Managing is one of the most important activities of [603060]

Chapter Ⅰ

INTRODUCTION

1.1 MEANING
Managing is one of the most important activities of
human life. To accom – plish aims that could not be achieved
individually, people started forming groups. Managing has
become essential to ensure the coordination of individual efforts. Management applies to all kinds of organizations and to managers at all organizational levels. Pri nciples of
management are now used not only for man- aging business
but in all walks of life viz., government, military, social and edu- cational institutions. Essentially, management is same
process in all forms of or- ganization. But it may vary
widely in its complexity with size and level of orga –
nization. Management is the life giving element of any
organization.
Definitions suggested by some of the management
experts are presented below:
Henri Fayol: “Management is conduct of affairs of
business, moving to- wards its objective through a
continuous process of improvement and optimiza – tion of
resources”.
Koontz: “Management is the process of designing and
maintaining an en- vironment in which individual s, working
together in groups, efficiently accom – plish selected aims”.
Mary Parker Follett: “Management is the art of
getting things done through people”.
George R. Terry: “Management is a process consisting
of planning, orga – nizing, actuating and contro lling,
performed to determine and accomplish the objectives by

use of people and resources”.
ILO: “Management is the complex of continuously
coordinated activity by means of which any undertaking
administration/public or private service conducts its
busin ess”.
Lawrence A. Appley: “Management is guiding human
and physical re – sources into a dynamic, hard hitting
organization until that attains its objectives to the
satisfaction of those served and with a high degree of morale and sense of attainment on the part of those rendering the
service”.
 Deciding in advance what to do, how to do, who has
to do, when to do and where to do.
 Planning bridges the gap from where we are now to where we want be in future.
Organising: Organising is a part of management that
involves in estab- lishing an intentional structure of roles for
people to fill in an organization. To organize a business
well, it is required to provide all the useful things for its
proper functioning. They are raw material s, tools, capital
and personnel. The purpose of an organization structure is to help in creating an environment for human performance.
This involves in:
 Determination of activities required to achieve goals.
 Grouping these activities into department.
 Assigning such groups of activities to managers.
 Forming deligation of authority.
 Making provisions for coordination of activities.
Staffing: Staffing is considered as an important function
which makes provision for man power to fill different
positions. I t involves in building the human organization by

filling, and keep filling the staff. This is done by identify-
ing work- force requirements, taking inventory of people
available, recruiting new staff, selecting, placing,
promoting, apprising, planning their career, train – ing the
staff to accomplish their tasks effectively and efficiently.
This involves in:
 Finding th e right person for right job.
 Selecting the personnel.
 Placement, training and developing new skills required for present and future jobs.
 Creating new positions.
 Apprising the staff and planning their growth and
promotions etc.
Directing: After planning, organizing and staffing, the
next important function of management is directing or leading the people towards the defined objectives. Directing
involves three sub- functions namely communication, lead –
ership and motivation. Communication is the process of
passing information and understanding from one person to
another. Leadership is the process by which a manager guides and influences the work of his subordinates. Motiva –
tion means arousing desire in the minds of employees of an organizat ion to per- form their best. If properly motivated,
the employees will put their best efforts with dedication, loyalty and carry out the assigned task effectively. There are
two types of motivations viz., financial and non- financial.
Financial motivations are in the form of salary, bonus,
profit -sharing, rewards etc. The common non- financial
motivations are job security, promotions, recognition, praise,
felicitation etc.
Controlling: Controlling is measuring and correcting of
activities of subordinates to make sure that the work is going
on as per the plans. It measures performance against goals

and plans, shows where short falls or deviations exist and
takes necessary corrective actions to achieve the goals. Controlling generally relates to the measureme nt of
achievement. This involves three elements.
 Establishing standards of performance.
 Measuring performance and comparing with
established standards.
 Taking necessary corrective action to meet the set
standards.
With accomplishment of this function, the “Management
Cycle” is said to be complete.

