 Microsoft Windows 2.0 was released December 9, 1987 and is initially sold for
$100.00.
1987 Microsoft Windows/386 or Windows 386 is introduced December 9, 1987 and is
initially sold for $100.00.
1988 Microsoft Windows/286 or Windows 286 is introduced June, 1988 and is initially
sold for $100.00.
1990 Microsoft Windows 3.0 was released May, 22 1990. Microsoft Windows 3.0 full
version was priced at $149.95 and the upgrade version was priced at $79.95.
1991 Following its decision not to develop operating systems cooperatively with
IBM, Microsoft changes the name of OS/2 to Windows NT.
1991 Microsoft Windows 3.0 or Windows 3.0a with multimedia was released October,
1991.
1992 Microsoft Windows 3.1 was released April, 1992 and sells more than 1 Million
copies within the first two months of its release.
1992 Microsoft Windows for Workgroups 3.1 was released October, 1992.
1993 Microsoft Windows NT 3.1 was released July 27, 1993.
1993 Microsoft Windows 3.11, an update to Windows 3.1 is released December 31,
1993.
1993 The number of licensed users of Microsoft Windows now totals more than 25
Million.
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1994 Microsoft Windows for Workgroups 3.11 was released February, 1994.
1994 Microsoft Windows NT 3.5 was released September 21, 1994.
1995 Microsoft Windows NT 3.51 was released May 30, 1995.
1995 Microsoft Windows 95 was released August 24, 1995 and sells more than 1 Million
copies within 4 days.
1995 Microsoft Windows 95 Service Pack 1 (4.00.950A) is released February 14, 1996.
1996 Microsoft Windows NT 4.0 was released July 29, 1996.
1996 Microsoft Windows 95 (4.00.950B) aka OSR2 with FAT32 and MMX support is
released August 24, 1996.
1996 Microsoft Windows CE 1.0 was released November, 1996.
1997 Microsoft Windows CE 2.0 was released November, 1997.
1997 Microsoft Windows 95 (4.00.950C) aka OSR2.5 is released November 26, 1997.
1998 Microsoft Windows 98 was released June, 1998.
1998 Microsoft Windows CE 2.1 was released July, 1998.
1998 In October of 1998 Microsoft announced that future releases of Windows NT would
no longer have the initials of NT and that the next edition would be Windows 2000.
1999 Microsoft Windows 98 SE (Second Edition) was released May 5, 1999.
1999 Microsoft Windows CE 3.0 was released 1999.
2000 On January 4th at CES Bill Gates announces the new version of Windows CE will
be called Pocket PC.
2000 Microsoft Windows 2000 was released February 17, 2000.
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2000 Microsoft Windows ME (Millennium) released June 19, 2000.
2001 Microsoft Windows XP is released October 25, 2001.
2001 Microsoft Windows XP 64-Bit Edition (Version 2002) for Itanium systems is
released March 28, 2003.
2003 Microsoft Windows Server 2003 is released March 28, 2003.
2003 Microsoft Windows XP 64-Bit Edition (Version 2003) for Itanium 2 systems is
released on March 28, 2003.
2003 Microsoft Windows XP Media Center Edition 2003 is released on December 18,
2003.
2004 Microsoft Windows XP Media Center Edition 2005 is released on October 12,
2004.
2005 Microsoft Windows XP Professional x64 Edition is released on April 24, 2005.
2005 Microsoft announces its next operating system, codenamed "Longhorn" will be
named Windows Vista on July 23, 2005.
2006 Microsoft releases Microsoft Windows Vista to corporations on November 30,
2006.
2007 Microsoft releases Microsoft Windows Vista and Office 2007 to the general public
January 30, 2007.
2008 Microsoft releases Microsoft Windows Server 2008 to the public on February 27,
2008.
2009 Microsoft releases Windows 7 October 22, 2009.
2012
2013
Microsoft releases Windows 8 October 26, 2012.
Microsoft releases Windows 8.1 November 16, 2013.
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2.7 BIGGEST MERGERS & ACQUISITIONS BY MICROSOFT
Here are 10 most interesting mergers and acquisitions by Microsoft:
1) Nokia
Business: Mobile Phones/ Smartphones
Value: $ 7, 00,000,000
Country: Finland
Year: September 2, 2013
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While the Finnish are still not ready to accept they have lost their identity in the world of
technology, Microsoft is celebrating its latest move of taking over the company for only $7.2
Billion to be specific. The newly added brand will now be cashed by the company as it will now
focus on a strongly integrated networking mechanism. For sure, this is the biggest move taken by
Microsoft in the last decade.
2) Net breeze
Business: Social analytics
Value:
Country: Switzerland
Year: March 19, 2013
Interesting enough, the company lately announced the acquisition of Net breeze to bring social
analytics and monitoring to Microsoft Dynamics CRM customers which would help them drive
sales, optimize campaigns and engender customer loyalty.
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3) Yammer
Business: Social Networking
Value: (USD) 1,200,000,000
Country: United States
Year: June 25, 2012
Microsoft, soon realizing that it needs to modify its expertise in social networking purchased
Yammer to do the honors on its behalf. Yammer is a private social network that helps you and
your company to stay connected and acquires better social popularity.
4) Skype
Business: Telecommunications
Value: 8,500,000,000
Country: Luxembourg
Year: May 10, 2011
Just now that it is Nokia which has made the world speechless; it was the acquisition of Skype
back in 2011. This was one of the major moves taken by Microsoft and currently, Skype is
contributing largely in making the company to earn smart.
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5) AT&T Inc.
Business: Telecommunications
Value: 5,000,000,000
Country: United States
AT&T Inc. is a big name in telecommunications globally. Interestingly, this too is a product of
Microsoft now.
6) AVIcode, Inc.
Business: .Net monitoring technology
Country: United States
Year: October 6, 2010
Adding much to the blessings in the lives of the programmers and developers, AVIcode Inc. too
was bought by Microsoft in 2010 which is used to monitor the .net framework, helping the
developers to code with ease.
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7) Jellyfish.com
Business: Search Engine
Country: United States
Year: October 2, 2007
Microsoft welcomes competition but fights really hard to beat its rivals. Google’s search engine,
though has no match for now, buying jellyfish.com in 2007 reveals that Microsoft still wants to
take over the search engine market. You can search and buy goodies and appliances online here.
8) Great Plains Software
Business: Business management software
Value: 939,884,000
Country: United States
Year: April 5, 2001
For big companies which are basically related to business, it is Microsoft on which most of them
rely on. Great Plains is efficient business management software which helps the analysts to handle
data and produce appropriate results.
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9) Visio Corporation
Business: Wholesale drawing software
Value: 1,375,000,000
Country: United States
Year: January 7, 2000
If you are affiliated to a field which needs drawing, poster designing or producing project
diagrams, Visio is a tool which meets all your needs. The tool is highly important in terms of
education and business and contributes a great deal in the Microsoft revenue.
10) Hotmail
Business: Internet software
Value: 500,000,000
Country: United States
Year: December 31, 1997
You might not be using MSN Messenger anymore or hate IE for different reasons, but you must
still be a user of Hotmail if you ever had an account there. Hotmail is more than internet software.
It is basically a mailing tool which Microsoft bought in 1997 and surely, this acquisition can be
considered as a milestone in the success story of the company.
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2.8 BIGGEST COMPETITOR COMPANIES
Google
Google Inc. maintains index of Web sites and other online content, which helps users to obtain
instant access to relevant information. Further, the company provides Android, a mobile software
platform (which rivals the Apple iPhone and Microsoft‘s Windows Phone 7). The firm‘s main
source of revenue is derived from its advertising offerings, primarily Ad Words (auction-based),
but also AdSense (for content owners), and various forms of Display advertising. The company
also offers Google Enterprise product line comprising Google Apps that provides hosted
communication and collaboration tools, which are intended to compete with Microsoft‘s Office
Suite. Due to the creative versatility and intellectual aptitude of technology companies, each will
continually converge on competitor‘s offerings within the market. An example of this is
Microsoft‘s Bing search engine and complementary advertising platform, which are a direct
response to Google‘s dominance and incredible profitability.
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Apple
Apple, Incorporated is a multinational information technology firm founded in 1976 that began as
a manufacturer of personal computing devices. It saw a rise and fall in competition with Microsoft
in the early 1990‘s. Microsoft focused on providing affordable at-home computing solutions, while
Apple focused on delivering a much more extensively engineered, and consequentially expensive,
at-home computer experience. Once almost off the charts completely, Apple reinvented the firms
image with the help of Jonathan I’ve and the iMac, and the later iPod and iPhone. Now a
technology cult-favorite, Apple designs and markets consumers-oriented products, and is widely
considered one of the hottest ‘and most innovative tech firms of the developing market.
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Oracle
Oracle Corporation is an enterprise software company. It develops, manufactures, markets,
distributes and services database and middleware software, applications software and hard
systems, consisting primarily of computer server and storage products. Oracle has leveraged its
dominance of the database software industry to become a major provider of enterprise software
solutions. The recent acquisition of Sun will enable the firm to further its strategy of providing
complete IT solutions to its clients. Microsoft and Oracle compete fiercely in the space of operating
systems, primarily for servers in the corporate sector. Oracle's claims that it offers excellent system
availability, scalability, energy efficiency, powerful performance, and low total cost of ownership
relative to its competitors (e.g. Microsoft). Oracle was founded in 1977 and is headquartered in
Redwood City, California.
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2.9 MAJOR COMPETITOR FOR WINDOWS O/S
Currently, the major competitor with respect to Operating System (O/S) for Microsoft’s windows
O/S is “Linux”.
Linux
Linux was originally developed as a free operating system for Intel x86-based personal computers.
It has since been ported to more computer hardware platforms than any other operating system. It
is a leading operating system on servers and other big iron systems such as mainframe
computers and supercomputers: as of June 2013, more than 95% of the world's 500 fastest
supercomputers run some variant of Linux, including all the 44 fastest. Linux also runs
on embedded systems (devices where the operating system is typically built into the firmware and
highly tailored to the system) such as mobile phones, tablet computers, network routers, building
automation controls, televisions and video game consoles; the Android system in wide use on
mobile devices is built on the Linux kernel.
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Topic Linux Windows
Price The majority of Linux variants are
available for free or at a much lower
price than Microsoft Windows.
Microsoft Windows can run between
$50.00 - $150.00 US dollars per each
license copy.
Ease Although the majority Linux variants
have improved dramatically in ease of
use, Windows is still much easier to
use for most computer users because of
the familiarity of Windows and
because it's more likely they are using
a Windows computer at home, in
school, or at the office.
Microsoft has made several
advancements and changes that have
made it a much easier to use operating
system, and although arguably it may
not be the easiest operating system, it is
still Easier than Linux.
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Reliability The majority of Linux variants and
versions are notoriously reliable and
can often run for months and years
without needing to be rebooted.
Although Microsoft Windows has
made great improvements in reliability
over the last few versions of Windows,
it still cannot match the reliability of
Linux.
Software Linux has a large variety of
available software programs, utilities,
and games. However, Windows has a
much larger selection of available
software.
Because of the large amount of
Microsoft Windows users, there is a
much larger selection of
available software programs, utilities,
and games for Windows.
Software
Cost
Many of the available
software programs, utilities, and
games available on Linux are
freeware or open source. Even such
complex programs such as Gimp,
Open Office, Star Office, and wine are
available for free or at a low cost.
Although Windows does have software
programs, utilities, and games for free,
the majority of the programs will cost
anywhere between $20.00 - $200.00+
US dollars per copy.
Hardware Although hardware manufacturers
have made great advancements in
supporting Linux it still will not
Because of the amount of Microsoft
Windows users and the broader driver
support, Windows has a much larger
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support most hardware devices.
However, for the hardware devices
that have driver support they will
usually work in all versions of Linux.
support for hardware devices and
almost all hardware manufacturers will
support their products in Microsoft
Windows.
Security Linux is and has always been a very
secure operating system. Although it
still can be attacked when compared to
Windows, it much more secure.
Although Microsoft has made great
improvements over the years with
security on their operating system, their
operating system continues to be the
most vulnerable to viruses and other
attacks.
Open
Source
Many of the Linux variants and many
Linux programs are open source and
enable users to customize or modify
the code however they wish to.
Microsoft Windows is not open source
and the majority of Windows programs
are not open source.
Support Although it may be more difficult to
find users familiar with all Linux
variants, there are vast amounts of
available online documentation and
help, available books, and support
available for Linux.
Microsoft Windows includes its own
help section, has vast amount of
available online documentation and
help, as well as books on each of the
versions of Windows.
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TOUGHEST COMPETITOR FOR WINDOWS
ACCORDING TO BILL GATES
Microsoft's chairman and chief software architect, Bill Gates, has labelled pirated software as a
"tougher competitor" to his company than open-source software.
Gates told a media briefing in Sydney this morning: "You know what my toughest competitor is?
"It's pirated software.
"…if you really look around, you'll find way more pirated Windows than you'll find open-source
software, way more".
Gates said he believed Microsoft's software represented a "dramatically higher, better choice than
anything you'll get in the open-source realm.
"It's true the press has taken a few design wins and said, 'hey, look at that'.
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"And you know, that's great, it's almost helpful to us to have a few of those where people try that
out.
"[They] see that being their own systems integrator -- they say, okay, I've got this, how do I get
the active directory? How do I get the software update piece? How do I get the different
applications? And they see… various things about the intellectual property challenge that'll come
into that."
Gates made his remarks during a whirlwind trip to Australia during which he was scheduled to
meet with the Australian Prime Minister, John Howard.
According to research conducted for CNET Networks Australia at the start of 2004, corporate
information technology users were forecasting a healthy future for popular open-source variant
Linux on the desktop, with more than three-quarters of respondents saying it will get a little or a
lot stronger. The research, which secured almost 600 responses from Australia and New Zealand,
also found strong support for Linux' future as a server operating system, with 56.5 percent of
respondents saying the open source software would grow stronger and 32.3 percent saying it would
grow much stronger.
Windows XP (68.9 percent) and other versions of Windows (62.4 percent) were the only operating
systems used at least daily, on average, by a majority of the respondent base.
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Chapter 3
ANALYSIS OF MICROSOFT
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3.1 SWOT ANALYSIS OF MICROSOFT
Microsoft SWOT analysis 2013
Strengths Weaknesses
1. Brand loyalty
2. Brand reputation
3. Easy to use software
4. Strong distribution channels
5. Robust financial performance
6. Acquisition of Skype
1. Poor acquisitions and investments
2. Dependence on hardware manufacturers
3. Criticism over security flaws
4. Mature PC markets
5. Slow to innovate
Opportunities Threats
1. Cloud based services
2. Mobile advertising
3. Mobile device industry
4. Growth through acquisitions
1. Intense competition in software products
2. Changing consumer needs and habits
3. Open source projects
4. Potential lawsuits
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1. Brand loyalty. Over the years, Microsoft has been the leading OS and software provider, which
resulted in more than 90% market share for PC OS. Most of us grew up using its easy to use OS,
are familiar with it and will keep using it. Few other brands are capable to compete with Microsoft
for this reason. Even open source OS, which are completely free and well suited to use for common
user, find it hard to attract users.
2. Brand reputation. According to Interbrand, Microsoft’s brand is the 5th most valuable brand
in the world, valued at $ 57.8 billion. Forbes listed the corporate as the 7th most reputable business
in the world. Brand reputation leads to higher sales and greater market share.
3. Easy to use software. Windows OS and Office software products are so popular not just because
Microsoft has great monopolistic power, strong distribution channels and good brand reputation
but also because its products are of great quality and really easy to use.
4. Strong distribution channels. The company works with all the major computer hardware
producers such as Lenovo, Dell, Toshiba and Samsung and major computer retailers to make sure
computers would be sold with already pre-installed Windows software. The company also invested
in Dell and Nokia to tighten its relationships with these companies.
5. Robust financial performance. Microsoft grew its revenues by 20% from 2008 to 2012 and
holds more than $63 billion of cash and cash equivalents that can be used for acquisitions and
substantial investments into R&D.
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6. Acquisition of Skype. With nearly 300 million users, Skype is a significant boost to Microsoft’s
online presence and have a lot of potential in generating income from online advertising.
1. Poor acquisitions and investments. Few of Microsoft’s acquisitions were successful and
brought not just revenues and products but new skills and competencies to the company. Massive,
Link Exchange, WebTV, Danger are just few examples of multimillion acquisitions made by
Microsoft but soon shut down or divested.
2. Dependence on hardware manufacturers. Microsoft is a giant software corporation but it
does not produce its own hardware and depends on computer hardware manufacturers to develop
products that run Windows OS. If cheap and popular alternative OS would appear, hardware
manufacturers may simple choose the alternative and Microsoft could do little to change the
situation.
3. Criticism over security flaws. Windows OS, the main Microsoft product has been heavily
criticized for being so weak against various viruses’ attacks. Compared to other OS, Windows is
the least protected against such attacks.
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4. Mature PC markets. Only recently has Microsoft entered the mobile technology sector and
still heavily depends on its OS and software sales for standalone and laptop computers. The market
for these products has matured and Microsoft will find it harder to grow revenues in these sectors.
5. Slow to innovate. Microsoft has huge R&D resources and great position to enter new markets
with innovative products but constantly failed to do so. It had an opportunity to be the first player
in online advertising but missed the opportunity. Its entrance to mobile OS was also too late, while
Google and Apple captured the market share.
1. Cloud based services. Microsoft could expand its range of cloud services and software as the
demand for cloud-based services is expanding.
2. Mobile advertising. Mobile advertising markets are expected to grow in double digits over the
next few years and Microsoft has a great opportunity to tap into these markets with its mobile OS.
3. Mobile device industry. Smartphones and tablets markets will grow steadily over the next few
years and Microsoft could exploit this opportunity by introducing more of its own tablets and a
new company phone.
4. Growth through acquisitions. With a huge reserve of cash Microsoft could start acquiring new
startups that would bring new technology, skills and competences to the business.
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1. Intense competition in software products. Microsoft is more than ever on the pressure to
introduce successful OS both in PC and mobile markets as such competitors like Google and Apple
have already established positions.
2. Changing consumer needs and habits. Customers shift from buying laptops and standalone
PCs to buying smartphones and tablets, the markets, where Microsoft has only a modest market
share and may never establish itself.
3. Open source projects. Many new open source projects are coming to the market and some of
them became quite successful, such as new Linux OS and Open Source Office. Open source
projects are free and so they can become an alternative to expensive Microsoft’s products.
4. Potential lawsuits. Microsoft has already been sued for many times and lost quite a few large
scale lawsuits. Lawsuits are expensive as they require time and money. And as Microsoft continues
to operate more or less the same way, there is high probability for more expensive lawsuits to
come.
