Strategic Management

MICROSOFT- OUTSOURCING XBOX PRODUCTION

CASE DISCUSSION QUESTIONS

1. What was the strategic advantage to Microsoft of outsourcing Xbox production to Flextronics?

Microsoft’s primary business is to develop software. Other than that, the company also sells computer hardware such as mice and keyboards, these products represent a much smaller part of the company’s overall revenues. However, Xbox was different. It is not a simple computer peripheral, it was a fully functional specialized computer, with multiple components, memory chips, graphic chips and internal hard drive. The assembly of the Xbox was far more complex than the assembly of a computer mouse. Microsoft did not have a presence in the gaming console market and was up against strong competitors which are already had established markets such as Sony (PlayStation) and Nintendo (GameCube). This competitive landscape put them in a position where the company needed to develop a product which offered features that were comparable to existing products in the market place and sell at affordable price, so that they can establish the Xbox in the market. Moreover, it was critical to launch in time for the 2001 holiday season to allow Xbox to have a presence in the marketplace before it became up against the “next-generation product”. Thus, Microsoft’s early challenges came at a price of high production ramp up costs because it needed to produce 100,000 consoles in a week in order to launch the new Xbox in time for Christmas .After reviewing potential suppliers, it decided to outsource assembly and significant logistics functions to Flextronics. The strategic advantage to Microsoft of outsourcing Xbox production to Flextronics was the Flextronics able to manufacture the Xbox at a low cost and provide high quality product as compared to Microsoft in-house capabilities. Flextronics is a Singapore-based contract manufacture and also involved in manufacturing Dell, Ericson Telecom AB, Hewlett-Packard Company, Siemens...