DEVELOPING STAGES ANALYSIS Updated June 20 2016
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Microsoft Corporation Public-company

REDMOND, UNITED STATES OF AMERICA — Microsoft Corporation is an American multinational corporation headquartered in Redmond, Washington, that develops, manufactures, licenses, supports and sells computer software, consumer electronics and personal computers and services. Its best known software products are the Microsoft Windows line of operating systems, Microsoft Office office suite, and Internet Explorer web browser. Its flagship hardware products are Xbox game console and the Microsoft Surface series of tablets. It is the world's largest software maker measured by revenues. It is also one of the world's most valuable companies. ... more less

STATE BY TRANSITION

Wheel position details:
Stage:
4
  • Revenue, GDP, Activity: Declining growth
  • Organizational focus: Confront/Purify
  • Main motivating force: Openness
  • Ideal role of leader: Reformer
  • Source of inspiration: Outside
  • Cohesion trend: Fragmentation
  • Company attractiveness: Sentiment driven
  • Breakup risk: Partial or total
Leader:
 
  • Role: Reformer
  • Reign: 2014 - Present
  • Fit:
    - Leader fits organization
Transition slider

STAGES OVER TIME

TIMELINE SUMMERY

STAGE TRANSITION PERIOD STAGE
Organizational focus to:Confront / Purify 2008 -  
4
Organizational focus to:Scale / Optimize 1999 - 2008
3
Organizational focus to:Innovate / Nurture 1975 - 1999
2
LEADERSHIP TRANSITION REIGN ROLE
Satya Nadella 2014 -   Reformer
 
Steve Ballmer 2000 - 2014 Grower
 
Bill Gates 1975 - 2000 Builder
 
Note: Consult Timeline with sources below for supporting material.

ESSAY

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The recently announced acquisition of LinkedIn by Microsoft is the final page of MS's lifecycle. It's not just inspired by Nadella's search for growth but, above all, by its board's search for return-of-investment opportunities. Buying LinkedIn with borrowed money saves about 9 $Billion a year in tax. Buying Linkedin is paid back by tax savings alone in about 3 years. This is something that Private Equity professionals would salivate about. The potential fit of LinkedIn is worse than the potential fit of Nokia at the time. What's more, LinkedIn's growth is declining as is Microsoft's. Clearly, in a few years time, Microsoft will have made its money after which it will write off LinkedIn, which will save tax dollars again! Good deal but not for what it has been advertised for. This acquisition will not extend the life of Microsoft but shorten it, making its future more diffused than ever.

In 2014, the market sighs when a technologically adept Satya Nadella takes over from a hyper-active, salesman-like Ballmer. The market is at a high. 

Yet, at this stage, Microsoft's growth prospects are dim. It is likely to divest parts of its business eventually and may even risk a break up. 

- Windows no longer functions as the growth-generating technological glue that enables Microsoft’s many products. 

- Considering the software-development arenas of competitors, such as Apple and Google, developers are less inclined to bet on the Microsoft platform. 

- State of the art competitive software products are nibbling at the edges of Microsoft’s traditional product niches.

- Lastly, the fragmentation of Microsoft's business will make it more difficult for Nadella to keep these businesses in the air simultaneously.

 

The following excerpts from our Timeline sources confirm that Microsoft is traversing stage 4 of Natural Organization...

'Global sales of personal computers resumed their downward trajectory in early 2015.' 'Sales to businesses of Microsoft's Office and Windows software - two of its most profitable products - both declined.'

'The Windows OS is still the primary way the world runs PCs and laptops. But on the devices supplanting PCs [phones, tablets], others have eclipsed the Microsoft way.'

'[When it comes to Office 2016,] the kind of additional developments you get are nigh-on irrelevant - all the essentials are in office 95.'

'[Microsoft] said in April it had sold 10 million Xbox One units since its launch in November 2013. Sony says that by March, it had sold 22.3 million PlayStation 4s, which launched the same month.'

'Windows Phone's market share is shrinking. [The] Windows Phone platform is unlikely to rebound. [It] is in a downward spiral — without a strong underlying operating system, developers can't create compelling apps.'

'Now investors [start to] realize the sacrifices and challenges the company faces as they embark on the Nadella-led transition.'

HISTORICAL NOTES

SATYA NADELLA - Reformer role

In 2014, the board appointed Satya Nadella as Ballmer’s successor. The choice of Nadella, who was vice-president of the company’s Cloud and Enterprise group, shows where the board believes the focus should be. Nadella wants to reinvigorate the company but, as one source notes, 'Nadella aims to simultaneously increase share, and drop prices, that will continue to put severe pressure on the company’s margins' and 'that’s an expensive tack to take.'

STEVE BALLMER - Grower role

Joining as early as 1980, Ballmer takes over the reign from his friend Bill Gates about a year after revenue growth stops accelerating. When appointed as CEO, Ballmer scales up and optimizes the business, such as by insisting on the formal justification of new products and by hiring a COO from Wal-Mart who introduces scorecards for measuring key sales metrics. During his tenure, revenues grow by 280% from $25B to $70B and profits grow by 215% to $23B. Near the end of his reign, news about Microsoft’s stifling organizational complexity and odd acquisitions indicates that the company (and Ballmer) is desperately trying to jump on the bandwagon of a fundamentally changing market but not with overwhelming success.

BILL GATES - Builder role

Bill Gates builds the company based on ideas explored and discovered by others. Microsoft’s first product, BASIC, was developed in the late 1960s by John Kemeny and Thomas Kurtz at Dartmouth College. MS-DOS or 86-DOS was written by Tim Paterson who cloned it from Digital Research's CP/M and then sold it to Microsoft. The business takes off in a grand way when Gates manages to license MS-DOS to IBM - evidence of timing-driven business success.

