An Integrated Organizational Strategy to Target Enterprise Users

By Justin Schaffer

Capstone Advisor: Richard Linowes – KSB Management Department University Honors in Business Completed: Spring 2014

Abstract

Microsoft is one of the most well-known companies in the world today. Founded in 1975, remains one of the world leaders in computing technology almost 40 years later (“A history of Windows,” 2013). With operations spanning five different business areas, Microsoft participates in many areas of the market, and it has a unique influence in each different type of market. Although Microsoft has been successful for such a long period of time, its new product offerings have struggled lately. To help address the challenges Microsoft faces ahead of it, this paper aims to analyze the company and provide some strategic recommendations to improve its ability to compete in the marketplace. This analysis examines current information about Microsoft and its various product lines to understand the company’s current position relative to its competitors. The resulting strategy offers one idea of how the company could stimulate growth to become a more significant power in all of the markets it serves.

Background

Microsoft has a very complex business structure, as it has five different divisions: Windows Division, Servers and Tools Division, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division (“Microsoft Corporation,” 2013). Given its participation in so many different areas, this analysis primarily focuses on the strategic recommendations for the Windows division. Windows is likely the most well-known aspect of the company, however it has also struggled the most in recent years, which makes it an excellent choice for this analysis. Although the analysis is mainly focused on improving the state of the Windows Division, many of the improvements involve the other divisions as well. Before delving into the specifics of the interactions between the divisions, it is useful to look at a brief history of Microsoft and Windows.

The operating activities of the Windows Division are devoted to creating and selling its Windows operating systems to the general public. For some background, Microsoft released the first version of the Windows in November of 1982, when it started shipping Windows 1.0 (“A history of Windows,” 2013). Microsoft continued to release updated versions of the computing operating system for 13 years until 1995, when the company released . Windows 95 is likely considered the beginning of the new Windows age, as the operating system’s design and functionality became a template for the next 17 years. The company continued to update this design until 2012, when it released a hybrid desktop/tile-based system called (“A history of Windows,” 2013). Windows 8 has become the backbone of the Windows Division’s foreseeable future.

Windows Division Overview

Although Windows is primarily known for its personal computing capabilities, Microsoft has expanded the operating system to other areas with the introduction of Windows 8. When analyzing Microsoft’s Windows Division, it is important to examine all of the platforms that use Windows. These platforms can be divided into three categories: desktop computers, tablets, and phones.

Desktop and Laptop Personal Computer (PC) Platform

Much of Microsoft’s presence in the market today is attributable to its dominance in the realm of desktop and laptop computers. As of early 2013, 90.6% of all PC users use some form of the Windows operating system (See Appendix 3). In addition, the majority of businesses and business users rely on Windows for their desktop systems. Part of the reliance on Windows is related to the integration between the Windows operating system and Microsoft’s Office Suite. Although Office falls within the Business Division, the strong relationship between Windows and Office makes it relevant to the conversation surrounding Windows. There is no question that the Office suite has contributed significantly to Microsoft’s dominance within the desktop platform for many years, especially among enterprise users. In early 2014, there was some question as to whether Microsoft would release versions of its Office Suite that are compatible with Apple’s new iOS for iPad. When Microsoft announced that the iPad would be receiving office, the company’s stock price increased by 5% touching $40 for the first time in 14 years (“Microsoft soars on Office for iPad,” 2014). This response in financial markets is a significant indicator of the importance of the Office Suite to the computing world today. Given the importance of and the rest of the Windows platform, this represents a crucial area of Microsoft’s future in the computing world.

Tablet Platform

Another platform served by is the tablet. Tablets are relatively new devices, which create a smaller computing experience with touch screen capabilities. Apple released the first mainstream in the form of the iPad in the spring of 2010 (Buchanan, 2010). Microsoft was somewhat behind the curve, as it did not come out with its first tablet until it released the Microsoft in the fourth quarter of 2012 (Sullivan, 2012). Given Microsoft’s late entry into the market, Windows’ market share has lagged significantly behind its two major competitors: Apple iOS and Android. With only 2.8% of the market share for tablets as of 2013, this simultaneously represents an area of weakness and opportunity for Microsoft (Brandt, 2013). The relatively young age of tablets in the product life cycle and Microsoft’s dominance with the Windows operating system for PC users both present an opportunity for Windows to focus and grow its tablet business. Given that the first mainstream tablet was released only four years ago, this platform is still growing significantly. This potential for growth is good news for Microsoft, which needs to play catch up to remain relevant in this market. If Microsoft adopts the right strategy to fit the needs of customers within this platform segment, they could still become a significant factor in the market for tablets.

Smart Phone Platform

The final platform served by Microsoft’s Windows Division is the . Surprisingly, Microsoft has maintained a presence in the smartphone market for over a decade. Just before the first iPhone’s release in June of 2007, OS reached over 30% market share next to Blackberry, Palm, and Symbian (See Appendix 5). However, the release of the first iPhone signaled the beginning of a new era of . As Apple and Android grew, Microsoft’s market share shrank rapidly. However, the release of its first Windows 8 phone represented Microsoft’s first real attempt to remain competitive in the market for phones. Windows 8 phones feature an adapted version of the Windows 8 operating system used on the PC and tablet platforms, creating a somewhat consistent product across the different areas of the Windows Division. Although Windows 8 phones have showed some promise, they still lag behind phones using Apple’s iOS and Android operating systems. That being said, as of the beginning of 2013, the United States had total smart phone penetration of 56.4%, which indicates that there is some room for growth in this area (Richter, 2013). What does all of this background information about the Windows division mean for the future of the company? There are several key ideas that will be crucial to Microsoft’s success in the future.

Windows Division – Opportunities for the Future

As discussed in the previous section, each platform Microsoft serves is facing very different challenges and opportunities. However, there is one key aspect of each platform’s market that presents Microsoft with an opportunity to grow its presence within that area.

