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Strategic Analysis of Microsoft

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An organization needs implementation of strategy to happen on every level within the company structure in order to function.  Factors such as: flexibility, creativity, openness to use of technology and innovations, communication across the organization and talented employees are a must for competitive advantage (Porter & Millar 1985, p. 149).  This paper will serve as a competitive strategy analysis of Microsoft Corporation specifically and articles found in literature.  By using four different models to analyse the company’s strategy and competitive advantage in the market, one is able to make assumptions upon the strengths and weaknesses of the software giant.  The three models chosen for this analysis are: (1) SWOT analysis and (2) PESTEL analysis.  Also this paper will touch on discussion of the company’s competitive advantages and also limitations found in one analysis tool.

Microsoft is an industry giant not only in the software realm but the company has presence across telecommunications industry.  It touches the consumer on multiple levels from its software products and operating systems used on virtually every computer in the world to its consumer web site where such products can be purchase on Black Friday (MSN Shopping Sees Record Traffic 2006).  How is such success born and maintained?  Research suggests much of Microsoft’s success is derived from not only from leadership but also in a simple value system where innovation is prized (About Microsoft 2006).  Such value is reflected in the cutting edge products offered to the consumer.

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SWOT Analysis

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats.  Strengths and Weaknesses are considered internal factors while Opportunities and Threats are external to a company (SWOT Analysis 2006).  It is important to note the analysis using this tool is very subjective in nature.

Microsoft Strengths:

Microsoft has been able to create competitive advantage by utilizing leverage developed over time by the success of its products and services.  In many ways this can also be seen as a weakness depending on if you are a fan of Microsoft and its fight against the American government’s view of monopoly.

People who are against and maybe even jealous of Microsoft’s success believe that the company should not be allowed to optimize its leverage by using keys elements of the organization when needed.  Leverage is using strengths in the company at the right time in order to strengthen weaknesses.  Microsoft has been able to do this effectively because of its product diversification and strong customer service.  In other words, critics believe a company like Microsoft should not be able to do this or gain any advantage by doing this.  But is this not the very essence of business practice and entrepreneurial goals?  Is it not true that every other company in the world does this?  What people see wrong with Microsoft that it has leveraged itself well and made it a company where the best of the best want to work on the best products.  In this case, every company is guilty of Microsoft’s most important strength—the ability to leverage.


The company (some opinions) in general has spread itself too thin by diversifying in multiple markets and products whose life cycles run short.  Some see innovation and balls as a weakness when it is not controlled carefully.  At times it seems founder Bill Gates is too relaxed and not enough of a leader; this can send the wrong message to investors and consumers alike.

While it is important to examine strength and weaknesses in an organization, it is also import to understand how these two elements feed off each other; one cannot exist without the other.  In this case, many strengths become weaknesses and vice versa.  In many ways, Gates’ leadership style can be seen as inspirational and charismatic.  Having many different ideas within reach can also prove to be beneficial in turbulent times.  On one hand, being a large and growing very quickly can cause conflict within the ranks but by putting core values first like leadership and communication, can also create cohesion and the company's mission well defined.

Above leverage was addressed as a strength and it was identified as both a strength and a weakness because this tactic puts Microsoft in a negative light.  It makes people question this action, why it is being done and at what personal and profitable again? It also brings to light how political and social forces are at play when it comes to value systems for innovation and technology.  Maybe Microsoft was a trendsetter at the wrong time?  By seeing leverage as a negative defines the American society extremely inflexible.  It means that creativity is not valued or seen as a must to inventing new products and ideas.

Of course, the American government has every right to protect its public but at what cost to business and the consumer?  What about the rights of innovators, creative thinkers, what about the rights of Microsoft?  Gates has the right to defend himself and the actions of the company without having to defect such negative criticism.  This criticism has only made the company weak to others in the market to gain a share or introduce a new product.  A perfect example to back up this idea is Apple’s I-Pod.  Interesting that Microsoft has not been able to discover as much popularity with a similar product despite the company’s cost per unit the consumer.  The consumer is still in love with the I-Pod.  Many could charge that isn’t interesting that such a product was introduced at the tail end of Microsoft fighting the negative backlash of the antitrust lawsuit brought on by the American government?  Interesting indeed.


Because the company is a giant in its industry, it has many opportunities that smaller companies cannot take advantage of.  The company has created alliances and joint ventures with other companies in the industry.  This includes relationships with researchers that create innovative product lines for production.  These researchers are also intent on improving existing products and services for the consumer.  The company has a sales force of people who are actively communicating with other businesses in their industry provide diversified products and services.

Because of the company’s past unfortunate negative press, not only are social factors to acceptance an issue when creating opportunity but also continuing improvements upon new innovation.  In other words, Microsoft must use the leverage tactic to reverse the course of bad press to create new avenues.  They have done this by constantly investing and improving infrastructure.  They have introduced new product lines as it has seen opportunity in emerging markets like India, China and African nations.  This in turn creates opportunity for people in those areas and stimulates the world economy.