Management Cycle

1.2 MANAGEMENT AS A SCIENCE, ART OR
PROFESSION
Managing, like any other practice – whether medicine,
music composition, engineering, accounting or even cricket
– is an art. It is a know -how. It is doing things in the light of
the realities of a situation. Under ‘art’ one normally learns
the “how” of a phenomenon. It is the art of getting things
done through others in dynamic and mostly non -repetitive
situations.
Science is an organized knowledge. A discipline can be
called scientific if its methods of inquiry are systematic and empirical, information can be accumulated and analysed and
results are commutative and communicable. The essential
feature of any science is the application of scientific
methods to the development of knowledge. Being
systematic means being orderly and unbiased. All the scientific information collected first as raw data is finally arranged in order and analysed with the help of statistical
tools. Science is also cumulative in that what is discovered
is added to that which has been found before. We learn
from past mistakes and go in right direction in future. On the
basis of the above discussions of science, it can be accepted
that management is also a science.
It is seen that management is partly an art and partly a
science. Manage- ment does not possess the characteristics
of a profession. A profession is ex- pected to have organized
and systematic knowledge, formalized methods of ac –
quiring training and experience, ethical code to regulate the
behaviour of the members of the profession, charging of
fees based on service etc. Unlike medi – cine and law, the
management does no have any fixed norms of managerial behaviour. There is no uniform code of conduct or licensing of managers. Law – yers and doctors take up profession after

obtaining a valid academic qualifica- tion where a s a
manager job is not restricted to individuals with a special
aca- demic degree only. Based on this, it can be concluded
that management is not a profession. However, the present
trend is towards the professionalisation of management.
Nowadays, it has become essential to acquire
management degrees or training in management to be called as good manager. There is increased de – mand for qualified
managers with M.B.A degree after graduation. This gave
scope for establishment of large number of business schools
in India. Managing a business is no longer just a matter of a family or institution. In this contest, one should remember
Peter Drucker’s opinion on management. “A degree in
management does not by itself make an individual a professional manager any more than does a degree in philosophy make an individual a philosopher”. By insisting
on holding a degree, we are over emphasizing knowledge
and com – pletely over looking skill. This leads to loosing of
good and skilled managers who do not have required degree.
There have been good examples of efficient managers without any professional managerial degree. Some of them
are, Ford of Ford Motors, Bill Gates of Microsoft, Jemshedji
Tata, Birla, Dhiru Bhai Ambani of Reliance group etc.
But nowada ys, management has become a profession
than art or science.

1.3 MANAGEMENT AND ADMINISTRATION
There is lack of concurrence among management
writers over the mean- ing and use of the words
management and administration.
One group of management writers feels that
administration involves “thinking”. It is a top level function
that centers around the preparation of plans, rules, policies
and objectives of an organization. Where as management
involves “doing” and is a lower l evel function, concerning
with execution and direction of policies and operations.
Hence, administration is m ore important at lower levels.
Another group of management writers feels
management as comprehen – sive generic term that includes
administration. Management is regarded as com – prehensive
generic function covering entire process of planning,
organizing, di – recting and controlling. Administration is
regarded as a branch of management that comprises of two
functions – planning and controlling. According to them, the
function of management is divided into two categories – the
upper level management usually called as administrative
management and the lower level management which is termed as operative management.
According to Peter Drucker, the basic difference
between management and administration lies in use of these
terms in different fields. According to him, managing of
business enterprises is called management and managing
non- business organizations is called administration. Hence
financial pe rformance plays key role in management. But in
managing non business organizations like educational institutions, government offices, military etc., administration
is more priority than financial decisions.
Administration is the function in industry conce rned
with determination of the corporate policy, the coordination

of finance, production and distribution, the settlement of
compass of the organization under the ultimate control of the executives”.
“Management is the function in industry concerned with
the execution of polity within the limits setup by the administration and the employment of the organization for the particular objects set before it”. (Oliver Sheldon)
“Administration is primarily the process and the agency
used to establish the object or purpose which an undertaking
and its staff are to achieve, second- arily, administration has
to plan and stabilize the broad lines of principles which will govern action. These broad lines are in turn called policies. Management is the process and the agency through which
the execution of policy is planned and supervised”. (G.E.
Milward)
“Administration is that phase of business enterprise that
concerns with overall determination of institutional objectives and the policies necessary to be followed in
achieving those objectives. Administration predetermines the specific goals and lays down the broad areas within
which those goals are to be attained. Administration is a determinative function, management on the other hand is an
executive function – which is primarily concerned with the
carrying out of the broad policies laid down by the administration. (William R. Spriegal)
Thus administration is a “thinking” function and
management is a “doing” function. According this concept, managers get salary and administration staff get dividends.

Administration determines the policies upon which the
enterprise is to be conducted while the function of
management is to carry out the policies that are laid down
by the administrative group.
The differences between administration and management
are listed below:

Characteri
stic Administration Management
1
. Main
functions Planning,
Organising and
Staffing Leading, motivating
and controlling.
2
. Status Acts as owner Acts as an agency
3
. Skills Requires good
administrative
skills Requires more
technical skills.
4
. Level in the
organization Top level Lower level
5
. Position Managing
Director, Owner,
CEO, etc., Managers,
Supervisors, Foremen
etc.,
6
. Objectives Makes the
policies,
objectives and
goals to be
achieved. Implements the
plans and policies
7
. Involvemen
t No direct involvement
in production or
services Directly involves
in the execution
of plans and
achieving goals.

