Microsoft (4338) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Microsoft (Hong Kong)

Based on various researches at Oak Spring University , Microsoft is operating in a macro-environment that has been destablized by – central banks are concerned over increasing inflation, wage bills are increasing, digital marketing is dominated by two big players Facebook and Google, increasing transportation and logistics costs, increasing inequality as vast percentage of new income is going to the top 1%, cloud computing is disrupting traditional business models, increasing energy prices, increasing government debt because of Covid-19 spendings, technology disruption, etc

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Introduction to SWOT Analysis of Microsoft

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Microsoft can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Microsoft, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Microsoft operates in.

According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of Microsoft can be done for the following purposes –
1. Strategic planning of Microsoft
2. Improving business portfolio management of Microsoft
3. Assessing feasibility of the new initiative in Hong Kong
4. Making a Software & Programming sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Microsoft

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Strengths of Microsoft | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of Microsoft are -

Operational resilience

– The operational resilience strategy of Microsoft comprises – understanding the underlying the factors in the Software & Programming industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

Ability to recruit top talent

– Microsoft is one of the leading players in the Software & Programming industry in Hong Kong. It is in a position to attract the best talent available in Hong Kong. The firm has a robust talent identification program that helps in identifying the brightest.

Digital Transformation in Software & Programming industry

- digital transformation varies from industry to industry. For Microsoft digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Microsoft has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.

Organizational Resilience of Microsoft

– The covid-19 pandemic has put organizational resilience at the centre of everthing Microsoft does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Low bargaining power of suppliers

– Suppliers of Microsoft in the Technology sector have low bargaining power. Microsoft has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Microsoft to manage not only supply disruptions but also source products at highly competitive prices.

Strong track record of project management in the Software & Programming industry

– Microsoft is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.

High switching costs

– The high switching costs that Microsoft has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.

High brand equity

– Microsoft has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Microsoft to keep acquiring new customers and building profitable relationship with both the new and loyal customers.

Effective Research and Development (R&D)

– Microsoft has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Microsoft staying ahead in the Software & Programming industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Learning organization

- Microsoft is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Microsoft is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Microsoft emphasize – knowledge, initiative, and innovation.

Training and development

– Microsoft has one of the best training and development program in Technology industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.

Diverse revenue streams

– Microsoft is present in almost all the verticals within the Software & Programming industry. This has provided Microsoft a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.

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Weaknesses of Microsoft | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of Microsoft are -

Interest costs

– Compare to the competition, Microsoft has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.

Need for greater diversity

– Microsoft has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.

High operating costs

– Compare to the competitors, Microsoft has high operating costs in the Software & Programming industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Microsoft lucrative customers.

High dependence on Microsoft ‘s star products

– The top 2 products and services of Microsoft still accounts for major business revenue. This dependence on star products in Software & Programming industry has resulted into insufficient focus on developing new products, even though Microsoft has relatively successful track record of launching new products.

High cash cycle compare to competitors

Microsoft has a high cash cycle compare to other players in the Software & Programming industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

Compensation and incentives

– The revenue per employee of Microsoft is just above the Software & Programming industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.

Aligning sales with marketing

– From the outside it seems that Microsoft needs to have more collaboration between its sales team and marketing team. Sales professionals in the Software & Programming industry have deep experience in developing customer relationships. Marketing department at Microsoft can leverage the sales team experience to cultivate customer relationships as Microsoft is planning to shift buying processes online.

Lack of clear differentiation of Microsoft products

– To increase the profitability and margins on the products, Microsoft needs to provide more differentiated products than what it is currently offering in the marketplace.

Skills based hiring in Software & Programming industry

– The stress on hiring functional specialists at Microsoft has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.

Workers concerns about automation

– As automation is fast increasing in the Software & Programming industry, Microsoft needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.

Ability to respond to the competition

– As the decision making is very deliberative at Microsoft, in the dynamic environment of Software & Programming industry it has struggled to respond to the nimble upstart competition. Microsoft has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

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Microsoft Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of Microsoft are -

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Software & Programming industry, but it has also influenced the consumer preferences. Microsoft can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Microsoft can use these opportunities to build new business models that can help the communities that Microsoft operates in. Secondly it can use opportunities from government spending in Software & Programming sector.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Microsoft is facing challenges because of the dominance of functional experts in the organization. Microsoft can utilize new technology in the field of Software & Programming industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Reconfiguring business model

– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Microsoft to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.

Lowering marketing communication costs

– 5G expansion will open new opportunities for Microsoft in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Software & Programming industry, and it will provide faster access to the consumers.

Learning at scale

– Online learning technologies has now opened space for Microsoft to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.

Using analytics as competitive advantage

– Microsoft has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Software & Programming sector. This continuous investment in analytics has enabled Microsoft to build a competitive advantage using analytics. The analytics driven competitive advantage can help Microsoft to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Manufacturing automation

– Microsoft can use the latest technology developments to improve its manufacturing and designing process in Software & Programming sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects Microsoft can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Building a culture of innovation

– managers at Microsoft can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Software & Programming industry.

Developing new processes and practices

– Microsoft can develop new processes and procedures in Software & Programming industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.

Low interest rates

– Even though inflation is raising its head in most developed economies, Microsoft can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.

Use of Bitcoin and other crypto currencies for transactions in Software & Programming industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Microsoft in the Software & Programming industry. Now Microsoft can target international markets with far fewer capital restrictions requirements than the existing system.

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Threats Microsoft External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of Microsoft are -

Easy access to finance

– Easy access to finance in Software & Programming industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Microsoft can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Technology disruption because of hacks, piracy etc

– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry to Software & Programming industry are lowering. It can presents Microsoft with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Software & Programming sector.

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, Microsoft can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Microsoft prominent markets.

High dependence on third party suppliers

– Microsoft high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.

Increasing wage structure of Microsoft

– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Microsoft.

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for Microsoft in Software & Programming industry. The Software & Programming industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.

Shortening product life cycle

– it is one of the major threat that Microsoft is facing in Software & Programming sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

High level of anxiety and lack of motivation

– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Microsoft needs to understand the core reasons impacting the Software & Programming industry. This will help it in building a better workplace.

Aging population

– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.

Instability in the European markets

– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Microsoft will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.

Regulatory challenges

– Microsoft needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Software & Programming industry regulations.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Microsoft may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Software & Programming sector.

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Weighted SWOT Analysis of Microsoft Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Microsoft needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants. We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –

First stage for doing weighted SWOT analysis of Microsoft is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.

Second stage for conducting weighted SWOT analysis of Microsoft is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.

Third stage of constructing weighted SWOT analysis of Microsoft to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Microsoft needs to make to build a sustainable competitive advantage.

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