PC Opportunities

To begin, the PC platform for Windows faces a very unique challenge in the coming months and years. The first test of Microsoft’s resilience to competition in this platform will begin in April 2014, when Microsoft ends support for Windows XP (Thompson, 2014). XP is likely considered the most successful operating system for Windows in the past 10 years, and many consumers and businesses still cling to its existence. As of January 2014, 29.23% of users still use the operating system, which is over three times greater than the number using Windows 8 and 8.1 (See Appendix 3). However, Microsoft has decided to end support for the operating system as of April 8, 2014, which leaves current users with a decision. The most recent operating system for PCs, Windows 8, has faced scrutiny from the public, and many users are not fond of the new system. This distaste for the operating system along with the growing presence of competitors such as Chrome OS and Android makes this situation absolutely critical for Microsoft’s future success. In order to retain its dominance in the PC market, Microsoft needs to make sure it retains current XP users by helping them transition to a or 8 machine. While this is partially an opportunity for Microsoft, it more accurately is classified as a threat. If Microsoft fails to act on this critical moment in the PC market, it could lose a significant amount of market share. This could be catastrophic, given that the PC market almost singlehandedly supports the Windows division. As a result, this likely represents the most important moment in the future of the Windows division.

Tablet Opportunities

Although Microsoft is not facing a critical decision point in the tablet market, this is still a crucial moment for the company to make a move in this market. The tablet platform is the youngest platform served by Windows, which presents Windows with a significant opportunity for growth. Looking at the current state of the market, only 34% of American adults own a tablet computer, as of the middle of 2013 (Zickuhr, 2013). This figure clearly indicates that there is room for growth, and although Android and Apple have clearly demonstrated their abilities to expand in this area, Microsoft’s PC dominance and the compatibility of Windows 8 with a touch screen format could lead to success in this area. If Microsoft wants to continue to grow, it needs to ensure that it takes a firm hold in the tablet platform. This is especially important as PC sales declined for the 5th straight quarters spanning 2012 and 2013 (King, 2013). With this decline in PC sales, Microsoft’s ability to establish a presence in the tablet market could determine the future of Windows.

Smart Phone Opportunities

Finally, the smartphone platform has its own set of opportunities for Microsoft in the future. Although the smartphone market is more mature than the tablet market, the changes within the key players over the past several years presents Microsoft with some opportunities. It was only four years ago that Research In Motion and its Blackberry devices dominated the smartphone market with approximately 45% market share (See Appendix 5). As of early 2012, that share shrank to 15.2% (comScore, 2013). Although Apple and Android phones have largely filled the gap, accounting for 93.3% of the market as of early 2014, the disappearance of Blackberry devices has left a gaping hole for business consumers (comScore, 2013). At its peak, Blackberry devices were almost ubiquitously known for their success among enterprise users, and no other device has attained that status at this point in time. Although Microsoft’s Windows 8 phones only account for a small percentage of sales at this point, if they take advantage of the opportunity presented by Blackberry’s disappearance, they could make significant inroads in the market. This may be difficult, but it is a crucial opportunity for Microsoft’s future growth in this area. In addition, although Windows 8 phones are not widely used in the United States, Europe has adopted the system, as it now accounts for 9.2% of the smartphone market (Richter, 2013). If Windows 8 phones can build on their success in the European market, this can be an opportunity to translate that success to the market in the United States. The brief overview of Microsoft’s Windows Division is important to consider when thinking of possible strategic directions for the future of Microsoft and Windows.

Strategic Recommendation

Given all of the information surrounding Windows and its current performance in the three main platforms, this paper asserts that Microsoft should devote the operating system and this entire division to meeting the needs of enterprise users. While this represents the overarching recommendation for Microsoft, there are several different aspects of this strategy. In order to meet the needs of enterprise users, Microsoft needs to integrate its product offerings from other divisions to create a family of products and systems that meet the needs of corporate customers on an entity level and on an individual level. By merging several of the company’s products to create an experience friendly to corporate customers, the company will be able to retain its position in the market for business users as well as expand in other areas. To provide potential clients with this family of products and services, Microsoft will form contracts with companies to provide them with Windows 8 () phones and apps tailored to their specific business needs (Musil, 2014). Given the acquisition of Nokia which was completed on April 25th, 2014, Microsoft already has a fairly stable operation when considering the hardware aspect of this strategy (Claburn, 2014). Thus, the focus of this recommendation is the software and systems improvements and offerings. To fully understand this recommendation and its relevance for Microsoft, it is useful to examine each of these components in detail to understand how the company can create a valuable offering for enterprise users. In order to better demonstrate the value of this recommendation, this analysis uses KPMG as an example of a firm that could benefit from Microsoft’s new strategy. As one of the largest accounting firms in the world, it has a diverse range of technology needs, which makes it an excellent potential Microsoft customer. The majority of this analysis will apply Microsoft’s new strategy to KPMG, and it will explain how KPMG and other companies could benefit in this new strategy.

Software Recommendations

As mentioned in the overarching recommendation, the first aspect of Microsoft’s new business- focused strategy relates to its software offerings. This may seem very broad, considering Microsoft’s diverse array of software products within the Windows Division and other divisions within the organization. However, this discussion centers on the most up-to-date and fastest growing software on the market today: apps. “Apps,” as they have come to be known colloquially, have become ubiquitous in today’s growing mobile society. An “app,” short for application, is a specific program operated in a self-contained unit. Apps are useful because they create self-contained shortcuts to commonly used programs. For example, rather than opening a and inputting a user name and password every time a user wants to check his or her email, an email app such as Microsoft Outlook creates a space in which the email is available more consistently and securely within its own program. Apps have grown tremendously ever since the first iPhone brought these software tools to the forefront of the electronic world. As demand for devices has surged in recent years, app downloads have also increased tremendously. In 2011, there were 24.9 billion app downloads (Gartner, 2014). This number grew to 107.07 billion in 2013, and this is expected to double by 2016 (Gartner, 2014). So what does this mean for Microsoft? In order to successfully create a valuable business- oriented software offering to its enterprise users, Microsoft should focus on creating an app store devoted to providing apps to corporate users. This business app store would revolutionize the way businesses perform their technological functions today. The majority of businesses still use desktops today, as there are simply not very many business applications available. However, declining PC usage and an increasingly mobile society creates a clear demand for this new type of program. While the idea of a business app store may seem vague, it is easier to understand this strategy by breaking the future app store into categories. In order to meet the needs of its enterprise users, there are three types of apps Microsoft needs to focus on in this endeavor: productivity apps, business support and insight apps, and cloud storage apps.

