Strategy Thinking and Innovation - Microsoft's XBox - A study of a MNC and their supporint SBU_Mark LLanos

Growth Strategies, Innovation, Alliances, Execution 1
Growth Strategies, Innovation, Alliances, Execution
Assignment number (10a1), DB8004-03, Fall 2014
Mark Llanos
Capella University
Mllanos1@capellauniversity.edu
Instructor: Dr. James Morgan

Introduction
The purpose of this paper is to explore the concept of a multinational corporation (MNC)
and their supporting strategic business units (SBU) with details from multiple sources. The
intention is to review the overall competitive environment of the video gaming industry and its
market conditions. It will also review the current growth of Microsoft and Xbox, along with
their new business strategy for their current and future products (Microsoft 2014). This paper
will detail the organization’s primal business model, its competencies and resources, potential
growth through the concept of alliances as explained by the supporting authors.
It will reflect on Microsoft’s future opportunities for innovation, while assessing the
company’s ability to effectively execute its growth strategies. Finally this paper will define the
organization’s corporate culture and leadership and how it reflects the goals and direction of the
company, along with a strategy map based on the supporting information (Thompson &
Strickland 2014).
Since its original inception in 1998, the evolution of the original gaming console X-Box
was meant to compete with the industry leader Sony and their Playstation 2 console &
Nintendo’s Wii (Marshall 2013). While entering the market with 2 industry leaders proved to be
challenging during the first 7 years, Microsoft sought to get ahead by introducing their next
product line Xbox 360, a full 1 year ahead of their competitors. According to Thompson and
Strickland (2014), Microsoft is best known for taking the reins of the market and leapfrogging
the industry leaders as their offensive strategy.

Considered as first mover with their history in entering the market with the first and largest
computer software company Microsoft windows back in 1985, they can also be considered as a
fast follower when they entered the video game industry in 1998 (Microsoft 2014). According to
Casadesus & Ricart (2011), Microsoft has battled in more than 1 industry in order to weaken
competitor cycles through the use of consumer feedback. While it may not always be easy,
having a strong financial backing has allowed Microsoft to effectively market their product to
niche consumers by lowering their price and using their large business network to their favor.
From the Beginning
Founded in 1975, Bill Gates and Paul Allen started Microsoft in Albuquerque New
Mexico. With a strong understanding of operating systems, the 2 quickly grew their company
by launching MS Windows, which sold more than 100,000 copies within 2 weeks of its release
in 1990 (Microsoft 2014). Within 5 years, the company had introduced the most popular
operating system (Windows 95), that have stormed the market by selling more than 1 million
copies in the first week. According to Thompson and Strickland (2014), the importance of an
effective strategy consists of having an action plan that outperforms the competition. What
Microsoft had developed was a market for consumers that have not yet been entered. Kim and
Mauborgne (2004) believed that organizations that create value innovation tend to build
opportunities from scratch rather than fighting rivals and competing on price. Microsoft’s
operating systems took control of the market from the early 1990s throughout present day. As
of June 2013, the company’s recorded revenues stand at $77,849 million which increased by
5.6% over FY 2012 (Microsoft Corporation SWOT Analysis 2014).

Competitive Environment
According to Osathanunkul (2015), the video gaming industry consists of a small market
that had recently blossomed in the last 14 years. In 1999, the worldwide video game industry
was slightly above $32 billion dollars with the US accounting for $7.4 billion. Then due to
consumer demand has grown to an astounding $76 billion in 2013, with the expectation of
growing towards $86 billion by 2016. Microsoft understood their position when they initially
entered the market with their first product Xbox (Marshall 2013). Based on Aamoth (2013)Prior
to Microsoft’s arrival, the market was primarily controlled by 2 large players (Nintendo & Sony).
A similar study written by Limperos, Schmierbach, Kegerise & Dardis (2014) address the
success of prior game consoles and their direct affect on a consumer’s experience while playing
rather than winning the game. Their study suggests that a buyer of a console is more likely to
fall in love with the control scheme as the main factor of enjoyment, rather than the innovation of
the supporting components like the latest video game.
So what makes Microsoft’s product competitive? According to Thompson & Strickland
(2014), one method that sets the company apart is their ability to leapfrog their competitors by
overtaking them with a newer generation technology ahead of time. In Microsoft’s case, they
launched their newer product (Xbox 360), one year ahead of Sony’s Playstation 3 and
Nintendo’s Wii. According to Phone Arena (2014) consumer’s reacted to this no different than
the release of Samsung’s newer version of smart phones like the Samsung S5 which launched
ahead of rival Apple for their I Phone 6 and felt that they are more satisfied with the product vs.
the later competition(see Figure 1).