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3.2.1 INTERNAL ANALYSIS
Strengths:
Human Resources: Microsoft has 93,000employees worldwide. The company has 53,735
employees in the U.S., majority of whom, 40,371 work in the Puget Sound region of Washington
State, headquarters of Microsoft. Microsoft has a rigorous recruitment process and only the best
and the brightest are given an opportunity to work for the company. Microsoft recruits from
campuses of top colleges and universities from around the world and the company has a highly
diversified workforce. Microsoft provides high pay and great benefits in addition to a highly
competitive work environment and thus is a magnet for high achievers. Thus, this network or
ecosystem of more than 88,000 brilliant minds is the most important strength of the company.
Ability to operate across cultures: In a highly globalized marketplace, ability to operate in
different cultures can be an extremely important competitive advantage. Microsoft operated from
629 sites across the world out of which 373 are outside the U.S. Thus, the company has generated
capability to operate successfully in different cultures. This strength will keep increasing in
importance as foreign markets become bigger and more significant to growth of Microsoft.
Strong Management: Microsoft has a policy of internal promotion. Microsoft’s managers have
been working with the company for many years (in most cases, senior managers have worked their
whole life for Microsoft) and have a clear understanding of company’s vision and values. These
managers have been successful in the company’s unique work environment by using available
resources and facing external challenges, thus they are proven administrators and leaders and
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Experts in the segments Microsoft operates in. The company’s Top Management is comprised of
leaders who have shaped the Computer and Information Technology industry in the past and have
potential of doing that in the future. The company also has a strong board comprised of
entrepreneurs headed by Bill Gates, Microsoft’s Ex-CEO, one of the richest men in the world,
founder of the company and one of the few men who shaped the personal computing industry.
A Proven R&D Process: Microsoft has focused on R&D to maintain and increase lead in
segments that the company operates in. R&D is also expected to open new revenue streams for the
company. Microsoft allocates a high percentage of revenue to R&D. For example, Microsoft spent
$9.2 billion on R&D in 2012 compared to revenues of $62 billion. This huge spending allows
Microsoft to pursue a wider array of technologies if necessary. The high R&D spending coupled
with excellent human resources leads to creation of superior products.
Microsoft is also using cross-functional teams to increase R&D efficiency. The company is also
using cross-cultural teams to increase efficiency. Microsoft uses economies of scale to improve
production efficiency. The company has huge fixed costs associated with R&D but negligible
variable costs. The company spreads fixed costs over a large number of units to increase production
efficiency.
Strong Brand Recognition: Microsoft has been one of the leaders of the information technology
revolution and its operating systems are used on almost 70 percent of computers worldwide. Thus,
the company has unparalleled brand name recognition among target customers. This brand
recognition means that Microsoft has the ability to charge premium prices from its customers, has
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the ability to attract top talent to work for the company and the strong brand name also helps
Microsoft in launching new products in the market.
Intellectual Property Rights: Microsoft’s products are protected through intellectual property
rights. Thus, the source code of the company is a valuable resource that Microsoft has. The
company aggressively protects IP and has the resources in place to do so in the future. Since, this
IP rights restrict competitors from duplicating Microsoft’s technology, they are strengths.
Installed Product User base: Microsoft has a large user base. The company’s operating system
is used by more than 70 per cent of personal computers in the world and its productivity suites do
not face any strong competitor. Since the company’s current products are well received in the
market, Microsoft has the option of using the installed user base to launch new products. This
installed user base have the potential to become early adopters of Microsoft’s future products.
Production: Microsoft has a streamlined production process. Once Microsoft creates successful
product, the company can generate more revenues by releasing newer versions of that product.
Microsoft has become extremely efficient at doing this. Moreover, the quality of the process is
improved with every product cycle due to the learning curve and this leads to lower costs of
production. The company has a highly intellectual workforce leading to new ideas being bounced
and incorporated in the production process fostering innovation.
Most of Microsoft’s products are considered to be more superior to those of competitors by
customers. For example, Microsoft’s Windows 7 operating system, Office productivity suite and
Kinect gaming system are very innovative and considered to be of superior quality. The company
has recently upgraded these products according to customer needs.
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Marketing: Microsoft’s Sales and Marketing support group comprises of 37,276 employees
worldwide. Considering the recent increases in revenues of Microsoft, we can infer that these
employees are efficient and sales per employee are on the rise. However, we have not seen any
significant innovation in the sales process by Microsoft. The marketing team does score high on
customer responsiveness with Microsoft’s team being perceived by customers to be highly
professional, responsive and attuned to their needs. The company is also releasing more stable and
user friendly versions of its products to decrease customer deflection rates and increasing
marketing efficiency.
Service: Microsoft’s products are used in critical functions by individuals, businesses and
governments. Thus, reliability and after-sales service are very important to overall value of the
product. Microsoft has a dedicated and qualified support staff in all major markets it server. This
leads to faster resolution of any problems that customers might face. Thus, the service model is
efficient and responsive. The quality of service is also rated high by customers and there have
seldom been any cases of negative reviews by customers. The company is innovative in providing
service by leveraging new mediums such as internet.
The company has also improved its products in response to customer demands. The company’s
new products are free of bugs and full of features that are valued very highly by customers. The
company has taken action to resolve all customer complaints about previous products. For e.g. all
the bugs as well as instability issues of Windows Vista were solved in Windows 7, the latest
version. Windows Mobile 7 is also well received and competing well in the smartphone space.
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Information Systems: Bill Gates ensured that Microsoft used the most advanced information-
technology available or even develop it if it’s not there. He wrote about Microsoft being a paperless
office as early as release of his book “Business @ The Speed of Thought” in 1999. The company
has infrastructure in place to foster a innovative and competitive environment. Microsoft was one
of the first corporations to make most of their processes paperless so that information can be made
available on a timely basis. This also made the process more efficient since changes can be made
more easily and quality improved. This concept was highly innovative when the company adopted
it and has been replicated in almost all industries.
Infrastructure: Microsoft has created strong infrastructure because the company has been
building on it since inception. Top management is still the same as it was when the company was
formed. This means that the company culture has remained intact and become even stronger.
Microsoft has successfully managed changes in organizational structure with changes in size of
the company.
Weaknesses:
New product development: Microsoft’s operating system dominated the 80’s and the company’s
productivity suite dominated the business landscape in the 90’s. However, Microsoft has not been
able to bring a new product in the market in the last decade that dominated the market place. The
company successfully forayed into the entertainment segment with launch of X-Box but it is
sharing leadership with Sony and Nintendo in that segment. Thus, new product development seems
to be a major weakness for the company. This weakness would keep increasing in importance as
company’s old products lose revenues or market share.
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3.2.2. FINANCIAL CONSIDERATIONS
Strong Financial Performance: Microsoft Corporation is one of the most valuable companies in
the world. It has resulted in three employees becoming billionaires (Bill Gates, Paul Allen, and
Steve Ballmer) and thousands of employees becoming millionaires or centi-millionaires.
Microsoft has reported strong revenues and net income across all operating segments during recent
years.
The financial highlights of the company for the previous THREE years are tabulated below:
RESULTS OF OPERATIONS:
(In millions, except
percentages
and per share
amounts)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Revenue $ 77,849 $ 73,723 $ 69,943 6% 5%
Operating income $ 26,764 $ 21,763 $ 27,161 23% (20)%
Diluted earnings per
share
$ 2.58 $ 2.00 $ 2.69 29% (26)%
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SEGMENT PRODUCT REVENUE/OPERATING INCOME (LOSS):
Windows Division
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Revenue $ 19,239 $ 18,400 $ 19,061 5% (3)%
Operating income $ 9,504 $ 11,555 $ 12,280 (18)% (6)%
Server and Tools
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Revenue $ 20,281 $ 18,534 $ 16,559 9% 12%
Operating income $ 8,164 $ 7,235 $ 6,105 13% 19%
Online Services Division
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Revenue $ 3,201 $ 2,867 $ 2,607 12% 10%
Operating loss $ (1,281) $ (8,125) $ (2,657) * *
* Not meaningful
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Microsoft Business Division
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Revenue $ 24,724 $ 24,111 $ 22,607 3% 7%
Operating income $ 16,194 $ 15,832 $ 14,678 2% 8%
Entertainment and Devices Division
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Revenue $ 10,165 $ 9,599 $ 8,915 6% 8%
Operating income $ 848 $ 380 $ 1,261 123% (70)%
Corporate-Level Activity
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Corporate-level
activity
$ (6,665) $ (5,114) $ (4,506) (30)% (13)%
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COST OF REVENUE:
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Cost of revenue $ 20,249 $ 17,530 $ 15,577 16% 13%
As a percent of
revenue
26% 24% 22% 2ppt 2ppt
OPERATING EXPENSES:
Research and Development
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Research and
development
$ 10,411 $ 9,811 $ 9,043 6% 8%
As a percent of
revenue
13% 13% 13% 0ppt 0ppt
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Sales and Marketing
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
Sales and marketing $ 15,276 $ 13,857 $ 13,940 10% (1)%
As a percent of
revenue
20% 19% 20% 1ppt (1) ppt
Other Income (Expense)
The components of other income (expenses) were as follows:
(In millions)
Year Ended June 30, 2013 2012 2011
Dividends and interest income $ 677 $ 800 $ 900
Interest expense (429) (380) (295)
Net recognized gains on investments 116 564 439
Net losses on derivatives (196) (364) (77)
Net losses on foreign currency re measurements (74) (117) (26)
Other 194 1 (31)
Total $ 288 $ 504 $ 910
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General and Administrative
(In millions, except
percentages)
2013 2012 2011 Percentage
Change
2013
Versus
2012
Percentage
Change
2012
Versus
2011
General and
administrative
$ 5,149 $ 4,569 $ 4,222 13% 8%
As a percent of revenue 7% 6% 6% 1ppt 0ppt
Dividends
During fiscal years 2013 and 2012, our Board of Directors declared the following dividends:
Declaration Date Dividend
Per
Share
Record Date Total
Amount
Payment Date
(In millions)
Fiscal Year 2013
September 18,
2012
$ 0.23 November 15,
2012
$ 1,933 December 13,
2012
November 28,
2012
$ 0.23 February 21,
2013
$ 1,925 March 14, 2013
March 11, 2013 $ 0.23 May 16, 2013 $ 1,921 June 13, 2013
June 12, 2013 $ 0.23 August 15, 2013 $ 1,916 September 12,
2013
Fiscal Year 2012
September 20,
2011
$ 0.20 November 17,
2011
$ 1,683 December 8, 2011
December 14,
2011
$ 0.20 February 16,
2012
$ 1,683 March 8, 2012
March 13, 2012 $ 0.20 May 17, 2012 $ 1,678 June 14, 2012
June 13, 2012 $ 0.20 August 16, 2012 $ 1,676 September 13,
2012
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STOCK PERFORMANCE:
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Microsoft Corporation, the S&P 500 Index, and the NASDAQ Computer Index
6/08 6/09 6/10 6/11 6/12 6/13
Microsoft Corporation 100.00 88.52 87.33 101.05 122.14 142.14
S&P 500 Index 100.00 73.79 84.43 110.35 116.36 140.32
NASDAQ Computer 100.00 84.52 99.07 133.08 151.51 158.50
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3.3 EXTERNAL ANALYSIS
Opportunities:
The high growth rate of emerging economies: Almost 46% of Microsoft’s revenues come from
emerging markets. The company has the understanding and experience on how to operate in these
markets. However, most of the revenues have been generated by company’s software publishing
business. U.S. online services businesses have not been very successful in emerging markets. A
case study would be Google’s dominant market share in U.S. but a small market share in China.
Culture plays a very big role in these markets.
With the rise in disposable incomes in these economies, Microsoft’s Entertainment business is
bound to show great growth in future. The companies operating in developing countries lack the
technological expertise to compete in this segment and Microsoft should enjoy high penetration in
these markets in the near future.
Threats:
Low cost of production: The industry is very dynamic. The cost of producing a new product is
very low. Many successful new products have been created by engineers operating in garages.
Although, large corporations invest large sums in R&D, revolutionary new products such as
Google search engine have been known to have been developed by geeks without any corporate
affiliation. Thus, innovation is driving this industry. For e.g., Microsoft’s Hotmail email lost share
to start up Yahoo! in the 90’s and Yahoo! has lost market share to Google during the last decade.
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3.4 Porter’s Five Forces
Risk of Entry of Potential Competitors:
Microsoft operates in software development, online services and entertainment and devices
industry. The cost of production in these industries is low but the cost of R&D is high. Thus a
company has to invest a large amount of capital in R&D and does not realize economies of scale
unless R&D results in a successful product. On the other hand, there is a risk that an individual
innovator may be able to create the next “hot” technology. There is strong brand loyalty in this
industry due to high customer switching costs. Organizations hesitate before changing available
technology due to operational risks. Government regulation does not restrict new players from
entering this industry. Thus, the risk of entry of potential competitors is low.
Rivalry among established companies:
The industries Microsoft operates in are consolidated and are dominated by a few large players
such as Microsoft, Oracle, SAP, Apple, Google, Facebook etc. Normally the companies in
consolidated industries are interdependent and one company’s action is followed by reactions from
competitors. However, most players in these industries have differentiated products and hence
severe price competition does not exist.
The industries are in growth stage and globally the market is growing. This results in moderation
in competition among existing players. Exit barriers are high in form of emotional attachments to
the industry. Rivalry among companies is moderate.
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The bargaining power of buyers:
Microsoft operates in industry in which most players have differentiated products. Moreover,
Microsoft has a virtual monopoly in some segments. Since the products are differentiated, buyers
cannot play one supplier against another. The switching costs are high due to operational risks and
specialized nature of goods. Due to these factors, the bargaining power of buyers is low.
The bargaining power of suppliers:
The product that Microsoft produces has few substitutes and those substitutes are not able to meet
the need in a satisfactory manner. The customers would also have to bear high switching costs in
order to move away from Microsoft’s products. Thus, Microsoft has high bargaining power and
can charge premium prices for its products.
Threat of Substitute products:
The threat of substitute products is low in Windows, Business and Online Services division.
However, there are substitutes available in Server and Tools and Entertainment devices markets.
For example, if Microsoft increases prices of Xbox, buyers may switch to Sony’s Play station.
Thus, we can infer from the five forces model that Microsoft has a moderately high capacity to
increase prices and earn higher income.
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3.5 MICROSOFT STRATEGIES
Business Level Strategy:
Microsoft has pursued the Differentiation strategy. The company has focused R&D dollars towards
fulfilling customer needs that are not served. The Windows OS was the first OS which made
optimal use of Graphical User Interface. The Office productivity suite had more tools than any
other productivity suite on the market and increased customer productivity significantly. The
company also differentiated products by providing extremely good customer service. Customer
service is poor for most products that compete with Microsoft products in the Windows and
Business division segments.
The basis for differentiation is different between product segments.
Windows and Windows Live: The products in the Windows and Windows Live include Windows
operating system, Windows live (formerly Hotmail) and Internet Explorer browser. The company
cannot compete with the cost leadership strategy in these segments because competitor products
are free in most categories and Microsoft is a for-profit entity, and thus, cannot give products for
free and generate profit. For example, Linux operating system, Firefox web browser and Google’s
Gmail email service are all free.
Microsoft’s operating system is user friendly, stable and has the ability to run all major software.
The company had also adopted a strategy to bundle Windows OS with email and web browser in
order to make the product more attractive to customers. Microsoft was slow on innovation with
Windows during the last decade but their Windows 7 product has received rave reviews from
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customers. Customer service is always high and the company provides excellent support for older
versions of software even after release of newer versions. The company also differentiates its
products based on superior customer service and support that the company provides.
Server and Tools: The products in this segment are differentiated on basis of quality and customer
responsiveness. More people are familiar with Windows user interface than any other operating
system in the world and most applications run on Windows. This is considered quality by most
customers since they do not have to think about compatibility issues every time they purchase a
new program. Quality and Customer service are very important in the Server and Tools product
and Microsoft competes on basis of these differentiators.
Online Services Division: The online services division’s products include Bing search engine,
MSN online and channels. The search engine has to be optimized to provide better search
capability than the competition to drive revenues. The online portals and channels have to create
attractive content to entice subscribers and then advertisers to increase revenues. Microsoft has not
choice in this segment but to differentiate products.
Business Division: 90 per cent of Microsoft Business Division’s revenues are driven by sales of
Office productivity suite. Before Microsoft created Office, the market was server by different
companies who offered one or the other tool. There was no integrated productivity suite available
in the market. Microsoft’s Office was differentiated based on this factor. The Office productivity
suite was the first integrated suite in the market and it was highly reliable and had tools that
increased productivity sharply. There are free products available in the market such as Google and
Open Office. However, these products are not compatible with Windows or if you open a Windows
Office file in these products, they do not reflect correctly.
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The quality of Windows Office suite is superior compared to other products. Thus, this product is
differentiated based on Quality, Innovation and Customer Responsiveness.
Entertainment and Devices: The products in this segment are differentiated based on quality,
innovation and customer responsiveness. The Xbox Kinect gaming system and games developed
by Microsoft’s divisions such as Halo, are state of the art products which are extremely popular
among target customers. These products are highly innovative, of great quality and are backed by
good customer responsiveness.
Microsoft segments markets based on end use of products. Windows OS comes in Home and
Professional editions. The Home edition is targeted towards students and customers buying PC’s
for personal use while the Professional edition is targeted towards businesses. The Office
productivity suite comes in Student and Professional edition. The student edition which has limited
capabilities but is extremely affordable is targeted towards students while the Professional edition
with full range of tools is targeted at businesses. The Xbox Kinect is targeted towards teenagers
and young adults who are avid gamers (or are candidates for being converted into one).
The market dominance achieved by Microsoft cannot be achieved just by developing one
distinctive competency. A combination of Quality, Innovation and Customer responsiveness are
reasons of sustainable competitive advantage that Microsoft enjoys. However, the most important
contributor going forward would be innovation and Microsoft needs to strengthen this competency
even more.
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The advantage of pursuing this strategy is that the company enjoys healthy profit margins. The
company also created barriers to entry for competitors since they cannot imitate products due to
Intellectual Property rights owned by Microsoft. The company also enjoys high customer loyalty.
The disadvantage is that Microsoft’s R&D costs in dollar terms are higher than most competitors
in most business segments it operated in.
Value Creation Frontier: According to Hill and Jones, Value creation frontier represents the
maximum amount of value that the products of different companies inside an industry can give
customers at any one time by using different business models.
Companies such as Microsoft have differentiated products and they have to rank high on
Innovation, Quality and Customer responsiveness to market their products successfully.
Companies with cost differentiation strategy such as Sun Microsystems have to keep their costs
low so that they may be able to provide generic products to customers at the lowest cost.