Productivity Apps

The first step in creating this new business app store revolves around the creation of apps that enhance the productivity of enterprise users. Productivity apps are already commonly used among individuals. Some common examples include iCalendar used on Apple products, or sticky notes used on a variety of platforms. While Microsoft already has already created some productivity apps such as its Office Suite, the offerings are spread thin amongst a diverse set of apps in the store. By consolidating these productivity apps in one central “business” app store, Microsoft will be able to create a more valuable software offering to its enterprise users. Although some of these productivity apps already exist, this represents an area with tremendous growth potential for the app store. At this point in time, most companies rely on the major Microsoft apps such as Microsoft Outlook, Word, and Lync for their primary business needs. However, by creating an entire app store devoted to serving the enterprise user, Microsoft can expand its offerings to include more specific programs tailored to meet the needs of individual companies and their employees. There are a couple major examples of these tailored productivity apps.

For an example of a company that could benefit from an app store with productivity apps tailored to its needs, take KPMG as an example. Although KPMG already relies on Windows products such as the Microsoft Office Suite, there are many programs that Microsoft does not provide that KPMG must create for itself. For example, KPMG currently uses a “hoteling” system in its offices. This means that some employees must arrive to the office and look for an available office space (“hotel”) each morning. After finding an open space, the employee is required to “check in” to reserve the space for the day. This current system can be difficult to maneuver successfully, so KPMG has announced plans to create a mobile app that allows employees to view a map of available spaces in the morning on their mobile devices, so that they can “check in” earlier (KPMG Training, 2014). How is this relevant to Microsoft? This is an excellent example of a productivity app that Microsoft could create in its new business app store. Rather than having KPMG create this app itself, Microsoft could create the app and include it in the business app store. KPMG employees would then be able to access the app from their Windows 8 devices, which would also be included in the contract. For another example, KPMG has also announced plans to create an app that tracks an individual’s travel when they go on business trips (KPMG Training, 2014). This information is crucial to KPMG’s International Executive Services Tax practice, as there are many issues surrounding taxation of income earned domestically or in a foreign country. Again, this is an example of an app that Microsoft could create and subsequently include in its business app store, which would subsequently be deployed to company issued Windows 8 devices. These KPMG apps are useful examples of the productivity apps that Microsoft would include in its future app store.

If KPMG were to outsource the creation of these productivity apps to Microsoft, they could receive a software offering specifically tailored to meet the needs of the business. The business app store also creates a central location where KPMG users can go to get all of their productivity app needs, rather than searching for useful apps hidden within an app store filled with other apps. In addition, it is common for companies to restrict access to some apps on corporate devices. Thus, a company taking advantage of this recommended product offering would be able to restrict access to general app store content that could serve as a distraction. Restricting access to games or social networking apps would support the needs of the business contracting with Microsoft. With this in mind, it is clear that the creation of a business app store with a separate category for productivity apps could greatly benefit companies, which could turn into potential future Microsoft clients with this new strategy. Although this strategy involves some overlap between the Windows Division and Microsoft’s Business Division, this is exactly the type of business and product integration that will enable Microsoft to be successful in the future. By leveraging the capabilities of both divisions, the integration of the products will increase the business of both areas, which will lead to more business for Microsoft as a whole.

Business Support and Insight Apps

Another area of Microsoft’s new business app store will include a category for business support and insight apps. While productivity apps are focused more on enhancing the productivity of an organization’s employees on an operational level, these business support and insight apps would support a company at the managerial level. Businesses will often utilize these software programs to support the overall business. Business support and insight programs include Enterprise Resource Planning (ERP) systems, Customer Relationship Management (CRM) systems, supply chain management systems, accounting systems, etc. All of these systems are crucial for businesses in helping them manage their operations and administrative processes more effectively. Given the importance of these processes, adding a category within Microsoft’s new integrated business app store for these business support and insight apps would provide companies with a central location to access apps tailored to their specific organizational needs.

Microsoft actually already offers an array of these business support and insight applications from its Business Division in the form of its suite. Businesses can select different Microsoft Dynamics products such as CRM and Great Plains (accounting software) to meet its individual business needs (Microsoft Dynamics, 2014). The key to this recommendation is to include these programs in the centralized business app store, so that organizations can access these apps along with their productivity apps. In addition, tailoring the app store to the needs of an organization’s processes will create a more personalized experience for the business. Since Microsoft already tailors its Dynamics suite to fit the needs of its customers, this is already a reality for smaller businesses and organizations. However, larger organizations often create their own systems or purchase systems support from a variety of sources including companies such as SAP, Oracle, and IBM. Rather than approaching each of these companies for individual product support, Microsoft could provide these systems as apps in the business support and insight category of its new app store.

Again, KPMG serves as a useful example to illustrate the types of apps Microsoft could provide in this category. KPMG recently announced that it plans to develop a mobile app to supplement its current time reporting and CRM system (KPMG Training, 2014). The program in place is called SYNC. Each day, employees are required to report the number of hours they work on individual projects and engagements in SYNC. This information is all used to help engagement managers track progress on an engagement as well as to determine updates to the billing requirements. This information all feeds into a CRM system which KPMG can use to help understand clients and the services provided to them. Given the complexity of this system, it would be efficient to have KPMG outsource the creation and implementation of the mobile branch of this system to a company with great technological prowess such as Microsoft. In addition, outsourcing this project to Microsoft would allow Microsoft to include the new mobile SYNC app in its business support and insights category of the business app store. Again, this would give individuals a central location for time reporting on their mobile devices while also giving managers direct access to the data provided by the system in one central location. Given the integration with the other apps in the business app store, this data could be easily shared among the different apps within the store that are relevant to the company. This is an excellent example of how the creation of a business support and insight category within the business app store could add value to potential clients of Microsoft’s new software offering. Also, integrating programs from the Business Division with an app store from the Windows Division would allow the different Microsoft divisions to support each other. This can help both divisions grow, which would result in higher revenues for Microsoft overall.