1.4 ROLES OF MANAGEMENT
Manager in any organization plays variety of roles
responding to a particu – lar situation. The three important
roles played by a manager are Interpersonal roles, Decision
roles and Informational roles.
(i) Interpersonal roles: These includes figurehead, leader
and liaison roles:
In figurehead role, the manager will perform some
duties that are casual and informal ones like, receiving
and greeting visiting dignitaries, attending to social
functions of employees, entertaining customers by
offering parties and lunches etc.
As a leader, managers motivate, direct and encourage
his subordinates. He also reconciles the needs with the
goals of the organization.
In the role of liaison, the manager works like a liaison
officer between top management and the subordinate staff. He also develops contacts with outside people and collects use ful information for the well being of the
organization.

The various levels and skilled required at different
management levels are shown below.

Skills at different Management level

1.5 DEVELOPMENT OF MANAGEMENT THOUGHT
Management has emerged as a powerful and innovative
force on which the today’s society depends for material
support from a unrecognized situation in the past one or
two centuries. Seventeen and Eighteen centuries had seen
In- dustrial Revolution. Lots of inventions and new
technologies had emerged. The importance of management
was focused. Division of labour concept was evolved. Importance of planning was identified. But management as a separate field of study had emerged only during e arly 20th
century when new industrial era began. Business
organizations had a stage shift from ownership towards
joint stock companies. As an answer to the problems like insufficient systems, inefficiency of labour and discrepancy in wage payment, “manage ment” has been recognized as a
separate and important field of study. Subsequently, man-
agement has evolved as a scientific discipline of study and
practice.
The evolution of management can be divided into two
parts – Early man- agement approach and Modern
management approach.

1.6 EARLY MANAGEMENT APPROACHES
History of the management is as old as a man. Evidence
of well organized principle of management can be seen in
ancient Greece and India. Those Kings used the concepts of
management like planning, organizing, leading and control –
ling the various activities.
The process of early management approaches are:
1.6.1 Psychological develop ment
1.6.2 Scientific management
1.6.3 Administrative management and
1.6.4 Human relations movement.

Psychological development: (Before 17 th century)
In olden days when there was no experience and
knowledge of business, they had to depend upon their
inborn abilities. This gave rise to management that was totally based on Psychological process. As a result, people were hav – ing universal belief that man agers are born and
cannot be made such as artists, directors, poets, kings etc.

Scientific management: (18 th – 19th century)
During this time the development was brought about by
the following two important factors.
 The effort of scientists to demonstrate the
application of science and scientific methods.
 The effort of establishing standard practices.
Thus during this development, management was
adopted with scientific approach. The work made use of
scientific methods for achieving standard practice and higher efficiency. Thus, scientific management came into
exist- ence. Many pioneers have contributed for this

development.
Frederik Winslow Taylor (1856 – 1915) has been
considered to be father of scientific management. He had
conducted series of experiment s and pro- moted the
development of management thought through his experiments and writings. Some of the contributions of F.W. Taylor for the scientific manage – ment are explained here.

(i) Work study
Work- study includes time and motion study. Taylor
observed that the workers were not producing their full
capacity for the fear that their piece rate would be cut with
rise in production. Hence he started time and motion study.
He recorded the time required for each motion of a job with the help of stop- watch. Shorter and fewer motions were
developed. Unwanted motions were eliminated. The best way of doing a particular job was arrived at. With this, the
time required to complete one job was calculated called
standard time.

(ii) Differential payment
Motion and time study and establishment of standard
time further helped in arriving at the production rate of a
particular piece or job. Taylor also intro-
(ii) He evolved principles of motion economy.
(iii) He established Therbligs that are the fundamental
motions involved in doing any activity.
(iv) He had carried out study on fatigue due to repetitive
work by conducting experiments.
Objectives of Scientific Management
The objectives of scientific management are:

(i) To assess industrial and market tendencies and to
regularize continuous operation.
(ii) To earn a larger profit from a given expenditure on
man and materials by minimizing waste work and
waste movements.
(iii) To provide healthy and safe working environment.
(iv) To build character through proper work.
(v) To develop self re alization and self satisfaction
among workers there by improving their morale.
(vi) To give better opportunity for individual through
scientific methods of working.
(vii) To ensure happier and social life to workers.
(viii) To promote justice among the workers by treating
them equal.
(ix) To perform planned and balanced operations.
The time and motion study of scientific management
had created aware- ness of using right tools and minimizing
waste movements while performing a work. Further the
scientific management also insisted the scientific selection
of workers and made the managem ent to realize the training
needs to do a job. The scientific management suggested the
work design, that is, one best way of do- ing a job. The
scientific management had developed a rational approach to
solve the problems of an organization and contributed to the
professionalisation of management.
But Taylor’s concept of monitory benefits to motivate
workers did not fetch expected results. Taylor’s time and
motion study was not accepted as en- tirely scientific
because there is no “one best way” of doing a job.
Separation of ‘planning’ and ‘doing’ functions coupled with
greater specialization led to greater monotony of work.