Corporate Level Strategy:
Microsoft’s organizational structure is a product structure giving the company flexibility to pursue
different corporate level strategies for different product divisions. These product divisions in turn
generate revenues in billions (more than many Fortune 500 companies). The company is pursuing
strategy of full vertical integration in Windows and Business software segments and a taper
vertical integration strategy in the Games and entertainment segment. Microsoft controls the entire
value chain, from conception of product to distribution to customer, for the Windows and Business
software segment. Microsoft designs the software in-house, the code is written by Microsoft
engineers and the product is sold on Microsoft websites.
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Windows, Server & Tools and Business Division: These divisions are vertically integrated. The
core competence of these divisions is development of operating and business application software.
The company has rich experience in this field and is a global leader in the industry. Microsoft has
built these resources and capabilities over decades and they are not easily replicable. Hence, the
company has become extremely efficient in the process and has the ability to create value through
vertical integration.
Microsoft’s source code is an extremely valuable asset for the company and outsourcing any kind
of software development work may lead to a threat to its security. Thus the company does not
outsource any operations that it is currently performing in-house nor does the company invest in
building infrastructure to do activities that are currently outsourced.
Online Services Division: Microsoft tried to purse horizontal integration strategy in Online
Services Division recently. The company made a $47.5 billion hostile offer to takeover Yahoo in
2008. Microsoft did not have a significant presence in the search engine space despite sinking
billions of dollars in R&D for Bing search engine. The merger with Yahoo would help Microsoft
realize economies of scale. The advertising platform would become large enough to challenge
Google. Redundancies in R&D of search engine would be eliminated and there would be greater
synergy. Microsoft would also be able to increase product differentiation through bundling of
Microsoft and Yahoo products and services. Microsoft also wanted to build a credible threat to
Google’s dominance in the search engine market. The takeover attempt was rebuffed by Yahoo
shareholders; however, Microsoft pursued a partnership/Alliance with Yahoo after that to realize
some of the gains that would have been realized through merger.
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Entertainment and Devices Division: Microsoft was the largest supplier of operating systems to
computer hardware manufacturers and the largest player in the productivity suite software market.
The company had existing strong relationships with hardware manufacturers and the capability to
develop cutting edge software. The company’s core businesses had reached maturity stage and the
company was in search of growth opportunities. The multimedia gaming industry was dominated
by Sega, Sony and Nintendo, all Japanese players. The multimedia gaming industry was in growth
stage and enjoyed healthy profit margins. The components required to enter this industry were
game software, game console and software for game console.
Microsoft had the capability to develop games and capability to develop console software based
on its Windows OS. Thus, the missing piece was hardware manufacturing which the company
could outsource. Thus, Microsoft entered the industry to capitalize on its existing software
development capabilities with the goal of being a major player in a growth industry. The products
are conceptualized by Microsoft, and the software for the products is also developed in-house by
Microsoft’s engineers. However, the hardware manufacturing is outsourced. Thus Microsoft
pursues a taper vertical integration strategy in this segment. This again creates value for the
company, since, Microsoft does not have expertise in manufacturing of hardware, but the
manufacturer whom the company outsources to, has that capability. Outsourcing does not
necessarily increase Microsoft’s costs since the company to which the manufacturing is outsources
is more efficient at hardware manufacturing and Microsoft can demand lower prices due to the
size of the order.
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3.6 MARKETING MIX (4P’S)
Microsoft Business Division ("MBD") develops and markets software and services designed to
increase personal, team, and organization productivity. MBD offerings include the Microsoft
Office system (comprising mainly Office, SharePoint, Exchange and Lync), which generates over
90% of MBD revenue, and Microsoft Dynamics business solutions. We evaluate MBD results
based upon the nature of the end user in two primary parts: business revenue, which includes
Microsoft Office system revenue generated through volume licensing agreements and Microsoft
Dynamics revenue; and consumer revenue, which includes revenue from retail packaged product
sales and OEM revenue.
Global macroeconomic factors have a strong correlation to demand for their software, services,
hardware, and online offerings. The current macroeconomic factors remain dynamic and uncertain.
Irrespective of global economic conditions, they are positive about their relative market position,
our current product portfolio, and future product pipeline. Because they offer a wide range of
products and services that enable companies to improve productivity and reduce costs, including
cloud-based services, they believe that Microsoft is well-positioned to create new opportunities to
increase revenue as the global economy improves. They remain focused on executing in the areas
we can control by continuing to provide high value products at the lowest total cost of ownership
while managing our expenses.
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1. Product:
“Product” refers to the goods and services that firm’s offer to their customers. Firms must place
sufficient importance to the product/service as well as the other aspects associated with the product
that attract customer attention. At Microsoft, the product is the full bundle of goods and services
offered including software and after sales service. Product characteristics include the functionality,
appearance, and support customers receive when Microsoft products are purchased. Product also
includes the unique features, functions, and characteristics of Microsoft software that are not
available from its competitors' products. It is important that Microsoft be able to continue to
distinguish and differentiate its products from the competition. To that end, during fiscal years
2001, 2002, and 2003, research and development expenses were a staggering $4.38 billion, $4.31
billion, and $4.66 billion, respectively. Those amounts represented 17.3%, 15.2%, and 14.5%,
respectively, of revenue in each of those years. Most of Microsoft's products are developed
internally, but the company also purchases new technology, licenses intellectual property rights,
and oversees third-party development of certain products. Microsoft's products include scalable
operating systems for servers, personal computers, and intelligent devices; server applications
2. Price:
“Price” refers to the cost of a particular product or service. Price plays an important role in
customer’s buying decision. As far as price is concern Microsoft has global annual revenue of US$
60.42 billion. Their product price helps them to achieve such huge revenue. Segmenting the huge
customers and valuing their demands and requirements Microsoft has a stack of different product
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offering different price. Their price diversification leads their products to capture the global
market.
3. Place:
“Place” refers to the distribution channels used to get a firm’s products from the
Manufacturer/service provider to the end customers. Place is also known as channel, distribution,
or intermediary. Microsoft has nearly 90,000 employees in 105 countries to distribute, sell,
promotion and providing services to the valued customers.
4. Promotion:
Promotion refers to the awareness created of the introduction of a new product and availability of
an already existing product by means of advertising and selling activities. The main objective of
promotion is to make customers aware of product features, its uses and benefits. Microsoft invests
a lot to promote their products globally in different countries in different languages. To do so they
provide lots of information regarding the new products and existing products. For example they
provide all necessary information about their products through their websites and webcasts. Today,
with the increase in competition and with a wider variety of products and markets, other P’s of
marketing mix are proposed by a number of researchers.
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3.7 WHERE MICROSOFT FAIL’S
When people think of innovative tech companies, they generally don’t think of Microsoft.
Microsoft has actually had a history of innovative products and ideas, but they’ve failed to execute
them over and over again.
E readers-Microsoft had a prototype e-reader ready to go in 1998, but they never used it. From
2007 Amazon rules this segment through kindle.
- Windows developed mobile os in 2000. But they never make it better till the
deal with NOKIA in 2010. In 2007 apple launched the first mobile based on IOS, and ruled the
smartphone segment.
Tablets-Microsoft released “Windows XP Tablet PC Edition” in 2002, eight years before Apple
released the iPad.
Web Browsers- Internet Explorer-Internet Explorer was struggling to catch up with modern
browsers as previous versions were far surpassed by Mozilla Firefox and Google Chrome.
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Web-Based Email- Hotmail-Microsoft purchased Hotmail in 1997. Google released Gmail in
2004. Gmail was far superior to Hotmail when it was released, featuring a much cleaner interface,
conversation views, a huge amount of storage space, and a very effective spam filter. Microsoft’s
Outlook.com is now actually fairly competitive
Smart Watches- Microsoft actually had a smart watch platform, known as the SPOT watch,
which was discontinued in 2008. Perhaps the SPOT watch discontinued may be because of bad
experience, subscription fee, and lack of vision or marketing.
Operating Systems- Longhorn- Microsoft’s Longhorn development went so poorly that, after
three years of development, all of the work was thrown out and they started again on the operating
system that would become Windows Vista. At that time apple launched Apple’s OS X. It was quite
fast and stable.
Music- Apple was nearly dead in the late 1990s. Apple was saved by iTunes and the iPod, which
provided a legal and convenient way to download and share music. Microsoft had an early head
start making software for the portable music market, but did not find good hardware partner. In
2006, Microsoft came up with its own product -- the Zune with wi fi sharing but it fails.
Search engine- Internet Explorer was so successful that Microsoft had to spend years fighting
off antitrust suits that now seem silly. Those clashes probably distracted the company from the
Internet’s real money-maker search products. Microsoft later realized that Google’s success was
due to its monopoly in search- based ad sales.
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3.8 FUTURE STRATEGIES OF MICROSOFT
 Being able to serve diversified and emerging markets is key to Microsoft future. Like
Africa, china etc.
 Microsoft is a transformation from being a software company to being a device and service
company.
 On top of devices they are focused on Office 365 and X BOX, Windows mobile and mainly
Windows os.
 Microsoft planning to open retail stores in early 2013 for direct selling and customer
interaction.
 Microsoft Plans New Data Centers in Singapore, Australia.
 Yearly updates to windows software's will be the norms soon.
 Microsoft’s future plans for a streaming operating system. Fast booting by a virtual PC
operating system through remote storage.
 Microsoft’s next Windows version will include cloud network integration.
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Chapter 4
CASE STUDIES
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A case study of Nokia Corporation leading to the acquisition by Microsoft
The significance of Nokia case study to leadership shows how a giant technology communication
that permeated today’s organizational systems can easily be acquired by Microsoft for $7.2 billion
US dollars (Versace, 2013; Swisher, 2013). In this analysis, did Nokia Corporation deviate from
its core competences in terms of technology? Did pedagogical historical data that catapulted Nokia
from local to national, international, then into a saturated global wireless communication giant,
now unable to reinvent itself? Despite Nokia’s promenade of innovative technologies, why was
Technological Situational Happenstances (T.S.H.) not applied to then organization? These
myriads of questions will be analyzed, explored and synthesized.
To start, understanding the historical background of Nokia in a global continuous changing
environment of technology is necessary for learners. Nokia was a multinational corporation in the
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late 21st century headquartered in Finland. Nokia was structured into three main business
segments. Markedly, the segments included (a) Nokia Mobile Phones, (b) Nokia Networks, and
(c) Nokia Ventures Organization. Mobile Phone segment included the development, manufacture,
and supply of wireless data products and mobile phones. Globally, Nokia segments’ services wide
range of mobile phones for the arcade analog systems to digital standards and to Jigsaw. Most
recent advanced research was on Jigsaw emulated pattern-recognition algorithms that can identify
wide range of behaviors and logs detailed than past similar applications (Hong, 2010).
More than 1.2 billion, over 5% of the world population uses Nokia’s device from mobile phones
to advanced smartphones and high-performance mobile computers (Aluya, 2013; Versace, 2013).
Nokia integrates its devices with innovative services through Ovi, which includes music, maps,
apps, email and more. Nokia's NAVTEQ is a leader in comprehensive digital mapping and
navigation services, while Nokia Siemens Networks provides equipment, services and solutions
for communications networks globally (Nokia Corporation, 2010a).
In the network segment, Nokia engaged in providing services related to the network infrastructure
of mobile and Internet Protocols (IP). Ubiquitously, the network segment was entrenched in the
areas of radio, broadband access for network providers, operators, and to core of the internet
protocol mobility. Nokia Ventures Organization was formed for the purpose of creating new
businesses outside the company's natural growth path and core segment of operation. This segment
engaged in venture capital activities associated with a portfolio of new ventures. Essentially, these
Ventures included the commercial enterprises of Nokia Internet Communications and Nokia Home
Communications (Reuters Investor, 2004).
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Company background
In terms of communication, Nokia was one of the world leaders in mobile communications. Nokia
dedication enhanced people’s living standard from exotic products to populist ubiquitous aesthetic
seductive newbies. As a disrupter, it consistently and persistently was disrupting the disruptors
during its halcyonic days. Nokia conjecturally have gone into hiatus and hypodermically under the
Apple spell. Productivity through easy-to-use and secure products like mobile phones, solutions
for imaging, games, media, mobile network operators and businesses were enhanced by Nokia.
Without any doubt, Nokia sells three of every 10 mobile handsets manufactured (Brown-Humes,
1999). Nokia now, unfortunately falls on the categories of Ericson and Motorola. Why? Nokia
failed to effectively and officiously use ─Technological Situational Happenstances (T.S.H.)
illustrated below (see Vignette 1) to reinvent itself, particularly understanding the situations on the
global terrain. This is despite the company’s success in establishing a strong brand recognized
throughout the world (Kipp, 2001).
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Illuminated in the above vignette, critical components in this saga indicated why Nokia failed to
take into deep consideration the following: a) adaptation, b) culture, c) economic environment, d)
creative destruction, f) leadership and above all, g) sustainability. Contra-analyzing the above
factors were what led to the flaring and flaming out of major technology companies irrespective
of how solid or robust their financial indicates. Scholarship discussions continue with the
concatenations of Nokia historical events leading to Microsoft acquisition pro anon.
Moving along, misconception about Nokia was that the name connotes a Japanese company. Far
from it, the company background showed European, a company pigmented and entrenched with
European culture- Finnish Group Company. Toted up, the company has managed growth and
innovation exceptionally well through the use of TSH back in embryonic stage. Staff numbers
increased from 25,000 in 1993 to more than 44,000 in 2013. Bureaucracy then did not stifle the
culture of innovation or deep capital creative destruction. Transmuted, the company was Europe's
fifth largest and single-handedly accounts for more than 50% of the Helsinki exchange and a
substantial chunk of Finnish GDP growth (Brown-Humes, 1999). Robustness of Nokia’s successes
then propelled the Finnish group to be one of the world's most respected and reputable companies.
Socio-psychological view and background
Holistically, Nokia's business sojourn began in 1865, when engineer Fredrik Idestam established
a wood-pulp mill in southern Finland and started manufacturing paper. In the European
industrialization and the general consumption of paper and cardboard, Nokia became successful.
This was a slight pendulum shift toward the fabianic economic doctrine. Nokia's products were
exported first to Russia, to the UK and finally France. As a quintessential company, it became a
major employer and the employees evolved into a paternalistic community.
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Presently, there remains a community called Nokia that existed on the riverbank of Emäkoski in
southern Finland (Nokia, 2008).
Nokia’s social, economic and historical analysis continued after World War II when the Finnish
Rubber-Works bought majority shares in the Finnish Cable Works. Due to the quixotic need for
power transmission, telegraph, telephone networks, the Finnish Cable Works Company grew and
expanded. Eventually, Rubber Works and the Cable Works companies consolidated and a creative
destruction machination eschewed. In 1967, the companies merged to form the Nokia Group.
Later, seed money was planted into making Nokia a global success in telecommunications.
Electronics generated 3% of the Group's net sales and provided work for 460 people (Nokia, 2008).
At the end of the 1980s a common standard for digital mobile telephony was developed through
innovative method of using TSH. Present technology standard now commonly referred to as the
GSM (Global System for Mobile Communications) was innovatively created. In 1991, Nokia
made agreements to supply GSM networks to nine European countries and by August 1997 Nokia
had supplied GSM systems to 59 operators in 31 countries (Nokia, 2008).
Stephen Elop was the president and chief executive officer (CEO) who led the company into the
hands of Microsoft. Markedly, many scholarship critics’ contraposes how Elop made so many
gaffs by not understanding the changing environment; however, Elop is still the most interoperable
person in the world today. No need to be ad hominem against his character. Stephen Elop was
appointed the CEO on September 21, 2010, a day after the former CEO Ollila-Pekka Kallasvuo
resigned (Nokia Corporation, 2010). To understand the political and social historical background,
it becomes imperative to mention former CEOs who have led the organization to significant
successes. In the embryonic stage, Kari Kairamo was the CEO who transformed the company.
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Kari Kairamo ideological eruption led the company in the acquisition and expansion of 80
subsidiary companies with an estimated 26,000 employees spreading over nine countries before
his death in 1980. Simo Vuorilehto became the successor to Kari Kairamo in occupying the seat
of the CEO. According to Mayo and Tony (1994), one of the biggest acquisitions of the 1980s was
the Datachecker (USA Based) and the Unix-telecomms, Danish Company Regnecdentalen-ICL.
In the 1980s during the recession, the CEO made some strategic moves to liquidate the unprofitable
business ventures and subsidiaries
Nokia Data bought Ericsson. This group extended the technical capabilities to the continental
Europe during the same period of political liberalization of the European market. In 2010, Nokia
acquired Motally's mobile analytics service that enables developers and publishers to optimize the
development of their mobile applications through increased understanding of how users engage.
Speciously, the service offered planned to be adapted for Qt, Symbian, MeeGo and Java developers
(Nokia Corporation, 2010a).
In 1992, Jorma Ollila, the former President and CEO critically examined the company's
technological capabilities and realized the need for a stronger R&D department through TSH.
Aptly, the CEO analysis led to the acquisition of the Matra Nortel Communications' GSM
Terminals in Ulm, Germany. Streamlining and concentrating on the company's strengths became
paramount to the Jorma Ollila. Within a decade, refusing to kowtow to the big labor, the company
shielded itself from unprofitable businesses. Matra Nortel Communication GSM in Ulm, Germany
was used as a stepping-stone to transform Nokia into one of the world's largest mobile phone
suppliers. And this was a shifting sand of economic integration and deepening of capitalization.
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Historically, Nokia grew to national recognition from the 1960s and through the 1980s. During
this period, Nokia bought various companies, such as Finnish Rubber Works, Finnish Cable
Works, a Finnish telecom company, Luxor (Sweden owned electronics and computer firm), and
Ericson's Data Division, to become a powerful conglomerate in Finland. Jorma Ollila (former CEO
and later Chairman) developed the company strategy to focus more on the telecommunications
business during the 1990s. Nokia, from the pedagogical cognitive and effective antiseptic
experiences, successfully developed the first fully digital smart telephone exchange system in
Europe and the first phone anchored inside a car. Subsequently, the stage was set for uncloaking
the digital telephone deployment to customers or end-users.
In Nokia's (2002 Annual Report), Nokia "made a strategic decision to concentrate on
telecommunications as the core business, with the goal of establishing a market-leading presence
in every major global market" (p. 19). Nokia was pouring fountain of creative newbies from golden
chalice. Nokia divested non-core businesses that were previously acquired—paper, personal
computer, rubber, footwear’s, chemicals, and power plant, aluminum, and television businesses.
In order to infiltrate the U.S. market and other countries globally, Nokia collaborated seamlessly
with other companies in the telecommunications industry to supply phones and networks to
potential new markets. For example, "in 1999, Nokia penned deals to put its wireless application
protocol (WAP) software into Hewlett-Packard's and IBM's network servers" (Nokia
Corporation— History from Hoover's Online).