Cloud Integration Services

The final category within Microsoft’s new business app store revolves around the creation of apps that integrate cloud storage services with its other programs. Over the past few years, cloud services have become increasingly more popular. Many consumers first experienced the cloud when Apple introduced iCloud in June of 2011 (“Apple Introduces iCloud,” 2011). iCloud was designed to allow consumers to save their content and applications wirelessly in a location which would allow them to access it automatically with a wireless internet connection. The demand for these services has grown, especially among businesses, which makes cloud integration a critical aspect of the suggested Microsoft business strategy. The previous two sections illustrated the usefulness of productivity apps and business support and insight apps, but there was no explanation of where the data from these apps will be stored. Again, if Microsoft were to incorporate a set of cloud services into the business app store it would allow businesses to access their apps and data in a single, centralized location. This cloud integration is a perfect supplement to the productivity and business support categories. The focus on those two sections related specifically to the programs, but the integration of cloud services would also allow businesses to retrieve their information from the same location. At this point in time, companies house their own data, and they maintain the servers and warehouses required for these storage demands. Outsourcing these storage applications to Microsoft would have several benefits for these companies. First, they would be outsourcing the cost of maintaining the data and servers, in exchange for Microsoft’s business package, which could result in overall cost savings. In addition, cloud storage for the data generated from the productivity and business support apps results in easier future access to the data. For example, at this point, many companies generate data in a program such as Microsoft Dynamics, and it then saves this data on its own internal . Microsoft can offer these clients a more efficient storage solution by allowing this data from Dynamics to be saved directly to the cloud, using Windows Azure. Since both of these applications are Microsoft products, there could be essentially seamless integration between the input and the output and subsequent storage of data. This hypothetical example explains how this service would be useful in the recommended business- oriented Microsoft system.

Before explaining the relevance of this service to a specific company, it is important to explain Microsoft’s current offerings. Microsoft already offers a few cloud storage solutions. First, its OneDrive cloud storage center allows users to save their files to a personal cloud rather than on a hard drive or data server. Although OneDrive is more useful for individuals, Microsoft recently released Office 365, which can be used by either individuals or businesses (Microsoft, 2014). Office 365 already performs a significant amount of the application/cloud integration explained previously. So essentially, Office 365 users can create data in a or Excel file, and then save it to the cloud. This all occurs within the framework of the Office 365 cloud-based system. However, this recommendation suggests that Microsoft can expand the applications that can be integrated with the cloud storage. Although Microsoft already offers a cloud service for businesses called Windows Azure, this app can be included in the new business app store to consolidate the company’s product and service offerings.

To explain this concept using a more tangible example, KPMG again serves as a company that Microsoft could easily serve using this new integrated cloud. For a little background, here is a brief description of KPMG’s document management process. An employee works in a program such as , and saves the file to the laptop computer. This is saved on the hard drive. If these files are relevant to a specific client, the employee then opens Orion, which is KPMG’s document management system. The employee must then upload the document to Orion, which saves it on the company’s server in a remote location. The employee then removes the document from the laptop hard drive, as it is now saved to Orion. Microsoft’s cloud integration apps such as Office 365 or Windows Azure make this multi-step process much more efficient. First, rather than saving the initial Excel file to the laptop hard drive, Office 365 would allow KPMG employees to work with the Excel file within the framework of 365. So when the file is saved, it is automatically saved to the client’s file. This not only makes the process more efficient, but it eliminates the need for an external data server, which must be maintained by the company. This type of cloud service could apply to many other programs other than Excel, including some of the tax software used by KPMG. Another feature of Office 365 is that it allows for individual cloud storage along with enterprise cloud storage. So KPMG could pay Microsoft to maintain a separate cloud server for each client and employee, depending on the needs of the firm. For larger firm-wide data, the company could use the services provided by Windows Azure.

This example with KPMG illustrates how Microsoft’s integrated cloud apps in the new business app store could create value for potential clients. This final aspect of the new business app store brings a range of Microsoft’s services together into a single user-friendly format tailored specifically to the needs of enterprise users. With the integration of cloud support, this concludes the software recommendations involved with Microsoft’s new recommended strategy. The three components of the new app store will provide Microsoft’s potential future clients with a set of tailored business apps to meet its productivity, business support, and cloud needs. This new app store will become the central framework for each of Microsoft’s future clients. Under this system, companies can approach Microsoft to have them create these apps for their own individualized store, which will then become the central aspect of their business from an IT perspective.

System Recommendations

The other crucial aspect of Microsoft’s new business strategy relates to the operating system. While software within the operating system is far and away the most important area Microsoft needs to improve in order to remain competitive, the operating system itself is also an important feature to consider in improving the perception of the company among businesses, the suggested target market in Microsoft’s potential new strategy. In order to determine where Microsoft can improve its operating system to meet the needs of businesses, it is important to look at the needs of businesses in this area.

Former Market Leader - Blackberry

In order to understand the system needs of businesses, it is useful to examine a platform preferred by businesses. Although Blackberry has struggled ever since the iPhone arrived to the marketplace, it has maintained a reputation for being the preferred operating system for enterprise users for many years. While Blackberry and its devices appear to be nearing extinction, there is still value in examining the features of its products that made it successful. Examining these features from an operating system standpoint can offer insight into changes Microsoft should consider adapting to improve on its current model. As a result, this analysis highlights the key features of Blackberry that made it retain its market share among enterprise users for an extended period of time.

The two key aspects of the Blackberry operating system that led to its preference among business users are related to virus protection and IT control over company devices using a company’s network (Brodkin, 2011). First, Blackberry has historically been an inherently more secure system than other operating systems in terms of protection from viruses and hackers. A significant IT concern of businesses relates to the operating system’s vulnerability. If an organization’s IT support function is weak, it can be vulnerable to hackers and viruses. This can make confidential business information available to outside parties who should not be privy to that information. Data breaches occur frequently in today’s business environment. For example, in January 2014, Target announced that a data breach resulted in stolen data from over 70 million consumers (Best & David, 2014). Although these major breaches still occur, it is important for businesses to try to protect against these types of incidents. Due to the risks surrounding IT vulnerability, a secure system is critical to a business’ operation. Historically, Blackberry has protected its users from hacking attempts by adding extra layers of encryption to their systems (Brodkin, 2011). By routing all messages through a “network operations center,” Blackberry ensures that transmitted data is encrypted safely (Brodkin, 2011). This extra protection can protect users from viruses and malware that could damage the entire network. This is a significant reason why enterprise users continued to use Blackberry. Another key factor that made Blackberry popular with enterprise users is that it maintained a separate “enterprise server,” which allowed businesses to retain more control over the devices and operating systems being used on the network (Brodkin, 2011). It is important for a business to be able to lock a specific device out of the network if it is attempting to access unauthorized data. Keeping a separate enterprise server allows companies to have more control over the devices that are used within the company’s network. This helps maintain an additional layer of security, which is often lacking in iOS and open-source Android systems.