Administrative Management
Henri Fayol (1841- 1925) is considered as father of
administrative manage – ment. His theory was focused on the
development of administrative principles

applicable to middle and top level managers. He used the word ‘administration’
which is otherwise known as management nowadays. He wrote a book titled “General and Industrial Administration”, in w hich he explained the process of
administration. His thinking is beyond the worker and shop level production but of a wider perspective, covering the common administrative and managerial functions
and processes of the managers. He suggested that activity of any business
organization could be divided into six groups viz., financial, technical, accounting, commercial, managerial and security. His main focus was on mana – gerial or
administrative activity. He divided the management function into five functions: –
Planning, organizing, commanding, coordinating and controlling. These functions
are very similar to what are being practical in today’s manage- ment. He also told
that these activities are same at all levels of any organization and are same for all
organizations. Fayol had suggested 14 principles of man- agement as a guideline to
the process of management practice. They are given below:

Principles of Management:
(i) Division of work
(ii) Authority and responsibility
(iii) Discipline
(iv) Unity of command
(v) Unity of direction
(vi) Subordination of individual interest to general interest
(vii) Union is strength
(viii) Initiative
(ix) Equity
(x) Scalar chain
(xi) Order
(xii) Stability of tenure of personnel
(xiii) Remuneration and
(xiv) Centralisation.

Human Relations Movement
Taylor and Fayol’s management techniques did not completely achieve the
efficient production and harmony at work place. The unpredicted and irrational
pattern of behaviour of workers made the task of managers more difficult. These
two theories did not consider or focus on human side of the organiza – tion. Hence
there was a need to focus on human side. Elton Mayo conducted series of experiments at Western Electric Company, which are commonly known as

Hawthorne experiments. They are broadly classified as:

Quantitative Approach
Quantitative approach is also known as management science approach which
was developed during Second World War to find solutions to some com – plex new
problems in warfare. As a result the quantitative approach called Op- erations
Research (OR) was developed by a team of interdisciplinary members. This deals
with formulating a mathematical model to simulate a given problem that includes
the feasibilities, constraints, costs of events etc. An optimum mix of these critical variables is arrived at, either for minimizing time or cost, or maximizing profit or
production or service etc., enabling the management to take up a logical decision.
OR techniques are widely used in project planning and control where bet – ter
benefits have been obtained with its use.

Systems Approach
The classical approach emphasizes on the structure and task, the behavioural
approach emphasizes on people and the quantitative approach on mathematical
modeling and decision- making based on the model. But systems approach provides
the management the integrated approach of problem solving.
A system is defined as a set of independent parts together form a unitary whole
that performs a defined task. Organisation is a system that consists of people, task,
structure and technology. Each part of the system has an indepen- dent relation
with other part. The systems approach tries to emphasize to regard the organizations as a whole, rather than dealing the parts separately. A system can be either an open system or closed system. A system that interacts with outside
environment is called open system and a system that works with in closed
boundary is called closed systems.

Systems Approach

Chapter Ⅱ
2.1 Company Summary and History

Microsoft began in 1975, with a vision by a Harvard drop -out, to see a
PC on every desktop. Today, Microsoft is a dominating the world and a leader
in multiple industries. Microsoft is listed in the Fortune 100 and has amassed
an impressive portfolio of resources, alliances, global operations, customers
and critics.