Nokia high-risk strategic decision-TSH on telecommunication business led to gaining market
shares and profits (Bernstein, 1996). Remarkably, the nonlinear technological methodology and
realignment led Nokia to be the world leader in seductive mobile phones.
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"Nokia became a world leader in mobile, communications world’s leading supplier of mobile
phones and a leading provider of mobile and IP networks" (Nokia's 2002 Annual Report, p. 20).
Based on the 2002 and 2003 financial information for Nokia, mobile phones and Nokia's network
make up approximately 99% of all net sales for the company. Not resting on its laurels, Nokia
continue to gain substantial market share in disruptive mobile phones. In 2010, Nokia reports Q3
2010 net sales of EUR 10.3 billion ($13.6 billion), with non-IFRS EPS of EUR 0.14 Mobile device
ASP up EUR 4 from Q2 2010 (Nokia’s 2010 Annual Report).
According to a Nokia press release dated January 27, 2004, TELESTET, who was prime leader in
mobile communications in Europe, introduced commercial 3G services to Greece. Actions of this
purchase launched the country's first WCDMA (wideband code division multiple access) network,
enabling top-of-the-line mobile services such as advanced multimedia messaging, high-quality
streaming, browsing and video calls with speed of up to 384 kbps" (Nokia press release, 2004,
January 27, p.2). Gallantly, Nokia provided the equipment used for 3G WCDMA network so that
customers can access the network via the Nokia 6650 and 7600 mobile devices. In a capitalistic
market, in the domain of creative destruction, most recently, time have overtaken some of the
Nokia mobile phones. Surreptitiously, this is where Nokia lost its mojo or its whiz-bang
technological du jour.
Comparing Nokia to other competitors (Ericsson, Motorola, and Siemens), Nokia’s annual sales
bypass all competitors except Siemens. Nokia, however, was a better-performed company than
Siemens as outlined below:
 Gross profit margin was four times greater than Siemens;
 Nokia has A-1 debt rating and very little debt outstanding;
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 Market valuation was approximately 25% greater than Siemens although Siemens’ annual
sales almost triple Nokia’s sales;
 Nokia hordes cash, $US 14 billion at the end of 2007.
 In 2010, Nokia reports Q3 2010 net sales of EUR 10.3 billion ($13.6 billion), with non-
IFRS EPS of EUR 0.14 Mobile device ASP up EUR 4 from Q2 2010 (See the table and
graph for 2012 net revenue).
Nokia relied upon creative innovative products from its R&D groups. Risingly, the company also
maintained a high cash balance conjecturally to purchase start-up businesses horizontally or
vertically to enhance its telecommunication products. For example, in 2007, Nokia acquired
Avvenu, Enpocket and Twango (Nokia, 2008). Most relevantly, Masalin (2003) stated that Nokia
engaged with various leading business schools, universities and consulting firms to stimulate the
employees’ minds, thence enhanced thinking outside the normal boundaries-pedagogically
(learning the unthinkable possibilities). Strategically, Nokia does not appear to quash or
suppressed competitors, unlike the formal management philosophy that was once outlined as one
of Bill Gates and Microsoft’s strategy that sees Microsoft suffocating competitors.
Nokia was backed by experience, innovation and user-friendliness-secure solutions.
Unpolemically, the company was the leading supplier of mobile phones, a leading supplier of
mobile, fixed broadband and IP networks. By adding mobility to the Internet, Nokia created
innovative new opportunities for companies and thus further enrich the daily life of people
globally. Nokia was a broadly and publicly held company with listings on six major exchanges
(Activision, 2003).
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Nokia invested in 1998 HUF 25 billion (approx. EUR 100 million) in Greenfield Hungary to
increase capacity of phones manufactured. Ascendly, the notion to maximize and increase
manufacturing capacity was due to enabling infrastructure established in Hungary and the
Komárom. Another reason for the massive infusion of cash and investment was the already human
capital availability within the region. Scholastically, the region had the presence of a well-educated
workforce. Financially, in the third quarter of 2007, Nokia's net sales totaled EUR 12.8 billion
(USD 24.9 billion). Apparently this was a tale-tale sign of what is yet to come. Headquartered in
Finland Nokia was listed on the New York (NOK), Helsinki, Stockholm, London, Frankfurt and
Paris stock exchanges and employs more than 68, 041 people (Nokia, 2007).
In a rapidly growing mobile phone industry, efficient, flexible logistics processes and
manufacturing capabilities were benchmarks for success. Losing sight of this significant process,
Nokia was indirectly undermining its own existence. For example, the new Komárom site within
Nokia's global logistics structure was significant. "Nokia has always had well-established
historical ties with Hungary, which was amongst Nokia's key countries today. Thanks to the central
geographic location, positive corporate environment and the availability of well-educated
workforce; Nokia has expanded its activities” (Nokia, 2007, p.3). Nokia was then able to tap into
the historic technological trends to establish essentially a new market. Concomitantly, Nokia
leadership however lost sight of the changing marketing trends even when it was glaring obvious.
Sad! Nokia through historic technological trends and the use of TSH did then set new industrial
innovative standard that got lost in the shuffled. Competition amongst competitors is at par and all
navigating through the turbulence of the white Water. Nokia should have learned the “strategies
for survival in a world of permanent white water” (Veil, 1996, p.1).
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Moving along the historical lane, epistemologically, the consensual belief indicated that the
average age of Nokia employees was then around 30 years old. Crafty young employees’
perspectives were inherently geared toward a global changing environment mindset. Energetic,
innovative, and meritocratic employees of these age calibers conjecturally placed the company at
competitive vim. Crafty young employees with creative minds for new invention tend to adopt,
change and were technologically innovative with the use of T.S.H. Nokia uses certain criteria in
hiring young employees at the beginning of their career with the company; these actions were
deliberate avenue of promoting the company culture (Gupta & Govindarajan, 2004). Now, a
culture that equally inhibited Nokia inability to shake itself off the cobweb or move the great titanic
ship to a different direction, vis-a-vis reinventing itself using TSH.
To elaborate and expatiate, during the political disintegration of the Soviet Union, and the tearing
down of the famous Berlin Wall, Nokia management plunged right into the political quagmire by
hiring redundant Soviet technicians and scientists to develop the third generation mobile phones
(Anonymous, 2001). Without any dot, Nokia leadership at that time understood the strategic
change in the global environment. Ibid, Nokia hired these expatriate workers to perform, innovate,
and reengineer the new creative generational mobile phones. Reasonably, these expatriates were
given the political and authoritative power to discharge duties without any interference from
corporate offices. Basically, these expatriates were then divided into five groups: (a) middle
managers, (b) business managers, (c) establishers, (d) customer project employees, (d) research
and development personnel. In continuation, Nokia took advantage of the political liberalization
of the European market by acquiring ICL information technology group that later formed the basis
for research and development into the 4G (fourth generation) mobile phones (Aluya, 2008).
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Practically, the incentive, the motivation and spirit that drove this small Finland community group
to embark on mobile phones, was one of necessity. Basically, the real possibility of digging
underground cable with landlines was very remote; the country was strategically located in the
north cold poll of Europe. Bubbled up with the exigencies of the circumstances, this group of
individuals became the pioneers of the early invention of mobile phones in the 1980s. Politically,
the spirit of Nokia collaborating and contributing to political parties as a good corporate citizenry
helped booster the company’s interest. Without hesitation, Nokia continues to contribute funds to
political campaigns inside and outside of Finland in order to protect its interest from the
Nationalists within and its financial interest outside of the country.
Nokia culture to organization leadership
Poignantly, Nokia remain the symbol of Finland's prowess in the mobile Internet. Blau (2003)
proffered that the source of Nokia's transformation anchored on its core intrinsic values. Despite
the acquisition of Nokia by Microsoft, these values of (a) customer focus, (b) respect for the
individual, (c) achievement, and (d) continuous learning, have been translated into an
unprecedented entrepreneurial spirit still remain high. Entrepreneurial spirit or behaviors were
embedded directly into the selection process of new staff and the performance of management
systems set in place. TSH enables curiosity, openness, and imaginative futuristic ideas reflected
on Nokia’s attitude with respect to the telecommunications field. Not musing, these elements were
then mirrored in the company’s personality makeup. Like other elements of personality, Nokia
antecedents and historic makeup in the early developmental stages formed an anchored unshakable
culture of the company. Nokia does not have maneuvering room to further cultivate curiosity,
openness amongst existing employee because Nokia’s greatest degree of freedom lies in the
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spiritual culture of the founders. And at the same token, the intrinsic anchored culture of the
founders became the Achilles’ heels that was exhausted, that inhibited and clouded the vision of
the leaders for creative innovation. Fortuitously, an interesting selection of employees at the time
and it illustrated how the company manages its demographic makeup for future growth and
development that then gave the company competitive edge over its competitors (Gupta &
Govindarajan, 2004).
According to Yates and Skarzynski (1999), Nokia used situational happenstances in technology to
lead in creative telecommunications-creative destruction doctrine. Creative destruction was the
concept advocated by Joseph Schumpeter in 1942. An erudite and witty economic thinker, in his
typology, he indicated that the semi perennial gale and objective of creative destructiveness is the
idyllicta purpose of scrapping off the old and failing existing technological products and systems
and replacing them with newly creative ones(Aluya, 2013b). Creativity led to the development of
innovative technologies integrated into the mobile phones and network market segments. Blau and
Wolff (1996) suggested that Nokia's past success was due to "flat hierarchy and youthfulness to
beat the competition" (¶ 14). Average age of the Research and Development (R&D) at Nokia was
approximately 30 years old at this time. Creating new and innovative products was an impetus to
success. Yates and Skarzynski espoused that companies that extrapolate from historical trends do
not lead to better products. Young employees in Nokia were inventive, creative and adaptive to
the changing times. They created their own history. Ambitious young employees brought the new
products to the market as the disruptors and the market shift in their favor. Nokia could only be
good as the product they produce today. Delphically, the core question to learners was what
happened to the concatenation past-historical antecedents.
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Ostensibly, the past could be divulged or could be completely irrelevant to the future. Core to the
research of this magnum opus work becomes apparent to where the epistemologists collide with
the pedagogics. While Nokia has almost doubled their spending in R&D, they have reduced the
numbers of R&D centers from 28 in 1996 down to 11 by 2003.
Given these circumstances, the real issues of contention were (a) whether or not Nokia could
continue to operate R&D with a youthful group (who age over time and were burn-out) who were
able to continuously create new and innovative products to enhance the mobile phones and
network business segments which will capture more market share or even create a new market
demand; (b) the growing concern that the current global economic downturn may negatively affect
the growths of both Nokia and the Finnish economy; and (c) the charges that Nokia was susceptible
to inflexibility as it becomes more mature was apparent and why Microsoft acquired the company.
These were the “ifs” that needed to be considered if the company would continue to have
comparative and competitive advantage.
Significance to leadership
Nokia lost business opportunities during the Soviet Union’s 1980s era of closed iron curtain. This
was an era of clicked, flicked, bubbled up and eventually busted up decade. There was recession
during this period (Nokia, 2004). European market was impermeable with new innovative
technologies triggered from changes in TSH. Despite the business losses, Nokia was able to
develop and distribute one of the largest mobile phones in the world today, until Apple took the
driver’s seat. Another folder for thought was how did Nokia become the largest mobile phones
distributor in the world? Disintegration of the Soviet Union coupled with the liberalization of the
European market during the 1980s and early 1990s provided the impetus that allowed Nokia to
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acquire and expand its markets through using TSH. Nokia expanded its markets by using the
existing enabling and incubated technologies to maximize markets share in the late 1980s, thus
increasing capabilities.
According to Stephen Elop, the former CEO, maybe the new CEO to Microsoft,
“In the five weeks since joining Nokia, I have found a company with many great strengths and a
history of achievement that are second to none in the industry. And yet our company faces a
remarkably disruptive time in the industry, with recent results demonstrating that we must reassess
our role in and our approach to this industry. Some of our most recent product launches illustrate
that we have the talent, the capacity to innovate, and the resources necessary to lead through this
period of disruption. We will make both the strategic and operational improvements necessary to
ensure that we continue to delight our customers and deliver superior financial results to our
shareholders.”(Nokia Corporation, 2010a)
Circuitously, Nokia’s corporate social responsibility involves acknowledging the company’s range
of opportunities to be realized and the risks to be minimized. Acting responsibly brings the
company improvements in risk management, legal compliance, enhanced reputation, and
improvement in company efficiency issues like productivity, quality, and costs. Conspicuously,
Nokia brand was one of the most valuable in the world, and it had a good reputation that was vital
in order to maintain company standing among employees, investors, network operators and
consumers (Nokia, 2004). More significantly was to maintain the company standards and good
reputation that would lead to longevity. Longevity has become relative in the field of technology.
Leaders in technology must be ahead of the curve, or at worst be clairvoyant about the strategic
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short-term changes. Imperatively, continued creativeness from scion of aesthetic seductive
products would have led to the sustainability of the longevity, a beneficent future for Nokia.
Nokia core philosophy was using TSH innovate new technologies for the benefits of the society
and the company. Social responsibility was cardinal. Nokia acts proactively while integrating
programs into its core business activities as well as making a sustainable effort. Succinctly stated,
doing business in a responsible way economically makes business sense to Nokia. Social
responsibility that exemplified good corporate citizenship helped create a sustainable product life
cycle, sustainable employment, sustainable corporate reputation, and ultimately sustainable
economic growth (Nokia, 2004).
Finland gradually lost competitive advantage as a home for the corporate headquarters of many
parent companies. As Nokia ages, the tasks altered at higher levels, and the type of leadership that
was needed also changed. In 1992, for example, the former CEO Ollila delineated the four key
areas to the multinational's futuristic success. These keys areas challenged the firm to be (a) more
telecom-oriented, (b) more globally focused, and (c) highly sensitive to the value-added effects of
their ventures, (d) continuous innovative improvements-TSH.
According to Masalin (2003), the uniqueness of Nokia's management approach was novel to its
organization. "Nokia relies on a strong corporate culture and the company's values: customer
satisfaction, respect for the individual, achievement, and pedagogical-value-based leadership was
an integral element of the Nokia way" (Nokia, 2004, ¶ 4-5). Blau and Wolff (1996) described a
flat organization structure enables companies to be flexible and quick in making decisions.
Actually, this structure appears to be a good fit for Nokia. Overall, Nokia's management and
leadership philosophy could be similar to that of Microsoft philosophy.
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Project on Microsoft

  • 1. Project on Page no. | 1 Chapter 1 INTRODUCTION
  • 2. Project on Page no. | 2 1.1 INTRODUCTION Microsoft Corporation is a multinational computer technology corporation that develops, manufactures, licenses, and supports a wide range of software products for computing devices. Headquartered in Redmond, Washington, USA, its most profitable products are the Microsoft Windows operating system and the Microsoft Office suite of productivity software. The company was founded to develop and sell BASIC interpreters for the Altair 8800. Microsoft rose to dominate the home computer operating system market with MS-DOS in the mid-1980s, followed by the Windows line of operating systems. One commentator notes that Microsoft's original mission was "A computer on every desk and in every home, running Microsoft software." The company also markets both computer hardware products such as the Microsoft mouse as well as home entertainment products. The company's initial public stock offering (IPO) was in 1986; the ensuing rise of the company's stock price has made four billionaires and an estimated 12,000 millionaires from Microsoft employees. Throughout its history the company has been the target of criticism, including monopolistic business practices and anti-competitive strategies. The U.S. Justice Department and the European Commission, among others, have ruled against Microsoft for various antitrust violations.
  • 3. Project on Page no. | 3 1.2 ORGANISATION STRUCTURE Bill Gates (CEO) and Steve Ballmer (President) are Microsoft’s most visible leaders. They work with a Business Leadership Team to make sure Microsoft is responsive to its customers and creating great technology.
  • 4. Project on Page no. | 4 1.3 OBJECTIVES As in the growing world the technology is also increasing on rapid speed. As the world is now a days totally based on the technology so I decided to do a research on a company from IT sector. The main objective of conducting a research on Microsoft Corporation is: To know why Microsoft is far ahead from other software companies? To know the financial growth of Microsoft from starting to present? To make different – different analysis on Microsoft e.g. SWOT analysis, Five Force analysis etc. To know the marketing mix of Microsoft corporation. To make comparison between Windows and Linux and also To know there strategies, future plans, & various CSR done by Microsoft.
  • 5. Project on Page no. | 5 Chapter 2 COMPANY PROFILE
  • 6. Project on Page no. | 6 2.1 Mission & Vision of Microsoft “A computer on every desk, and in every home.” "Create experiences that combine the magic of software with the power of Internet services Across a world of devices."
  • 7. Project on Page no. | 7 2.2 HISTORY of MICROSOFT Microsoft was formed by a Harvard College Dropout called Bill Gates. Bill Gates was born William Henry Gates III on October 28, 1955. He was born to a family that was successful in business, living a comfortable upper middle class life in Seattle, Washington.
  • 8. Project on Page no. | 8 Early in his elementary school days, Bill Gates quickly shot to the head of the class, consistently outscoring his peers in most subjects, but especially math and science. His parents soon enrolled him in Lakeside Prep School, where the atmosphere was intellectual enough to stimulate the young Gates. This move to Lakeside would prove historic, for it was here, in the spring of 1968, that he was introduced to computers. At that time, computers were still too large and expensive for the school to purchase one of its own. Over the next ten months or so, the school struck agreements with various corporations who allowed the students to use their computers. Bill Gates, his buddy Paul Allen and a handful of others quickly took to computing. In fact, they began to skip classes, opting instead to stay in the computer room and write programs, read computer books and find out exactly how these machines worked. They soon learned to hack the system, and altered and crashed valuable files until they were banned from the computer. Soon, however, Bill and his friends were actually hired by the computer company to find bugs and explore weaknesses in the system, which kept causing the computers to crash. Instead of paying the boys for their time, they were granted something even better--unlimited computer time. Gates has been quoted as saying that, that was the time when he got into computers fulltime. "I mean, then I became hardcore. It was day and night," he said. The boys used their time eating, drinking and breathing computers. They studied manuals, explored the system, and hounded the employees with questions until they had formed a base of knowledge that would eventually lead to the formation of Microsoft.