Microsoft Improvements

Given that two of the key features that made Blackberry successful with enterprise users include virus protection and IT systems control, it is clear that these are two area of Windows that Microsoft should aim to improve in order to make its operating system more compatible with the needs of businesses.

Virus vulnerability is frequently a topic of discussion surrounding computing operating systems, as it represents an important feature of the product. This is especially true for businesses. Historically, Windows has experienced many more vulnerabilities than other operating systems such as Mac OS X, etc. As a result, Windows has developed a somewhat poor reputation in terms of its virus protection capabilities. However, businesses that might take an interest in using Windows as the primary operating system for its devices should take a closer look at recent data supporting this issue. Looking at overall vulnerability, Microsoft still reported almost twice as many total vulnerabilities (344) as Apple (190) and (188) during 2013 (See Appendix 4). While this number seems to indicate that Microsoft is poorer at protecting its operating systems from viruses, it is important to look at each individual operating system. Given that Microsoft still has many users using different versions of its Windows operating system, the aggregate vulnerabilities from all of the operating systems are higher. However, looking just at the newest operating systems such as Windows 8 reveals that Microsoft is actually outperforming Apple and Google in terms of virus protection. As of 2013, Windows 8 reported only 58 vulnerabilities, whereas Apple iOS reported 89 and Mac OS X reported 63 (See Appendix 4). In addition, Google Chrome was the second most vulnerable application of 2013 with 168 vulnerabilities (See Appendix 4). This seems to indicate that Microsoft has the capabilities to maintain a system protected from viruses, which makes it a strong candidate for businesses. If Microsoft were to capitalize on this trend by continuing to improve the protection of its systems, it could convince businesses to take over the enterprise users dropping Blackberry systems.

In addition, if Microsoft were to maintain a separate server for its enterprise operating systems, it would seem that the company could enhance the control over devices using the company’s network. Adopting this technique used by Blackberry could influence businesses thinking about using Microsoft and Windows for its enterprise needs. It would also seem that maintaining a separate server is compatible with the aforementioned strategy of creating a separate business app store. Adopting a similar strategy and creating a separate server for its businesses would be an opportunity for Microsoft to streamline its operations and offer additional support to potential corporate clients. Finally, given that Microsoft is one of the largest business technology companies in the world, it is likely in a better position to create this system specific to businesses. The company’s size and technical capabilities likely will allow it to succeed in this endeavor where Blackberry failed.

Customer Service Orientation – Business Emphasis

While customer service is not a major aspect of this recommendation, it is an important aspect of a business in today’s environment. While the recommended strategy of creating separate business software and systems may be effective, it needs to be supported with an appropriate level of customer service. Looking at Microsoft, Apple, and Google as the main players in this industry, Apple by far provides the best customer service experience for individuals. Individuals with Apple products can simply go to an Apple store to get help with their devices. These Apple stores have become well-known for their customer service capabilities. In recent years, Microsoft has attempted to offer a similar experience with its Microsoft stores. While this move may provide some support to individual consumers, this analysis suggests that Microsoft enhance its customer service offering to provide more support to the new business app store and business operating system. Maintaining a clientele of large businesses rather than individuals makes it more cost effective for Microsoft to focus its customer service efforts on a large corporate entity rather than every individual who walks through a . Since corporate customers likely would not need support in person, there would be a limited purpose for Microsoft stores beyond individual retail value. Therefore, limiting the expansion of new Microsoft stores could be very beneficial for the quality of customer service provided, while limiting the amount of capital investment required to open and maintain physical locations. As a result, providing an enhanced customer service experience to businesses using the new business-focused services of Microsoft will enhance the quality of service while lowering the cost.

Applications to Windows Platforms

With a new strategic direction in the areas of software, operating system, and customer service, Microsoft should see a dramatic improvement in its overall performance. To illustrate the benefits of the new strategy, this segment of the analysis explains the benefits of these changes to each of the three major platforms served by the Windows division. Although the new strategy within the realm of the operating system security and customer service are important, they are equally relevant to all three platforms. As a result, this analysis focuses on the improvements related to the new software strategy, and uses those improvements to explain how each platform can benefit in the future.

With three different types of apps available in the new business app store, all of the platforms will likely be able to benefit from each new type of business app. Although they will all benefit from the different segments of the app store, each platform will likely receive the greatest benefits from a specific segment of the app store.

Mobile Phone Platform – Productivity Apps

When analyzing the new productivity segment of the business app store, it is clear that the mobile phone platform will benefit most from this aspect of the new software strategy. As smart phones have become more prevalent over the past decade, their usefulness has increased to all types of users. However, the limited screen size and computing power available to such a small device still creates some inherent limitations for the devices in terms of work capabilities. As a result, the aspect of the new business app store that most directly relates to the mobile phone platform is the productivity app segment. As stated previously, productivity apps such as Outlook and iCalendar help enhance the productivity of a business’ employees. With a growing mobile workforce, employees need to be able to be productive anywhere and everywhere. Since the smart phone is the most mobile of the three platforms served by Windows, it is clear that the productivity segment affects it the most. Under Microsoft’s new strategy, a business will enter into a contract to have Microsoft create customized productivity apps that support the organization’s goals. If a financial institution such as Bank of America were to enter into a contract to have Microsoft create a business app store, Bank of America could ask Microsoft to create a mobile app for a specific finance program used at the bank. While the functionality might not be quite the same on a mobile device as on a personal computer, it would still give the term “mobile workforce” a new meaning. At this point, enterprise smart phones are primarily used for checking email with occasional internet usage. With these tailored productivity apps in the new business app store, Windows smart phones can clearly establish themselves as the official enterprise phones of the future. This position in the market should allow Microsoft and its Windows operating system to replace the enterprise vacancy left in the smart phone market by the decline of Blackberry. While this may not immediately make Windows phones compare to the dominance of Android and iOS, it would create a significant opportunity for Windows’ future success.

