Microsoft and Porter's Generic Strategies: Failed… | tutor2u Business
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Microsoft and Porter's Generic Strategies: Failed Takeover Leads to Focus, Focus, Focus

What a fantastic example to help illustrate Porter's generic strategies in action. Microsoft CEO Satya Nadella has written to Microsoft staff to explain the strategic rationale behind a decision that results in thousands of job losses.

What Nadella has announced is effectively an admission that the previous CEO's (Steve Ballmer) decision to buy Nokia's mobile phone business was a terrible idea!

Microsoft bought Nokia for around $9.5bn in 2014. Just a year later, Microsoft have had to write-off the vast majority of the value of that asset as well as make redundant many of the employees it took on. A great example of how takeovers can destroy significant amounts of shareholder value.

Microsoft's diversification into mobile phone design and manufacture has been a failure. It tried, but couldn't compete with market leaders Apple, Samsung, Xiaomi and the rest.

In his note to employees, Nadella says he remains committed to Microsoft making devices, but he says those activities need much greater "focus".

"However, we need to focus our phone efforts in the near term while driving reinvention."

Throughout his note Nadella emphasises the need for strategic focus. The implication is clear. The previous CEO had allowed Microsoft to suffer from strategic drift. Nadella wants to reign the business back to focus on what it does best and where the best growth opportunities lie.

Look at his opening words:

"I want to discuss our plans to focus our talent and investments in areas where we have differentiation and potential for growth"

Here is the full text of the letter - packed with A Level Business gold:

Team,

Over the past few weeks, I’ve shared with you our mission, strategy, structure and culture. Today, I want to discuss our plans to focus our talent and investments in areas where we have differentiation and potential for growth, as well as how we’ll partner to drive better scale and results. In all we do, we will take a long-term view and build deep technical capability that allows us to innovate in the future.

With that context, I want to update you on decisions impacting our phone business and share more on last week’s mapping and display advertising announcements.

We anticipate that these changes, in addition to other headcount alignment changes, will result in the reduction of up to 7,800 positions globally, primarily in our phone business. We expect that the reductions will take place over the next several months.

I don’t take changes in plans like these lightly, given that they affect the lives of people who have made an impact at Microsoft. We are deeply committed to helping our team members through these transitions.

Phones. Today, we announced a fundamental restructuring of our phone business. As a result, the company will take an impairment charge of approximately $7.6 billion related to assets associated with the acquisition of the Nokia Devices and Services business in addition to a restructuring charge of approximately $750 million to $850 million.

I am committed to our first-party devices including phones. However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family.

In the near term, we will run a more effective phone portfolio, with better products and speed to market given the recently formed Windows and Devices Group. We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software. We’ll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they’ll love.

In the longer term, Microsoft devices will spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly. Our reinvention will be centered on creating mobility of experiences across the entire device family including phones.

Mapping. Last week, we announced changes to our mapping business and transferred some of our imagery acquisition operations to Uber. We will continue to source base mapping data and imagery from partners. This allows us to focus our efforts on delivering great map products such as Bing Maps, Maps app for Windows and our Bing Maps for Enterprise APIs.

Advertising. We also announced our decision to sharpen our focus in advertising platform technology and concentrate on search, while we partner with AOL and AppNexus for display. Bing will now power search and search advertising across the AOL portfolio of sites, in addition to the partnerships we already have with Yahoo!, Amazon and Apple. Concentrating on search will help us further accelerate the progress we’ve been making over the past six years. Last year Bing grew to 20 percent query share in the U.S. while growing our search advertising revenue 28 percent over the past 12 months. We view search technology as core to our efforts spanning Bing.com, Cortana, Office 365, Windows 10 and Azure services.

I deeply appreciate all of the ideas and hard work of everyone involved in these businesses, and I want to reiterate my commitment to helping each individual impacted.

I know many of you have questions about these changes. I will host an employee Q&A tomorrow to share more, and I hope you can join me.

Satya

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