A VRIO Analysis of Microsoft Inc: Leading Core Competencies.
Microsoft is one of the leading technology brands in the world known mainly for its Windows OS and Microsoft Office Software. The tech giant has experienced rapid growth in its market cap during the last year. The market cap of Microsoft is now above 1.2 trillion and the company is also one of the leading cloud players. Apart from its Windows OS and Microsoft Office Software, the company has also brought a large range of products including the Bing search engine, Internet Explorer browser as well as email products. Microsoft CEO Satya Nadella is known to have brought the company out of an innovation gap. While the technology industry has grown highly competitive on the one hand, on the other it is also facing a large number of legal and regulatory challenges. Microsoft is also faced with several challenges. The company is a leading player in the cloud industry and has maintained its leading position through a consistent focus upon research and development. The product mix of Microsoft has evolved a lot over the years and so has its approach to business. The strong competitive position of the company is based on its several sources of competitive advantage.
Leading core competencies of Microsoft:-
Brand recognition is one of the most important sources of competitive advantage for Microsoft. It is a well-recognized brand and one of the leading players in the computing and cloud industry. In recent years, the company has renewed its focus on marketing which has also resulted in stronger brand recognition. Stronger brand equity in the cloud computing industry also means higher sales. Microsoft has now reached a market cap of more than $1.2 trillion. It is one of the most trusted brands in the IT industry and its global recognition has been bolstered by a growing range of products and services for various segments of consumers as well as an increased focus on technological innovation.
The technology industry environment is hyper-competitive. Companies are dealing with several challenges. However, the pace of research and innovation and brands are investing more in expanding and improving their products and services mix so as to cater to the needs and demands of various segments of consumers better. The companies with strong free cash flow can invest more in new projects or to improve their existing product mix. The market cap of Microsoft has also grown sharply in the last year and has reached past $1.2 trillion in 2020. The financial performance of Microsoft has continued to improve year upon year. From 2016 to 2018, there was a net increase of around $19 billion in the net revenue of Microsoft. In 2018, the net revenue of the company reached $110.4 billion. Revenue from the cloud offerings is now a substantial part of the company’s overall revenue. Microsoft’s intelligent cloud revenue crossed $32 billion in 2018 and is growing faster. The company has also upped its R&D expenses so as to grow its AI capabilities and range of cloud offerings faster. A strong and healthy bottom line is essential to retain the company’s competitive position in the technology industry.
The product portfolio of Microsoft has increased a lot over the years reducing its dependence on the core products. The company is generating a large part of its revenue from cloud-based services. An increase in the number of channels of income has helped Microsoft strengthen its business model and bottom line. The company has also grown its portfolio of products and services through acquisitions including Linked In, Github, Skype and several more small and big platforms.
The level of competition in the technology industry has continued to intensify and every leading technology brand is focusing heavily on research and development to improve its product line and serve customers better. Microsoft is one of the leading spenders on research and development in the entire technology industry. The company has grown its research and development during recent years significantly. From 2016 to 2018, the research and development expenses of Microsoft grew by around $2.7 billion. In 2018, the research and development expenses of Microsoft reached $14.7 billion. Technological innovation is a key source of competitive advantage for the brand which has enabled it to sustain its market position efficiently.
Talented human resources:
With growing competition in the technology industry, the competition to acquire talented human resources has also grown a lot. All the leading tech brands including Apple, Microsoft, Amazon, and Alphabet have grown their focus on hiring and retention of talented staff. Profitable growth requires organizations to have talented people in their team to ensure organizational success and higher productivity. Apart from competitive salaries, perks, and other benefits, companies are focusing on providing their employees with a great work environment and create a more inclusive culture that inspires higher creativity. Microsoft CEO Satya Nadella has taken several strategic steps to make the company culture suitable for talented people. Higher focus upon HRM has also strengthened the brand image of Microsoft and helped it win the trust of its people and its customers.
Marketing is also one of the leading sources of competitive advantage for the company. For the past several years, Microsoft was held in a difficult position and unable to find a new direction. Marketing innovation helped the company take a new approach to business and in the last few years, the story has changed a lot with a major improvement in its brand image. Changed approach to marketing has helped Microsoft reestablish itself as one of the leading technology brands in the industry and strengthen its competitive position against its rivals. It has also helped the company grow its influence as an innovative cloud technology brand.
Sales and distribution network:
Microsoft has a global sales and distribution network that has helped the company make its products accessible to customers worldwide. The sales and distribution channels of Microsoft include both offline and online channels. The company sells its software and cloud offerings mainly through the online channels which makes them accessible to everyone in all corners of the world. Apart from the store app, Microsoft sells through its physical stores, authorized resellers and its website. A large sales and distribution network is a key source of competitive advantage that has helped the company manage its global presence and serve customers with higher efficiency leading to improve sales and service.
|Brand Recognition||✓||✓||✓||✓||Sustainable competitive advantage|
|Strong Financials||✓||✓||✓||✓||Sustainable competitive advantage|
|Product Portfolio||✓||✓||✓||✓||Sustainable competitive advantage|
|Technological Innovation||✓||✓||✓||✓||Sustainable competitive advantage|
|Talented Human Resources||✓||✓||✓||Competitive Parity|
|Sales & Distribution Network||✓||✓||✓||Competitive Parity|
Pratap, A. (2020). MICROSOFT VRIO ANALYSIS. [online] Cheshnotes.com. Available at: https://cheshnotes.com/microsoft-vrio-analysis/ [Accessed 15 Jan. 2020].
Pratap, Abhijeet. “MICROSOFT VRIO ANALYSIS.” Cheshnotes.com. N.p., 2020. Web. 15 Jan. 2020.