Tablet Platform – Business Support and Insight Apps

Just as the new productivity segment of the Microsoft’s business app store would be suited to the mobile phone segment, the business support and insight segment of the proposed business app store is best suited to meet the needs of the tablet platform. One key factor that serves as an opportunity to Microsoft in competing in this platform is the low usage of current tablets for business functions. According to Business Insider, 82% of iPad usage time is devoted to non- work activities such as web browsing, social networking, and media (Yarow, 2012). The other 18% is just an “other” category, so the amount of business usage may be even less (Yarow, 2012). With these numbers in mind, it is clear that businesses have not fully adopted the tablet platform as a tool at this point. With the capabilities of the business support and insight segment of the proposed Microsoft business app store, Windows tablets could become business tools of the future. While a tablet could utilize the productivity apps mentioned previously, the business support and insight apps could make Windows tablets even more functional from a business perspective. Given that tablets offer a of mobility with computing power, they could be very useful in the operational setting of a business by utilizing the business support apps. For instance, a company such as Nike could provide employees involved in manufacturing with Windows tablets so that they could access business support apps such as Microsoft Dynamics to support the supply chain processes more directly with real time production data from the app or apps. The mobility of the tablet combined with the business capabilities make it perfect for this type of usage. This usage would give Windows tablets a significant advantage in the marketplace in terms of competition for enterprise customers. If Microsoft manages to establish its tablets as the preferred option for businesses, it could successfully take advantage of the relatively young age of the tablet market. Taking advantage of this opportunity would allow it to make a significant dent in Android’s current dominance over the platform. This will help Microsoft become a major player in this platform relative to its current competitors.

PC Platform

The final platform affected by Microsoft’s potential new strategy is the PC platform. Although desktop and laptop computers could benefit from both the productivity apps and the business support apps, their primary design already allowed for this type of usage. That being said, the cloud storage segment of the proposed strategy is likely the most applicable improvement to the PC platform as a whole. Cloud storage would have significant benefits for organizations that choose to contract with Microsoft. Rather than requiring office computers to have large hard drives, the cloud capabilities would allow companies to get computers with less storage. This could help consolidate office space as it eliminates some of the physical need for servers. This benefit is especially useful for some of today’s more modern organizations. As the global economy grows and the world becomes more interconnected, the need for cloud storage becomes more important. As business becomes international, data storage on a single machine is becoming less useful, which has led to the growth of the cloud overall. If Microsoft were to engage in this cloud-based strategy, it could appeal to a greater variety of international businesses that need cloud support for their operations.

As stated previously, 2014 represents a crucial point in time for Windows and the PC platform. Given that Microsoft ended support for Windows XP in April of 2014, the company needs to ensure that it retains these customers by drawing them to the other Windows products offered to this platform. Now that Windows XP is not available to businesses, they will be faced with a decision. They could choose to select another Windows operating system, or they could switch to an alternative such as Android. Implementing this new strategy with the business app store should entice enterprise users to select Windows 8 for its future business needs. Given that the integration of the operating system with the business functionality in the form of the apps, Windows 8 would be better positioned to be the replacement choice for former Windows XP users.

With many applications of the proposed new strategy serving each of the major platforms served by Windows, this strategy has a significant chance to improve Windows’ overall market share in each platform. Although there is more opportunity for growth in the phone and tablet platforms, the integrated strategy is wide enough to have implications for the entire division and its future operations.

Additional Impacts

Although the proposed strategy aims to improve Microsoft’s market share in the enterprise user market directly by improving the company’s software, operating system, and customer service, the strategy could also have additional impacts that benefit Microsoft.

App Development

One of the primary additional benefits of this proposed strategy is its potential impact on app development for the Windows 8 operating system. One of the major reasons for Windows’ poor market share in the tablet and phone platforms relates to the lack of apps present within the operating system compared to Android and iOS products. Since Microsoft failed to compete in the tablet and phone markets until significantly after Android and Apple had taken hold, app developers had already created many more apps for the other platforms. This led consumers to buy more Android and Apple products, since there were more apps available. The increased demand for Android and Apple products over Windows products also led app developers to prefer to create apps for Android and Apple products since they would make more money. This created a vicious cycle which kept Microsoft’s market share in these platforms low.

The proposed strategy will help break the vicious cycle Microsoft currently faces in two ways. First, although the strategy does not impact the regular Windows app store, the development of a business app store internal to Microsoft removes Microsoft from the external control of app developers. Since this strategy involves the creation or adaptation of apps to meet the specific needs of business clients, individuals internal to the company would be creating the apps filling the business app store. This means that there is no need to rely on outside developers to create popular apps for the Windows operating system. This gives Microsoft more control over the operating system and makes it oblivious to the decisions of external app developers. This helps remove Microsoft from the vicious cycle, which could lead to improved market share relative to Android and Apple products among enterprise users.

The proposed strategy also helps Microsoft break the vicious cycle by increasing overall usage of the Windows app store. With specific businesses contracting with Microsoft to create a tailored business app store, there will be an increase in the overall usage of Windows products. Even if an employee with a Windows smart phone uses the phone primarily for business purposes, he or she would also likely use some apps in the regular Windows app store. If the strategy involving the business app store is successful, there would be more users, which would lead to additional use of the regular Windows app store. This would increase demand for Windows apps, which could help break the cycle of low demand for Windows apps. With more users, app developers could start to view Windows as a good system in terms of profitability potential. This would help Microsoft break the cycle it currently faces, which will lead to increased market share and performance.

Although the proposed strategy is likely to help Microsoft break out of its low growth, recent statistics show that the Windows apps are expected to grow in the near future anyway. When asked about operating system preferences, 38% of app developers responded that they were planning to develop apps for the platform, which compared to only 16% for iOS and 15% for Android (VisionMobile, 2014). These statistics indicate that there is some anticipated future growth for Windows apps regardless of the proposed new strategy for Microsoft. Although these statistics relate to the regular Windows app store, this could have a similar effect on the development of the business app store. With more apps available in the regular Windows app store, more people will be inclined to use Windows products, which could lead to an increased preference in Windows for the business app store. In this sense, developer trends and the proposed new strategy could play off of each other to create a significant growth opportunity for Microsoft due to the increased availability of apps on the operating system.

