Factors that Constitute the Business Environment of Microsoft Corporation - Case Study Example

Name: Tutor: Course: Date: Factors that Constitute the Business Environment of Microsoft Corporation Introduction The business environment of organizations is composed of different factors that influence their performance and overall success. In this essay, different factors that constitute the business environment of Microsoft Corporation (Microsoft) are presented. This is done in three different sections, which contain different information. In the first section, factors that make up the general environment of the organization are presented. Using the PEST analysis model, information about Political, Economic, Social and Technological factors is presented. This is done in light of globalization and other international forces that influence the general business environment. In the second section, Porter’s five competitive forces model is used to analyze the task environment for the organization. Information about how the organization has been affected by factors of its task environment is presented. This takes into account factors such as the competition, customers, suppliers and the availability of substitute products. Lastly, information about the internal business environment of the organization is presented. This takes into account how culture and the management play a role in the general performance of the organization. The General Environment of Microsoft The general environment of a business organization is made up of factors which influence the organization over the long-term as opposed to day-to-day operations. The factors that define the external environment for Microsoft can be analyzed using the PEST model. Theoretically, this model of environmental analysis is used to scan the external microenvironment in which an organization operates (Harrison 15). Since the model presents an understanding of the political/legal, economic, social and technological factors in the environment, it can be used to evaluate the current position, market growth potential and strategic alternatives that a business can take. Political/Legal Factors In general, Microsoft is subject to governmental regulation not only in the United States but also in all the other countries where it operates or sells its products. In general, organizations operate under rules and regulations that are developed by governments across the world. For the case of Microsoft, the company has faced a number of legal issues in the recent past. All these issues arise from the fact that governmental regulations across the world are concerned with monopolistic business practices by organizations. For instance, the company faced anti-trust charges which were based on concerns that the company had abused its dominant position in the market by stifling consumer Internet browser competition and presenting consumers with a limited choice for browsers (Klein 224). Although the company reached a settlement concerning the first case, the recent action by the European Union which saw the company being fined and obliged to remove its media player from European versions of Windows software has complicated matters (225). The overall implication for the company is that the dynamic changes in the global political environment, which are reflected in several legal suits, should not lead to the company being split up. Economic factors Theoretically, organizations are influenced by economic growth, interest rates, foreign trade balances, availability of credit and exchange rates. Such micro and macro economic factors influence the performance of organizations by affecting the consumer demand for products and services (Bezjak 10). For Microsoft, its performance in the market is influenced by how social and economic factors interact at the global stage. For instance, the company’s performance, in the traditional market for its products and services has been affected by economic changes such as the Global Financial Crisis of 2007 and 2008 and the recent recession in the European economy. This effect was witnessed in the operations of many multinational corporations (Bezjak 16). Also, with the emergence of new markets in Africa and Asia which are characterized by generally younger populations on one hand and increasing overall economic growth on the other, Microsoft’s performance depends in how it exploits this market (KPMG 5). All these changes affect the consumption power of both individual and corporate clients of the products and services of the company. Social factors There are several ways in which social and cultural issues affect the operations of Microsoft. For instance, the company faced a reputation risk resulting from growing concerns about its increasing profitability which compared poorly with its record in corporate social responsibility. Since these concerns threatened the ethical reputation of the corporation, the management of the company responded by initiating measures to adjust to the social and cultural trends. The response involved different measures like increasing financial donations to foundations that provide grants for several health and human service organizations (Microsoft Corporation 7). Additionally, the company has made several donations to the public through different foundations that are involved in global philanthropic activities (Microsoft Corporation 8). Another way in which social and cultural changes influence the operations of Microsoft is through the information obtained about population and demographic changes in the society. Essentially, changes in the demographic and economic trends of a society may either create opportunities for the growth of the revenues of an organization or develop threats to the future performance of the organization in the market (KPMG 3). For Microsoft, the recent high rate of globalization and diffusion of technology has driven significant demand for information and communication products in the world. Although the world has experienced rapid growth in the use of the Internet, demographic changes have led to new markets in Africa and Asia (4). Since these areas have little Internet penetration as compared to the United States and Europe, they provide potential markets for the company’s products. Technological factors Essentially, the success of Microsoft has been based on rapid innovations and advances in the use of the personal computer and the Internet. For the company, there is increasing competition in terms of new technological innovations and developments from different companies. With developments from competitors such as Apple and Google, the company’s products have struggled to meet the preferences of the consumers in the market. This trend has been manifested in many areas. For instance, following a slowing in personal computer sales, the company’s Online Services Division has been making losses in the recent past. This has been as a result of rapid competition arising from rapid changes in technology in the industry (Henry 99). From the foregoing, it can be seen that the most viable strategic objective for the company is to counter intense competition from its rivals. Such a strategy should seek to restore the company as a leading innovator in different products and services such as in online advertising. The Task Environment of Microsoft The task environment of Microsoft can best be understood in terms of analyzing different factors that affect the industry in which the company operates. These factors bear a direct relationship to the day-to-day operations of a business organization. Porter’s five forces of competitive position model provides a simple framework by which the competitive strength and position of a business organization can be assessed (Henry 64). As such, the model provides a basic framework