MICROSOFT CORPORATION

Microsoft Corporation is an American multinational technology

company headquartered in Redmond, Washington, that develops, manufactures,
licenses, supports and sells computer software, consumer electronics and personal
computers and services. Its flagship hardware products are the Xbox game consoles and
the Microsoft Surface tablet lineup. It is the world's largest software maker measured by
revenues.

Salient Features:
1. Strong Leadership: The ability to motivate employees to welcome the
challenge to move mountains.
2. Incremental Change: Started in 1974 as a software company has now moved
into service industry too.
3. The Microsoft Corp. considers the concepts of global diversity and inclusion to
be key components of the organizations culture and vision.
4. The company is well known for their innovation in product and services and
the way they solve problems and in the way they serve needs of an
increasingly global and diverse customer and partner base.
5. Major shareholders: Jarislowsky Fraser Limited, Northstar Capital Management
Pacific Crest Securities, Wells Fargo Private Client Services, John Hancock
Technology Fund, Peter Schroeder Victory Capital Management, McAdams
Wright Ragen
6. Microsoft has transformed its business model by switching from an income
stream that was almost entirely based on revenues from licensed products, to
a model that focuses on revenues earned from advertisements and
subscriptions.
Porter five forces
Industry rivalry: high
Considerable rivalry. The intensity of industry rivalry is affected by: concentration of
competitors, diversity of competitors, product differentiation, price differentiation.
There is a high concentration of competitors within the industry. Most consumers
are well aware of Microsofts competition with Apple in the PC marketplace.
However, Microsoft is also in a steady state of competition within several other
product marketplaces with mobile phone companies, online advertising companies,
gaming companies, business-to-business consultancies, and as of recent, search
engines.

Threat of entrants: low

The threat of new entrants is low which is due to the following facts: Capital
requirement for entrance is very large. Cost to design and develop enterprise
software is very high. Software development process is long and expensive. There is
limited amount of skilled personnel who can successful develop and consult on
enterprise software. Second, the companies I this industry have already achieved
economies of scale, hence reducing profit potential of a new entrant and the fact
that they have been participating in the market since a long time. Third, there is a
considerable product differentiation within the industry. The major companies have
a strong brand names and have customer loyalty. Compatibility issues also play a
vital role in loyalty because of the high switching costs associates with changing
vendors. Lastly, proprietary knowledge and existing intellectual property are
important components of competing in this industry.
Threats of substitutes: high
The software market is highly competitive, which may impact the companys
performance. The company faces stiff competition in all its segments. Its key
competitors in Windows Live software and services include Apple, Google and
Yahoo!. Its Internet Explorer product faces stiff competition from the browsers
developed by Google (Chrome), Apple (Safari), Mozilla, and Opera Software
Company. The companys server and tools products compete against the related
offering of IBM and Oracle. In addition its embedded systems have direct
competition with the offerings of IBM and Intel. In the mobile software segment, the
company faces stiff competition from the likes of Apple 's iPhone and Google's
Andriod. Some of its key competitors for its Microsoft Office products include Adobe,
IBM, Google, Apple and Oracle. It competes with Nintendo and Sony in its
entertainment devices business. Such an intense competition across all its business
segments may make the company susceptible to market pressures, which leads to a
loss in the market share and decline in revenue.
Bargaining power of suppliers: low
There are few suppliers with whom the companies must negotiate. The fact that
enterprise software applications are intellectual and intangible product rather than a
physical product minimizes the number of suppliers required.
Bargaining power of buyer: low
The bargaining power of buyer is minimal. The concentration of buyers is growing
quickly. More companies are deciding that enterprise software is a necessity for
their business. So they are willing to pay the going rate. Then there are switching
costs from one supplier to another, due to costs of the related infrastructure for
these types of systems.

Journey of Microsofts organizational structure

(1) From the year 1974-1990, company was in entrepreneurial stage, Bill Gates, the
founder wanted to create family work environment.