Spillover Effects – Personal Usage

Although increased app development is one significant additional impact of Microsoft’s proposed new strategy, the spillover potential from this strategy could also create significant benefits for the company and its position relative to competitors. If businesses begin to demand services offered in Microsoft’s new strategy, there will be an increase in the overall number of users of the Windows operating system. Although a user may start using Windows products for their business, the experience may lead them to start using Windows products as individuals as well. Recent studies have demonstrated the importance the initial operating system has on future purchasing decisions. Data published by Mintel shows that smart phone users who already use an operating system, tend to prefer that same operating system in the future. In a study of over 1000 Android and iOS users, 80% of Android users said that they planned to buy another Android phone in the future, and 86% of iOS users said that they planned to buy another iOS phone (Mintel, 2014). Although the data is still too limited to determine if consumers demonstrate the same preference towards Windows phones, these figures indicate the importance of initial ownership. Thus, if individuals get their first Windows phone for enterprise usage, they are likely to become comfortable with the operating system, which could lead to a preference for a Windows phone in their next purchase. Therefore, this enterprise strategy could have a significant impact on overall demand for the Windows operating system outside of the increase in enterprise usage.

Tax Implications

Although this subsection about the tax implications of Microsoft’s new strategy is not directly related to the efficacy of the proposal, it is important to note that external considerations, such as taxes, represent important factors when a business introduces new services. In this circumstance, taxes represent an important and complicated area of Microsoft’s proposed new strategy. While the development of the productivity and business insight apps would not require separate tax treatment, the aspect of this proposal that focuses on cloud storage apps represents a new area of taxation that Microsoft and other businesses using cloud products need to consider in the future.

There are a couple specific issues related to taxation that would are changing amidst a business environment shifting toward the adoption of the cloud. First, the use of the cloud could change the fixed asset tax planning for many corporations. Before cloud storage came into existence, companies used data warehouses and servers to store information. These warehouses and servers require a significant amount of physical space, and they are expensive to maintain. Due to the fixed nature of these warehouses and servers, they are often treated as fixed assets. With the introduction of the cloud into this discussion, the cloud is much less permanent. Due to its transitory nature, it is likely that cloud storage could be expensed rather than capitalized and depreciated. This is a significant tax planning issue that companies served by Microsoft’s new strategy likely need to consider.

Additionally, the tax implications surrounding transfer pricing are important to the discussion of increased cloud storage. Since the storage and conveyance of information through the cloud is not as tangible as the physical provision of services, there is some question as to whether cloud- based transactions are considered rendered services or transfers of intangible property such as intellectual property. The distinction between these two types of transactions is crucial to the transfer pricing discussion, as each type is given distinct tax treatment. Again, while this does not necessarily support Microsoft’s proposed new strategy, it is important to consider these external factors when discussing the implications of this strategy for Microsoft and its potential clients.

Financial Information

Up to this point, this proposal of Microsoft’s new business-oriented strategy has been examined from a strategic standpoint. However, it is crucial to incorporate the financial considerations into this analysis to fully understand the external implications of this strategy. Before turning to the financial analysis of the proposed strategy, it is useful to examine Microsoft’s current financial situation.

Current Financial Position – Consolidated

In order to fully understand the proposed strategy and its financial impact on Microsoft, it is important to analyze Microsoft’s current operations to see areas of vulnerability and profitability. To fully understand Microsoft, it is useful to examine the organization on an aggregate level before delving into it on a divisional basis. Looking at the consolidated income statement, Microsoft is clearly not in a very good position from an objective financial standpoint. Although net income increased by almost $5 billion over 2012, this largely relates to an impairment of goodwill of $6.2 billion attributed to the 2012 period (See Appendix 1). Excluding this intangible impairment, Microsoft’s operating income actually decreased by 4.3%. Microsoft’s 2013 operating income is also lower than the 2011 figure. This contraction is representative of the stagnant growth Microsoft has experienced over the past few years. With stagnant growth in net income, it is clear that Microsoft could benefit from a new strategy to help stimulate its financial and market growth. Although there is not much cause for concern on the company’s consolidated balance sheet, the statement of cash flows substantiates that Microsoft’s weaker cash position is backed by a significant increase in cash withheld in the form of accounts receivable. In addition, the company’s cash position has weakened due to greater dividend payments, which are possibly to appease investors looking for more substantial growth in earnings per share. These are just a few key areas of importance to note in Microsoft’s consolidated statements. Based on these weak aspects of the financial statements, it is clear that Microsoft needs to adapt to avoid becoming irrelevant through continuing stagnation. Adopting this revolutionary strategy could provide Microsoft with the opportunity it needs to create substantial growth into the future.

Current Financial Position – Divisional

Although the consolidated analysis is important to understanding the needs of Microsoft, a close examination of the company on a divisional level is slightly more useful. From a revenue standpoint, the Windows division is a substantial aspect of the company with $18.6 billion in 2013 (See Appendix 2). Although the Windows division comprises 24% of the company’s total revenues, growth has remained stagnant in recent years. The $18.6 billion is actually a slight decrease from 2012 in which the Windows division brought in $18.8 billion (See Appendix 2). This is a serious issue as Windows is clearly an important part of Microsoft’s business. Given this stagnation in the past few years, the proposed strategy has the potential to stimulate growth in this division, which could be crucial in future years. Another core division within the company is the business division, which accounts for 31.8% of the company’s total revenues (See Appendix 2). While this segment has only shown insignificant growth in the past three years, the profit margin on this division is significantly higher than its counterparts. With an operating profit margin of 65.4%, the business division is a huge part of Microsoft’s success. The Windows division is still strong with 47.9%, but it needs greater revenue growth to achieve more relevance on a consolidated level (See Appendix 2). Although none of these figures are alarming, Microsoft’s stagnant growth seems to be specifically hurting the Windows division, which explains the need for the proposed new strategy.