  • 9. Project on Page no. | 9 The computer company that was hiring the group went out of business in 1970, and the boys had to find alternate sources for computer time. They were soon hired by Information Sciences Inc. to write a program for payroll. This time they actually earned money as well as enjoying the unlimited computer time. It was during this time that the group gained notoriety for their skill in computer programming. They were hired or contracted by various organizations to find bugs and fix them. Each job helped Gates and his friends learn their skill and delve ever deeper into the world of programming. In the fall of 1973, Gates left for Harvard University. He enrolled as a prelaw student, but spent most of his time in the campus computer center, programming away. He stayed in touch with Paul Allen and they continued to talk about future projects and the possibility of one day having their very own business. Allen even moved to Boston to be closer to Gates, so they could continue working on projects. Allen continually urged Gates to quit school and work with him full-time, and Gates was unsure of what he wanted to do. This was soon to change. One year later, Paul Allen saw the first microcomputer on the cover of a magazine. He bought the magazine and went immediately to show it to Gates. They realized the time was right. The home PC business was about to explode and someone would need to provide software for the machines. By stretching the truth somewhat, Gates arranged for a meeting with the Altair manufacturers. He had called them to let them know he had a program written for them. After the appointment was made, Gates and Allen stayed up for nights, feverishly writing the program he had promised. It worked perfectly at the meeting, and everyone was impressed.
  • 10. Project on Page no. | 10 They sold the program, and saw that this was something they could do for real. Within a year, Gates had dropped out of Harvard and Microsoft was formed. The company went through some rough first years, but eventually were able to license MS-DOS to IBM. The IBM PC took the public by storm, and its success signaled the success of Microsoft. Microsoft continued writing software, for businesses as well as the consumer market. In 1986, the company went public, and Gates became a 31-year old billionaire. The next year, the first version of Windows was introduced, and by 1993 a million copies per month were being sold. In 1995, Gates knew that the Internet was the next area of focus, and the course of Microsoft shifted dramatically. The popular Internet Explorer browser soon became a bestseller. Today, Microsoft software is everywhere. In 2008, Microsoft wanted to purchase Yahoo (first completely, later partially) in order to strengthen its position on the search engine market vis-à-vis Google.
  • 11. Project on Page no. | 11 2.3 PRODUCT’S OF MICROSOFT  Most Popular  Business Software  Design & User Experience  Developer Tools  Entertainment  Hardware  Home & Educational Software  Macintosh  Mobile Devices & Software  Top 5 Best and Worst products of Microsoft
  • 12. Project on Page no. | 12 Most Popular  Bing  Bing cashback  Internet Explorer  Microsoft Advertising  Office  Windows  Windows Live Business Software  Bing Maps  Microsoft Amalga  Microsoft Dynamics Products  Microsoft Forefront  Microsoft Office Live  Microsoft Online Services  Windows Essential Business Server  Windows Small Business Server Hardware  All PC Hardware  Digital Communications  Media Center Peripherals  Microsoft Surface  Mouse & Keyboard Products  MSN TV  PC Gaming Hardware Design & User Experience  Microsoft Expression  Microsoft Silverlight Developer Tools  .NET Framework  ASP.NET  MSDN Subscriptions  Robotics Developer Studio  Visual Basic  Visual C  Visual C#  Visual Studio  XNA Entertainment  DirectX  Microsoft Mediaroom  MSN  MSN Games  Xbox Home  Xbox Live  Zune  Xbox Gaming
  • 13. Project on Page no. | 13 Home & Educational Software  AutoCollage  HealthVault  Money  MSN Direct  MSN Internet Access  Office Home & Student  Songsmith  Streets & Trips  Windows Home Server  Windows Live OneCare  Works Macintosh  All Macintosh Products  Mac Expression  Mac Mouse & Keyboard Products  Mac Office Mobile Devices & Software  Microsoft My Phone  Microsoft Tag  Mobile Software Catalog  Ultra-Mobile PC  Windows Mobile
  • 14. Project on Page no. | 14 Top 5 best products of Microsoft: #5 Best: Windows Media Player 11 #4 Best: Microsoft Office #3 Best: Windows Tweak UI #2 Best: Microsoft Windows #1 Best: XBOX 360 Top 5 worst products of Microsoft: #5 Worst: Internet Explorer 6 #4 Worst: Live Search #3 Worst: MSN Smart Watch #2 Worst: Microsoft Bob #1 Worst: Windows Millennium Edition
  • 15. Project on Page no. | 15 2.4 DIVISIONAL EARNINGS OF MICROSOFT
  • 16. Project on Page no. | 16 2.5 BIGGEST LAUNCHES OF MICROSOFT
  • 17. Project on Page no. | 17 2.6 MICROSOFT WINDOWS HISTORY Year Event . 1983 Bill Gates announces Microsoft Windows November 10,1983. 1985 Microsoft Windows 1.0 is introduced in November 20, 1985 and is initially sold for $100.00. 1987 Microsoft Windows 2.0 was released December 9, 1987 and is initially sold for $100.00. 1987 Microsoft Windows/386 or Windows 386 is introduced December 9, 1987 and is initially sold for $100.00. 1988 Microsoft Windows/286 or Windows 286 is introduced June, 1988 and is initially sold for $100.00. 1990 Microsoft Windows 3.0 was released May, 22 1990. Microsoft Windows 3.0 full version was priced at $149.95 and the upgrade version was priced at $79.95. 1991 Following its decision not to develop operating systems cooperatively with IBM, Microsoft changes the name of OS/2 to Windows NT. 1991 Microsoft Windows 3.0 or Windows 3.0a with multimedia was released October, 1991. 1992 Microsoft Windows 3.1 was released April, 1992 and sells more than 1 Million copies within the first two months of its release. 1992 Microsoft Windows for Workgroups 3.1 was released October, 1992. 1993 Microsoft Windows NT 3.1 was released July 27, 1993. 1993 Microsoft Windows 3.11, an update to Windows 3.1 is released December 31, 1993. 1993 The number of licensed users of Microsoft Windows now totals more than 25 Million.
  • 18. Project on Page no. | 18 1994 Microsoft Windows for Workgroups 3.11 was released February, 1994. 1994 Microsoft Windows NT 3.5 was released September 21, 1994. 1995 Microsoft Windows NT 3.51 was released May 30, 1995. 1995 Microsoft Windows 95 was released August 24, 1995 and sells more than 1 Million copies within 4 days. 1995 Microsoft Windows 95 Service Pack 1 (4.00.950A) is released February 14, 1996. 1996 Microsoft Windows NT 4.0 was released July 29, 1996. 1996 Microsoft Windows 95 (4.00.950B) aka OSR2 with FAT32 and MMX support is released August 24, 1996. 1996 Microsoft Windows CE 1.0 was released November, 1996. 1997 Microsoft Windows CE 2.0 was released November, 1997. 1997 Microsoft Windows 95 (4.00.950C) aka OSR2.5 is released November 26, 1997. 1998 Microsoft Windows 98 was released June, 1998. 1998 Microsoft Windows CE 2.1 was released July, 1998. 1998 In October of 1998 Microsoft announced that future releases of Windows NT would no longer have the initials of NT and that the next edition would be Windows 2000. 1999 Microsoft Windows 98 SE (Second Edition) was released May 5, 1999. 1999 Microsoft Windows CE 3.0 was released 1999. 2000 On January 4th at CES Bill Gates announces the new version of Windows CE will be called Pocket PC. 2000 Microsoft Windows 2000 was released February 17, 2000.
  • 19. Project on Page no. | 19 2000 Microsoft Windows ME (Millennium) released June 19, 2000. 2001 Microsoft Windows XP is released October 25, 2001. 2001 Microsoft Windows XP 64-Bit Edition (Version 2002) for Itanium systems is released March 28, 2003. 2003 Microsoft Windows Server 2003 is released March 28, 2003. 2003 Microsoft Windows XP 64-Bit Edition (Version 2003) for Itanium 2 systems is released on March 28, 2003. 2003 Microsoft Windows XP Media Center Edition 2003 is released on December 18, 2003. 2004 Microsoft Windows XP Media Center Edition 2005 is released on October 12, 2004. 2005 Microsoft Windows XP Professional x64 Edition is released on April 24, 2005. 2005 Microsoft announces its next operating system, codenamed "Longhorn" will be named Windows Vista on July 23, 2005. 2006 Microsoft releases Microsoft Windows Vista to corporations on November 30, 2006. 2007 Microsoft releases Microsoft Windows Vista and Office 2007 to the general public January 30, 2007. 2008 Microsoft releases Microsoft Windows Server 2008 to the public on February 27, 2008. 2009 Microsoft releases Windows 7 October 22, 2009. 2012 2013 Microsoft releases Windows 8 October 26, 2012. Microsoft releases Windows 8.1 November 16, 2013.
  • 20. Project on Page no. | 20 2.7 BIGGEST MERGERS & ACQUISITIONS BY MICROSOFT Here are 10 most interesting mergers and acquisitions by Microsoft: 1) Nokia Business: Mobile Phones/ Smartphones Value: $ 7, 00,000,000 Country: Finland Year: September 2, 2013
  • 21. Project on Page no. | 21 While the Finnish are still not ready to accept they have lost their identity in the world of technology, Microsoft is celebrating its latest move of taking over the company for only $7.2 Billion to be specific. The newly added brand will now be cashed by the company as it will now focus on a strongly integrated networking mechanism. For sure, this is the biggest move taken by Microsoft in the last decade. 2) Net breeze Business: Social analytics Value: Country: Switzerland Year: March 19, 2013 Interesting enough, the company lately announced the acquisition of Net breeze to bring social analytics and monitoring to Microsoft Dynamics CRM customers which would help them drive sales, optimize campaigns and engender customer loyalty.
  • 22. Project on Page no. | 22 3) Yammer Business: Social Networking Value: (USD) 1,200,000,000 Country: United States Year: June 25, 2012 Microsoft, soon realizing that it needs to modify its expertise in social networking purchased Yammer to do the honors on its behalf. Yammer is a private social network that helps you and your company to stay connected and acquires better social popularity. 4) Skype Business: Telecommunications Value: 8,500,000,000 Country: Luxembourg Year: May 10, 2011 Just now that it is Nokia which has made the world speechless; it was the acquisition of Skype back in 2011. This was one of the major moves taken by Microsoft and currently, Skype is contributing largely in making the company to earn smart.
  • 23. Project on Page no. | 23 5) AT&T Inc. Business: Telecommunications Value: 5,000,000,000 Country: United States AT&T Inc. is a big name in telecommunications globally. Interestingly, this too is a product of Microsoft now. 6) AVIcode, Inc. Business: .Net monitoring technology Country: United States Year: October 6, 2010 Adding much to the blessings in the lives of the programmers and developers, AVIcode Inc. too was bought by Microsoft in 2010 which is used to monitor the .net framework, helping the developers to code with ease.
  • 24. Project on Page no. | 24 7) Jellyfish.com Business: Search Engine Country: United States Year: October 2, 2007 Microsoft welcomes competition but fights really hard to beat its rivals. Google’s search engine, though has no match for now, buying jellyfish.com in 2007 reveals that Microsoft still wants to take over the search engine market. You can search and buy goodies and appliances online here. 8) Great Plains Software Business: Business management software Value: 939,884,000 Country: United States Year: April 5, 2001 For big companies which are basically related to business, it is Microsoft on which most of them rely on. Great Plains is efficient business management software which helps the analysts to handle data and produce appropriate results.
  • 25. Project on Page no. | 25 9) Visio Corporation Business: Wholesale drawing software Value: 1,375,000,000 Country: United States Year: January 7, 2000 If you are affiliated to a field which needs drawing, poster designing or producing project diagrams, Visio is a tool which meets all your needs. The tool is highly important in terms of education and business and contributes a great deal in the Microsoft revenue. 10) Hotmail Business: Internet software Value: 500,000,000 Country: United States Year: December 31, 1997 You might not be using MSN Messenger anymore or hate IE for different reasons, but you must still be a user of Hotmail if you ever had an account there. Hotmail is more than internet software. It is basically a mailing tool which Microsoft bought in 1997 and surely, this acquisition can be considered as a milestone in the success story of the company.
  • 26. Project on Page no. | 26 2.8 BIGGEST COMPETITOR COMPANIES Google Google Inc. maintains index of Web sites and other online content, which helps users to obtain instant access to relevant information. Further, the company provides Android, a mobile software platform (which rivals the Apple iPhone and Microsoft‘s Windows Phone 7). The firm‘s main source of revenue is derived from its advertising offerings, primarily Ad Words (auction-based), but also AdSense (for content owners), and various forms of Display advertising. The company also offers Google Enterprise product line comprising Google Apps that provides hosted communication and collaboration tools, which are intended to compete with Microsoft‘s Office Suite. Due to the creative versatility and intellectual aptitude of technology companies, each will continually converge on competitor‘s offerings within the market. An example of this is Microsoft‘s Bing search engine and complementary advertising platform, which are a direct response to Google‘s dominance and incredible profitability.
  • 27. Project on Page no. | 27 Apple Apple, Incorporated is a multinational information technology firm founded in 1976 that began as a manufacturer of personal computing devices. It saw a rise and fall in competition with Microsoft in the early 1990‘s. Microsoft focused on providing affordable at-home computing solutions, while Apple focused on delivering a much more extensively engineered, and consequentially expensive, at-home computer experience. Once almost off the charts completely, Apple reinvented the firms image with the help of Jonathan I’ve and the iMac, and the later iPod and iPhone. Now a technology cult-favorite, Apple designs and markets consumers-oriented products, and is widely considered one of the hottest ‘and most innovative tech firms of the developing market.
  • 28. Project on Page no. | 28 Oracle Oracle Corporation is an enterprise software company. It develops, manufactures, markets, distributes and services database and middleware software, applications software and hard systems, consisting primarily of computer server and storage products. Oracle has leveraged its dominance of the database software industry to become a major provider of enterprise software solutions. The recent acquisition of Sun will enable the firm to further its strategy of providing complete IT solutions to its clients. Microsoft and Oracle compete fiercely in the space of operating systems, primarily for servers in the corporate sector. Oracle's claims that it offers excellent system availability, scalability, energy efficiency, powerful performance, and low total cost of ownership relative to its competitors (e.g. Microsoft). Oracle was founded in 1977 and is headquartered in Redwood City, California.
  • 29. Project on Page no. | 29 2.9 MAJOR COMPETITOR FOR WINDOWS O/S Currently, the major competitor with respect to Operating System (O/S) for Microsoft’s windows O/S is “Linux”. Linux Linux was originally developed as a free operating system for Intel x86-based personal computers. It has since been ported to more computer hardware platforms than any other operating system. It is a leading operating system on servers and other big iron systems such as mainframe computers and supercomputers: as of June 2013, more than 95% of the world's 500 fastest supercomputers run some variant of Linux, including all the 44 fastest. Linux also runs on embedded systems (devices where the operating system is typically built into the firmware and highly tailored to the system) such as mobile phones, tablet computers, network routers, building automation controls, televisions and video game consoles; the Android system in wide use on mobile devices is built on the Linux kernel.
  • 30. Project on Page no. | 30 Topic Linux Windows Price The majority of Linux variants are available for free or at a much lower price than Microsoft Windows. Microsoft Windows can run between $50.00 - $150.00 US dollars per each license copy. Ease Although the majority Linux variants have improved dramatically in ease of use, Windows is still much easier to use for most computer users because of the familiarity of Windows and because it's more likely they are using a Windows computer at home, in school, or at the office. Microsoft has made several advancements and changes that have made it a much easier to use operating system, and although arguably it may not be the easiest operating system, it is still Easier than Linux.
  • 31. Project on Page no. | 31 Reliability The majority of Linux variants and versions are notoriously reliable and can often run for months and years without needing to be rebooted. Although Microsoft Windows has made great improvements in reliability over the last few versions of Windows, it still cannot match the reliability of Linux. Software Linux has a large variety of available software programs, utilities, and games. However, Windows has a much larger selection of available software. Because of the large amount of Microsoft Windows users, there is a much larger selection of available software programs, utilities, and games for Windows. Software Cost Many of the available software programs, utilities, and games available on Linux are freeware or open source. Even such complex programs such as Gimp, Open Office, Star Office, and wine are available for free or at a low cost. Although Windows does have software programs, utilities, and games for free, the majority of the programs will cost anywhere between $20.00 - $200.00+ US dollars per copy. Hardware Although hardware manufacturers have made great advancements in supporting Linux it still will not Because of the amount of Microsoft Windows users and the broader driver support, Windows has a much larger
  • 32. Project on Page no. | 32 support most hardware devices. However, for the hardware devices that have driver support they will usually work in all versions of Linux. support for hardware devices and almost all hardware manufacturers will support their products in Microsoft Windows. Security Linux is and has always been a very secure operating system. Although it still can be attacked when compared to Windows, it much more secure. Although Microsoft has made great improvements over the years with security on their operating system, their operating system continues to be the most vulnerable to viruses and other attacks. Open Source Many of the Linux variants and many Linux programs are open source and enable users to customize or modify the code however they wish to. Microsoft Windows is not open source and the majority of Windows programs are not open source. Support Although it may be more difficult to find users familiar with all Linux variants, there are vast amounts of available online documentation and help, available books, and support available for Linux. Microsoft Windows includes its own help section, has vast amount of available online documentation and help, as well as books on each of the versions of Windows.
  • 33. Project on Page no. | 33 TOUGHEST COMPETITOR FOR WINDOWS ACCORDING TO BILL GATES Microsoft's chairman and chief software architect, Bill Gates, has labelled pirated software as a "tougher competitor" to his company than open-source software. Gates told a media briefing in Sydney this morning: "You know what my toughest competitor is? "It's pirated software. "…if you really look around, you'll find way more pirated Windows than you'll find open-source software, way more". Gates said he believed Microsoft's software represented a "dramatically higher, better choice than anything you'll get in the open-source realm. "It's true the press has taken a few design wins and said, 'hey, look at that'.
  • 34. Project on Page no. | 34 "And you know, that's great, it's almost helpful to us to have a few of those where people try that out. "[They] see that being their own systems integrator -- they say, okay, I've got this, how do I get the active directory? How do I get the software update piece? How do I get the different applications? And they see… various things about the intellectual property challenge that'll come into that." Gates made his remarks during a whirlwind trip to Australia during which he was scheduled to meet with the Australian Prime Minister, John Howard. According to research conducted for CNET Networks Australia at the start of 2004, corporate information technology users were forecasting a healthy future for popular open-source variant Linux on the desktop, with more than three-quarters of respondents saying it will get a little or a lot stronger. The research, which secured almost 600 responses from Australia and New Zealand, also found strong support for Linux' future as a server operating system, with 56.5 percent of respondents saying the open source software would grow stronger and 32.3 percent saying it would grow much stronger. Windows XP (68.9 percent) and other versions of Windows (62.4 percent) were the only operating systems used at least daily, on average, by a majority of the respondent base.