Mission Statement
"Our vision is to create innovative technology that is accessible to
everyone and that adapts to each person's needs. Accessible technology
eliminates barriers for people with disabilities and it enables individuals to
take full advantage of their capabilities."
—Bill Gates, Chairman, Microsoft Corporation

Microsoft Corporation manufactures, licences, and supports software
products for computing devices and games solutions. Its most profitable
products are both Microsoft Windows and Microsoft Office suite. Since the
1990’s, it is the most profitable IT company worldwide. It is 93,000 employees.
Supported by a partnership with IBM, Microsoft progressively dominated the
home computer operating system market, first with MS- DOS in the mid- 1980s,
second with Windows. Microsoft is also present in cable TV with MSNBC

• Brand loyalty & reputation
• Easy to use software
• Tie-ups with hardware industry
• Robust financial performance
• Acquisition of Skype

• Poor acquisitions and investments
• Dependence on hardware makers
• PC markets have matured
• Slow to innovate

• Cloud based services
• Mobile advertising
• Mobile device industry
• Growth through acquisitions

• Intense competition
• Changing consumer behavior
• Open source projects
• Potential lawsuits cable television network and Internet accesses with the MSN Internet portal.
The co mpany also markets computer hardware as well as home entertainment
products such as the Xbox, Xbox 360. 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. Through several analysis tools this report will make
recommendations for Microsoft’s business strategy in the near future
in the enterprise software industry
Environmental Analysis (SWOT analysis)
Strengths Weaknesses

Opportunities Threats

2.2 Strengths
 Brand loyalty & reputation. Over the years, Microsoft has
been the leading OS and software provider, which resulted in more than
90% market share for PC OS. 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.

Microsoft’s brand is the 5th most valuable brand in the world, valued at $
57.8 billion. Brand reputation leads to higher sales and greater market share.
 Tie ups with Hardware manufacturers. The company
works with all the major computer hardware producers like Dell 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.
 Easy to use software. Microsoft products including its
flagship Windows operating system are popular among the masses
because of great quality and many decades of experience that Microsoft
has put into its development.
 Strong Financial surplus. 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.
 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.
Weaknesses
 Bad Investment Decisions. Many of Microsoft’s
acquisitions were n ot successful. Massive, Link Exchange, WebTV,
Danger are just few examples of multimillion acquisitions made by Microsoft but soon shut down or divested.
 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 c hoose the alternative and Microsoft could do

little to change the situation.
 PC market has matured. 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.
 Slow in Innovation. 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.
 Acquisition of Nokia. With nearly 18,000 layoffs planned in
FY 2014, 12,500 of which will be from Nokia division, there are
speculations that Acquisition of Nokia has been a bad move for Microsoft in
the short term leading to a drop in share prices. The company is expected to
recover the costs by 2016. However, Mic rosoft is playing a long strategy in
this case seeing growth potential of the Smartphone market.

2.3 Opportunities
 Cloud based services. Microsoft could expand its range of
cloud services and software as the demand for cloud- based services is
expanding.
 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.
 Mobile device industry. Smartphones and tablets markets
will gr ow steadily over the next few years and Microsoft could exploit this
opportunity by introducing more of its own tablets and a new company
phone.

Bargaining
Power
Industry

Switching costs:
Concentration of competitors: High
Diversity of competitors: High
Product/price differentiation: High Bargaining
power

Switching Costs: High
Buyer concentration: High  Growth through acquisitions. With a huge reserve of cash
Microsoft could start acquiring new startups that woul d bring new
technology, skills and competences to the business.
2.4 Threats
 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 A pple have already
established positions.
 Changing consumer 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.
 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.
 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 p robability for more expensive lawsuits to
come.

Enterprise Software Industry Analysis (Five Forces Analysis)

Threat of Substitutes
Brand loyalty: High Switching
Costs: High Close relationships:
High
Threat of New Entrants
Cost of entry: High Economies of scale: High Brand
loyalty: High
Product differentiation: High Proprietary knowledge: High
Potential Retaliation: High

Chapter Ⅲ
3.1 Industry rivalry: HIGH
There is considerable rivalry within the enterprise software industry. The
intensity of industry rivalry within the enterprise software industry is affected
by several factors: (1) the concentration of competitors, (2) diversity of
competitors, (3) product differentiation and
(4) price differentiation.

First, there is a high concentration of competitors within the industry.
Several large multinational vendors and a handful of smaller localized firms compete in the enterprise software industry. Many of the companies have very
specific s kill sets that concentrate on segments of the industry while a few
have very general skills that apply across the board. Since the edges of the industry are not clearly defined, several of the larger companies not only
produce and consult on hardware and software, but also manufacture operating
systems, general computer software, and development platforms. Third, there
is considerable product differentiation within the industry. Enterprise software
applications can be tied together in a myriad of ways and run of various platforms.
The products are differentiated by being focused on different size
enterprises, levels of customizability, and varying deployment and
development times. Fourth, considerable variation in price exists within the
industry and there is a significant amount of price competition. The
boundaries of the industry are blurred and companies tend to vary their pricing
schemes depending on the total number of licenses purchased. Prices vary depending on the size of the client, the clients syst ems, the types of software
required, the amount of consulting required, the amount of training required, and the amount of technical support required.

