VALUE IMPROVEMENT AT MICROSOFT

9 Pages   |   2,181 Words
Table of Contents
Introduction. 1
Discussion. 2
Financial Restructuring. 2
Antidote Innovations. 3
Market Facing. 4
Destroy Bureaucracy. 5
Eclipse of Migration Management 5
Conclusion. 6
References. 8

Introduction

Microsoft Corporation is one of the largest multinational companies which produce software for all kinds of computers. Microsoft Corporation is a manufacturer of a wide range of software and hardware products and their support. The organization’s earliest reputation and credibility was created by its line of Windows operating systems. Today the company manufactures a variety of products ranging from server software, games and tools development programs. Some business units of the company also produce video game consoles Xbox, as well as, hardware accessories for personal computers like keyboard, mouse, etc. In the year 2012, the company has begun to market its own tablet computer – named Surface. Microsoft’s products are sold in more than 80 countries, and its programs are translated into more than 45 languages. The company's headquarters are located in Redmond and the staff of the corporation is approximately ninety thousand.

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Microsoft is interested in buying up promising IT ventures. Much of the growth of Microsoft is built around acquisitions of IT companies.  In 2008, Microsoft tried to buy Yahoo! for $ 48 billion, however owing to the opposition of its minority shareholders the deal didn’t go through. In May 2011, Microsoft announced the acquisition of Skype which specializes in Internet telephony for $ 8.5 billion. The paper discusses value improvement reforms which can be adopted by Microsoft Corporation for its sustained growth in the face of intensifying competition in the industry. The framework used for the suggested improvements in the value propositions is derived from the book titled, ‘The Value Mandate: Maximizing Shareholder Value Across the Corporation’ authored by Peter J. Clark and Stephen Neill. The objective of the analysis is to identify those value enhancement propositions in the text which are most relevant in the context of Microsoft Corporation and its industry.

Discussion

From the reading of the text, five value enhancement propositions have been identify which are most relevant in the context of Microsoft Corporation and the product offerings of the organization. These opportunities are discussed under:

Financial Restructuring a major opportunity for Microsoft Corporation is carrying out a restructuring in its business financing, and consequently reducing cost of its capital and improving return on its investment. According to Clark and Neill (2001; p 92) is a very fundamental opportunity since majority of organization in every industry are not making an optimum usage of its cost of capital, giving an edge to those business which realize the importance of maintaining low financing cost and at the same time controlling their financial leverage. By carefully managing its finnacial leverage, Microsoft is able to gain competitive edge among software and hardware manufacturers. A significant proportion of Microsoft’s financial resources are in the form of liquid assets which does not any sizeable return for the business. This is indicated by Current Ratio and Quick Ratio of the business which is 2.7x and 2.4x respectively (Indigo Equity Research, 2012). When the current assets of the organization are almost three times of current liabilities, then it shows Microsoft is maintaining a superfluous amount of resource as Short-Term Investments and Trading Assets Securities, whose rate of return is well below the cost of capital of the business. In addition, the long-term debt of the business is in excess of 3,700 million USD representing a debt/equity ratio of 18x (Global Data, 2012).
The opportunity for Microsoft is to carryout of financial restructuring and decreasing leverage of its business by paying of its debt. The net benefit for the organization will be lower financing cost increasing profitability and return on investment. Secondly, the riskiness of the business to changes in business cycle and changes in demand for its products.  Since, Microsoft operates in a highly dynamic industry, this form of opportunity mentioned by Clark and Neill (2001; p 93) is very important because software and hardware manufacturing is a highly dynamic industry. Financing decisions for these businesses hold greatest importance in terms business competitiveness and survival.

Antidote Innovations is another recommended action for Microsoft given the terrain of IT industry. The concept of antidote innovation according to Clark and Neill (2001; p 151) is of a break-through and revolutionary innovation rather than marginal improvement in existing product or service offering. What Microsoft needs to aim at is an innovation which changes industry dynamics for the much needed organizational growth. This innovation will allow the company to reach new customers and make competitors’ products obsolete. Most importantly, it will help grow the brand image of the company.
Antidote innovation is the result of a chain of specific marketing innovation and this chain is rooted in unmet needs of consumers. In view of Clark and Neill (2001; p 152), problems of customers are opportunities for the organization. This marketing innovation chain involves a series of steps; each of them is used to filter or dispose less promising innovation and identify revolutionary innovations to enrich the organization’s product portfolio. Microsoft needs to move ahead of architectural innovation is an innovation based on the links between components, but that does not change radically the concept behind the product. Radical innovation should be the aim of the company which profoundly changes the conditions of use by clients and / or is accompanied by a technological revolution (Global Data, 2012). A word of caution for Microsoft is that sometimes revolutionary technology is dormant, which can take a long time to grow to its true potential when the external environment is conducive and ready for the innovation.