  • 35. Project on Page no. | 35 Chapter 3 ANALYSIS OF MICROSOFT
  • 36. Project on Page no. | 36 3.1 SWOT ANALYSIS OF MICROSOFT Microsoft SWOT analysis 2013 Strengths Weaknesses 1. Brand loyalty 2. Brand reputation 3. Easy to use software 4. Strong distribution channels 5. Robust financial performance 6. Acquisition of Skype 1. Poor acquisitions and investments 2. Dependence on hardware manufacturers 3. Criticism over security flaws 4. Mature PC markets 5. Slow to innovate Opportunities Threats 1. Cloud based services 2. Mobile advertising 3. Mobile device industry 4. Growth through acquisitions 1. Intense competition in software products 2. Changing consumer needs and habits 3. Open source projects 4. Potential lawsuits
  • 37. Project on Page no. | 37 1. Brand loyalty. Over the years, Microsoft has been the leading OS and software provider, which resulted in more than 90% market share for PC OS. Most of us grew up using its easy to use OS, are familiar with it and will keep using it. Few other brands are capable to compete with Microsoft for this reason. Even open source OS, which are completely free and well suited to use for common user, find it hard to attract users. 2. Brand reputation. According to Interbrand, Microsoft’s brand is the 5th most valuable brand in the world, valued at $ 57.8 billion. Forbes listed the corporate as the 7th most reputable business in the world. Brand reputation leads to higher sales and greater market share. 3. Easy to use software. Windows OS and Office software products are so popular not just because Microsoft has great monopolistic power, strong distribution channels and good brand reputation but also because its products are of great quality and really easy to use. 4. Strong distribution channels. The company works with all the major computer hardware producers such as Lenovo, Dell, Toshiba and Samsung and major computer retailers to make sure computers would be sold with already pre-installed Windows software. The company also invested in Dell and Nokia to tighten its relationships with these companies. 5. Robust financial performance. Microsoft grew its revenues by 20% from 2008 to 2012 and holds more than $63 billion of cash and cash equivalents that can be used for acquisitions and substantial investments into R&D.
  • 38. Project on Page no. | 38 6. Acquisition of Skype. With nearly 300 million users, Skype is a significant boost to Microsoft’s online presence and have a lot of potential in generating income from online advertising. 1. Poor acquisitions and investments. Few of Microsoft’s acquisitions were successful and brought not just revenues and products but new skills and competencies to the company. Massive, Link Exchange, WebTV, Danger are just few examples of multimillion acquisitions made by Microsoft but soon shut down or divested. 2. Dependence on hardware manufacturers. Microsoft is a giant software corporation but it does not produce its own hardware and depends on computer hardware manufacturers to develop products that run Windows OS. If cheap and popular alternative OS would appear, hardware manufacturers may simple choose the alternative and Microsoft could do little to change the situation. 3. Criticism over security flaws. Windows OS, the main Microsoft product has been heavily criticized for being so weak against various viruses’ attacks. Compared to other OS, Windows is the least protected against such attacks.
  • 39. Project on Page no. | 39 4. Mature PC markets. Only recently has Microsoft entered the mobile technology sector and still heavily depends on its OS and software sales for standalone and laptop computers. The market for these products has matured and Microsoft will find it harder to grow revenues in these sectors. 5. Slow to innovate. Microsoft has huge R&D resources and great position to enter new markets with innovative products but constantly failed to do so. It had an opportunity to be the first player in online advertising but missed the opportunity. Its entrance to mobile OS was also too late, while Google and Apple captured the market share. 1. Cloud based services. Microsoft could expand its range of cloud services and software as the demand for cloud-based services is expanding. 2. Mobile advertising. Mobile advertising markets are expected to grow in double digits over the next few years and Microsoft has a great opportunity to tap into these markets with its mobile OS. 3. Mobile device industry. Smartphones and tablets markets will grow steadily over the next few years and Microsoft could exploit this opportunity by introducing more of its own tablets and a new company phone. 4. Growth through acquisitions. With a huge reserve of cash Microsoft could start acquiring new startups that would bring new technology, skills and competences to the business.
  • 40. Project on Page no. | 40 1. Intense competition in software products. Microsoft is more than ever on the pressure to introduce successful OS both in PC and mobile markets as such competitors like Google and Apple have already established positions. 2. Changing consumer needs and habits. Customers shift from buying laptops and standalone PCs to buying smartphones and tablets, the markets, where Microsoft has only a modest market share and may never establish itself. 3. Open source projects. Many new open source projects are coming to the market and some of them became quite successful, such as new Linux OS and Open Source Office. Open source projects are free and so they can become an alternative to expensive Microsoft’s products. 4. Potential lawsuits. Microsoft has already been sued for many times and lost quite a few large scale lawsuits. Lawsuits are expensive as they require time and money. And as Microsoft continues to operate more or less the same way, there is high probability for more expensive lawsuits to come.
  • 41. Project on Page no. | 41 3.2.1 INTERNAL ANALYSIS Strengths: Human Resources: Microsoft has 93,000employees worldwide. The company has 53,735 employees in the U.S., majority of whom, 40,371 work in the Puget Sound region of Washington State, headquarters of Microsoft. Microsoft has a rigorous recruitment process and only the best and the brightest are given an opportunity to work for the company. Microsoft recruits from campuses of top colleges and universities from around the world and the company has a highly diversified workforce. Microsoft provides high pay and great benefits in addition to a highly competitive work environment and thus is a magnet for high achievers. Thus, this network or ecosystem of more than 88,000 brilliant minds is the most important strength of the company. Ability to operate across cultures: In a highly globalized marketplace, ability to operate in different cultures can be an extremely important competitive advantage. Microsoft operated from 629 sites across the world out of which 373 are outside the U.S. Thus, the company has generated capability to operate successfully in different cultures. This strength will keep increasing in importance as foreign markets become bigger and more significant to growth of Microsoft. Strong Management: Microsoft has a policy of internal promotion. Microsoft’s managers have been working with the company for many years (in most cases, senior managers have worked their whole life for Microsoft) and have a clear understanding of company’s vision and values. These managers have been successful in the company’s unique work environment by using available resources and facing external challenges, thus they are proven administrators and leaders and
  • 42. Project on Page no. | 42 Experts in the segments Microsoft operates in. The company’s Top Management is comprised of leaders who have shaped the Computer and Information Technology industry in the past and have potential of doing that in the future. The company also has a strong board comprised of entrepreneurs headed by Bill Gates, Microsoft’s Ex-CEO, one of the richest men in the world, founder of the company and one of the few men who shaped the personal computing industry. A Proven R&D Process: Microsoft has focused on R&D to maintain and increase lead in segments that the company operates in. R&D is also expected to open new revenue streams for the company. Microsoft allocates a high percentage of revenue to R&D. For example, Microsoft spent $9.2 billion on R&D in 2012 compared to revenues of $62 billion. This huge spending allows Microsoft to pursue a wider array of technologies if necessary. The high R&D spending coupled with excellent human resources leads to creation of superior products. Microsoft is also using cross-functional teams to increase R&D efficiency. The company is also using cross-cultural teams to increase efficiency. Microsoft uses economies of scale to improve production efficiency. The company has huge fixed costs associated with R&D but negligible variable costs. The company spreads fixed costs over a large number of units to increase production efficiency. Strong Brand Recognition: Microsoft has been one of the leaders of the information technology revolution and its operating systems are used on almost 70 percent of computers worldwide. Thus, the company has unparalleled brand name recognition among target customers. This brand recognition means that Microsoft has the ability to charge premium prices from its customers, has
  • 43. Project on Page no. | 43 the ability to attract top talent to work for the company and the strong brand name also helps Microsoft in launching new products in the market. Intellectual Property Rights: Microsoft’s products are protected through intellectual property rights. Thus, the source code of the company is a valuable resource that Microsoft has. The company aggressively protects IP and has the resources in place to do so in the future. Since, this IP rights restrict competitors from duplicating Microsoft’s technology, they are strengths. Installed Product User base: Microsoft has a large user base. The company’s operating system is used by more than 70 per cent of personal computers in the world and its productivity suites do not face any strong competitor. Since the company’s current products are well received in the market, Microsoft has the option of using the installed user base to launch new products. This installed user base have the potential to become early adopters of Microsoft’s future products. Production: Microsoft has a streamlined production process. Once Microsoft creates successful product, the company can generate more revenues by releasing newer versions of that product. Microsoft has become extremely efficient at doing this. Moreover, the quality of the process is improved with every product cycle due to the learning curve and this leads to lower costs of production. The company has a highly intellectual workforce leading to new ideas being bounced and incorporated in the production process fostering innovation. Most of Microsoft’s products are considered to be more superior to those of competitors by customers. For example, Microsoft’s Windows 7 operating system, Office productivity suite and Kinect gaming system are very innovative and considered to be of superior quality. The company has recently upgraded these products according to customer needs.
  • 44. Project on Page no. | 44 Marketing: Microsoft’s Sales and Marketing support group comprises of 37,276 employees worldwide. Considering the recent increases in revenues of Microsoft, we can infer that these employees are efficient and sales per employee are on the rise. However, we have not seen any significant innovation in the sales process by Microsoft. The marketing team does score high on customer responsiveness with Microsoft’s team being perceived by customers to be highly professional, responsive and attuned to their needs. The company is also releasing more stable and user friendly versions of its products to decrease customer deflection rates and increasing marketing efficiency. Service: Microsoft’s products are used in critical functions by individuals, businesses and governments. Thus, reliability and after-sales service are very important to overall value of the product. Microsoft has a dedicated and qualified support staff in all major markets it server. This leads to faster resolution of any problems that customers might face. Thus, the service model is efficient and responsive. The quality of service is also rated high by customers and there have seldom been any cases of negative reviews by customers. The company is innovative in providing service by leveraging new mediums such as internet. The company has also improved its products in response to customer demands. The company’s new products are free of bugs and full of features that are valued very highly by customers. The company has taken action to resolve all customer complaints about previous products. For e.g. all the bugs as well as instability issues of Windows Vista were solved in Windows 7, the latest version. Windows Mobile 7 is also well received and competing well in the smartphone space.
  • 45. Project on Page no. | 45 Information Systems: Bill Gates ensured that Microsoft used the most advanced information- technology available or even develop it if it’s not there. He wrote about Microsoft being a paperless office as early as release of his book “Business @ The Speed of Thought” in 1999. The company has infrastructure in place to foster a innovative and competitive environment. Microsoft was one of the first corporations to make most of their processes paperless so that information can be made available on a timely basis. This also made the process more efficient since changes can be made more easily and quality improved. This concept was highly innovative when the company adopted it and has been replicated in almost all industries. Infrastructure: Microsoft has created strong infrastructure because the company has been building on it since inception. Top management is still the same as it was when the company was formed. This means that the company culture has remained intact and become even stronger. Microsoft has successfully managed changes in organizational structure with changes in size of the company. Weaknesses: New product development: Microsoft’s operating system dominated the 80’s and the company’s productivity suite dominated the business landscape in the 90’s. However, Microsoft has not been able to bring a new product in the market in the last decade that dominated the market place. The company successfully forayed into the entertainment segment with launch of X-Box but it is sharing leadership with Sony and Nintendo in that segment. Thus, new product development seems to be a major weakness for the company. This weakness would keep increasing in importance as company’s old products lose revenues or market share.
  • 46. Project on Page no. | 46 3.2.2. FINANCIAL CONSIDERATIONS Strong Financial Performance: Microsoft Corporation is one of the most valuable companies in the world. It has resulted in three employees becoming billionaires (Bill Gates, Paul Allen, and Steve Ballmer) and thousands of employees becoming millionaires or centi-millionaires. Microsoft has reported strong revenues and net income across all operating segments during recent years. The financial highlights of the company for the previous THREE years are tabulated below: RESULTS OF OPERATIONS: (In millions, except percentages and per share amounts) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Revenue $ 77,849 $ 73,723 $ 69,943 6% 5% Operating income $ 26,764 $ 21,763 $ 27,161 23% (20)% Diluted earnings per share $ 2.58 $ 2.00 $ 2.69 29% (26)%
  • 47. Project on Page no. | 47 SEGMENT PRODUCT REVENUE/OPERATING INCOME (LOSS): Windows Division (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Revenue $ 19,239 $ 18,400 $ 19,061 5% (3)% Operating income $ 9,504 $ 11,555 $ 12,280 (18)% (6)% Server and Tools (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Revenue $ 20,281 $ 18,534 $ 16,559 9% 12% Operating income $ 8,164 $ 7,235 $ 6,105 13% 19% Online Services Division (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Revenue $ 3,201 $ 2,867 $ 2,607 12% 10% Operating loss $ (1,281) $ (8,125) $ (2,657) * * * Not meaningful
  • 48. Project on Page no. | 48 Microsoft Business Division (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Revenue $ 24,724 $ 24,111 $ 22,607 3% 7% Operating income $ 16,194 $ 15,832 $ 14,678 2% 8% Entertainment and Devices Division (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Revenue $ 10,165 $ 9,599 $ 8,915 6% 8% Operating income $ 848 $ 380 $ 1,261 123% (70)% Corporate-Level Activity (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Corporate-level activity $ (6,665) $ (5,114) $ (4,506) (30)% (13)%
  • 49. Project on Page no. | 49 COST OF REVENUE: (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Cost of revenue $ 20,249 $ 17,530 $ 15,577 16% 13% As a percent of revenue 26% 24% 22% 2ppt 2ppt OPERATING EXPENSES: Research and Development (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Research and development $ 10,411 $ 9,811 $ 9,043 6% 8% As a percent of revenue 13% 13% 13% 0ppt 0ppt
  • 50. Project on Page no. | 50 Sales and Marketing (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 Sales and marketing $ 15,276 $ 13,857 $ 13,940 10% (1)% As a percent of revenue 20% 19% 20% 1ppt (1) ppt Other Income (Expense) The components of other income (expenses) were as follows: (In millions) Year Ended June 30, 2013 2012 2011 Dividends and interest income $ 677 $ 800 $ 900 Interest expense (429) (380) (295) Net recognized gains on investments 116 564 439 Net losses on derivatives (196) (364) (77) Net losses on foreign currency re measurements (74) (117) (26) Other 194 1 (31) Total $ 288 $ 504 $ 910
  • 51. Project on Page no. | 51 General and Administrative (In millions, except percentages) 2013 2012 2011 Percentage Change 2013 Versus 2012 Percentage Change 2012 Versus 2011 General and administrative $ 5,149 $ 4,569 $ 4,222 13% 8% As a percent of revenue 7% 6% 6% 1ppt 0ppt Dividends During fiscal years 2013 and 2012, our Board of Directors declared the following dividends: Declaration Date Dividend Per Share Record Date Total Amount Payment Date (In millions) Fiscal Year 2013 September 18, 2012 $ 0.23 November 15, 2012 $ 1,933 December 13, 2012 November 28, 2012 $ 0.23 February 21, 2013 $ 1,925 March 14, 2013 March 11, 2013 $ 0.23 May 16, 2013 $ 1,921 June 13, 2013 June 12, 2013 $ 0.23 August 15, 2013 $ 1,916 September 12, 2013 Fiscal Year 2012 September 20, 2011 $ 0.20 November 17, 2011 $ 1,683 December 8, 2011 December 14, 2011 $ 0.20 February 16, 2012 $ 1,683 March 8, 2012 March 13, 2012 $ 0.20 May 17, 2012 $ 1,678 June 14, 2012 June 13, 2012 $ 0.20 August 16, 2012 $ 1,676 September 13, 2012
  • 52. Project on Page no. | 52 STOCK PERFORMANCE: COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Microsoft Corporation, the S&P 500 Index, and the NASDAQ Computer Index 6/08 6/09 6/10 6/11 6/12 6/13 Microsoft Corporation 100.00 88.52 87.33 101.05 122.14 142.14 S&P 500 Index 100.00 73.79 84.43 110.35 116.36 140.32 NASDAQ Computer 100.00 84.52 99.07 133.08 151.51 158.50
  • 54. Project on Page no. | 54 3.3 EXTERNAL ANALYSIS Opportunities: The high growth rate of emerging economies: Almost 46% of Microsoft’s revenues come from emerging markets. The company has the understanding and experience on how to operate in these markets. However, most of the revenues have been generated by company’s software publishing business. U.S. online services businesses have not been very successful in emerging markets. A case study would be Google’s dominant market share in U.S. but a small market share in China. Culture plays a very big role in these markets. With the rise in disposable incomes in these economies, Microsoft’s Entertainment business is bound to show great growth in future. The companies operating in developing countries lack the technological expertise to compete in this segment and Microsoft should enjoy high penetration in these markets in the near future. Threats: Low cost of production: The industry is very dynamic. The cost of producing a new product is very low. Many successful new products have been created by engineers operating in garages. Although, large corporations invest large sums in R&D, revolutionary new products such as Google search engine have been known to have been developed by geeks without any corporate affiliation. Thus, innovation is driving this industry. For e.g., Microsoft’s Hotmail email lost share to start up Yahoo! in the 90’s and Yahoo! has lost market share to Google during the last decade.
  • 55. Project on Page no. | 55 3.4 Porter’s Five Forces Risk of Entry of Potential Competitors: Microsoft operates in software development, online services and entertainment and devices industry. The cost of production in these industries is low but the cost of R&D is high. Thus a company has to invest a large amount of capital in R&D and does not realize economies of scale unless R&D results in a successful product. On the other hand, there is a risk that an individual innovator may be able to create the next “hot” technology. There is strong brand loyalty in this industry due to high customer switching costs. Organizations hesitate before changing available technology due to operational risks. Government regulation does not restrict new players from entering this industry. Thus, the risk of entry of potential competitors is low. Rivalry among established companies: The industries Microsoft operates in are consolidated and are dominated by a few large players such as Microsoft, Oracle, SAP, Apple, Google, Facebook etc. Normally the companies in consolidated industries are interdependent and one company’s action is followed by reactions from competitors. However, most players in these industries have differentiated products and hence severe price competition does not exist. The industries are in growth stage and globally the market is growing. This results in moderation in competition among existing players. Exit barriers are high in form of emotional attachments to the industry. Rivalry among companies is moderate.
  • 56. Project on Page no. | 56 The bargaining power of buyers: Microsoft operates in industry in which most players have differentiated products. Moreover, Microsoft has a virtual monopoly in some segments. Since the products are differentiated, buyers cannot play one supplier against another. The switching costs are high due to operational risks and specialized nature of goods. Due to these factors, the bargaining power of buyers is low. The bargaining power of suppliers: The product that Microsoft produces has few substitutes and those substitutes are not able to meet the need in a satisfactory manner. The customers would also have to bear high switching costs in order to move away from Microsoft’s products. Thus, Microsoft has high bargaining power and can charge premium prices for its products. Threat of Substitute products: The threat of substitute products is low in Windows, Business and Online Services division. However, there are substitutes available in Server and Tools and Entertainment devices markets. For example, if Microsoft increases prices of Xbox, buyers may switch to Sony’s Play station. Thus, we can infer from the five forces model that Microsoft has a moderately high capacity to increase prices and earn higher income.
