A. M. Shibrain | Strategic Management & Innovation Specialization Copenhagen Business School on Coursera | Capstone project

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Microsoft's Turnaround under Nadella

In February of 2014, Satya Nadella when he took over Microsoft, he inherited a company that had seen the world shift in ways that confronted the company with profound new challenges, he emphasized the mobile and cloud businesses, and pushed different divisions within Microsoft to collaborate to achieve growth.

He also placed bets on gaming, virtual reality, Analytics, big data, intelligent clouds, and open source. This report would assess Nadella's strategy for tackling this new situation.

What is new? (How it would be different from Ballmer's strategy?)

Ballmer's strategy focused on creating devices and services for individuals and businesses to empower people any where, for the activities they value most [1].

While Nadella Strategy is aiming to empower every person and every organization to achieve more, that is planned to be done through building the best-in-class platforms and productivity services for a mobile-first, cloud-first world. [2] It has 3 interconnected and bold ambitions:

Reinvent productivity and business processes

Build the intelligent cloud platform

Create more personal computing

What to notice is that Nadella's strategy is centralized around productivity support, and although it seems narrower than Ballmer's one but it focuses on mobile & cloud computing, which would make Microsoft's services cross platform and not focusing on specific devices, by this Microsoft is no more locking users into it's products, but rather globalizing it's services to work in each and every platform instead of making me-too devices, and focusing more in innovation and inventing totally new types of devices (like HoloLens).

The new strategy could be considered as an announcement of the start of a new era, and a new business model for Microsoft.

Supporting growth (Would playing on those areas achieve new growth?)

Turning the game from product-oriented into productivity-oriented would bring new position for Microsoft, by that the new strategy could utilize the position of the company and it's products to support the vision of "empowerment to achieve more", but that raises the question of growth and competitive advantage, this section would investigate potentiality of growth within the new strategy.

Industry Analysis

Due to Porter’s Forces analytical framework [4] Microsoft business environment is:

Threaten to substitutions

Becoming threaten to new entrant

Affected by buyers transformation

Benefiting from suppliers diversity

A. M. Shibrain | Strategic Management & Innovation Specialization Copenhagen Business School on Coursera | Capstone project

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Resource Based View

Microsoft's Resources 405.49 billion USD Market capital, 93.58 billion USD revenue in 2015, a wide range of products

and services, and its huge number of users guaranteed for it a strong position in the market (90% of Worldwide OS Market Share), along the way, Microsoft as most of big Incorporations did 195 acquisitions and mergers, some acquisitions were really poor, and some were relatively successful like aquatinting Skype, Nokia, Hotmail, and Visio.

In Nadella's period around 29 companies on wide range of aspects has been acquired by Microsoft, most of them are gaming, analytics, cloud services, and information security companies, and most of them seems smart to support the new strategy, here are some highlights:

Xamarin Acquisition, Feb 2016

Acquiring the mobile app development tool company, would opens door for universal Windows apps, and that would push Microsoft growth primary in this area, while make a room for more cross selling for related technologies.

TouchType, Ltd. (SwiftKey) Acquisition, Feb 2016

The 250 million USD acquisition of the most used keyboard productivity app is a real add to Microsoft resources. Beside the financial growth, it supports the growth of other Microsoft's productivity services and products as integrated service or component.

Revolutionary Analytics (R platform) Acquisition, Jan 2015

Acquiring the platform that is used by the most growing ever Analytics Community (R programmers) is a smart move from Microsoft, as it would bring more Analytics customers to Microsoft it would strengthen Microsoft current position and products, launching the new SQL Server 2016 integrated with (R) will add a unique competitive advantage to Microsoft.

Competitive Rivalry

Substitution threat should be considered seriously, Because the old days of PCs are gone, in the age of handheld devices Microsoft's products are in real threat of being substitute for platform compatibility or better products and services, Microsoft is competing in many areas with substitutes, which would make it hard for the company unless it utilizes its current position and market accessibility to provide service within its products and services, and making them flexible to work with other platforms.

Bargaining power of suppliers is very low, because Microsoft has huge amount of suppliers, and Microsoft used this position to make Microsoft Supplier Program (MSP) to promote for its values, where most of companies that intend to supply Microsoft will try to follow Microsoft's criteria.

Threat of new entrants is becoming substantial, as Microsoft is now investing in area such as gaming, virtual reality, Analytics, mobile development, and cloud computing, those areas are accessible markets for start-ups, because they require innovation capabilities more than capital, unlike the old areas like Operating Systems, where Microsoft holds tremendous cost advantage, which make it hard for new entrants.

Bargaining power of buyers is very high, cultivating brand value and brand loyalty is required to decrease bargaining power of buyers.

A. M. Shibrain | Strategic Management & Innovation Specialization Copenhagen Business School on Coursera | Capstone project

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Sustaining competitive advantage through resources and capabilities As Microsoft is have the Know-how and capital it could get a competitive advantage through

acquiring the right firms and make utilization of them through its position.