Consumers may be afraid of technology and information.  The Internet, while it is commonplace in society, still has not diffused across the culture.  Even those people who are confident of the Internet, have computers in their homes, may be still unsure of new technologies.  Fraud is a great issue.  The element of risk may outweigh the benefit of the technology at this time.  There is the concern of terror, increased security being time-consuming in this post 9/11 world.  Also, times are tight for a lot of people due to increasing energy costs and lack increased spending power.  Many people have chosen to use existing systems rather than keep up with the latest cutting-edge product.

Microsoft’s apparent threats come from its direct competition: Apple and Linux, Sun Systems and Cisco to name a few.  What creates the threat is not knowing what the other is doing or introducing to the market.  One can only hope that a diversification strategy has accounted for all avenues of research and development.

The concept of 'opportunity' can be a daunting element within any organization (SWOT Analysis 2006).  Opportunity, while exciting and providing motivation to strive toward an amazing future can also be risky and scary.  While opportunity creates innovative ideas and later new products, there is always that fear it will not work.  There are no guarantees.  If a company focuses too much on opportunity and create avenues for new products, this also opens up the threat for becoming weak.  It opens up the company for threats by the competition.  In this respect, a company must stay one step ahead, constantly studying threats to their assets.  A company of Microsoft's size may have trouble accomplishing this without organic growth, adequate leadership and sticking to the main mission.  This concept of staying one step ahead may prove to backfire as Microsoft reinvents itself too often.  People stop trusting the brand name.  One such example in Microsoft history is the introduction of its operating system called Millennium Edition or ME (About Microsoft 2006).

PEST Analysis

This strategy analysis takes into account external forces, which may have influence on the organization's success (PESTEL Analysis 2006).


Political forces that may influence Microsoft is relationships with countries in which the company provides services.  For example, very few companies have the opportunity to do business in countries like Iraq or North Korea because political ties are hostile.  Microsoft is different because of their role in telecommunications infrastructure but it does not make this venture easier.  It requires the company to understand the cultures where they are doing business.

Specifically, Microsoft has suffered at the hands of the United States government and antitrust laws in place to protect citizens but also to regulate monopolies.  As discussed above, this put the company at a disadvantage while it recouped from negative fallout.  Still the company always remained confident that it would ride the storm and this can be attributed to the strength of Gates’ leadership.  It also has prepared the organization for any other threats that may come in the future.  In other words, the experience can also be seen as a positive, another chapter in Microsoft’s long success.


One economic factor that has played with the overall strength in Microsoft’s financial success has been a change in accounting methods because of SOX compliance.  This changes the way stocks and dividends are accounted for employees and the final reporting for the company.  Because of these practices, Microsoft appears weaker than it may actually truly be because truly assets do not come down to dollars and cents but also intellectual property and creative values.  Still in “January personal income plunged from December, when the tech giant dished out a $32 billion special dividend to shareholders” (TSC Staff, 2005) but this was only to reflect new accounting procedure in place.  TSC Staff researched this issue and found that much of this financial distress is just a fact of doing business mainly in the United States.  The cost of doing business on such a grand scale, while it continually changes, also has increased over time due to increases in insurance premiums and pensions (TSC, 2005).


Social forces at work externally could be a fear of technology and fear of repercussions should technology be utilized.  Many Internet users purchase items online and have their information online.  Fraud and high-tech crime are real problems.  Society’s focus on excessive entertainment and its negative impact on today’s youth is an issue also.  While Microsoft focuses on the younger generations as consumers, there is also backlash from under-age consumers spending too much time playing computer games or going in the Internet.  There is the threat of being exposed to inappropriate materials.


When looking at an organization like Microsoft, one will ponder; where did the idea for the operating system come from?  While it is true that many will argue that the Microsoft Window platform is very close to the Mac OS in environment and user friendliness; one can also argue that ideas, the code behind the computer architecture is recycled as talented employees change careers. So in truth, Microsoft does not always use its own ideas but builds from another company’s ideas in order to make their original product.  Innovation means recognizing a good idea when you see it and matching it with one's own best efforts.

Discussion and Conclusion

As discussed throughout, Microsoft has competitive advantage in the market place because of its core values.  It has presence on a global scale but also cohesion due to strong leadership and a common goal of creating innovative products.  The company prizes its employees and stands by the quality of its numerous products.  However, it was found during the course of this paper that there are limitations to one analytic tool: SWOT.  SWOT can be seen as being too objective and much of its outcomes depend upon the manager’s point of view.  One person may see specific attributes of a company differently than another.  This is why utilizing the other tools become important to the manager as they provide greater insight; proof for SWOT analysis.

This paper served as a competitive strategy analysis of Microsoft as a telecommunications giant offering software, computer products and Internet.  By using three different models of (1) SWOT analysis and (2) PESTEL analysis; a company like Microsoft can get a better idea of where it stands in the market place.  Also this paper touched on discussion of the company’s competitive advantages and also limitations found in one analysis tool of SWOT.  In doing this, the company can reassess its strategies toward marketing, customer service and product innovation.  At this time, Microsoft has a competitive advantage over other such companies in its service areas because the group focuses on customer service at an affordable price.  The consumer also gets to feel a part of an innovative company when he or she comes in contact with some of Microsoft's special features.


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