  • 57. Project on Page no. | 57 3.5 MICROSOFT STRATEGIES Business Level Strategy: Microsoft has pursued the Differentiation strategy. The company has focused R&D dollars towards fulfilling customer needs that are not served. The Windows OS was the first OS which made optimal use of Graphical User Interface. The Office productivity suite had more tools than any other productivity suite on the market and increased customer productivity significantly. The company also differentiated products by providing extremely good customer service. Customer service is poor for most products that compete with Microsoft products in the Windows and Business division segments. The basis for differentiation is different between product segments. Windows and Windows Live: The products in the Windows and Windows Live include Windows operating system, Windows live (formerly Hotmail) and Internet Explorer browser. The company cannot compete with the cost leadership strategy in these segments because competitor products are free in most categories and Microsoft is a for-profit entity, and thus, cannot give products for free and generate profit. For example, Linux operating system, Firefox web browser and Google’s Gmail email service are all free. Microsoft’s operating system is user friendly, stable and has the ability to run all major software. The company had also adopted a strategy to bundle Windows OS with email and web browser in order to make the product more attractive to customers. Microsoft was slow on innovation with Windows during the last decade but their Windows 7 product has received rave reviews from
  • 58. Project on Page no. | 58 customers. Customer service is always high and the company provides excellent support for older versions of software even after release of newer versions. The company also differentiates its products based on superior customer service and support that the company provides. Server and Tools: The products in this segment are differentiated on basis of quality and customer responsiveness. More people are familiar with Windows user interface than any other operating system in the world and most applications run on Windows. This is considered quality by most customers since they do not have to think about compatibility issues every time they purchase a new program. Quality and Customer service are very important in the Server and Tools product and Microsoft competes on basis of these differentiators. Online Services Division: The online services division’s products include Bing search engine, MSN online and channels. The search engine has to be optimized to provide better search capability than the competition to drive revenues. The online portals and channels have to create attractive content to entice subscribers and then advertisers to increase revenues. Microsoft has not choice in this segment but to differentiate products. Business Division: 90 per cent of Microsoft Business Division’s revenues are driven by sales of Office productivity suite. Before Microsoft created Office, the market was server by different companies who offered one or the other tool. There was no integrated productivity suite available in the market. Microsoft’s Office was differentiated based on this factor. The Office productivity suite was the first integrated suite in the market and it was highly reliable and had tools that increased productivity sharply. There are free products available in the market such as Google and Open Office. However, these products are not compatible with Windows or if you open a Windows Office file in these products, they do not reflect correctly.
  • 59. Project on Page no. | 59 The quality of Windows Office suite is superior compared to other products. Thus, this product is differentiated based on Quality, Innovation and Customer Responsiveness. Entertainment and Devices: The products in this segment are differentiated based on quality, innovation and customer responsiveness. The Xbox Kinect gaming system and games developed by Microsoft’s divisions such as Halo, are state of the art products which are extremely popular among target customers. These products are highly innovative, of great quality and are backed by good customer responsiveness. Microsoft segments markets based on end use of products. Windows OS comes in Home and Professional editions. The Home edition is targeted towards students and customers buying PC’s for personal use while the Professional edition is targeted towards businesses. The Office productivity suite comes in Student and Professional edition. The student edition which has limited capabilities but is extremely affordable is targeted towards students while the Professional edition with full range of tools is targeted at businesses. The Xbox Kinect is targeted towards teenagers and young adults who are avid gamers (or are candidates for being converted into one). The market dominance achieved by Microsoft cannot be achieved just by developing one distinctive competency. A combination of Quality, Innovation and Customer responsiveness are reasons of sustainable competitive advantage that Microsoft enjoys. However, the most important contributor going forward would be innovation and Microsoft needs to strengthen this competency even more.
  • 60. Project on Page no. | 60 The advantage of pursuing this strategy is that the company enjoys healthy profit margins. The company also created barriers to entry for competitors since they cannot imitate products due to Intellectual Property rights owned by Microsoft. The company also enjoys high customer loyalty. The disadvantage is that Microsoft’s R&D costs in dollar terms are higher than most competitors in most business segments it operated in. Value Creation Frontier: According to Hill and Jones, Value creation frontier represents the maximum amount of value that the products of different companies inside an industry can give customers at any one time by using different business models. Companies such as Microsoft have differentiated products and they have to rank high on Innovation, Quality and Customer responsiveness to market their products successfully. Companies with cost differentiation strategy such as Sun Microsystems have to keep their costs low so that they may be able to provide generic products to customers at the lowest cost. Corporate Level Strategy: Microsoft’s organizational structure is a product structure giving the company flexibility to pursue different corporate level strategies for different product divisions. These product divisions in turn generate revenues in billions (more than many Fortune 500 companies). The company is pursuing strategy of full vertical integration in Windows and Business software segments and a taper vertical integration strategy in the Games and entertainment segment. Microsoft controls the entire value chain, from conception of product to distribution to customer, for the Windows and Business software segment. Microsoft designs the software in-house, the code is written by Microsoft engineers and the product is sold on Microsoft websites.
  • 61. Project on Page no. | 61 Windows, Server & Tools and Business Division: These divisions are vertically integrated. The core competence of these divisions is development of operating and business application software. The company has rich experience in this field and is a global leader in the industry. Microsoft has built these resources and capabilities over decades and they are not easily replicable. Hence, the company has become extremely efficient in the process and has the ability to create value through vertical integration. Microsoft’s source code is an extremely valuable asset for the company and outsourcing any kind of software development work may lead to a threat to its security. Thus the company does not outsource any operations that it is currently performing in-house nor does the company invest in building infrastructure to do activities that are currently outsourced. Online Services Division: Microsoft tried to purse horizontal integration strategy in Online Services Division recently. The company made a $47.5 billion hostile offer to takeover Yahoo in 2008. Microsoft did not have a significant presence in the search engine space despite sinking billions of dollars in R&D for Bing search engine. The merger with Yahoo would help Microsoft realize economies of scale. The advertising platform would become large enough to challenge Google. Redundancies in R&D of search engine would be eliminated and there would be greater synergy. Microsoft would also be able to increase product differentiation through bundling of Microsoft and Yahoo products and services. Microsoft also wanted to build a credible threat to Google’s dominance in the search engine market. The takeover attempt was rebuffed by Yahoo shareholders; however, Microsoft pursued a partnership/Alliance with Yahoo after that to realize some of the gains that would have been realized through merger.
  • 62. Project on Page no. | 62 Entertainment and Devices Division: Microsoft was the largest supplier of operating systems to computer hardware manufacturers and the largest player in the productivity suite software market. The company had existing strong relationships with hardware manufacturers and the capability to develop cutting edge software. The company’s core businesses had reached maturity stage and the company was in search of growth opportunities. The multimedia gaming industry was dominated by Sega, Sony and Nintendo, all Japanese players. The multimedia gaming industry was in growth stage and enjoyed healthy profit margins. The components required to enter this industry were game software, game console and software for game console. Microsoft had the capability to develop games and capability to develop console software based on its Windows OS. Thus, the missing piece was hardware manufacturing which the company could outsource. Thus, Microsoft entered the industry to capitalize on its existing software development capabilities with the goal of being a major player in a growth industry. The products are conceptualized by Microsoft, and the software for the products is also developed in-house by Microsoft’s engineers. However, the hardware manufacturing is outsourced. Thus Microsoft pursues a taper vertical integration strategy in this segment. This again creates value for the company, since, Microsoft does not have expertise in manufacturing of hardware, but the manufacturer whom the company outsources to, has that capability. Outsourcing does not necessarily increase Microsoft’s costs since the company to which the manufacturing is outsources is more efficient at hardware manufacturing and Microsoft can demand lower prices due to the size of the order.
  • 63. Project on Page no. | 63 3.6 MARKETING MIX (4P’S) Microsoft Business Division ("MBD") develops and markets software and services designed to increase personal, team, and organization productivity. MBD offerings include the Microsoft Office system (comprising mainly Office, SharePoint, Exchange and Lync), which generates over 90% of MBD revenue, and Microsoft Dynamics business solutions. We evaluate MBD results based upon the nature of the end user in two primary parts: business revenue, which includes Microsoft Office system revenue generated through volume licensing agreements and Microsoft Dynamics revenue; and consumer revenue, which includes revenue from retail packaged product sales and OEM revenue. Global macroeconomic factors have a strong correlation to demand for their software, services, hardware, and online offerings. The current macroeconomic factors remain dynamic and uncertain. Irrespective of global economic conditions, they are positive about their relative market position, our current product portfolio, and future product pipeline. Because they offer a wide range of products and services that enable companies to improve productivity and reduce costs, including cloud-based services, they believe that Microsoft is well-positioned to create new opportunities to increase revenue as the global economy improves. They remain focused on executing in the areas we can control by continuing to provide high value products at the lowest total cost of ownership while managing our expenses.
  • 64. Project on Page no. | 64 1. Product: “Product” refers to the goods and services that firm’s offer to their customers. Firms must place sufficient importance to the product/service as well as the other aspects associated with the product that attract customer attention. At Microsoft, the product is the full bundle of goods and services offered including software and after sales service. Product characteristics include the functionality, appearance, and support customers receive when Microsoft products are purchased. Product also includes the unique features, functions, and characteristics of Microsoft software that are not available from its competitors' products. It is important that Microsoft be able to continue to distinguish and differentiate its products from the competition. To that end, during fiscal years 2001, 2002, and 2003, research and development expenses were a staggering $4.38 billion, $4.31 billion, and $4.66 billion, respectively. Those amounts represented 17.3%, 15.2%, and 14.5%, respectively, of revenue in each of those years. Most of Microsoft's products are developed internally, but the company also purchases new technology, licenses intellectual property rights, and oversees third-party development of certain products. Microsoft's products include scalable operating systems for servers, personal computers, and intelligent devices; server applications 2. Price: “Price” refers to the cost of a particular product or service. Price plays an important role in customer’s buying decision. As far as price is concern Microsoft has global annual revenue of US$ 60.42 billion. Their product price helps them to achieve such huge revenue. Segmenting the huge customers and valuing their demands and requirements Microsoft has a stack of different product
  • 65. Project on Page no. | 65 offering different price. Their price diversification leads their products to capture the global market. 3. Place: “Place” refers to the distribution channels used to get a firm’s products from the Manufacturer/service provider to the end customers. Place is also known as channel, distribution, or intermediary. Microsoft has nearly 90,000 employees in 105 countries to distribute, sell, promotion and providing services to the valued customers. 4. Promotion: Promotion refers to the awareness created of the introduction of a new product and availability of an already existing product by means of advertising and selling activities. The main objective of promotion is to make customers aware of product features, its uses and benefits. Microsoft invests a lot to promote their products globally in different countries in different languages. To do so they provide lots of information regarding the new products and existing products. For example they provide all necessary information about their products through their websites and webcasts. Today, with the increase in competition and with a wider variety of products and markets, other P’s of marketing mix are proposed by a number of researchers.
  • 66. Project on Page no. | 66 3.7 WHERE MICROSOFT FAIL’S When people think of innovative tech companies, they generally don’t think of Microsoft. Microsoft has actually had a history of innovative products and ideas, but they’ve failed to execute them over and over again. E readers-Microsoft had a prototype e-reader ready to go in 1998, but they never used it. From 2007 Amazon rules this segment through kindle. - Windows developed mobile os in 2000. But they never make it better till the deal with NOKIA in 2010. In 2007 apple launched the first mobile based on IOS, and ruled the smartphone segment. Tablets-Microsoft released “Windows XP Tablet PC Edition” in 2002, eight years before Apple released the iPad. Web Browsers- Internet Explorer-Internet Explorer was struggling to catch up with modern browsers as previous versions were far surpassed by Mozilla Firefox and Google Chrome.
  • 67. Project on Page no. | 67 Web-Based Email- Hotmail-Microsoft purchased Hotmail in 1997. Google released Gmail in 2004. Gmail was far superior to Hotmail when it was released, featuring a much cleaner interface, conversation views, a huge amount of storage space, and a very effective spam filter. Microsoft’s Outlook.com is now actually fairly competitive Smart Watches- Microsoft actually had a smart watch platform, known as the SPOT watch, which was discontinued in 2008. Perhaps the SPOT watch discontinued may be because of bad experience, subscription fee, and lack of vision or marketing. Operating Systems- Longhorn- Microsoft’s Longhorn development went so poorly that, after three years of development, all of the work was thrown out and they started again on the operating system that would become Windows Vista. At that time apple launched Apple’s OS X. It was quite fast and stable. Music- Apple was nearly dead in the late 1990s. Apple was saved by iTunes and the iPod, which provided a legal and convenient way to download and share music. Microsoft had an early head start making software for the portable music market, but did not find good hardware partner. In 2006, Microsoft came up with its own product -- the Zune with wi fi sharing but it fails. Search engine- Internet Explorer was so successful that Microsoft had to spend years fighting off antitrust suits that now seem silly. Those clashes probably distracted the company from the Internet’s real money-maker search products. Microsoft later realized that Google’s success was due to its monopoly in search- based ad sales.
  • 68. Project on Page no. | 68 3.8 FUTURE STRATEGIES OF MICROSOFT  Being able to serve diversified and emerging markets is key to Microsoft future. Like Africa, china etc.  Microsoft is a transformation from being a software company to being a device and service company.  On top of devices they are focused on Office 365 and X BOX, Windows mobile and mainly Windows os.  Microsoft planning to open retail stores in early 2013 for direct selling and customer interaction.  Microsoft Plans New Data Centers in Singapore, Australia.  Yearly updates to windows software's will be the norms soon.  Microsoft’s future plans for a streaming operating system. Fast booting by a virtual PC operating system through remote storage.  Microsoft’s next Windows version will include cloud network integration.
  • 69. Project on Page no. | 69 Chapter 4 CASE STUDIES
  • 70. Project on Page no. | 70 A case study of Nokia Corporation leading to the acquisition by Microsoft The significance of Nokia case study to leadership shows how a giant technology communication that permeated today’s organizational systems can easily be acquired by Microsoft for $7.2 billion US dollars (Versace, 2013; Swisher, 2013). In this analysis, did Nokia Corporation deviate from its core competences in terms of technology? Did pedagogical historical data that catapulted Nokia from local to national, international, then into a saturated global wireless communication giant, now unable to reinvent itself? Despite Nokia’s promenade of innovative technologies, why was Technological Situational Happenstances (T.S.H.) not applied to then organization? These myriads of questions will be analyzed, explored and synthesized. To start, understanding the historical background of Nokia in a global continuous changing environment of technology is necessary for learners. Nokia was a multinational corporation in the
  • 71. Project on Page no. | 71 late 21st century headquartered in Finland. Nokia was structured into three main business segments. Markedly, the segments included (a) Nokia Mobile Phones, (b) Nokia Networks, and (c) Nokia Ventures Organization. Mobile Phone segment included the development, manufacture, and supply of wireless data products and mobile phones. Globally, Nokia segments’ services wide range of mobile phones for the arcade analog systems to digital standards and to Jigsaw. Most recent advanced research was on Jigsaw emulated pattern-recognition algorithms that can identify wide range of behaviors and logs detailed than past similar applications (Hong, 2010). More than 1.2 billion, over 5% of the world population uses Nokia’s device from mobile phones to advanced smartphones and high-performance mobile computers (Aluya, 2013; Versace, 2013). Nokia integrates its devices with innovative services through Ovi, which includes music, maps, apps, email and more. Nokia's NAVTEQ is a leader in comprehensive digital mapping and navigation services, while Nokia Siemens Networks provides equipment, services and solutions for communications networks globally (Nokia Corporation, 2010a). In the network segment, Nokia engaged in providing services related to the network infrastructure of mobile and Internet Protocols (IP). Ubiquitously, the network segment was entrenched in the areas of radio, broadband access for network providers, operators, and to core of the internet protocol mobility. Nokia Ventures Organization was formed for the purpose of creating new businesses outside the company's natural growth path and core segment of operation. This segment engaged in venture capital activities associated with a portfolio of new ventures. Essentially, these Ventures included the commercial enterprises of Nokia Internet Communications and Nokia Home Communications (Reuters Investor, 2004).
  • 72. Project on Page no. | 72 Company background In terms of communication, Nokia was one of the world leaders in mobile communications. Nokia dedication enhanced people’s living standard from exotic products to populist ubiquitous aesthetic seductive newbies. As a disrupter, it consistently and persistently was disrupting the disruptors during its halcyonic days. Nokia conjecturally have gone into hiatus and hypodermically under the Apple spell. Productivity through easy-to-use and secure products like mobile phones, solutions for imaging, games, media, mobile network operators and businesses were enhanced by Nokia. Without any doubt, Nokia sells three of every 10 mobile handsets manufactured (Brown-Humes, 1999). Nokia now, unfortunately falls on the categories of Ericson and Motorola. Why? Nokia failed to effectively and officiously use ─Technological Situational Happenstances (T.S.H.) illustrated below (see Vignette 1) to reinvent itself, particularly understanding the situations on the global terrain. This is despite the company’s success in establishing a strong brand recognized throughout the world (Kipp, 2001).
  • 73. Project on Page no. | 73 Illuminated in the above vignette, critical components in this saga indicated why Nokia failed to take into deep consideration the following: a) adaptation, b) culture, c) economic environment, d) creative destruction, f) leadership and above all, g) sustainability. Contra-analyzing the above factors were what led to the flaring and flaming out of major technology companies irrespective of how solid or robust their financial indicates. Scholarship discussions continue with the concatenations of Nokia historical events leading to Microsoft acquisition pro anon. Moving along, misconception about Nokia was that the name connotes a Japanese company. Far from it, the company background showed European, a company pigmented and entrenched with European culture- Finnish Group Company. Toted up, the company has managed growth and innovation exceptionally well through the use of TSH back in embryonic stage. Staff numbers increased from 25,000 in 1993 to more than 44,000 in 2013. Bureaucracy then did not stifle the culture of innovation or deep capital creative destruction. Transmuted, the company was Europe's fifth largest and single-handedly accounts for more than 50% of the Helsinki exchange and a substantial chunk of Finnish GDP growth (Brown-Humes, 1999). Robustness of Nokia’s successes then propelled the Finnish group to be one of the world's most respected and reputable companies. Socio-psychological view and background Holistically, Nokia's business sojourn began in 1865, when engineer Fredrik Idestam established a wood-pulp mill in southern Finland and started manufacturing paper. In the European industrialization and the general consumption of paper and cardboard, Nokia became successful. This was a slight pendulum shift toward the fabianic economic doctrine. Nokia's products were exported first to Russia, to the UK and finally France. As a quintessential company, it became a major employer and the employees evolved into a paternalistic community.