3.2 Threat of New Entrants: LOW
For several reasons, the threat of new entrants to the industry is
somew hat low. First, the capital requirements to enter the industry are very
large. The cost to design and develop enterprise software is extremely high due
to the large amount of time it takes to do so successfully and the limited
availability of people who possess the required proprietary knowledge. The
software development process is quite long and expensive due to the reality of
the software development lifecycle. There is also a limited amount of skilled
personnel who can successfully develop and consult on enterprise software.
Such skilled employees also come at great expense. Second, the companies
within the industry have already achieved economies of scale, thereby reducing
the potential profit that a new entrant could obtain. In general, the companies
within the industry have already achieved absolute cost advantages because of
the length of time that they have been participating in the industry. Third, there
is considerable product differentiation within the industry. The major
companies have very strong brand names and tend to invoke strong customer
loyalty. Compatibility issues also play a role in loyalty because of the high
switching costs associated with changing vendors. Lastly, proprietary
knowledge and existing intellectual property are important c omponents of
competing in this industry, which inhibits new entrants.
If a new company were to attempt to enter, the major players would most
likely react immediately. Since the technology used in the software industry requires it to be compatible with other software and continue to be supported,
the existing companies could intentionally create compatibility issues by
altering their platforms or halting the support of platform or hardware.
However, if a new company had a promising piece of software or skilled
employees, it is most likely that one of the major companies would take over the
new firm in order to acquire the technology for themselves.

3.3 Threat of Substitutes: LOW
There are few substitute products that compete with enterprise software.
The old way of maintaining and sharing company information was
manual paper archival systems or printed reports from separate databases. The
modern way of connecting all of a business’s information requires enterprise
software. A business could continue with building multiple disparate systems,
however, they would never be able to achieve what an enterprise software
business solution could provide. Therefore, enterprise software is more flexible,
scalable, and less expensive than the older types of solutions. The near absence
of modern substitutes in the industry is a good sign for the companies within the
industry.

Bargaining Power of Suppliers: LOW
Within the industry, the bargaining power of suppliers is quite minimal.
The main reason is because there are few suppliers with whom the companies
must negotiate. The fact that enterprise software applications are an
intellectual and intangible product rather than a physical product minimizes
the number of suppliers required.

Bargaining Power of Buyers: LOW
The bargaining power of buyers within the enterprise software industry is
fairly minimal for several reasons. First, the concentration of buyers is growing
quickly; however, they are a very diverse and non -unified group, because they
all have different bac kgrounds and needs. Second, more companies are

deciding that enterprise software is a necessity for their business. Therefore,
they are often willing to pay the going rate. Lastly, there are extremely high
switching costs from one supplier to another, due to the high cost of the related
infrastructure for these types of systems
Capabilities & Core Competencies

Identifying a firm’s resources and capabilities, and thus its core
competencies, is a vital step to establishing corporate strategy and to achieving
profitability. Resources and capabilities, in order to be strategically valuable,
must be superior to those of competitors. Resources include assets specific to
the firm and capabilities are the ability to utilize these resources effectively

Tangible Resources
 Cash Reserves: Microsoft has approximately $67 billion in
cash reserves, giving them a large amount of financial flexibility.
 Operating Revenue: Microsoft reports revenue in FY 2013 as $86
billion. Microsoft ranks
#34 in the Fortune 500.
 Financial Leverage: Microsoft is currently not highly leveraged
with a leverage ratio of
0.79 in 2014. Therefore they have the option of pursuing further debt
financing in order to finance growth, if necessary in the future.
 Property and Equipment: Of Microsoft’s ne t physical
assets, almost half, is related to computer equipment and software.
Additional holdings include land and buildings, totalling $9.9 billion
before depreciation expenses.
 Distribution Channels and Customers: Microsoft has
established distribution channels for its products, including online vendors
and retailers. Microsoft also has an established customer base.

All of these tangible resources indicate that Microsoft has significant
borrowing capacity, resilience, investment capacity and reserves

Intangible Resources
Intangible resources include technology, reputation and corporate
culture. Microsoft’s technological resources include its research capacity
and intellectual property portfolio.
 Research and Development: Microsoft employs almost 1100
people purely dedicated to long- term future focused research in lab facilities
throughout the world, and spent more than $9 billion in FY’14 for these activities.
 Intellectual Property: Microsoft maintains a large patent
portfolio. Microsoft has 40,000 patents and many other forms of intellectual
property

In addition to technological resources, Microsoft’s primary intangible
resources lie in its reputation and brand. The Financial Times ranks Microsoft
just after Apple, as the number two most valuable brand name in the world
Additionally, Microsoft’s reputation is another of its strongest resources.

