Strategic Alternatives and Recommended Strategy of Microsoft

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Analysis of Strategic Factors (EFAS, IFAS, SFAS) for Microsoft Corporation

Research the Microsoft site (http://www.microsoft.com/msft/default.mspx).
Using your readings, the Library, and the Internet, and any additional resources necessary, you are being asked to complete a Strategic Audit of a Corporation (Microsoft).

Analysis of Strategic Factors. Since you are aware that your analysis of strategic factors or SFAS (Strategic Factor Analysis Summary) is based on IFAS and EFAS tables, and since we will need to understand your choices, you are required to submit the three tables in Excel format in one separate file from your written Word assignment.
No comments are needed on the IFAS and the EFAS tables, but comments are needed on the SFAS table, which is the foundation for this assignment (You will submit one Excel file that will include three separate sheets, one for the IFAS, one for the EFAS and one for the SFAS). As a reminder, two files are to be submitted: One Excel file (counting for three pages) and one Word file (five to seven pages double-spaced). You will be graded on your knowledge of the software and math in building the MS Excel tables, and on your ability to communicate in writing and present your arguments.

Strategic Alternatives and Recommended Strategy. Here you will be graded on your ability to analyze economic, socio-cultural, political-legal, technological, and financial data to justify your available strategies and the one(s) you recommend.

Implementation: Describe the implementation of the strategy(ies) you recommended.

Evaluation and Control How do you evaluate the performance of your implemented strategy(ies)? For a sample outline of a Strategic Audit, review the attached document.

Company Description- Microsoft
Microsoft Corporation develops, manufactures, licenses and supports a range of software products for computing devices. It provides consulting and product support services, and trains and certifies computer system integrators and developers. Microsoft Corporation sells the Xbox 360 video game console and games, the Zune digital music and entertainment device, PC games, and peripherals. Online offerings and information are delivered through its Live Search, Windows Live, Office Live, and MSN portals and channels. The Company enables the delivery of online advertising through its adCenter platform. The Company has five segments: Client, Server and Tools, the Online Services Business, the Microsoft Business Division, and the Entertainment and Devices Division. (Reuters, 2009) It has following divisions:

* Client
* Server and Tools
* Online Services Business
* Microsoft Business Division
* Entertainment and Devices Division
Microsoft Values
"As a company, and as individuals, we value integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. We are committed to our customers and partners and have a passion for technology. We take on big challenges, and pride ourselves on seeing them through. We hold ourselves accountable to our customers, shareholders, partners, and employees by honoring our commitments, providing results, and striving for the highest quality."
(Microsoft, 2009)

Environmental Analysis
Environmental analysis is an essential element of formulating strategy. Srategy is about:
"* Where is the business trying to get to in the long-term (direction)
* Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope)
* How can the business perform better than the competition in those markets? (advantage)?
* What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)?
* What external, environmental factors affect the businesses' ability to compete? (environment)?
* What are the values and expectations of those who have power in and around the business? (stakeholders)"
As per quickmba, "Strategic planning clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track."
External Environmental analysis (EFAS) tells about the opportunities and threats.
Opportunities:
? Good growth in emerging economies like India and China
? Internet market growing at a rapid rate
? Lower dependence on US Markets
? Increase in consumption of I/T products
? Consolidation in the Industry
Threats
? Global economy impacted by recession
? Increasing Terrorism
? Lower Operating Margins
? Huge threat from competitors like Google, Yahoo, IBM and Apple.

Internal Factor Analysis summary is as follows:
Strengths:
1) One of the world's most reputed brand
2) Highly profitable company
3) Presence through out the globe and number one in its key product categories like operating system
4) Product development
Weaknesses
1) Declining earnings growth
2) Growth in Revenues falling
3) Weak player in online market
4) Huge organization may instill lethargy

Strategic Factor Analysis summary

Opportunities:
? Good growth in emerging economies like India and China
? Internet market growing at a rapid rate
? Consolidation in the Industry
Threats
? Global economy impacted by recession
? Lower Operating Margins
? Huge threat from competitors like Google, Yahoo, IBM and Apple.