(2) Company then moved to Flat Structure .The initial organizational structure then
moved into functional structure. The company started with only 11 positions and

continued to expand ovyears.

CEO

Marketing

Production

Human
Resources

Information
Technology

Customer
Service

3) As the company grew companies moved from flat to tall structure increasing the
level of hierarchy .

(4) As of 2010, Steve Ballmer (CEO of Microsoft) has a Product Based Divisional
organizational structure.
SALIENT FEATURES OF PRODUCT BASED DIVISIONAL STRUCTURE
1. Operated its business under five segments: the Windows Division, Server and
Tools Division, Online Services Division, Microsoft Business Division, and
Entertainment and Devices Division.
2. Each division, or product group focuses on a specific line of goods and
services.
3. Each group has its own R&D, sales, and Customer Service Staff.
4. Several parallel teams focusing on a single product or service line.
5. Each division having its own president or vice president

CEO
Windows &
Live
Windows

Server and
Tools

Otnline
Services

Microsoft
Business

Entertainm
ent &
Devices

R&D

R&D

R&D

R&D

R&D

Sales

Sales

Sales

Sales

Sales

Custom
er
Service
s

Custom
er
Service
s

Custom
er
Service
s

Custom
er
Service
s

Custom
er
Service
s

others

others

others

others

others

Why divisional structure?

Divisional structure allows each of its business sectors to operate

independently of the another while still reporting to central command
More customer focus: Role of technology of Microsoft Corp. shifts from
product-centric to customer centric design and service. A divisional structure
will increase the focus of marketing, customer relationship management on
the basis of product and service offering.
Easier cross-product coordination
Easier to monitor employees as they are working in one product or service
units.
Ideal structure for organizations with multiple products lines and services.
Microsoft Corp. serve consumers through more product functions including
mobile, cloud, tablet, PC, music, television , and enterprises services. This
continuous creation of new product types forces the Microsoft Corp. to adapt
by constantly adding new sub units to its structure in order to accommodate
new market.
This kind of structure also enhances control over individual operations and
projects, thereby bringing about the highest potential no matter the
challenge
Role of technology of Microsoft Corp. shifts from product-centric to customer
centric design and service.

(5) Market based Hybrid Structure is the current organizational structure of

Microsoft. This structure implemented in July 2013, as part of its transformation
to a devices and service company under the one strategy, one Microsoft
banner.
The companys goal is to become more nimble, collaborative, communicative,
motivated, and decisive.

Business is operated in five segments. Segments include D&C Licensing,

Computing and Gaming Hardware, Phone Hardware, and D&C Other.
Commercial segments include Commercial Licensing and Commercial Other.
The five new reporting segments tightly align with the companys focus on
delivering innovative devices and services for both its enterprise and
consumer customers.

This framework was designed to give valuable insight into the companys
progress in its key business transformations in order to drive long-term
growth.
Microsoft has also collapsed its eight product divisions into four divisions,
which will align around functions rather than products. The company will have
four engineering teamsnamely, Operating Systems, Application and
Services, Cloud and Enterprise, and Devices and Studios.

The companys five reporting segments are broadly classified under two
main headingsDevices and Consumer (D&C) and Commercial.
The D&C segments develop and market products and services for
consumers.
The segments enable the alignment of strategies and objectives across
the development, sales, marketing, and services organizations, and they
provide a framework for timely and rational allocation of development,
sales, marketing, and services resources within businesses.
Highly decentralized structure, project based work and innovation is core
aim.

Effectiveness of Microsoft Corporation

Effectiveness of an Organization as defined as the degree to which an
organization realizes its goals. It is related to how well the organization satisfies the
needs of the Clients. This is valid for a profit as well as not for profit organization.
There can be five steps to check the effectiveness of the organization.
The first step is defining the goals, the goals can be Growth, Revenues,
Profits , increasing market share or other similar goals. Goals have to be revised
with time and Microsoft under the new leadership has changed its outlook from the
years before. For this year the company has listed three points in the Annual report

Reinvent productivity and business processes.

