Key Strategies of Microsoft Corp.

Microsoft Corp.

Software development, licensing, and support are all services provided by Microsoft Corp. (Microsoft). The company provides a wide variety of operating systems, server applications, cross-device productivity tools, business solution tools, desktop and server administration tools, video games, and training and certification services. Additionally, it creates, produces, and markets PCs, tablets, gaming consoles, and other intelligent gadgets. The company offers a wide range of services, such as consultancy, cloud-based solutions, and solution support. Through original equipment manufacturers, distributors, resellers, online marketplaces, Microsoft stores, and other partner channels, Microsoft promotes, distributes, and sells its products. The company has operations throughout the Middle East, Africa, the Americas, Europe, and Asia-Pacific. The US city of Redmond, Washington, is where Microsoft is based.

The general competitive advantage strategy of Microsoft Corporation is in line with its specific growth strategies. Optimizing organizational performance through alignment. The generic strategy of a corporation outlines the overall plan to maintain corporate competitiveness. Despite a wide range of competitors, Microsoft’s general competitive strategy enhances the appeal of its computer hardware and software offerings. On the other side, a company’s intensive growth strategies outline the methods employed to secure business development and growth. In this instance, market penetration is currently given priority in Microsoft’s rigorous growth tactics. In the computer hardware and software industry, the other strategies serve as backup plans.

The generic business strategy of Microsoft Corporation gives the company a competitive edge while allowing it to keep a wide market focus. However, in a very cutthroat worldwide computer hardware and software business, market penetration is employed as the primary intensive growth strategy to sustain Microsoft’s growth.

Generic Strategy of Microsoft Corp.

Microsoft Corporation’s general strategy for competitive advantage is broad differentiation. Unique products are supplied to a wide range of clients as part of broad distinction. In this situation, the qualities of Microsoft’s products are distinctive, such as software created especially for commercial enterprises. Additionally, this general competitive strategy is broad in that the business sells its goods to a range of market sectors. For instance, people, families, and businesses purchase Microsoft’s hardware and software products. The corporation develops its competitive edge through the broad differentiation generic strategy to draw in a sizable consumer base globally. The mission and vision statements of Microsoft, which place an emphasis on dominating a global market, are also in line with this general strategy.

Creating a competitive advantage for your company through ongoing product innovation is a strategic goal that can be achieved under Microsoft’s broad differentiation generic approach. Given that Microsoft competes in a sector that is undergoing fast change and is extremely dynamic, achieving this strategic goal is essential for long-term success. Another strategic goal related to the general strategy of broad differentiation is the distinctiveness of product design. This strategic goal emphasizes how crucial both material and intangible product qualities are to maintaining Microsoft’s competitive edge. Due to its focus on the Windows operating system, the corporation, for instance, may create novel computer hardware and software solutions that are difficult to duplicate.

Intensive growth strategies of Microsoft Corp.

Market Inclusion (Primary Strategy). The main intensive strategy used by Microsoft to expand its business is market penetration. Selling more items to the markets where the company already operates is part of this aggressive growth plan. For instance, the business expands by stepping up marketing and sales in its existing Asian markets. The reason for Microsoft’s hegemonic position in the market for IBM PC-compatible operating systems is its aggressive growth strategy. Through the broad differentiation generic strategy, which leverages product distinctiveness to draw more clients from diverse market categories, the company successfully penetrates the market. This comprehensive strategy’s strategic goal is to assure Microsoft’s expansion through aggressive sales and marketing.

Product Creation (Secondary Strategy). Product development is used by Microsoft Corporation as a secondary, high-intensity growth strategy. Growth based on the creation and marketing of new items is made possible by this aggressive strategy. For instance, Microsoft consistently creates new software products to increase sales. The business maintains its generic approach, which depends on product originality as a competitive advantage, with new goods that cater to market needs. This comprehensive approach highlights the strategic goal of supporting Microsoft’s expansion through product innovation.

Development of the market (Supporting Strategy). Market development is a supporting intensive growth strategy that has little effect on Microsoft’s current business performance but has a significant impact. Through the company’s entry into new markets, market development supports business growth. For instance, Microsoft’s early years were marked by the intensive implementation of this strategy for promoting its computer software offerings outside of the United States. Market development, on the other hand, no longer plays a significant role in the company’s expansion due to these products’ already widespread popularity. Microsoft is able to use market development as an intensive growth strategy thanks to the general strategy of broad differentiation. The company, for instance, first entered international markets with distinctive computer products tailored to businesses. Microsoft’s expansion into new markets, most likely in developing nations or regions, is a strategic objective connected to this extensive strategy.

Diversification (Supporting Strategy). Diversification is viewed as a method for intensive growth support by Microsoft Corporation. By creating new businesses, the corporation expands under this intensive strategy. For instance, when Microsoft bought Nokia’s devices and services group to re-enter the smartphone hardware industry, it diversified its business. Based on the broad differentiation generic strategy, the corporation can successfully implement this aggressive growth strategy through new product development in new business partnerships. This intensive strategy’s strategic goal is to support Microsoft’s expansion through mergers and acquisitions.

Microsoft Corp. competitive advantage

These competitive advantages show how Microsoft conducts business around the world with well-known product families including Windows, Office, and Azure. Microsoft benefits from the network effect, economies of scale, and good branding, yet it competes in areas that are evolving quickly and are extremely competitive.

Based on the competitive strength of its Office and cloud-based products, Morningstar gives Microsoft a significant economic moat. Microsoft will need to keep increasing its margins and earnings, especially in the field of intelligent cloud services, in order to sustain this competitive advantage.

Economic Moats

The idea of an economic moat, which is a lasting competitive advantage that enables a business to make an economic profit for the foreseeable future, was created and popularized by Warren Buffett. Without a moat, profit margins will eventually decline to the point where they are equivalent to return on capital invested (ROIC).

Economies of scale, network effects, intellectual property, brand identification, or legal exclusivity can all be used to create moats. The core of Buffett’s strategy is to find companies with cash-flowing sustainable moats, estimate the present value of those future cash flows, and buy stock when the price declines below the current value of those cash flows.

Microsoft Corp. Moats

Margin stability and return on invested capital (ROIC) in comparison to weighted average cost of capital are quantitative measures of competitive moat (WACC). As of June 1, 2021, Microsoft’s most recent 12-month ROIC was 26.4%, while its WACC was about 6.8%.

While Microsoft’s WACC represents the minimal return demanded by the company’s equity and debt capital sources, Microsoft’s ROIC measures the company’s capacity to create a return on invested capital. Microsoft is generating value for its shareholders since its ROIC exceeds its WACC, which will be reflected in the price of the stock. These measures can also be used to gauge how strong a company’s competitive moat is. In fact, Microsoft’s ROIC is in the 96.5% percentile for American businesses involved in the information technology industry.