When this company stagnated, it changed its business model. Find out what happened here!

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

When this company stagnated, it changed its business model. Find out what happened here!

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?

Microsoft Corporation !

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.

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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.

Hope you found this week’s insights interesting and helpful.

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Stay tuned for next Tuesday’s Return Driven Strategy!

Medtronic  is a medical device company with operational and executive headquarters in Minneapolis, Minnesota. While the company primarily operates in the U.S., it also has businesses in over 150 countries and employs over 90,000 people across the globe.

Learn more about  this return-driven business case study  in next week’s article!