Build the intelligent cloud platform.
Creating more personal computing.

Each of these points is actually one of Microsofts products. The first bullet point
boils down to Software business of Microsoft, the recently launched Office being the
major one. Cloud- Microsoft Azure and Personal computing- Windows 10 and the
apps accompanying it.
At its 2015 conference in San Francisco in April 2015, Microsoft also announced an ambitious
goal to have more than one billion Windows 10 devices in the world within a couple of years.
The next step is quantifying the goals which is generally looking for a growth in
Revenues or bottom line for a quantified amount say 5% or 10% in a specific period
(1 year). Microsoft currently has not specified any goals for the Organization as a
whole but in the San Francisco conference Microsoft officials stated they are aiming
for $20 billion in revenue from cloud services by the end of the fiscal year 2018. In
FY2014-2015 Microsoft had an operating loss of 2.1 billion dollars. This was due to
acquisition of Nokia as they had to take a 7.6 billion dollar write down. Nadella is
looking at long term growth and not on the short horizon. Most analysts have a buy
rating on Microsoft and the move is expected to pay off in future. The phone
hardware business was restructured to align resources of Nokia and Microsoft
costing the company additional 800 million dollars. FY2015 was a terrible one for
company as it had posted a loss compared to earlier ones where the company had
either met expectations or beaten them.
Third step is to check whether the goals are being met and if not check where
it went wrong. Most of the companies are not able to meet their goals but the
problem lies in why. After Nadella took over as CEO of this Redmont, W.A based
company he has done many things different than his predecessors. In an interview
Nadella described the structure by sketching three concentric circles on a paper ,
the outer ring representing concept the vision that allows firms to think about new
concepts and products , the one inside this representing capabilities and the
smallest one he calls culture. A culture should not be opposed to new ideas and
new capabilities quotes Nadella. Under Ballmer the culture was not of innovating
and employees were more focusing on protecting the edge than taking risk on new
ideas. Employees were expected to live Microsoft style, using Surface and Windows
phones, driving American. Nadella himself was using an apple product. Other
changes include fast tracking Microsofts traditional R&D cycle and replaced it with
a process in which all steps occur in parallel. Outsiders can also test ideas by
Microsoft by participating in an experiment call Garage. Another change has been to
not to consider his competitors as enemies and build relationships with long term
rival Oracle and Salesforce. Apart from this using Apple devices with Microsoft

software for public demos. Also a bold step which has been applauded by many was
to make Windows software free for devices less than or equal to 9 inch.
The last factor that is worth in checking the effectiveness of an Organization is
employee retention rate. This can be due to hygiene factors or motivators. Microsoft
features on the list of Fortune 25 best Global Companies to work for but the
company Ranks between 70 to 90 in the Fortune 100 best companies to work. This
is a bad report card comparing it to other technology firms like Google , Facebook
and the like. There is no substantial reason for this decline but going through the
articles we can say that it can be a higher pay, autonomy, benefits like free food
and the brand equity Google has developed over the years.

Recommendation and Whats Next

Microsoft Corporations most of the product is in maturity stage. The current trends
shows the declining market for most of its product. So what Microsoft need is
breakthrough innovation. The step to release Windows 10 and making it available to
all the customers freely was an extraordinary decision in this direction. To achieve
more of such successes Microsoft needs a change in structure from Divisional to
Matrix. The current Divisional structure has proves to be efficient for a long period of
time but now its not just about efficiency. Microsoft needs to think more on
effectiveness of its product.
Microsoft since beginning has focused on consumers for personal use more than
those for corporate use. As this segment began saturating the revenues started
declining since last few years. Demands for its software on servers is much less,
which is the main cause of its loss. Acquiring Nokia was a good decision but it still
need a proper direction for the mobile phones segment. So Microsoft has the
resources in abundance but it still need a proper direction for success in current
times.
It needs some changes in its structure. This should start with more self managed
groups and teams. Further it should divide the company in small autonomous units
to take care of each department. The company needs a effective combination of
entrepreneurial, divisional and hierarchical structural. Thus the matrix form should
be designed in such a way that there is innovation from the sides of employees as
well as management. The company needs to redesign the organisation as well as its
product so that it could serve the needs of the consumers. Within the current
structure the employees have sufficient freedom and space to take their decision.
But this is not enough, the company needs to adapt with the changing environment
and market. There are many of its products which are under research since a long
time. Thus, It also needs to decrease the response time.

