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Microsoft in Latin America

HBS begins its case method classes with a “cold call”—basically where the professor selects one of the students to provide a 2-minute overview of the case study and their perspective of the direction the protagonist in the case should take. I don’t have the luxury—or misfortune—of being called on by a professor, or participating in a class discussion with 50+ other individuals. Nevertheless, here’s my cold call response for Microsoft Latin America, written by Harvard Business School in 2000:

Case Overview

In this case, the protagonist, Mauricio Santillán, a Regional VP for Microsoft’s Latin America division, is preparing for a semiannual meeting with general managers of all Latin American subsidiaries. This meeting typically covers overall strategy for the region as well as metrics and targets for monitoring and implementing the strategic plan. Santillán has two primary strategic objectives for the region:

  1. Launch the new SQL 7.0® package to complete in the market for corporate databases.
  2. Use the launch of Windows 98® to focus country managers on reducing the level of piracy in the region.

Each of these objectives has challenges:

SQL 7.0 Challenges:

  • Value Chain Position: Shifting Microsoft’s value chain position from direct sales of a final product to sales of a platform that partners adapt and deliver for customer needs.
  • Customer Contact: Change in customer decision-maker from a systems manager to a financial, human resource or senior general manager.

Piracy Challenges:

  • Personal-Use Products: 90% of households have pirated software in Latin America.
  • Commercial-Use Products: 70% of small businesses, 25% of medium businesses and 10% of large business have pirated software.

Other Challenges:

  • Internet: The internet is changing the market landscape, and the demand for customer services (and training / local experts) is increasing as a result.
  • Talent Management: Finding good talent is an increasing challenge, and means are necessary to attract and retain the right people.

Santillán has developed a balanced scorecard for tracking metrics related to financial, customer, internal and learning performance. He gathers information from each country manager in Latin America, and prepares a summary for the stakeholder meetings to discuss strategy and plans for the upcoming year.

My Position

In my opinion, Santillán has significant opportunities and significant challenges ahead of him.

SQL 7.0 Launch

If done correctly, the SQL 7.0 launch could solve several challenges in one. For example, Salesforce.com is an example of a company that transformed its core business from creating a direct-sale product to creating a platform on which partners could develop their own products (If you want to learn more on this topic, I highly recommend Marc Benioff’s Behind the Cloud. Benioff has created a strategy playbook chronicling the history of Salesforce.com and the cloud—a great read!). Benefits of taking this approach include:

  • Force.com became the core platform behind thousands of business applications, securing its market position and future demand.
  • Partners were much more nimble and could create individual applications for themselves or end-customers at a much faster rate than Salesforce would have been able to do with its internal development team.

This is also similar to the App Store created by Apple—if you create a great base product and allow others to exercise their own creativity, you secure your own product’s market position while also increasing the overall customer experience as a result of the variety of custom applications available.

Handling the SQL 7.0 launch correctly, which includes working closely with partners and customers (communication) as well as having experts available for partner and customer support (service), can solve Latin America’s challenges associated with value chain position, customer contacts and handling any impact of the internet on Microsoft’s future.

Piracy Reduction

msft-spanish-piracy-messageSeveral years ago I was staying at a Hampton Inn in Mexico City while traveling on business. When I arrived I learned that, the client’s legal team was still working through some contract language and that I wouldn’t be allowed to enter their offices. As an alternative, and wanting to be productive, I decided to go to the hotel’s business center. That’s when I saw this message on the desktop of the machine (see image left). Its english equivalent reads, “You may be a victim of software counterfeiting. This copy of windows did not pass genuine Windows validation.” (Literally translated, the Spanish version says, “This copy of windows has not passed genuine Windows validation,” as if to imply that it may pass in the future. That’s Latin American culture for you though—very hesitant to cast blame.)