  • 74. Project on Page no. | 74 Presently, there remains a community called Nokia that existed on the riverbank of Emäkoski in southern Finland (Nokia, 2008). Nokia’s social, economic and historical analysis continued after World War II when the Finnish Rubber-Works bought majority shares in the Finnish Cable Works. Due to the quixotic need for power transmission, telegraph, telephone networks, the Finnish Cable Works Company grew and expanded. Eventually, Rubber Works and the Cable Works companies consolidated and a creative destruction machination eschewed. In 1967, the companies merged to form the Nokia Group. Later, seed money was planted into making Nokia a global success in telecommunications. Electronics generated 3% of the Group's net sales and provided work for 460 people (Nokia, 2008). At the end of the 1980s a common standard for digital mobile telephony was developed through innovative method of using TSH. Present technology standard now commonly referred to as the GSM (Global System for Mobile Communications) was innovatively created. In 1991, Nokia made agreements to supply GSM networks to nine European countries and by August 1997 Nokia had supplied GSM systems to 59 operators in 31 countries (Nokia, 2008). Stephen Elop was the president and chief executive officer (CEO) who led the company into the hands of Microsoft. Markedly, many scholarship critics’ contraposes how Elop made so many gaffs by not understanding the changing environment; however, Elop is still the most interoperable person in the world today. No need to be ad hominem against his character. Stephen Elop was appointed the CEO on September 21, 2010, a day after the former CEO Ollila-Pekka Kallasvuo resigned (Nokia Corporation, 2010). To understand the political and social historical background, it becomes imperative to mention former CEOs who have led the organization to significant successes. In the embryonic stage, Kari Kairamo was the CEO who transformed the company.
  • 75. Project on Page no. | 75 Kari Kairamo ideological eruption led the company in the acquisition and expansion of 80 subsidiary companies with an estimated 26,000 employees spreading over nine countries before his death in 1980. Simo Vuorilehto became the successor to Kari Kairamo in occupying the seat of the CEO. According to Mayo and Tony (1994), one of the biggest acquisitions of the 1980s was the Datachecker (USA Based) and the Unix-telecomms, Danish Company Regnecdentalen-ICL. In the 1980s during the recession, the CEO made some strategic moves to liquidate the unprofitable business ventures and subsidiaries Nokia Data bought Ericsson. This group extended the technical capabilities to the continental Europe during the same period of political liberalization of the European market. In 2010, Nokia acquired Motally's mobile analytics service that enables developers and publishers to optimize the development of their mobile applications through increased understanding of how users engage. Speciously, the service offered planned to be adapted for Qt, Symbian, MeeGo and Java developers (Nokia Corporation, 2010a). In 1992, Jorma Ollila, the former President and CEO critically examined the company's technological capabilities and realized the need for a stronger R&D department through TSH. Aptly, the CEO analysis led to the acquisition of the Matra Nortel Communications' GSM Terminals in Ulm, Germany. Streamlining and concentrating on the company's strengths became paramount to the Jorma Ollila. Within a decade, refusing to kowtow to the big labor, the company shielded itself from unprofitable businesses. Matra Nortel Communication GSM in Ulm, Germany was used as a stepping-stone to transform Nokia into one of the world's largest mobile phone suppliers. And this was a shifting sand of economic integration and deepening of capitalization.
  • 76. Project on Page no. | 76 Historically, Nokia grew to national recognition from the 1960s and through the 1980s. During this period, Nokia bought various companies, such as Finnish Rubber Works, Finnish Cable Works, a Finnish telecom company, Luxor (Sweden owned electronics and computer firm), and Ericson's Data Division, to become a powerful conglomerate in Finland. Jorma Ollila (former CEO and later Chairman) developed the company strategy to focus more on the telecommunications business during the 1990s. Nokia, from the pedagogical cognitive and effective antiseptic experiences, successfully developed the first fully digital smart telephone exchange system in Europe and the first phone anchored inside a car. Subsequently, the stage was set for uncloaking the digital telephone deployment to customers or end-users. In Nokia's (2002 Annual Report), Nokia "made a strategic decision to concentrate on telecommunications as the core business, with the goal of establishing a market-leading presence in every major global market" (p. 19). Nokia was pouring fountain of creative newbies from golden chalice. Nokia divested non-core businesses that were previously acquired—paper, personal computer, rubber, footwear’s, chemicals, and power plant, aluminum, and television businesses. In order to infiltrate the U.S. market and other countries globally, Nokia collaborated seamlessly with other companies in the telecommunications industry to supply phones and networks to potential new markets. For example, "in 1999, Nokia penned deals to put its wireless application protocol (WAP) software into Hewlett-Packard's and IBM's network servers" (Nokia Corporation— History from Hoover's Online). Nokia high-risk strategic decision-TSH on telecommunication business led to gaining market shares and profits (Bernstein, 1996). Remarkably, the nonlinear technological methodology and realignment led Nokia to be the world leader in seductive mobile phones.
  • 77. Project on Page no. | 77 "Nokia became a world leader in mobile, communications world’s leading supplier of mobile phones and a leading provider of mobile and IP networks" (Nokia's 2002 Annual Report, p. 20). Based on the 2002 and 2003 financial information for Nokia, mobile phones and Nokia's network make up approximately 99% of all net sales for the company. Not resting on its laurels, Nokia continue to gain substantial market share in disruptive mobile phones. In 2010, Nokia reports Q3 2010 net sales of EUR 10.3 billion ($13.6 billion), with non-IFRS EPS of EUR 0.14 Mobile device ASP up EUR 4 from Q2 2010 (Nokia’s 2010 Annual Report). According to a Nokia press release dated January 27, 2004, TELESTET, who was prime leader in mobile communications in Europe, introduced commercial 3G services to Greece. Actions of this purchase launched the country's first WCDMA (wideband code division multiple access) network, enabling top-of-the-line mobile services such as advanced multimedia messaging, high-quality streaming, browsing and video calls with speed of up to 384 kbps" (Nokia press release, 2004, January 27, p.2). Gallantly, Nokia provided the equipment used for 3G WCDMA network so that customers can access the network via the Nokia 6650 and 7600 mobile devices. In a capitalistic market, in the domain of creative destruction, most recently, time have overtaken some of the Nokia mobile phones. Surreptitiously, this is where Nokia lost its mojo or its whiz-bang technological du jour. Comparing Nokia to other competitors (Ericsson, Motorola, and Siemens), Nokia’s annual sales bypass all competitors except Siemens. Nokia, however, was a better-performed company than Siemens as outlined below:  Gross profit margin was four times greater than Siemens;  Nokia has A-1 debt rating and very little debt outstanding;
  • 78. Project on Page no. | 78  Market valuation was approximately 25% greater than Siemens although Siemens’ annual sales almost triple Nokia’s sales;  Nokia hordes cash, $US 14 billion at the end of 2007.  In 2010, Nokia reports Q3 2010 net sales of EUR 10.3 billion ($13.6 billion), with non- IFRS EPS of EUR 0.14 Mobile device ASP up EUR 4 from Q2 2010 (See the table and graph for 2012 net revenue). Nokia relied upon creative innovative products from its R&D groups. Risingly, the company also maintained a high cash balance conjecturally to purchase start-up businesses horizontally or vertically to enhance its telecommunication products. For example, in 2007, Nokia acquired Avvenu, Enpocket and Twango (Nokia, 2008). Most relevantly, Masalin (2003) stated that Nokia engaged with various leading business schools, universities and consulting firms to stimulate the employees’ minds, thence enhanced thinking outside the normal boundaries-pedagogically (learning the unthinkable possibilities). Strategically, Nokia does not appear to quash or suppressed competitors, unlike the formal management philosophy that was once outlined as one of Bill Gates and Microsoft’s strategy that sees Microsoft suffocating competitors. Nokia was backed by experience, innovation and user-friendliness-secure solutions. Unpolemically, the company was the leading supplier of mobile phones, a leading supplier of mobile, fixed broadband and IP networks. By adding mobility to the Internet, Nokia created innovative new opportunities for companies and thus further enrich the daily life of people globally. Nokia was a broadly and publicly held company with listings on six major exchanges (Activision, 2003).
  • 79. Project on Page no. | 79 Nokia invested in 1998 HUF 25 billion (approx. EUR 100 million) in Greenfield Hungary to increase capacity of phones manufactured. Ascendly, the notion to maximize and increase manufacturing capacity was due to enabling infrastructure established in Hungary and the Komárom. Another reason for the massive infusion of cash and investment was the already human capital availability within the region. Scholastically, the region had the presence of a well-educated workforce. Financially, in the third quarter of 2007, Nokia's net sales totaled EUR 12.8 billion (USD 24.9 billion). Apparently this was a tale-tale sign of what is yet to come. Headquartered in Finland Nokia was listed on the New York (NOK), Helsinki, Stockholm, London, Frankfurt and Paris stock exchanges and employs more than 68, 041 people (Nokia, 2007). In a rapidly growing mobile phone industry, efficient, flexible logistics processes and manufacturing capabilities were benchmarks for success. Losing sight of this significant process, Nokia was indirectly undermining its own existence. For example, the new Komárom site within Nokia's global logistics structure was significant. "Nokia has always had well-established historical ties with Hungary, which was amongst Nokia's key countries today. Thanks to the central geographic location, positive corporate environment and the availability of well-educated workforce; Nokia has expanded its activities” (Nokia, 2007, p.3). Nokia was then able to tap into the historic technological trends to establish essentially a new market. Concomitantly, Nokia leadership however lost sight of the changing marketing trends even when it was glaring obvious. Sad! Nokia through historic technological trends and the use of TSH did then set new industrial innovative standard that got lost in the shuffled. Competition amongst competitors is at par and all navigating through the turbulence of the white Water. Nokia should have learned the “strategies for survival in a world of permanent white water” (Veil, 1996, p.1).
  • 80. Project on Page no. | 80 Moving along the historical lane, epistemologically, the consensual belief indicated that the average age of Nokia employees was then around 30 years old. Crafty young employees’ perspectives were inherently geared toward a global changing environment mindset. Energetic, innovative, and meritocratic employees of these age calibers conjecturally placed the company at competitive vim. Crafty young employees with creative minds for new invention tend to adopt, change and were technologically innovative with the use of T.S.H. Nokia uses certain criteria in hiring young employees at the beginning of their career with the company; these actions were deliberate avenue of promoting the company culture (Gupta & Govindarajan, 2004). Now, a culture that equally inhibited Nokia inability to shake itself off the cobweb or move the great titanic ship to a different direction, vis-a-vis reinventing itself using TSH. To elaborate and expatiate, during the political disintegration of the Soviet Union, and the tearing down of the famous Berlin Wall, Nokia management plunged right into the political quagmire by hiring redundant Soviet technicians and scientists to develop the third generation mobile phones (Anonymous, 2001). Without any dot, Nokia leadership at that time understood the strategic change in the global environment. Ibid, Nokia hired these expatriate workers to perform, innovate, and reengineer the new creative generational mobile phones. Reasonably, these expatriates were given the political and authoritative power to discharge duties without any interference from corporate offices. Basically, these expatriates were then divided into five groups: (a) middle managers, (b) business managers, (c) establishers, (d) customer project employees, (d) research and development personnel. In continuation, Nokia took advantage of the political liberalization of the European market by acquiring ICL information technology group that later formed the basis for research and development into the 4G (fourth generation) mobile phones (Aluya, 2008).
  • 81. Project on Page no. | 81 Practically, the incentive, the motivation and spirit that drove this small Finland community group to embark on mobile phones, was one of necessity. Basically, the real possibility of digging underground cable with landlines was very remote; the country was strategically located in the north cold poll of Europe. Bubbled up with the exigencies of the circumstances, this group of individuals became the pioneers of the early invention of mobile phones in the 1980s. Politically, the spirit of Nokia collaborating and contributing to political parties as a good corporate citizenry helped booster the company’s interest. Without hesitation, Nokia continues to contribute funds to political campaigns inside and outside of Finland in order to protect its interest from the Nationalists within and its financial interest outside of the country. Nokia culture to organization leadership Poignantly, Nokia remain the symbol of Finland's prowess in the mobile Internet. Blau (2003) proffered that the source of Nokia's transformation anchored on its core intrinsic values. Despite the acquisition of Nokia by Microsoft, these values of (a) customer focus, (b) respect for the individual, (c) achievement, and (d) continuous learning, have been translated into an unprecedented entrepreneurial spirit still remain high. Entrepreneurial spirit or behaviors were embedded directly into the selection process of new staff and the performance of management systems set in place. TSH enables curiosity, openness, and imaginative futuristic ideas reflected on Nokia’s attitude with respect to the telecommunications field. Not musing, these elements were then mirrored in the company’s personality makeup. Like other elements of personality, Nokia antecedents and historic makeup in the early developmental stages formed an anchored unshakable culture of the company. Nokia does not have maneuvering room to further cultivate curiosity, openness amongst existing employee because Nokia’s greatest degree of freedom lies in the
  • 82. Project on Page no. | 82 spiritual culture of the founders. And at the same token, the intrinsic anchored culture of the founders became the Achilles’ heels that was exhausted, that inhibited and clouded the vision of the leaders for creative innovation. Fortuitously, an interesting selection of employees at the time and it illustrated how the company manages its demographic makeup for future growth and development that then gave the company competitive edge over its competitors (Gupta & Govindarajan, 2004). According to Yates and Skarzynski (1999), Nokia used situational happenstances in technology to lead in creative telecommunications-creative destruction doctrine. Creative destruction was the concept advocated by Joseph Schumpeter in 1942. An erudite and witty economic thinker, in his typology, he indicated that the semi perennial gale and objective of creative destructiveness is the idyllicta purpose of scrapping off the old and failing existing technological products and systems and replacing them with newly creative ones(Aluya, 2013b). Creativity led to the development of innovative technologies integrated into the mobile phones and network market segments. Blau and Wolff (1996) suggested that Nokia's past success was due to "flat hierarchy and youthfulness to beat the competition" (¶ 14). Average age of the Research and Development (R&D) at Nokia was approximately 30 years old at this time. Creating new and innovative products was an impetus to success. Yates and Skarzynski espoused that companies that extrapolate from historical trends do not lead to better products. Young employees in Nokia were inventive, creative and adaptive to the changing times. They created their own history. Ambitious young employees brought the new products to the market as the disruptors and the market shift in their favor. Nokia could only be good as the product they produce today. Delphically, the core question to learners was what happened to the concatenation past-historical antecedents.
  • 83. Project on Page no. | 83 Ostensibly, the past could be divulged or could be completely irrelevant to the future. Core to the research of this magnum opus work becomes apparent to where the epistemologists collide with the pedagogics. While Nokia has almost doubled their spending in R&D, they have reduced the numbers of R&D centers from 28 in 1996 down to 11 by 2003. Given these circumstances, the real issues of contention were (a) whether or not Nokia could continue to operate R&D with a youthful group (who age over time and were burn-out) who were able to continuously create new and innovative products to enhance the mobile phones and network business segments which will capture more market share or even create a new market demand; (b) the growing concern that the current global economic downturn may negatively affect the growths of both Nokia and the Finnish economy; and (c) the charges that Nokia was susceptible to inflexibility as it becomes more mature was apparent and why Microsoft acquired the company. These were the “ifs” that needed to be considered if the company would continue to have comparative and competitive advantage. Significance to leadership Nokia lost business opportunities during the Soviet Union’s 1980s era of closed iron curtain. This was an era of clicked, flicked, bubbled up and eventually busted up decade. There was recession during this period (Nokia, 2004). European market was impermeable with new innovative technologies triggered from changes in TSH. Despite the business losses, Nokia was able to develop and distribute one of the largest mobile phones in the world today, until Apple took the driver’s seat. Another folder for thought was how did Nokia become the largest mobile phones distributor in the world? Disintegration of the Soviet Union coupled with the liberalization of the European market during the 1980s and early 1990s provided the impetus that allowed Nokia to
  • 84. Project on Page no. | 84 acquire and expand its markets through using TSH. Nokia expanded its markets by using the existing enabling and incubated technologies to maximize markets share in the late 1980s, thus increasing capabilities. According to Stephen Elop, the former CEO, maybe the new CEO to Microsoft, “In the five weeks since joining Nokia, I have found a company with many great strengths and a history of achievement that are second to none in the industry. And yet our company faces a remarkably disruptive time in the industry, with recent results demonstrating that we must reassess our role in and our approach to this industry. Some of our most recent product launches illustrate that we have the talent, the capacity to innovate, and the resources necessary to lead through this period of disruption. We will make both the strategic and operational improvements necessary to ensure that we continue to delight our customers and deliver superior financial results to our shareholders.”(Nokia Corporation, 2010a) Circuitously, Nokia’s corporate social responsibility involves acknowledging the company’s range of opportunities to be realized and the risks to be minimized. Acting responsibly brings the company improvements in risk management, legal compliance, enhanced reputation, and improvement in company efficiency issues like productivity, quality, and costs. Conspicuously, Nokia brand was one of the most valuable in the world, and it had a good reputation that was vital in order to maintain company standing among employees, investors, network operators and consumers (Nokia, 2004). More significantly was to maintain the company standards and good reputation that would lead to longevity. Longevity has become relative in the field of technology. Leaders in technology must be ahead of the curve, or at worst be clairvoyant about the strategic
  • 85. Project on Page no. | 85 short-term changes. Imperatively, continued creativeness from scion of aesthetic seductive products would have led to the sustainability of the longevity, a beneficent future for Nokia. Nokia core philosophy was using TSH innovate new technologies for the benefits of the society and the company. Social responsibility was cardinal. Nokia acts proactively while integrating programs into its core business activities as well as making a sustainable effort. Succinctly stated, doing business in a responsible way economically makes business sense to Nokia. Social responsibility that exemplified good corporate citizenship helped create a sustainable product life cycle, sustainable employment, sustainable corporate reputation, and ultimately sustainable economic growth (Nokia, 2004). Finland gradually lost competitive advantage as a home for the corporate headquarters of many parent companies. As Nokia ages, the tasks altered at higher levels, and the type of leadership that was needed also changed. In 1992, for example, the former CEO Ollila delineated the four key areas to the multinational's futuristic success. These keys areas challenged the firm to be (a) more telecom-oriented, (b) more globally focused, and (c) highly sensitive to the value-added effects of their ventures, (d) continuous innovative improvements-TSH. According to Masalin (2003), the uniqueness of Nokia's management approach was novel to its organization. "Nokia relies on a strong corporate culture and the company's values: customer satisfaction, respect for the individual, achievement, and pedagogical-value-based leadership was an integral element of the Nokia way" (Nokia, 2004, ¶ 4-5). Blau and Wolff (1996) described a flat organization structure enables companies to be flexible and quick in making decisions. Actually, this structure appears to be a good fit for Nokia. Overall, Nokia's management and leadership philosophy could be similar to that of Microsoft philosophy.