Microsoft in 2004: Grappling with New Challenges

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Case Details:

Case Code : BSTA108
Case Length : 09 Pages
Period : 1998 - 2004
Organization : Microsoft
Pub Date : 2004
Teaching Note :Not Available
Countries : Global, USA
Industry : Software Industry

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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With a market capitalization of $302 billion as on 14th October 2004, Microsoft was the world's second most valuable company after General Electric (GE). It remained the most profitable company among the large tech companies in the world, generating $1 billion a month in cash.

In the 1990s, Bill Gates had engineered the company's response to the Internet challenge, after being initially caught unawares. Steven Ballmer who had taken over as CEO in 2000 had strengthened the marketing activities and streamlined operations. Ballmer had steered Microsoft through the tech bust of the early 2000s. Even as many other IT companies struggled, Microsoft continued to grow. The company also maintained high operating profit margins of more than 35%.

Since the early 2000s, Ballmer had been restructuring an unwieldy, overcentralized company that worked on instinct and intuition into seven operating divisions to push decision-making and accountability to lower levels. Each unit had its own P&L. Ballmer had also personally overseen the creation of procedures to systematize various activities from product development to strategic planning to employee and management evaluation. He had also taken steps to institutionalize the company's new mission and values. Ballmer had completely revamped the compensation plan and in 2003 eliminated stock options altogether.

Meanwhile, Gates had spent most of his time on technology matters. He had immersed himself deeply into a new operating system called Longhorn that would make computing much simpler, trustworthy and user friendly. This initiative had gathered significance in view of the competitive forces shaping the industry in the early 2000s...

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