Figure 1
Current Growth and New Business Strategies and Implications
According to Barwise and Meehan (2012), organizations that capitalize on delivering a
reliable product that goes beyond the current innovation but meets consumer expectations
continue to evolve while those who don’t fall behind. Using the example of the evolution of how
society views their phones, Barwise and Meehan described how Motorola managed the market
from 1994 through 2000, until they were eventually overtaken by Nokia. In 2007 the market

changed again as Apple Inc introduced the I Phone and competitors Nokia and Motorola were
left in the dark as a new market leader battles head to head with a formidable rival of Samsung.
The authors explain that companies must be wary of falling behind in technology while ensuring
that their innovation does not go beyond their understanding of who they really are.
Figure 2
Since the introduction Apple’s I Phone, consumer’s take on a video game console has
also evolved. According to Mangalidan (2013), Microsoft’s answer is to a new business strategy
is to provide a marrying feature. Microsoft’s Xbox One has the capability of controlling a
consumer’s entertainment system. The console allows the user to control the following:
 Watch Television
 Play a Video Game
 Steam Movies
 Search the Internet

The console also has voice recognition feature that allows the user to dictate what feature they
want to activate. This innovative approach has allowed the console to sell over 1 million devices
in less than 24 hours (Hernandez & Pedro 2013).
Microsoft’s Primary Business Model
Thompson & Strickland (2014), states that all multinational organizations fall under one
of the five generic business models. These business models reflect the company’s strategy to
maximize their target markets. A research article done by Llanos (2014), highlights each generic
strategy along with an organization that embodies the model.
Low-Cost Provider Strategy – Is a strategy that focuses on being the overall lowest cost against
all their rivals with the goal of attracting a large set of consumers purchasing the same product.
Wal-Mart offers a lowest price match guarantee that allows consumers to bring their receipt
should they find a product that is less than what the company offers. As a result, Walmart will
match any competitors who offer the same product for less (Wal-Mart 2014).
Broad Differentiation Strategy – Focuses their strategy on showing what sets them apart as a
company, and how their product compares to the competitors to attract a big scale of buyers.
Apple Inc’s introduction of the Ipod in 2001 highlights how the device gives consumers the
feature to transfer their music library through the use of “I-Tunes” in comparison to other MP3
players that held limited space to download songs (Mcelhearn 2014).
Focused Low-Cost Strategy - This business strategy targets a much smaller buyer segment that
typically provides to a market of niche customers. While in theory, the concept is similar to the
low cost provider strategy, with the organization offers a lower price vs. the competition.
Amazon Inc. offer services to a specific set of consumers who wants to purchase items online at

a competitive rate. Amazon is known for having a friendly website along with the reputation for
having unmatched customer service in comparison their brick and mortar counterpart Wal-Mart
who competes with Target and other local groceries market (Oxford 2013).
Focused Differentiation Strategy – Much like the Low-Cost Strategy, this business model directs
its attention to a smaller buyer segment that is specific to a market of niche consumers. An
example of this is Whole Foods Market. Their primary niches are consumers who seek natural
and organic foods. These consumers typically visit Whole Foods Market with the expectations
that the products they get are of a higher caliber of quality in comparison to other markets and
thus will likely be satisfied regardless of the amount they pay (Whole Foods Market 2014).
Best-Cost Provider Strategy – Combines both the low cost and something that sets the company
apart from its competitors. Microsoft has been known to offer competitive products since their
introduction of the Operating Systems back in 1990 (Microsoft 2014). More recently they have
understood that to be competitive in the video gaming industry, they need to modify their price
accordingly to ensure that consumers are buying their product (Mangalindan 2013).
Competencies and Resources
Having a strong resource and capabilities are considered the fundamental components of
an organization’s competitive strategy in an industry (Thompson & Strickland 2014).
Companies like Procter & Gamble, Coca Cola & Microsoft have all been recognized to produce
generic items that consumers use on a day to day basis. According to these two authors,
understanding both tangible and intangible resources and the fact that neither should go
unnoticed when evaluating the assets of an organization. Microsoft has a strong financial
backing. According to 2014 SEC Filing, Microsoft has revenue of $23,201 billion dollars in

