Davenport, Leibold, Voelpel: Microsoft’s dynamic capabilities to influence business ecosystems

In the late 1980s, with the DOS operating system approaching the end of its useful life, Bill Gates focused on moving the industry to another Microsoft product, Windows.

Appreciating the uncertainty of this development and its possible acceptance in the business ecosystem, he hedged his bets by also investing in Windows’ competitors: Unix, OS/2 and the Apple Macintosh system. In addition, his company developed generic capabilities in object-oriented programming and graphical interface design – skills that would be useful no matter which system won in the ecosystem, even if it were a complete unknown. Gates’s approach of pursuing several paths simultaneously was intrinsically complex, and also confusing to both existing customers and employees.

Poised strategy differs from traditional industry and scenario analysis in that it does not presuppose an ability to identify the most or least likely outcomes. Being a poised organization calls for the ability to pursue a range of potentially conflicting strategies at the same time. In the case of Microsoft, it included major shaping ‘bets’ such as Windows, hedging ‘bets’ (support of OS/2), and no-regrets dynamic capability moves that are valid regardless of environmental outcome (building object-oriented programming skills).

Microsoft operated like a complex adaptive system, i.e. a poised organization, with a range of strategies that covered a spectrum of possibilities, and co-evolved with other organizations in its ecosystem over time. Underlying the thrust of these diverse activities are coherence premises, such as the Microsoft culture and its organizational values.