Microsoft VRIO Analysis

Microsoft is among the leading technology brands based in the United States. The company has a strong global presence and offers a diverse portfolio of various products and services including cloud services. Apart from its Windows and Microsoft Office products, the company also offers Microsoft Azure; its range of cloud services.

With a market cap of above $2 Trillion, the company is among the world’s largest tech brands. Microsoft has a strong competitive position in the tech industry and has been doing financially well over the past several years.

Its diverse product portfolio also includes gaming products. However, its cloud business has proved to be a leading growth driver for the company. Its net revenues have grown fast in the recent years driven by growth across cloud and other categories. The company generated $168 billion in net revenues in 2021 compared to $43 billion in 2020 and $125.8 billion in 2019.

Microsoft invests heavily in research and development to maintain its competitive edge in the industry and expand its market share. The company sells its products across 190 countries. It enjoys strong brand awareness throughout the globe and is a leading name in the world of computing.

In this VRIO analysis, we will analyze Microsoft’s core competencies and how they have helped it achieve a sustainable competitive advantage in the tech industry.

MICROSOFT VRIO ANALYSIS:

Core CompetenciesValuableRareInimitableOrganizedAdvantage
Technological innovationYesYesYesYesCompetitive advantage
Brand awarenessYesNoYesYesTemporary advantage
Brand equityYesNoYesYesTemporary advantage
MarketingYesNoYesYesTemporary advantage
Global presenceYesNoYesYesTemporary advantage
HR ManagementYesNoYesYesTemporary advantage
Product portfolioYesYesYesYesCompetitive advantage
Microsoft VRIO Table

Technological innovation:

For any leading tech brand its ability to innovate is its leading driver of competitiveness in the market. All the leading tech brands including Microsoft invest heavily in research and development to maintain their leadership and market share.

Microsoft’s strong market position is also based on its focus on technological innovation. The company invests heavily in research and development to improve its product portfolio and enhance its technological capabilities that drive faster growth.

In 2021, the company invested $20.7 billion in research and development compared to $19.3 billion in 2020 and $16.9 billion in 2019. Microsoft’s research and development expenses have continued to grow faster each year. However, a higher focus on research and development has also helped the company improve its financial performance.

The tech industry is marked by intense competition and without focusing on innovation, companies can lose their competitive edge and market share. In the case of Microsoft, a continuous focus on innovation is essential for maintaining the competitive advantage it has achieved and grow faster.

Brand awareness:

As a leading tech player, Microsoft enjoys a very strong brand awareness and is a well-known brand all over the world. Founded by Bill Gates, Microsoft offers a diverse range of products and services. It is well known worldwide as the maker of Windows and Microsoft Office software. However, the company has also grown famous as a leading cloud services provider.

In any corner of the world where people are familiar with computing and related technologies, the name of Microsoft needs little introduction. Over time, its clout in the tech industry has continued to grow and so has its brand awareness. However, the tech industry is marked by intense competition and companies have to maintain their focus on marketing to maintain strong demand and growth. Strong brand awareness also offers a temporary competitive advantage for the brand.

Brand equity:

Brand equity can also be an important source of competitive advantage for brands. In the services industry especially things depend on trust. Companies that achieve significant trust among their customers succeed in the long term. Microsoft is driven by innovation and quality. Its focus on these two factors has helped the company build a strong competitive position in the market.

However, the level of competition in the tech industry has kept growing due to which companies continuously need to focus on improving their quality of products and services to maintain customer loyalty. Brand equity therefore offers only temporary competitive advantage.

Marketing:

Marketing is critical to driving demand and growth in any industry sector. While Microsoft enjoys very high brand awareness and customer demand in most corners of the globe, the company still needs to invest in marketing due to the high level of competition in the industry sector.

In 2021, the company invested $20.12 billion in marketing. It has kept growing its investment in sales and marketing to bring faster growth. Marketing can strengthen a company’s competitive advantage but it offers only short-term benefits. Companies need to continuously invest in marketing to stay ahead of competition. In the case, of Microsoft too, Marketing offers only a short term and temporary competitive advantage.

Global presence:

Microsoft is a global brand with a strong presence around the globe. The company sells its products and services across 190 countries. Its strong global presence and a large distribution net work are also important source of competitive advantage for the brand. However, it operates in a hyper competitive environment. The rival companies also offer their products worldwide and sell to global customers. Therefore, its global presence also offers only a limited advantage and the company needs to invest in quality, marketing and innovation to maintain its growth momentum.

HR management:

Human resources are among the core drivers of competitive advantage for large businesses. Companies in the tech industry are focusing heavily on human resource management to grow their business. Microsoft also invests heavily in its human resources like its rivals including Google, Amazon, Apple and others. However, due to the intense competition in the tech industry, having talented human resources can offer only a temporary competitive advantage.

Product portfolio:

One of the most important drivers of competitive advantage for Microsoft is its large and diverse product portfolio.  Windows is the dominant desktop operating system in the world with the largest market share. While its market share has diminished in recent years compared to a decade ago, it still enjoys more than 74% market share according to Statista. Microsoft is also the market leader in other areas including cloud technology. Overall, its product portfolio offers the company a sustainable competitive advantage.