1. Strategic Management – 2 15th March 2010
Assignment #4
Submitted by – Rajendra Inani #27
Microsoft’s Diversification Strategy
Today, Microsoft continues to build and manage a portfolio of strategic options. The Windows OS
platform and Office applications suite are the company’s current bread and butter, but strategic
uncertainties abound. What will the next platform, or platforms, for personal computing be? Mobile
devices? Game players? What about content, search, or online services? From the perspective of the
corporate office, Microsoft’s investments in Windows Mobile, Xbox, MSNBC, and MSN are strategic
options that create the ability, but not the obligation, to morph the Windows division in a number of
very different ways, depending on how the industry evolves over the long term – say, five to seven
years. Microsoft’s corporate strategy, then, can be seen as designed to mitigate strategic risk in ways
that the divisions, and shareholders, cannot replicate.
Consistent with the notion of Requisite Uncertainty, managers responsible for each of these divisions
(Windows Mobile, Xbox, MSN, etc.) view the ventures they guide not as options but as commitments:
each manager must choose how best to make their division as successful as possible in the medium
term – say, three to five years. If these managers were forced to deal with the full flower of strategic
uncertainty, they would necessarily pull in their horns, since they would be investing for both today and
tomorrow, which would dilute financial resources and, more importantly, management attention. As it
is, they are able to apply themselves fully to the challenges of the markets in which they compete. And
at the functional level, managers must simply “make plan”: delivering on the commitments that have
been made, often years ago.
Option – Commitment – Plan: The same operating assets create value in at least three different ways
simultaneously and continuously through time. Strategic options create value by reducing risk. Strategic
commitments create value by besting competitors, and delivering on plan generates the cash that keeps
any organization going. And different layers of the hierarchy are responsible for managing each value-
generating mechanism.