Market Facing A highly important value creation opportunity for Microsoft Corporation is to transform its perspective of looking at business from an inside-out perspective to outside-in perspective. According to Clark and Neill (2001; p 220), majority of organizations which have been a makret leader for long become gratified and tend to look at the market from the perspective of tehir products. This depiction by authors is quite filling for Microsoft, which has been a market leader in software industry for a long time, and has adopted a product outlook towards marketing. Rather than seeking to understand the needs of their customer as the starting point of marketing and product development, Microsoft has begun to fit customer needs to its products (Global Data, 2012).
To exploit this opportunity, it is important for Microsoft to understand customer needs, and the benefits which they associate with the products and services. In the second step, the organization of production, service and maintenance should be adopted in line with the specifications of customers. The organization must maintain contact with clients and disseminate the information gained from this contact to all its departments, and then use the acquired knowledge to produce hardware and software in accordance of needs of customers. It is important to point out that when collecting information about the material needs and values of the customers, both actual and potential customers must be involved. Thirdly, it is imperative for Microsoft to make changes to its research and production programs in accordance with the information gained from marketing research. Another important consideration pointed out by Clark and Neill (2001; p 221) is that to avoid problems with excess information, the company must know in advance how to analyze the rich data to convert it into a form for decision making.

Destroy Bureaucracy One major block in organizational growth among large organizations possessing market leadership is bureaucratization of the management process. The signs of such occurrence according to Clark and Neill (2001; p 210) are the presence of excessive rules and regulations, centralization of decision-making, isolation of workers from management and presence of complex informal structures of power. All these factors together create favorable conditions for bureaucratic arbitrariness. Destroying bureaucracy within the organization and disrupting status-quo is a potential growth avenue for Microsoft Corporation.  Unlike, other prominent IT companies – such as, Google – employees at Microsoft are given lesser autonomy about pursuing projects which they consider to have greatest potential in the market. Strategic decision making at Microsoft is largely concentrated at top most hierarchical level.
Measure to use this opportunity for Microsoft (derived from the study of the text) is formation of cross-functional teams within the organization which allows use of specialists-experts as a closely knit-unit. Also, rather than forming precise hierarchical reporting structure, group responsibility should be initiated at Microsoft along with wide job descriptions. Members of the group are not expected to execute only their specific function; rather they carry out a variety of tasks needed to attain group objectives. Lastly, and most importantly, employees are an integral component of strategic decision making in the organization. Employees are allowed to allocate a proportion of their company-time (10-20%) on a project to their choice, which they consider to have a high potential in the market place. Microsoft can find several promising opportunities for growth by following the text about disregard for status-quo and bureaucracy and forming an organizational culture around achievement.

Eclipse of Migration Management optimization of the phases of the product life is a highly important opportunity for Microsoft since computer software and hardware industries are so fickle that a highly successful product can become irrelevant for consumers in a brief span of time. An example of this phenomenon is ‘MySpace’ which lost its market worth and monetary value overnight. Every enterprise depends on the revenues of the products that it produces. Microsoft need tap the opportunity to maximize profits by optimizing each phase of the product’s life.
The organization needs to collect data from all sources in the enterprise, and use them for product development as the basis for effective decision-making early in the design process, while reducing the time lag to market, increase product quality and reducing costs to changes in the later stages of the life cycle of a product. This approach will not only make launches of new products faster and at lower cost for Microsoft but it will also enable the organization to identify the best time to earn revenues from the product. Clark and Neill (2001; p 165) recommends company executives to get all the information one need to track, control, monitoring and analysis of products throughout their life cycle. It is imperative to receive timely and direct access to the most important product information to quickly make informed decisions, reduce cycle changes and approval, and to establish a more effective collaboration across the enterprise.
It must be pointed out that exploitation of this opportunity is not likely to be easy since managing an IT product’s life is a complex and multi-layered task. It includes five sequential and interdependent steps of structuring, diagnosis, determination of objectives, strategies, their evaluation and a final selection of the most balanced product portfolio structure. Optimal solution is a strategic one which should best meet the full range of the organization's objectives in the short run, as well as, and in the more distant horizons of organizational future.

Conclusion

The paper discussed value improvement reforms which can be adopted by Microsoft Corporation for sustained growth. There is intensifying competition in the industry. The framework which is used in the paper for identifying opportunities for Microsoft is derived from the book titled, ‘The Value Mandate: Maximizing Shareholder Value Across the Corporation’. The objective of the analysis is to identify those value enhancement propositions which are most relevant in the context of Microsoft Corporation.
Five value enhancement propositions have been found for Microsoft Corporation. It is found that Microsoft can increase investment on research and development, and consequently gaining market share through improved product and service features. The research activity should be original investigation undertaken to acquire new knowledge and directed towards a practical aim or objective. It is concluded that the organization can also improve management of it Research & Development cost to derive optimum benefit from its sizeable R&D expenditure.  The organization should seek to make a strategic decision about further investment in its business divisions based on their value to the organizational goals and objectives. In addition, Microsoft needs to aim at bringing innovation which changes industry dynamics for the much needed organizational growth. Microsoft should also accelerate the pace of innovation, since the competitors of the organization are also likely to be in pursuit of innovation. It is concluded that optimization of the phases of the product life is a highly important opportunity for Microsoft given the dynamics of information technology industry.

References

Clark, P. and Neill, S. (2001) The Value Mandate: Maximizing Shareholder Value Across the Corporation, California: Amacom Books.
Global Data (2012) Microsoft Corporation (MSFT) - Financial and Strategic SWOT Analysis Review, 1 Oct, [Online] [4 Dec 2012].
Indigo Equity Research (2012) Microsoft, 21 Oct, [Online] [4 Dec 2012].
Knepper, S. (1991) The making of Microsoft: how Bill Gates and his team created the world's most successful software company, Ohio: Prima Publications.
Richardson, A. (2004) The Story of Microsoft, Minnesota: Smat Media Publishers.

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