There are many methods of analysing strategic management, such as the PESTLE analysis and SWOT analysis. This essay will demonstrate the Porter's five-force analysis by focusing on the strategic management of Microsoft.
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IB 2180 International Environment of Business Assignment 2 Student Number: 0300072 In general, strategy provides a company the direction over long-term and the goal to achieve by allocating resources efficiently. It maybe varied during different periods of the business operation and for different products or locations. However, the key question in strategic management is always that "how firms can gain and sustain competitive advantages that differentiates them from their competitors". (Baum, J. & McGahan, A. 2004, P.255) There are many methods of analysing strategic management, such as the PESTLE analysis and SWOT analysis. This essay will demonstrate the Porter's five-force analysis by focusing on the strategic management of Microsoft. Microsoft's mission statement says that "we work to help people and businesses throughout the world realize their full potential". (www.microsoft.com) This clearly shows the company's intention to develop convenient computer soft-wares that would meet customers' various requirements, which corresponds with its key values including its market orientation, passion for technology, and the willingness of taking on responsibilities and risks. The statement points out the direction that the strategic management needs to focus on. Porter's five-force analysis examines the following elements: the competitive rivalry; the threats from new entrants and substitutions, and the power of buyers and suppliers.
For the different business natures that each division is operating in, Microsoft approaches different strategies. Microsoft, with the development of the "Microsoft Business Frame" (MBF), is putting huge pressure on other competitors that are providing the same services. The threats of substitutes comes from a product outside the industry. Entering the digital era, modern life is more and more dependent on computers and related software, online-simulation, and digital solutions. It thus seems to be difficult to substitute, at least in the short run, the service that Microsoft (and other firms within the industry such as Yahoo!, IBM, Apple and Intel) is providing. Additionally, in order to be able to replace the services that the current market is providing, extremely innovative product needs to be developed, on which huge technology constraints are attached. The mobile phone industry, with its everyday-improving digital technology, is probably the most perspective competitor for the industry. Some of the functions that used to be computer-only, such as emailing and internet surfing, can now be done through mobile phones. However, with millions of customers still comfortable with the services the computer service industry is providing, switching cost could be high, resulting in the reluctance to substitute. In this case, the threat of substitutes from outsiders is relatively small.
Similarly, thanks to the massive expansion of PC users, and the support from PC manufacturers such as IBM and Dell, Microsoft is able to achieve the dominating position in the internet explorer market. Failing to examine the complementary support makes the analysis incomplete, and may provide only the partial picture when managers are trying to use it. Lastly, threats from existing competition also need to be considered. Especially for industries where there are only a few key players. Because these are the firms that are likely to have the ability to influence market price and structure, resulting changes in the industry. To conclude, by studying the Microsoft case, this essay has demonstrated how the Porter's five-force method works in real life. It also stats that in terms of external factors, firm managers need to focus on newly established firms and even firms outside the company-potential competitors. These new entrants would normally have identified a profitable opportunity that existing market leaders may have ignored. Considering the highly dynamic nature of the industry, it is thus vital that the company is able to, not only analyse its own strengths and weaknesses, but also the movements of its competitors, existing or potential. Finally, the essay points out that although being a widely accepted analysis tool, Porter's five-force fails to consider the legal and complementary issues, which are becoming increasingly critical in influencing companies' strategic management nowadays.
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