​If you'd like to share, follow or like this analysis, please, login first.

The recently announced acquisition of LinkedIn by Microsoft is the final page of MS's lifecycle. It's not just inspired by Nadella's search for growth but, above all, by its board's search for return-of-investment opportunities. Buying LinkedIn with borrowed money saves about 9 $Billion a year in tax. Buying Linkedin is paid back by tax savings alone in about 3 years. This is something that Private Equity professionals would salivate about. The potential fit of LinkedIn is worse than the potential fit of Nokia at the time. What's more, LinkedIn's growth is declining as is Microsoft's. Clearly, in a few years time, Microsoft will have made its money after which it will write off LinkedIn, which will save tax dollars again! Good deal but not for what it has been advertised for. This acquisition will not extend the life of Microsoft but shorten it, making its future more diffused than ever.

In 2014, the market sighs when a technologically adept Satya Nadella takes over from a hyper-active, salesman-like Ballmer. The market is at a high. 

Yet, at this stage, Microsoft's growth prospects are dim. It is likely to divest parts of its business eventually and may even risk a break up. 

- Windows no longer functions as the growth-generating technological glue that enables Microsoft’s many products. 

- Considering the software-development arenas of competitors, such as Apple and Google, developers are less inclined to bet on the Microsoft platform. 

- State of the art competitive software products are nibbling at the edges of Microsoft’s traditional product niches.

- Lastly, the fragmentation of Microsoft's business will make it more difficult for Nadella to keep these businesses in the air simultaneously.

 

The following excerpts from our Timeline sources confirm that Microsoft is traversing stage 4 of Natural Organization...

'Global sales of personal computers resumed their downward trajectory in early 2015.' 'Sales to businesses of Microsoft's Office and Windows software - two of its most profitable products - both declined.'

'The Windows OS is still the primary way the world runs PCs and laptops. But on the devices supplanting PCs [phones, tablets], others have eclipsed the Microsoft way.'

'[When it comes to Office 2016,] the kind of additional developments you get are nigh-on irrelevant - all the essentials are in office 95.'

'[Microsoft] said in April it had sold 10 million Xbox One units since its launch in November 2013. Sony says that by March, it had sold 22.3 million PlayStation 4s, which launched the same month.'

'Windows Phone's market share is shrinking. [The] Windows Phone platform is unlikely to rebound. [It] is in a downward spiral — without a strong underlying operating system, developers can't create compelling apps.'

'Now investors [start to] realize the sacrifices and challenges the company faces as they embark on the Nadella-led transition.'

HISTORICAL NOTES

SATYA NADELLA - Reformer role

In 2014, the board appointed Satya Nadella as Ballmer’s successor. The choice of Nadella, who was vice-president of the company’s Cloud and Enterprise group, shows where the board believes the focus should be. Nadella wants to reinvigorate the company but, as one source notes, 'Nadella aims to simultaneously increase share, and drop prices, that will continue to put severe pressure on the company’s margins' and 'that’s an expensive tack to take.'

STEVE BALLMER - Grower role

Joining as early as 1980, Ballmer takes over the reign from his friend Bill Gates about a year after revenue growth stops accelerating. When appointed as CEO, Ballmer scales up and optimizes the business, such as by insisting on the formal justification of new products and by hiring a COO from Wal-Mart who introduces scorecards for measuring key sales metrics. During his tenure, revenues grow by 280% from $25B to $70B and profits grow by 215% to $23B. Near the end of his reign, news about Microsoft’s stifling organizational complexity and odd acquisitions indicates that the company (and Ballmer) is desperately trying to jump on the bandwagon of a fundamentally changing market but not with overwhelming success.

BILL GATES - Builder role

Bill Gates builds the company based on ideas explored and discovered by others. Microsoft’s first product, BASIC, was developed in the late 1960s by John Kemeny and Thomas Kurtz at Dartmouth College. MS-DOS or 86-DOS was written by Tim Paterson who cloned it from Digital Research's CP/M and then sold it to Microsoft. The business takes off in a grand way when Gates manages to license MS-DOS to IBM - evidence of timing-driven business success.

TIMELINE

END OF ANALYSIS

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Hubert Kals
18 Jun 2015 09:30

A well based and convincing analysis.

  • Revenue, GDP, Activity: Uncertain growth
  • Organizational focus: Explore/Discover
  • Main motivating force: Conviction
  • Ideal role of leader: Transformer
  • Source of inspiration: Inside
  • Cohesion trend: Fragmentation
  • Company attractiveness: Sentiment driven
  • Breakup risk:
  • Revenue, GDP, Activity: Rising growth
  • Organizational focus: Innovate/Nurture
  • Main motivating force: Vision
  • Ideal role of leader: Builder
  • Source of inspiration: Outside
  • Cohesion trend: Integration
  • Company attractiveness: Buy/hold
  • Breakup risk:
  • Revenue, GDP, Activity: Stable growth
  • Organizational focus: Scale/Optimize
  • Main motivating force: Culture
  • Ideal role of leader: Grower
  • Source of inspiration: Inside
  • Cohesion trend: Integration
  • Company attractiveness: Buy/hold
  • Breakup risk:
  • Revenue, GDP, Activity: Declining growth
  • Organizational focus: Confront/Purify
  • Main motivating force: Openness
  • Ideal role of leader: Reformer
  • Source of inspiration: Outside
  • Cohesion trend: Fragmentation
  • Company attractiveness: Sentiment driven
  • Breakup risk: Partial or total