Chapter ⅠⅤ
Microsoft’s unique culture is an additional intangible resource. It can be
described as casual, fun, team -oriented and intense. Employees are valued for
their contributions. Such a highly dedicated workforce, developed through a
strong culture and identity, represents a significant competitive advantage.
Intangible resources are immeasurably more important than tangibl e resources
because they are less easily copied by competitors. Microsoft is in a strong
position regarding intangible resources due to its technological capacities, brand
equity and cultural intensity.

4.1 Human Resources
A company’s human resources can be measured in terms of its
employee’s qualifications, commitment. Microsoft is able to attract and retain
the best talent in the information technology business. Their employees are
educated, dedicated and committed to their company, and this loyal and
intelligent employee base is a very strong resource for Microsoft.

Capabilities
Beyond identifying resources, a firm should leverage those resources
into capabilities, in order to determine competitive advantage. Microsoft has
many capabilities that enable them to use their resources effectively by being
embedded in company routines, including:
 Financial control
 Capacity for decision making
 Continuous improvements
 Brand management

 Ability to identify and respond to market trends and adapt
 Engineering and technical know -how
 Research capability

Microsoft’s core capabilities allow the company to dominate the
market and to shape the direction of the technological future.
Strategic Groups in Software Industry

Figure 1 : Strategic Map

 Cloud Databases (DaaS): Companies in the Cloud databases (aka
Database- as-a-Service or DaaS) strategic group provide on- demand
relational database software, available on a pay -as-you-go basis, based on an
elastic architecture. This enables users to employ a relational database

without having to purchase any software or servers, or manage the
configuration.
 Cloud Platforms (PaaS): Companies in the Cloud platforms (aka
Platform -as-a-Service or PaaS) strategic group provide complete on- demand
development environments and tools, including an abstracted Cloud infrastructure layer and Cloud database, enabling enterprise IT groups
develop, test, and deliver custom on- demand business applications without
investing in traditional Systems Software or infrastructure. Cloud platforms, such as Microsoft Azure , also offer a stand- alone relational Cloud database,
putting them in direct competition with pure -play DaaS firms.
 Traditional Software: Companies in the traditional Systems
Software strategic groups provide programming languages, relati onal
database software, Integrated Development Environments (IDEs), private
Cloud environments, middleware, and other tools enabling enterprise IT
groups to develop, test, host and manage custom on- premise business
applications.
4.2 Strategic Partnerships
Strategic alliances are unique organizational structures that enable
cooperation between companies. They help to spread risk, mitigate costs, and shape future opportunities.
Microsoft maintains many partnerships and alliances to help further its goals.

Enterprise Software Alliances
In the enterprise software arena, Microsoft maintains significant
alliances with Dell, HP and IBM. Each provides co -specialization benefits for
both Microsoft and the partner.

 HP: The HP and Microsoft global strategic allianc e is one of
the longest standing alliances of its kind in the industry, with more than 25

years of combined marketplace leadership focused on helping customers and
channel partners around the world improve productivity through the use of
innovative technol ogies. HP and Microsoft are working together and
combining their respective strengths to deliver innovative technologies to help advance businesses. Together they take familiar platforms from mobile
devices and desktops to data centre and cloud – and build integrated
solutions; Microsoft won PartnerOne Alliance Partner of the Year –
Americas from HP in FY 2013
 IBM : The alliance with IBM allows Microsoft enterprise
applications to run on IBM servers. For customers, the benefit of the alliance is that all parts of your solution hardware, software, and
middleware will install quickly, start up easily, and run reliably.
 Dell: Additionally, Microsoft maintains an alliance with
Dell which is designed to help business reduce the complexity and cost of
deploying a server based environment and to create a comprehensive and
integrated set of distributed computing services using both Dell and Microsoft technologies.
 Facebook : Under the strategic alliance, Microsoft is the
exclusive third -party advertising platform partner for Facebook, and sells
advertising for Facebook internationally in addition to the United States.

4.3 Current Business Models

Microsoft largely pursues a long -term positioning strategy of
differentiation, emphasizing branding, software design, quality service and
innovation, as opposed to a low -cost strategy, which emphasizes economies of
scale and reduction of input costs. Companies that pursue a differentiation strategy, such as Microsoft, are common in that they have access to research,
highly skilled employees, a strong sales team and a reputation of excellence.

Microsoft has been a market leader in the Enterprise software industry.
However, the PC market revenues are declining because of market saturation.
Microsoft’s late entry into the mobile market might is already haunting the
company executives.