comparison to last year at $18,529 in billions (Figure 3). This allows the company to effectively
market and produce it’s video game console all over the world, as well as effectively support it,
resulting in over 1 million units sold within 24 hours (Hernandez 2013).
Growth Strategies and Resources through Partnerships and Alliances
To effectively grow beyond to other markets, Microsoft has used its resources to acquire
more than 160 companies. Some of the notable acquisitions include Mojang the creator of the
popular game Minecraft, Skype and Hotmail. These are all a part of the success of the
organization. Like Procter & Gamble, Wal-mart & Amazon, large organizations like Microsoft

can acquire smaller companies to strengthen the brand under a larger name. According to
Thompson and Strickland (2014), the success of these acquisitions, partnerships and alliances are
based on the concept of satisfying both parties for the purpose of growth. If either party feels
that they are in the slope, the chances of failure can increase dramatically (Kumar 2012).
Future Opportunities for Innovation
According to Koen, Bertels, and Elsum (2011), organizations that implement zone
sustaining innovation often succeeds in comparison to those who focus on business model
innovation. The authors study the benefits and challenges of multiple organizations as they
attempt to test the following innovations:
 Business Model Innovation
 Value Networks
 Radical Innovation
 Breakthrough Innovation
 Sustaining Innovation
 Disruptive Innovation
As stated by Brown and Anthony (2011), organizations like Procter & Gamble have started its
company on the foundations of innovation. Microsoft also started on the basis of innovation
when they brought forth the first operating system for the IBM computers. The founders
continued on by introducing multiple versions of windows to address the common consumer’s
demand for a personal computer at a competitive rate (Microsoft 2014).

Corporate Culture and Leadership
So what is corporate culture and how does it affect an organization. According to
Thompson and Strickland (2014), corporate culture is a reflection of the organization’s beliefs,
values and acceptable practice and unique style of its operation, and can be defined as the
company’s organizational lifeline. Some of these examples include:
 The values, principles and ethic standards that the organization practice and preaches
 The company’s approach towards management, policies and procedures
 Its business atmosphere and how it applies its work methodologies
 How the managers and employees interact
 The actions and behaviors of the organization and how it affects work performance and
promotions
 The company’s tradition and how it deals with external stakeholders
For Microsoft, effective corporate culture affects the direction they take towards the video
gaming industry. Effectively executing the innovative application of the console is reliant upon
the organization’s ideas put into action. According to Casadesus & Ricart (2011), designing an
effective model for success requires dedication, organization and commitment to see it through.
Leadership comes in all forms. Based on an article from Kirkpatrick and Yang (2006), the
organization turned to an employee who was passionate about the success of Microsoft while
only being part of the company for 2 months. Effective leaders and a strong corporate culture
can reflect the success or failure of a product or service. In order to continue on the success of
their Xbox linage, they must constantly evolve their understanding of technology as well as their
values and beliefs of the company’s ethical standards (Thompson & Strickland 2014).

Strategy Map
Microsoft Xbox’s Nine-Cell Industry Attractiveness Overview
Mark
et
size
Grow
th
Rate
Intensity
of
competit
ion
Emerging
Opportuni
ties and
Threats
Cross
Indust
ry
strate
gic fit
Resource
requirem
ents
Season
al and
cyclical
influen
ces
Social and
political
regulatory
and
environme
ntal
factors
Industry
uncertai
nty and
business
risk
Weight
ed
score
overall
8 8 7 9 10 5 6 6 59
Microsoft Xbox’s Nine-Cell Industry Competitive Strength Overview
Relati
ve
Mark
et
Share
Costs
relative
to
competi
tors
costs
Abilit
y to
match
or
beat
rivals
on key
produ
ct
attribu
tes
Ability
to
benefit
from
strategi
c fit
with
sister
busines
ses
Bargaining
leverage with
suppliers/cust
omers
Brand
image
and
reputat
ion
Competiti
vely
valuable
capabiliti
es
Profitab
ility
relative
to
competi
tors
Weigh
ted
score
overall
4 8 8 5 5 7 7 8 52
Conclusion
Microsoft Xbox’s success as a SBU is dependent upon multiple factors. According to
Thompson & Strickland (2014), factors such as having an effective competitive strategy and a
strong corporate culture are key components. Having a solid resource and capacity will allow
the product to be effectively supported, and innovation that goes beyond Blue Ocean to address
value are critical elements to a success of a product. Microsoft has been known to leapfrog their
competitors by taking advantage of next generation products that exceeds consumer

expectations. By identifying the market response towards their product, Microsoft has been able
to capitalize on their success in a competitive market (Thompson & Strickland 2014).