SOWT Analysis

Strategy Implementation Plan

Strategic initiatives

Many strategic initiatives had been launched to support the strategic objectives, here are some general initiatives descries the general way of Microsoft to implement the new objectives:

Moving to Open Source was a turning point in Microsoft's history; when Nadella said: "Microsoft loves Linux." he was announcing a totally new approach in conducting business to attain a new competitive advantage by making use of software development communities to Make Microsoft's products platform independent, that needs new plans to sustain Microsoft's most known competitive advantage; it's closed source.

Services providing not just selling had begun since Ballmer's days when services like Azure & Office 365 launched, this initiative is game changer, but Microsoft didn't make use of it yet.

Extensive Strategic acquisitions enhanced Microsoft’s domain expertise and access to markets, but utilizing those deals would require special efforts to support the desired objectives, beside fixing Microsoft's old poor way of acquisitions, moving to the new way of acquisitions that support the strategic objectives would support Microsoft's services and push them a step further.

Goals and Metrics Some Balance scorecards:

Strength

- Strategic Acquisitions (Nadella's 15% Microsoft acquisitions)

- Wide range of suppliers

- Leading PC & laptops OS market share

- Brand Loyalty

Weaknesses

- Inefficient utilization of acquired firms (like Nokia!)

- Late response to market transformation

Opportunities

- Cloud based services increasing demand

- Analytics market demanding more tools and is

growing rapidly.

- Mobile & virtual reality markets are open for new

products and innovation.

Threats

- Overall OS market share degrading (70% 2008 - 30%

2016) because of tablet & mobile devices growth

- Google's fast growth in mobile market

- PC & Laptop market is degrading worldwide

- Opening sources could cut some revenue

Scorecard Objective Metric Target Initiative

Financial

Utilize acquisitions ROI average of acquisitions

Increase ROI of acquisitions by 25% in 3 years

Integrate acquired firm's products to Microsoft's

Increase market share in mobile market

Market share % in mobile, & their apps development tools

70% increase in each in 2 years.

Promote building mobile apps through Microsoft Visual Studio

Business Processes

Speed up response to Market demand

Time to Identify new demands, and release solution

3 Months to identify demand and respond to it

Make use of open source initiative and wide range of acquisitions.

A. M. Shibrain | Strategic Management & Innovation Specialization Copenhagen Business School on Coursera | Capstone project

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Culture

The new changes holding deep cultural changes related to the way Microsoft had been operating in the past, like it or not, the new strategy is changing some Microsoft's values and assumptions that are not working any more. Here are some new culture values:

Microsoft shouldn't always be the OS, as Microsoft tools now building Android & iOS apps.

Open Source is not an enemy, as Microsoft is finally dealing with open sources.

Managing resistance to change

With the cultural change the new strategy is brining resistance would emerge; Nadella had taken the right action in June 2015 by making changes in leadership positions [2]. But resistance would still emerge in lower level positions among old employees; thus treating resistance there should be less tough, those groups require a good strategy communication plan and considering milting them with other new teams and evaluate their performance closely.

Steps to implement change:

Unfreeze: This is done by Nadella announcing the new vision.

Change: Under progress, rate of change now should be slowed down, so the company could be able to adapt.

Freeze: Next step, in 2017 it would be able to freeze change and watch how the strategy is behaving in the new and old markets.

Both the cultural changes and managing resistance would not be easy, because the changes are real and sever, and they destroy 40 years organizational beliefs & assumptions.

Execution strengths

Microsoft current position would make it easer to gain competitive advantage by utilizing the right resources for the right strategic initiative, the strengths acquired through time would give Microsoft the power to execute the new strategy to by pass disruptions made lately.

Execution challenges & Implementation Risks

- Late initiative to transforming the way Microsoft competing in mobile market gave other competitors like Apple and Google a better position which would make growth in this area very slow and hard.

- Big Data & Analytics tools are moving faster than big companies, thus R (the open source platform) has grown fast and threatens the traditional tools situation, Microsoft has a competitive advantage right now, but it needs to rapid development and improvement of Analytics tools, not like the way Microsoft used to (like in MS Power BI).

Sources [1] Ballmer's Email to employees: "Transforming Our Company", July 11, 2013 [2] Nadella's Email to employees on aligning engineering to strategy, June 17, 2015 [3] Microsoft Fiscal Year 2016 Third Quarter Earnings Conference Call [4] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review [5] Strategic Analysis of Microsoft Corp. (2014) [6] Supplier diversity at Microsoft [7] 2016 Gartner Magic Quadrant for BI and Analytics report

Customers

Enhance image of Microsoft Phones

Number of available apps

100% increase in number of available apps

Internal development of apps & promote community apps

Learning

Learn from development community

Number of Projects based on community innovation

30 projects per product in 2 years

Promote development on Microsoft opened sources products