I wasn’t surprised to see pirated software—I’ve worked Fortune 500 companies to design software compliance programs in defence of this type of activity, so I’m well aware that Latin America and other global regions are known to be high-risk areas. What really surprised me was to see pirated software in a Hampton Inn, a global hotel chain that operates under the Hilton Brand. For a company so large and with such an established brand, piracy seems like a big risk to take.

Some of the recommendations that Santillán is considering to reduce piracy include:

  • Price: Reduce price and develop new licensing policies for different markets. Also, special service options for large customers.
  • Policy: Work with local governments or software organizations to increase legal protections.
  • Perception: Change customers’ perception about the long-term benefits of legal software.
  • Protection: Integrate license management technologies to make piracy more difficult.

From my experience, each of these will have a positive impact on piracy reduction. One piece of critical data that is missing from the case is the amount of revenue that makes up each market segment: personal/home, small business, medium business, and large business. Without this data, it is difficult to put together a specific plan for pricing/licensing changes or communications/policy strategies. Here are some points to consider:

Price:

Price is one of the biggest factors that will affect piracy, because it most directly impacts the economic incentives involved. The BSA and other research organizations have done many studies indicating that users know pirating software is wrong, yet they still do it. The reason they do it is because it’s a decision made more on economics than ethics. There is an inverse relationship between the level of piracy in a country and the country’s GDP. Reducing the price removes the economic incentives that pirates receive, and also make the software affordable to people who would purchase it.

The challenge in regional pricing is to closely monitor the sales channel to ensure that lower-cost products in one region aren’t re-sold into a region where products are sold at higher prices. This will undercut direct and channel sales opportunities in the higher-cost region, eroding prices and resulting in poor sales performance.

Policy:

Working with lobbying groups, such as the Business Software Alliance (BSA), Federation Against Software Theft (FAST) and others can provide multiple benefits:

  1. They work with local governments on your behalf.
  2. They bridge the common goal of multiple software vendors (including competitors).
  3. They often perform software audits on behalf of their members, which can provide additional revenue.

Perception:

Communication is valuable, especially to remind customers of their moral and ethical values and to inform them of the risks of using pirated software (application failures, reputational risks, virus attacks, etc).

Protection:

License management technologies are great, but they will rarely (if ever) cover 100% of piracy cases. This is also something that would need to be implemented by product development teams at a global level. Santillán should provide feedback on this, but it is not likely that he would be the one managing the integration.

Other avenues that Santillán should consider include carrot and stick strategies.

  • Sticks: One common stick, especially among Fortune 500 software vendors, is to establish a software compliance audit program for customers and channel partners. There are a range of reasons why a customer or partner could be selected, but the ultimate goal of the program is to assist customers in managing their licenses appropriately. This works well for medium and large businesses, but wouldn’t be as scalable to small businesses or home users.
  • Carrots: Many software vendors consider providing Software Asset Management (SAM) services to customers, especially the largest customers. These services can even be provided at no cost to customers by using funding from the compliance program as a method for improving the overall customer experience. This also works well for medium and large customers, but doesn’t scale for small businesses or home users.

Talent Management:

Microsoft places significant emphasis on having the right people, even leaving positions open for up to a year to ensure the right person is found. The case, however, does not provide any detail for why there is a growing challenge in finding good people, or keeping them after they’re hired. Challenges could include:

  • Culture: In Europe, for example, it is common practice to provide 3-months notice prior to leaving a company (much longer than the traditional 2-weeks notice in the US). If Latin America has a similar practice, or if changing government regulations are driving a similar behavior, this could increase the difficulty in recruiting the right talent for the organization.
  • Compensation: Microsoft is seen as a great brand to have on a resumé, but in the long term people will need to support their families and personal pursuits. Large companies, like Microsoft, have a reputation for under-paying their employees, which can increase turnover as employees join in order to boost their experience and then leave shortly after for better opportunities elsewhere (i.e. the stepping-stone to a better job).

Conclusion:

Managed well, the upcoming launches of SQL 7.0 and Windows 98 can achieve Santillán’s goals to grow business and reduce piracy in Latin America.

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