Internal Factor Analysis summary is as follows:
Strengths:
1) One of the world's most reputed brand
2) Highly profitable company
3) Presence through out the globe and number one in its key product categories like operating system
Weaknesses
1) Declining earnings growth
2) Growth in Revenues falling
3) Weak player in online market

(Please see the excel file for the score)

Strategic Alternatives and Recommended Strategy
Strategic management provides guidance to the organization and sets the future direction of the organization. It helps the organization in achieving the competitive advantage to the organization. It also tells about the organization about its market, values and the way to handle the resources in order to meet the objectives of the organization. Thus Strategy and planning will help the above organization in following manner:
1) Help in establishing objectives after analyzing the internal and external environment.
2) It will focus on the aspects which will make the organization unique to achieve competitive advantage. As per quickmba, Competitive advantage is a firm's ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors.
3) It will provide the future direction and path to the organization
4) It will help in optimal utilization of the resources
5) It will help in controlling the action of the organization

There can be following alternatives:
1) Growth strategy
2) Pause strategy
3) Divestment strategy

Recommendations:
Growth strategy by Acquisitions
Mergers are like marriages. The right partner must be selected after an honest and meaningful courtship. There must be communication, flexibility and mutual respect. I will suggest acquisition of Yahoo for Microsoft. As per macworld.com, Google's search market share was 58.4 percent in December, while Yahoo and Microsoft combined for almost 33 percent of the market, says Allen Weiner, Gartner's lead Google analyst. Yahoo holds 22.9 percent and Microsoft 9.8 percent, he says. Hence by merger both the company's shareholder will benefit in long run due to consolidation and economies of scale. Deal would combine two of the largest online audiences. According to comScore, Google has 528m unique users globally, compared with 527m for Microsoft and 478m for Yahoo. Stripping out the duplicated audience, that would give Microsoft/Yahoo 634m users. Thus the merger will create the entity having largest unique users.

As per ft.com, Yahoo and Microsoft together would also dominate display advertising, in spite of Google's recent acquisition of the DoubleClick online display advertisement company, which may have intensified the two rivals' merger discussions. Ms Li said the two together would also have tremendous technological strength, given the level of Microsoft investment in research and Yahoo's skills at display advertisement management. Yahoo would also bring significant internet media experience to the deal and successful "Web 2.0" acquisitions such as Flickr and Del.icio.us. Thus all these synergies will be good for both the companies and their shareholders.
In short run there can be dilution of earnings per share for Microsoft as merger will involve huge outlay but in long run Microsoft will gain due to the reasons above mentioned. Both the companies together can compete effectively against Google.
Possible benefits of this merger to both the organizations will be:
1) Economies of Scale due to larger size
2) Improving profitability by sharing the synergies
3) Leverage the complimentary competencies to improve the market share
All these can lead to better growth and reduction in costs which will lead to better profitability.
Implementation
Merger will be complex process for both the companies. Integrating brands and management would be difficult and the distraction of a merger would not allow the new entity to gain ground on Google. (ft, 2009). There can be problems of cultural mismatch which can question the whole merger.
Evaluation and Control
Strategic control is concerned with the monitoring progress in accomplishing the strategic goals of the organization. It is very critical to any organization, because without it the results could be chaotic. Organization have to improve their operational performance by proper evaluation and control mechanisms.
http://www.2gc.co.uk/pdf/2GC-FAQP02.pdf
Hence Controlling helps in ensuring the actions are as per desired objectives. As per quickmba, Control consists of the following steps:

1. Define parameters to be measured
2. Define target values for those parameters
3. Perform measurements
4. Compare measured results to the pre-defined standard
5. Make necessary changes