“One Microsoft, One Strategy” – Alignment Strategy
Microsoft previously operated its business under five segments: the
Windows Division, Server and Tools Division, Online Services Division,

Microsoft Business Division, and Entertainment and Devices Division. In
July 2013, management announced a change in organizational structure as
part of its transformation to a devices and services company under the “one
strategy, one Microsoft” banner.

The realignment aims at improving revenues due to declining PC sales
and reducing the duplication of efforts across various divisions. Although Microsoft revenues increased for the year ending June 2013, a fall in PC sales
continued to impact earnings. For fiscal year 2013, the company’s revenue
grew 6%, to $77.85 billion. Microsoft said 2013 revenue increased, primarily due to higher revenue from Server and Tools as well as revenue from
new products and services, including Windows 8, Surface, and the new
Office. These gains were offset in part by the impact on revenue of a decline in the
x86 PC market. It seems that Micros oft is trying to end its dependence on the
saturated and now declining PC market by shifting to new markets such as mobile,
cloud services, gaming, search, and tablets.

Mobile First, Cloud First world

The industry is moving from PCs to Mobile / Tablets / Other devices,
from Licensing to Licensing & Subscription, from On- premise software to
Cloud computing. Microsoft is currently in the process of transforming
itself from a software player to a “devices and services company” in an
organizational overhaul aimed at improving sales and MSFT’s competitive
position. Microsoft’s $7.2 billion acquisition of Nokia’s devices and
services business last year is in line with this transformational move.

By transforming into a devices and services company, Microsoft aims to
primarily monetize high- value activities by leading with devices and enterprise
services. The consumer x86 PC market is declining, as users have continued to
prioritize devices with touch and mobility. At the same time, Microsoft’s
enterprise products and cloud solutions are seeing continued strength, and
adoption of Microsoft’s consumer services has increased. After missing
revenue expectations in four out of the five previous quarters, Microsoft beat
analyst
expectations in 1Q 2014 earnings on the back of strong growth in the
company’s enterprise and consumer segments.

Microsoft’s consumer services, such as Bing and Skype, will differentiate
Microsoft’s devices and serve as an on- ramp to its enterprise services while
generating some revenue from subscriptions and advertising. Enterprise
services will remain an area of growth and opportunity as businesses of all sizes look to move to a cloud, manage a growing number of devices and tap into big
data.

Microsoft’s current CEO Satya Nadella announced t hat it would be
making Windows free for phones and tablets (< 9” screens). Free Windows
licenses factor into Nadella's plan to make Windows ubiquitous. This is

consistent with the fact that Windows Phone OS growth hasn’t been gaining
momentum among the phones and tablets market.
Future Recommendations
Microsoft has been a technology industry leader and has strong
capabilities and resources to make anything possible. We recommend it to
make improvements in the following areas:

“Mobile First, Cloud First” strategy
Microsoft has been lagging behind in the mobile markets (vis- à-vis
smartphones, tablets, etc.). Its Windows Phones which come with a Windows
Phone OS constitute only 3.6% of the entire market. It has acquired Nokia in
hope of improving its market share and making a turnaround. We recommend it
to invest and innovate more in the mobile market segment purely because of the
growth potential this segment has and also since it seems to be the future of
personal computing.

Product Innovation and Invention
Microsoft has been the industry leader because of the constant research
and innovation and the wide range of products and services it provides. Trend
suggests that in house developed products have been Microsoft’s strength:
Windows OS, Office Suite, Windows Server, etc.
Instead of focusing on acquiring new companies it should invest more
internally to come up with new products.

Reduce Poor Investments
Microsoft has been making too many blunders while acquiring new
companies. It should improve its investm ent research and try to cut down on
the rate of poor acquisitions. More often than not, Microsoft has been bad at

making the acquired companies profitable. It should be more investigative
before acquiring any company in the future.

Strengthen Strategic alliances
One of the few ways to sustain the market dominance and leadership is to
make many strategic business alliances in the industry. This has been
Microsoft’s strength since its existence and it should try to keep the existing
partners while trying t o find new partners for competing in the industry.

Cut down unprofitable Products
For example Bing search engine. Despite having 18.1% of market
share, it has been a bleeding investment for Microsoft for many years. It
should decide the strategy for such products, and possibly cut down on loss
generating services.

Microsoft Research Division
Microsoft has been spending huge amounts of money on general
computer science research, which might be good for the future but doesn’t
lead to any significant returns in the short term. It’s necessary to be more
efficient while investing in research like it’s competitors such as Google and Apple.

References
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