The flipside of motivation is accountability: the fact each product has its own P&L
makes it very clear which division leaders are succeeding or failing. Microsoft in a
way is facing the problem which is in this same course. Due to this there is some
times a blame game and lack of co-ordination between the various departments of
the company. Also earlier there was a criteria for stack ranking or performance
model. In this each team reviewed its employees wherein few employees were
assessed as good and others as mediocre and poor. So even if you performed very
well there was a chance of you getting a poor review. It led to employees focusing
on competing with each other rather than competing with other companies. Thus
there is a need of efficient and effective intermediaries and liaisons. But
reorganizing the company to improve collaboration is like burning down your house
to kill termites. It ignores the root cause and a much more effective solution. So
Microsoft should also work on some more innovative approaches to tackle this
problem as it is internal to the company and directly related to employees and
departments.
The former head of the companys operating system work had pick up new
responsibilities in the new structure. He is now leading a new department called
Windows and Devices group. This department specifically could prove to be a
valuable asset for the company as it works on a combined area of software and
hardware. With the acquisition of Nokia, Microsoft can acquire a good place in
market of mobile phones. Apart from mobile phones this department is also
functional on other product like X-box and Surface which could take the benefits
from newly launched Windows 10. Microsoft by combining its hardware and software
group is trying to achieve the same synergy as Apple. But the results will still take
some time to be harvested.
Microsoft has had a busy few years trying to rebuild itself to better fit the current,
and coming technology market. A new CEO Satya Nadella a previous re-org,
and a business model shakeup have all been put into place. With the recent
changes whats notable is that Microsoft isnt actually shifting course, but instead
appears to be doubling down on its plans. Moving hardware into Windows, for
example, isnt abandoning hardware, or slimming it down infact the company
wouldnt be shipping new hardware lines, or software to run on its phones if it
wanted to shirk the responsibility.
Thus, Microsoft in current times needs some real innovations. For this it should
organise its departments into subgroups and allow them to function independently
in an entrepreneurial way which would make the company much more responsive
and adaptive. This would also give them much more autonomy and would reduce
the effect of bureaucracy as is generally seen in large organisations like Microsoft.
We have seen such steps recently in the case of Google which transformed itself
with a new structure under the name of Alphabet. Also this would provide a
separate unit for mobile devices which could also be a major revenue earner for the
company. In the current times where most of the product of Microsoft are in a
declining phase this is what is needed to create products according to consumer
needs. The stiff competition from Apple, various LINUX based organisations and

other strong competitors has led the Microsoft to start thinking in this direction and
if implemented efficiently these steps may renovate the company to its earlier
position of market leader.

Refrences:

https://stratechery.com/2013/why-microsofts-reorganization-is-a-bad-idea/
http://techcrunch.com/2015/06/17/microsoft-shakes-up-its-leadership-and-internalstructure-as-its-fiscal-year-comes-to-a-close/#.ourmhvu:cLGv

http://venturebeat.com/2015/07/21/microsoft-reports-strong-22-2b-inrevenue-as-surface-sales-surge-117-to-888m/
http://www.wired.com/2015/01/microsoft-nadella/

http://marketrealist.com/2014/01/microsoft/
Annual Report of 2015,14,13 Microsoft Corp.