I will recommend the organization to use Master Budget for planning and control. Master budget means set of operating budgets related to finance, operations, production, sales, etc., and including projected (pro forma) cash flow statement, income statement, and balance sheet. (Businessdictionary, 2009) As per accounting-financial.com, Master budget is "A comprehensive master budget is a formal statement of management's expectation regarding sales, expenses, volume, and other financial transactions for the coming period. It consists basically of a pro-forma income statement, pro-forma balance sheet, and cash budget."
Advantages of Master Budget
1) It helps in coordination between different departments
2) It acts as a training to the managers
3) It compels managers to think ahead
4) It helps in planning and controlling
5) It helps in achieving the objectives
Disadvantages of Budgeting
1) It may lead to rigidity in the organization
2) It may ignore qualitative factors
3) It may be too costly and time consuming
Effective Leadership
Leading is about motivating the employees to work for the organizational objectives. Leadership is the process by which one person provides direction, implements the plans or strategies and motivates people. Maslow's theory states that the lowest needs must be satisfied first before the highest needs are satisfied. Before a person can step up to the next level of need, the lower tier of needs must be satisfied completely. Hence the organization will apply this theory in devising compensation policy. An organization's compensation system is tied to the organization's mission, strategy, and workforce as well as its needs to maintain external and internal equity. Other issues such as social and economic factors also affect an organization's compensation system, and many organizations do external scanning to assess those factors.
Good compensation is a basic need of the human and will help in maintaining the healthy employee morale. For this Company's compensation packages must be regularly benchmarked against packages offered by other premier companies that do business in the same geography. Once an organization has analyzed, evaluated, and priced its jobs and designed its pay structure, the next step is to develop a pay determination system that helps attract, motivate, and retain employees. Base-pay systems can be structured in a variety of ways: Single or flat rate; time-based step rate, performance-based/merit pay; productivity-based and person-based. (Milkovich, G, and Newman, T., 2004)
At higher level the other needs become more important where the needs of esteem and self actualization must be met for retaining them. For satisfying these needs it will offer following:

1) Provide a safe working environment, retirement benefits, and job security.
2) Create a sense of community via team-based projects and social events.
3) Recognize achievements to make employees feel appreciated and valued.
4) Providing challenging task
(Netmba, 2009)

References:

http://www.reuters.com/finance/stocks/companyProfile?symbol=MSFT.O
http://www.microsoft.com/about/default.mspx
http://tutor2u.net/business/strategy/what_is_strategy.htm.
http://www.tutor2u.net/business/strategy/business-planning-introduction.html
http://www.quickmba.com/strategy/strategic-planning/
http://www.macworld.com/article/131928/2008/02/msftyahoo_analysis.html. It is a snapshot of the page as it appeared on 26 Jun 2009 19:10:29 GMT.
http://www.ft.com/cms/s/2/e79b9874-fa88-11db-8bd0-000b5df10621,dwp_uuid=e78ced54-d0bd-11dc-953a-0000779fd2ac.html
http://www.buzzle.com/articles/the-importance-of-strategic-planning-in-business.html. It is a snapshot of the page as it appeared on 7 Feb 2009 20:04:15 GMT.
http://www.businessdictionary.com/definition/master-budget.html. It is a snapshot of the page as it appeared on 3 Feb 2009 05:33:21
http://accounting-financial-tax.com/2008/08/comprehensive-master-budget-a-combination-of-forecasting-profit-planning/
http://centage.com/advantages-budgeting.asp. It is a snapshot of the page as it appeared on 2 Feb 2009 03:49:23 GMT.
http://www.quickmba.com/strategy/global/

http://www.businessballs.com/motivation.htm
http://www.netmba.com/mgmt/ob/motivation/maslow/. It is a snapshot of the page as it appeared on 18 May 2009 10:18:21 GMT
Milkovich, G, and Newman, T., (2004) Compenastion, 8e, Defining Internal Alignment. [University of Phoenix Custom Edition e-text]. New York: The McGraw-Hill Companies. Retrieved, from University of Phoenix, MBA/HR 592-Human Resource Seminar in Decision Outcomes Course Website: https://ecampus.phoenix.edu/secure/resource.asp

Analysis of Strategic Factors (EFAS, IFAS, ...