Final Exam 1

Final Exam

MGT 658C Business Strategy and Policy

National University

Prakash Nallaiah

Professor, Rubina Islam Ahmed

Question :1
Final Exam 2

How is a strategy different from a business model? How is it similar?

Strategy is different from a business model as strategy is a method to achieve the core
objective of the company whereas Business model is a systematic method used by the companies
to generate profit and revenues. Strategy is the goal directed actions to outperform among
competitors whereas Business model is the core plan of the business which reflects the value
creation, resources management and value capture of the business. Business model is used to
create and deliver values to the customers and it varies from business to business based on the
business structure whereas strategy is used by the business to achieve the mission. Business
model determines the day to day operations of the company, and this is the model on which the
company is divided from top to bottom level.

The similarity is that the business model is part of business strategy and both are
related to how the goal and objectives are achieved by the business. Bus

Question: 2

Why are Microsoft and Google becoming increasingly direct competitors?

Microsoft and Google have become direct competitors as the product they develop
similar products however in reverse order and they follow different strategies and business
models. Eg: Google started from online search engine to software applications whereas
Microsoft from software application to online search engine. Both the companies knows about
the innovation strategy and importance of mobile device and cloud based technologies as the
industry is leaning more towards the mobile and cloud as opposed to the laptops and desktops
(which is the 60% revenue of Microsoft).
Due to the shift into cloud computing, Google invest heavily in subsiding its services of
Google docs to compete with the paid version of Microsoft’s office package. Both has online
search engine; Googles gets profit from the ads of chrome search engine and invest in its cloud
services subsidy. Microsoft gets profit from the software application package and give ads in
Bing search engine for free for the ad posters. Interests in the technology market and the
importance of the technology products makes them direct competitors.
Final Exam 3

Question: 3

Identify other examples of companies that were not competing in the past but are becoming
competitors. Why are we seeing such a trend?

Huawei and Apple have become the direct competitors which were not direct competitors
in the past. Huawei started its company with the networking products, data centers, storage
devices and then printed its foot in the mobile phone industry in the year 2009. Apple was having
success in their iMac and iPod and later they introduced the iPhone in the year 2008 and became
the third largest mobile phone supplier in the world. Huawei overtook apple and became the
second largest smartphone manufacturer in the world in 2018. Also, both the companies
launched smart watch in the year 2015. Apple is giving greater service in terms of safety and
reliability in the iPhone and Huawei gives equivalent competency in terms of Android OS.

The reason for these trends is make the profit and revenue by keeping hands in the
competitive industries where the market is large, and the opportunities are more. As the
companies are successful in their current products, they would like to move on to the adjacent
market space with technology advancement and creative imagination by acquiring new learnings
and make profits. These trends will go grow further in the future and even the unconnected
industries can become direct competitors.

Question: 4

What recommendations would you give to Satya Nadella, CEO of Microsoft, to compete
more effectively against Google? To engineer a turnaround at Microsoft?

The following points are the recommendations I would like to give Satya Nadella, CEO
of Microsoft.

 Concentrate on developing better mobile apps which are fast and reliable.
Final Exam 4

 Comes out of the comfortable zone of the laptop and desktop apps and be more
innovative and offer uniqueness in their products which can attract the customers in
the mobile and cloud segment.
 Diversify its products like smart watches, payment gateway and create ads.
 Combine hands with the giant cell phone companies and provide better user friendly
mobile OS as customers are given only the choice between android and IOS mainly.
 Reduce the price of the OS and the software packages and attract the customers with
new bundle of package deals which might bring more buying options.
 The company should explore the unexposed market space and make product out of it
by applying blue ocean strategy.

Question: 5

What recommendations would you give to Sundar Pichai, CEO of Google, to compete more
effectively against Microsoft? To continue to sustain its competitive advantage?

The following points are the recommendations I would like to give Sundar Pichai, CEO
of Google.

 In addition to the search engine, Google should also diversify their interests in cell phone
industry by creating the market awareness.
 To sustain its competitive advantage, it should continue innovating more on the search
engine and the applications as the mobile applications are being developed everyday for
various usages.
 The Product innovation should be streamline as the products in unconnected ways by
confuse the customer and affect the revenue.
 The android OS needs to be updated more to compete with the other giant competitor in
terms of safety and reliability as safety is lacking in the android OS compared to its
competitors.

Question: 6
Final Exam 5

Please review from the web the current quartely statements from both companies and
identify their next steps ?

Cumulative Financial Ratio Q1-Q3 Fy2020

Ratio Google Microsoft
ROIC 24.10% 30.73%
ROA 15.51% 18.45%
ROE 21.41% 45.99%
ROR 24.35% 37.39%
COGS/ Revenue 45.73% 29.61%
R&D/ Revenue 14.84% 13.25%
S&GA/Revenue 15.13% 14.40%
Fixed Asset Turnover 2.10 3.24
Inventory Turnover 95.42 24.32
Receivable Turnover 6.89 6.44
Payable Turnover 18.14 3.73
Working Capital
Turnover 1.48 1.37

Microsoft ROCI was (30.73%), Which was more than 6.63% percentage higher
than the Google (24.10%). This shows Microsoft gives much higher earnings per dollar
than Google. ROIC having two important factors are Return on revenue (ROR) and
Working capital turnover. Under these two factors it shows the companies account
profitability. Microsoft has 37.39% ROR and 1.37 working capital turnover. Google has
24.35% ROR and 1.48 working capital turnover. In terms of ROR Microsoft earn more
profit from $100 revenue and by working capital Google ($1.48) realize more sales for
each dollar invested than Microsoft ($1.37)

Google produce a good much more efficient than Microsoft because Google has
more digital products diversification than Microsoft’s digital products. In term of R&D
spending ratio for both the companies is almost equal, only the little difference Google
was (1.59% higher) than the Microsoft. Google already having different product portfolio
and wanted to come up more in innovation smart devices they are spending higher money
on R&D from their revenue. In contrast Microsoft spending on AI based digital products.
Final Exam 6

Microsoft FAT is $3.24, which was $1.14 higher than the Google (2.10). It shows
Microsoft has more capital tied up with its PPE. Both the companies selling more digital
products that’s the reason they have very little variation. Google’s inventory turnover in
95 times it is very big difference than Microsoft’s 24.32 times. Google has more demand
in market and its products are more on digital and very limited products only are physical
products. So, it has very high inventory turnover ratio.

Microsoft has 6.44 receivable turnover and 3.73 payable turnover. While Google
has 6.89 receivable turnover and 18.14 payable turnover. From this information
Microsoft maintained very well cash flow management by both the sides of paying and
receiving debts. Mainly Microsoft paid faster to its creditors. Google has strong
negotiating power, so they extended their payments to creditors. Because in online search
engine market google has 95% of market share.

In term of Share valuation Microsoft has 1.653T, which is 48B lesser than the
Google’s 1.171T. Which shows Microsoft has grown lot in past decades and now trying
to diversify their business into AI and cloud based digital products to B2B and B2C
segments. In contrast Google had massive growth in last decades and still dominating in
online search market and also extending the wings to AI based smart device market.