Current Financial Position – Product Line

Although the divisional analysis is useful to help understand Microsoft’s financial background, the most intriguing aspect of Microsoft’s financial statements relates to its revenue by product line. Looking at the financial results of Microsoft’s most significant products helps explain the need for the business app store strategy. As of 2013, Microsoft Office products accounted for 29.5% of its total revenue, significantly more than any other product (See Appendix 2). Microsoft has relied on its office suite for many years now, but it has not demonstrated any significant growth in this area in at least the past three years. A company that relies on renovated versions of the same product is unlikely to experience substantial growth, which explains Microsoft’s weak revenue increases. The second biggest aspect of Microsoft’s revenue was its Windows operating system (22.5%), which has also struggled in recent years (See Appendix 2). With the two segments accounting for over 50% of revenue struggling, it is clear that Microsoft needs to make a change. At this point, the fifth biggest source of revenue (5.6%) for Microsoft comes from its consulting and product support services line (See Appendix 2). Although this number has increased in recent years, it is still somewhat irrelevant to the consolidated results of the company.

Financial Implications of Proposed Strategy

With this financial background in mind, there are several reasons why the proposed new strategy could have several benefits for Microsoft. Primarily, the new strategy would help take some of the pressure off of the office suite to bring home most of the revenue for the company. With the new business app store and other services, there would be a significant increase in the “consulting and product support services” area, which would help diversify the company’s revenue stream. In addition to diversifying the source of revenue, consulting is a much more variable service line that has much more growth potential than the office products. This is just one financial explanation for the importance of the new strategy. Additionally, the new business app store and other services would help increase the market share of the Windows division, which could finally lead to substantial growth in that area. With a growing share of revenue from the Windows division, the business division, and the company’s consulting services, it will likely be in a much better financial position.

Cost Analysis – Developing the New Strategy

Given the scope of the expansion of Microsoft’s services in this analysis, there will likely be significant costs involved to implement this new strategy. This section outlines some of the costs that will need to be accounted for as a result of this new strategy. First, the focus on B2B rather than B2C transactions represents a shift in the type of expenses incurred. Rather than creating huge advertising campaigns such as Microsoft’s “Honestly” campaign, B2B advertising requires very different needs with different expense sources. While this is an important consideration, the most significant cost of this new strategy will likely be associated with business development and research and development. First, in order for this strategy to be successful, Microsoft will need to approach large businesses that might benefit from its new strategy. As a result, there will be a new need for business development teams who will be responsible for bringing in new business. This will likely result in more administrative spending in the area of Human Resources. In addition, research and development will be the crux of this new strategy’s implementation. Without a competent research and development team, the entire strategy will fail. The team needs to have an adequate size and capacity to handle the demands of the business contracts. The remainder of the cost would come from the cost to create the apps to fill the business app store. For a frame of reference, developing an app such as Instagram costs $120,500, excluding promotional work and consumer testing (Garzon, 2012). Keep in mind that this is a figure that relates to one of the largest apps in the world today. For smaller apps that are already integrated with Microsoft software, the cost would be as low as $1,000 (Thomas, n.d.). For larger companies who might want 10-20 business apps equivalent in cost to Instagram, this is still only up to $2.4 million. A contract with a large company would likely use a markup percentage on this amount. While this may seem costly, it is important to remember that this type of service would result in more frequent revenue streams than merely selling office suite licenses one time. Since there is constant support required for these applications, the revenue stream would be more continuous. The other aspects of the proposed strategy relating to the operating systems security would involve a similar process, with similar costs. Based on this discussion of the cost of implementing this new strategy, economies of scale would work well for Microsoft. While it may not necessarily be cost effective for a small organization to utilize Microsoft’s services, a larger organization that demands the integrated Microsoft products and services would benefit more. In turn, Microsoft would likely reap a greater profit from these large organizations. This helps the business development team think about possible clients to use this new strategy. In addition, it is important to not forget that Microsoft’s revenue could increase from the spillover effects discussed previously. These external increases also indicate that the program would be cost effective for the company. With this financial information in mind, it is easier to understand the impact this proposed new strategy might have on Microsoft from a financial standpoint.

Conclusion

As one of the greatest technological companies to ever exist, Microsoft represents a crucial company in today’s global marketplace. Although the company is still prevalent in many areas, its recent stagnant growth has made it almost irrelevant in the tablet and smart phone platforms within its Windows division. The strength of Android and Apple products in these two platforms has created some issues for Microsoft and its projected future growth. However, there are opportunities in each of the three major platforms served by the Windows operating system that Microsoft could use to its advantage. To take advantage of the significant opportunities in these platforms, this analysis recommends focusing on integrating the company’s product offerings from areas outside of the Windows division to support a group of systems and services that serve corporate customers and help them operate more effectively. This strategy involves developing the software and operating system by creating an app store for apps tailored to the needs of Microsoft’s potential business clients. With three different components of the software part of this recommendation, there would be substantial benefits to the company. In addition to meeting the opportunities presented in each of the three major platforms served by Windows, there are additional impacts that could benefit the company. With Microsoft’s stagnant current financial position and undiversified revenue base, this strategy could be crucial to the company’s future ability to compete with Android and iOS systems. While this strategy would represent a very substantial endeavor for the company, it may provide the company with an amount of growth to propel it through the next decade and beyond.

Appendix

Appendix 1: Financial Statements Source: Microsoft Corporation: Form 10-K. (2013, July 30). United States Securities and Exchange Commission.

Appendix 2: Supplementary Financial Data Source: Microsoft Corporation: Form 10-K. (2013, July 30). United States Securities and Exchange Commission.

Appendix 3: Desktop and PC OS Market Share as of January 2014 Source: Bott, E. (2014, January 2). At year's end, XP usage plunges as Windows 7 and 8 take over. ZDNet.

Appendix 4: Number of Vulnerabilities by Software Vendor Florian, C. (2014, February 3). Report: Most vulnerable operating systems and applications in 2013. Talk Tech To Me.

Appendix 5: Mobile OS Market Share 2005-2012 Source: Leonard, H. (2013, March 22). The U.S. Smartphone Market Is In The Late Majority Stage Of Adoption. Business Insider.

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