References
Aamoth, D. (2013). The History of Video Game Consoles: Part One. Time.Com, 1.
Brown, B., & Anthony, S. D. (2011). How P&G Tripled Its Innovation Success Rate. Harvard
Business Review, 89(6), 64-72.
Casadesus-Masanell, R., & Ricart, J. E. (2011). How to Design A Winning Business Model.
Harvard Business Review, 89(1/2), 100-107.
Hernandez, P. (2013). Microsoft: A Record 1M Xbox Ones Sold in Less Than 24 Hours. Eweek,
11.
Kaplan, R. S., & Norton, D. P. (2007). Using the Balanced Scorecard as a Strategic Management
System. Harvard Business Review, 85(7/8), 150-161.
Kim, W. C., & Mauborgne, R. (2004). Value Innovation. Harvard Business Review, 82(7/8),
172-180.
Kirkpatrick, D., & Yang, J. L. (2006). MICROSOFT'S NEW BRAIN. Fortune, 153(8), 56-68.
Koen, Bertels, and Elsum's 2011 article, "The Three Faces of Business Model Innovation:
Challenges for Established Firms," in Research Technology Management, volume 54, issue 3,
pages 52–59.
Kumar, T. P. P. (2012). Collaborative strategy - the way forward in alliances and joint ventures:
A concept note. IUP Journal of Business Strategy, 9(2), 31-43. Retrieved from
http://search.proquest.com.library.capella.edu/docview/1033501869?accountid=27965
Limperos, A. M., Schmierbach, M. G., Kegerise, A. D., & Dardis, F. E. (2011). Gaming Across
Different Consoles: Exploring the Influence of Control Scheme on Game-Player Enjoyment.
Cyberpsychology, Behavior & Social Networking, 14(6), 345-350. doi:10.1089/cyber.2010.0146

Llanos, M. (2014). U07a1 – Mark Llanos Final. Corporate and Business Unit Strategy.
Assignment number (7a1), DB8004-03, Fall 2014.
Mangalindan, J. (2013). Xbox One review: This is the console of the future. Fortune.Com, 1.
Marshall, R. (2013). The History of Xbox. Retrieved from:
http://www.digitaltrends.com/gaming/the-history-of-the-xbox/
MCELHEARN, K. (2014). Elegy for the iPod, the Device That Transformed Apple. Macworld,
31(11), 82-83.
Microsoft. (2014). History of Windows. Retrieved from: http://windows.microsoft.com/en-
us/windows/history
Microsoft. (2014). Acquisition History. Retrieved from:
http://www.microsoft.com/investor/Stock/AcquisitonHistory/All/default.aspx
Microsoft. (2014). A History of Windows. Retrieved from: http://windows.microsoft.com/en-
us/windows/history#T1=era3
Microsoft Corporation SWOT Analysis. (2014). Microsoft Corporation SWOT Analysis, 1-9.
Microsoft Corporation SWOT Analysis. (2014). Microsoft Corporation SWOT Analysis, 1-9.
Osathanunkul, C. (2015). A classification of business models in video game industry.
International Journal Of Management Cases, 17(1), 35-44.
Oxford, J. (2013). 6 Things Online Retailers Can Learn From Amazon. Retrieved from:
http://www.forbes.com/sites/groupthink/2013/09/24/6-things-online-retailers-can-learn-
from-amazon/

Phone Arena. (2014). Apple I Phone 6 vs Samsung Galaxy S5. Retrieved from:
http://www.phonearena.com/phones/compare/Apple-iPhone-6,Samsung-Galaxy-
S5/phones/8346%2C8202
Thompson, AA, and AJ Strickland. Crafting and Executing Strategy: Concepts and Readings.
McGraw-Hill Learning Solutions, 2014. VitalBook file.
Wal-Mart. (2014). Low Price Guarantee. Retrieved from:
http://challenge.walmart.com/lowpriceguarantee/
WholeFoodsMarket. (2014). Retrieved from: http://www.wholefoodsmarket.com/company-info

Strategy Thinking and Innovation - Microsoft's XBox - A study of a MNC and their supporint SBU_Mark LLanos

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (7)

Similar to Strategy Thinking and Innovation - Microsoft's XBox - A study of a MNC and their supporint SBU_Mark LLanos

Similar to Strategy Thinking and Innovation - Microsoft's XBox - A study of a MNC and their supporint SBU_Mark LLanos (20)

Strategy Thinking and Innovation - Microsoft's XBox - A study of a MNC and their supporint SBU_Mark LLanos