When this company stagnated, it changed its business model. Find out what happened here! [Tuesdays: Return Driven Strategy]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Have you ever wondered how high-performing businesses create and maximize wealth?
One way is through Return Driven Strategy (RDS)!
This pyramid-shaped framework has 11 tenets and 3 foundations. When properly integrated into your business strategy, these principles will help you achieve true wealth and value creation.
Today, let’s look at a case study related to the third tenet of RDS: Target and Dominate Markets.
Read on to know why changing products or services when necessary can help stagnating businesses become competitive again.
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
Return Driven Strategy
In the tech industry, market leaders come and go. One firm may sit at the top of the industry only to lose its position the next few years. Because of this dynamic environment, companies have done whatever they can to remain ahead of the curve.
An example of such a company?
Photo from The Fifth Person
Microsoft Corporation, a.k.a. Microsoft, is a multinational technology corporation founded in 1975. The company became famous for developing and selling the Windows Operating System (OS) used in personal computers (PCs) around the globe. The firm also sells productivity applications for both consumers and enterprises.
Due to the widespread adoption of its software solutions, the tech firm was able to reap billions of dollars in revenue. By 2000, Microsoft was valued at over USD 500 billion.
Unfortunately, the tech giant was unable to maintain its high performance and valuation.
In 2012, the company saw its valuation plummet to USD 247 billion. Because of this, observers started to wonder whether the company could recover from this decline.
At the time, the company was facing stiff competition in every segment it competed in. In the operating system space, Linux and macOS started to eat away at Windows OS’ market share.
Meanwhile, Bing, Microsoft’s proprietary search engine, couldn’t compete with Google. The firm’s smartphone offering, Windows Phone, also fell behind iOS and Android devices in terms of market share and profitability.
With these reasons, it can be tempting to attribute the company’s decline in the early 2010s to its competitors. However, when a company stagnates, the competition isn’t actually to blame. The problem lies in a firm’s inability to adapt to market conditions. When this happens, something has to change.
The Pivot to Cloud Computing
In 2014, Satya Nadella became the Chief Executive Officer of Microsoft. Under his leadership, the firm shifted its focus to cloud computing instead of relying solely on its current offerings. As part of the move, the firm exited the smartphone market in 2016. The company also changed how its productivity tools were sold and branded.
[Cloud Computing: This refers to the process of delivering services through the Internet. These functions can come in the form of storage, processing, networking, analytics, office productivity tools, cybersecurity tools, and more.]
Since its strategic shift, Microsoft has delivered a wide range of enterprise and consumer solutions through Azure, its proprietary cloud computing platform. These offerings include Microsoft 365 (productivity software), Microsoft Teams (business communication and collaboration), and Xbox Cloud Gaming (video game streaming).
This pivot to cloud computing has allowed Microsoft to reclaim and expand its footing in the tech industry. As of 2022, the company is valued at USD 1.7 trillion, making it one of the largest corporations in the world.
RDS’ third tenet—target and dominate markets—tells us the reasoning behind Microsoft’s strategic shift.
According to Professor Joel Litman and Dr. Mark L. Frigo in the book, “Driven” :
“To perform well, business managers need to choose the right industry and change industries when necessary. The managers might not control the industry’s economics, but they can certainly control whether or not to be in that industry in the first place.”
This statement highlights the importance of adaptability in a constantly-evolving market, even if it involves changing industries or offerings.
While Microsoft didn’t change industries, the shift in its business strategy reflected the principle behind tenet 3. Since the tech giant had no control over the changes in the technology sector, it focused on what it can manage—the type of offerings or products it could sell to consumers and enterprises.
Here are the takeaways you and your business can learn from Microsoft’s story:
- While competitors aren’t to blame for a company’s stagnation, carefully assessing their offerings will still help you refine subsequent iterations of your products.
- If need be, discontinue a product that can no longer compete in its respective market segment. Once your offering has fallen behind, continuously selling it will only waste valuable resources.
- Always be on the lookout for innovations that can impact consumer behavior. This will help you assess the viability of your products and business model.
Remember: Companies that fail to adapt their business strategy to changing market conditions will see a decline in performance and earnings. To prevent this, use RDS’ Tenet 3 concepts to remain ahead of the curve.
Take note of and apply these insights in your own business strategy!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Tuesdays: Return Driven Strategy”
In the book, “Driven,” authors Professor Joel Litman and Dr. Mark L. Frigo said that the goal of every long-term successful business strategy should incorporate the combined necessity of “making the world a better place” and “getting wealthy.”
That is why they created Return Driven Strategy and Career Driven Strategy—frameworks that were built to help leaders and professionals plan and evaluate businesses so they can also help others achieve their organizational goals and career goals.
The frameworks describe the plans and actions that drive returns for anyone in an organization such as independent contractors, marketers, brand managers, communicators, and other people in any field. These actions lead to the creation of wealth and value for customers, employees, shareholders, and the society.
Every Tuesday, we’ll highlight case studies, business strategies, tips, and insights related to Return Driven Strategy and Career Driven Strategy.
In planning, building, or managing brands and businesses, these strategies, case studies, and guidelines will help you choose what specific actions to take and when to take them.
Hope you found this week’s insights interesting and helpful.
Stay tuned for next Tuesday’s “Return Driven Strategy!”
Head of Marketing
Valens Dynamic Marketing Capabilities
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