of understanding different factors which constitute the internal environment of a business organization. According to this theory, a business is influenced by five different forces which operate within the industry. These include competition, suppliers, substitutes, buyers and the threat of new entrants. Suppliers Essentially, suppliers are responsible for providing equipment, component parts and raw materials for organizations in an industry (66). By either raising prices of raw materials or exerting their influence in the market through different means, the activities of suppliers bear a direct influence on the operations of organizations. For Microsoft, the computing industry is generally characterized by suppliers who not only have differentiated their products but have made it costly for business organizations to switch from one supplier to another. In addition, the industry depends on hardware and component suppliers for various operations. This means that suppliers not only influence the cost of manufacturing but also affect the innovativeness that goes into products. Threat of new entrants Although the company has held a dominant position in the market with the Windows Operating System, there still remains a threat for new entrants into different businesses that the company is involved in. For instance, the entertainment and devices division which designs games and Windows phones has witnessed the entrance of other smartphones from Apple, Samsung and other new entrants into the business. As a strategic decision to counter competition in this market segment, the company has developed strategic partnership with Nokia, a leading manufacturer of mobile phones (Hamilton and Webster 31). Competition Generally, firms compete to increase their market share as well as gain favorable comments of investment analysts (Hamilton and Webster 85). The computing industry in which Microsoft operates has been subject to intense competition. Since the 1990s, the company has enjoyed a dominant market position in provision of software services and Internet technologies (Klein 221). In general, competition has arisen from other key players such as Google and Apple, which have gained huge market shares in different segments in which Microsoft held an earlier advantage. Customers The combined bargaining power of the customers determines the pricing and overall direction of development that a product takes. For the company, its customers are composed of business organizations, individual consumers and government bodies. Whereas small business organizations which serve local or regional markets form the lower end of the company’s market, large corporations and government bodies form the upper end segment of the company’s market. Since the company has a well established reputation in operating systems, server tools and business division, customers are faced with few alternatives. The Internal Environment of Microsoft The internal environment of an organization is made up of three key factors: organizational culture, management and the employees (Samson and Daft 89). Events and trends in these factors bear a direct influence on the performance of a business organization. Organizational culture According to Martin, organizational culture can be understood in terms of three different perspectives: integrated, differentiated and fragmented (5). The integrated perspective shows how consistent different cultural values within an organization are. On the other hand, the differentiated perspective of organizational culture focuses on how different subcultures exist under the dominant culture within an organization (7). Lastly, the fragmented perspective of organizational culture interprets organizational culture as a highly fragmented and ambiguous phenomenon. The organizational culture of Microsoft can be interpreted based on these three different perspectives. For instance, shared values within the organization are reflected in cutting edge technological devices which are used by all employees of the organization. This shows that the organizational culture of the organization is characterized by a shared value for technological innovation. Management and Employees Essentially, the management of an organization determines its present performance and future success. This is because the decisions that are made by the management and implemented by the employees determine whether the business achieves its strategic objectives in the market or not. For Microsoft, it can be seen that the strength of its management has been a key ingredient that defined its success in the market since inception (Rosenbaum 171). The strategic decisions made by the management not only enabled the company to gain but also maintain market dominance in operating systems for personal computers. Also, the management of the company has been instrumental in making strategic decisions which have enabled the company to ward off competition from its products and services. This has been demonstrated by continuous improvement on its products as well as upgrading certain products that are in the market (Rosenbaum 173). Another way in which the management of the company has played a key role in shaping the future of the company has been through research and development. It is this strong research and development strategy, coupled by aggressive pricing strategies, which have enabled the company to maintain its dominance in the market. Conclusion In conclusion, the business environment of Microsoft is made of different factors which can be divided into three basic categories: the general environment, the task environment and the internal environment. For the general environment, it can be concluded that the organization is influenced by political, economic, social and technological factors at the global scale. The success of the organization in the recent past has been based on how it has responded to changes in these areas. Also, the organization has developed different strategies as a way of managing different factors that make up its task environment. Such strategies have sought to enable the company have an advantage in terms of the effect of factors such as the competition, customers, suppliers and availability of substitute products in the market. Lastly, the internal environment of the corporation is composed of the culture, employees and management style developed over time. These three factors combine to give the organization a competitive advantage in the market. Works Cited Bezjak, Frank. Global Economic Trends and Their Impact to Corporate Development. New York: Books on Demand, 2010. Hamilton, Leslie and Webster, Phillip. The International Business Environment. Oxford: Oxford University Press, 2012. Harrison, Andrew. Business Environment in a Global Context. Oxford: Oxford University Press, 2012. Henry, Anthony. Understanding Strategic Management. Oxford: Oxford University Press, 2013. Klein, Benjamin. “Microsoft’s Use of Zero Price Bundling to Fight the Browser Wars”, in Eisenach, Jeffrey, A and Lenard, Thomas, M (eds). Competition, Innovation and the Microsoft Monopoly: Antitrust in the Digital Marketplace. New York: Springer, 2001. KPMG. “The Cloud Changing the Business Ecosystem.” 9 February 2014. Martin, Joanne. “Organizational culture”, Research Paper. 9 February 2014. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.88.5957&rep=rep1&type=pdf Microsoft Corporation. “Microsoft Corporate Citizenship: Realizing Potential through People, Technology and Partnerships.” 9 February 2014. Rosenbaum, David, I. “Market Dominance”, in Rosenbaum, David, I. (ed). Market Dominance: How Firms Gain, Hold, or Lose it and the Impact on Economic Performance. London: Greenwood Publishing, 2000. Samson, Danny and Daft, Richard, L. Management. Mason: Cengage Learning, 2012. Read More