Strategy Shift 2Strategy Shift 2

It was a pragmatic decision: Cooper Tire's license agreement with Microsoft already covered the products needed, so the tire company faced development costs but no added application expense. The other approaches would have cost at least $1.5 million, and Cooper did it for less than half that. But what does Microsoft know about the tire manufacturing? "That's what we were wondering, too," says Todd Wilson, project manager of technical systems in Cooper's tire division.

Microsoft brought in a systems integrator--Avanade, a joint venture between Microsoft and Accenture--and bore some of the cost. "The people they've brought in have been experienced manufacturing people. We haven't had to teach them," Wilson says. Microsoft and Avanade spent three months developing a prototype to prove its tools could meet Cooper's needs.

The resulting system helps the company get new tire designs to market in about nine months, half of what it used to take. That scored points with management because speed to market is key to Cooper's strategy of developing high-performance and racing tires to compete with Chinese tire companies. "We were a fast follower. We want to be more of a leader," Wilson says.

Another industry in which Microsoft has well-established customers is retail--it estimates 70% of the computing infrastructure in stores runs on Microsoft software. Yet the company is depending on creative thinking to convince retailers to use its software in more, and more strategic, ways.

An initiative called Smarter Retailing, launched in January with 17 partners, sets the lofty goal of revolutionizing the shopping experience through emerging technologies such as using a fingerprint reader in lieu of a credit-card swipe or a smart phone for one-to-one marketing in a store. Retailers have earned a reputation for treating their best customers the worst, says Janet Kennedy, managing director of Microsoft's retail and hospitality sector, which employs 170 sales, consulting, technical, and service staff to serve 105 top accounts. "The bread, milk, beer customer gets the fast lane," Kennedy says, "and the mother with three kids and $300 worth of groceries gets the slow lane."

Early participants include the A&P supermarket chain and Smart & Final, which operates a chain of warehouse stores. Smarter Retailing could serve as a model for similar undertakings in other areas. "You may see a Smarter Financial Services initiative or Smarter Manufacturing," says Gerri Elliott, VP of worldwide industry solutions.

The big question for Microsoft is whether customers' familiarity breeds comfort--or contempt. For example, in retail banking, Microsoft technology is widely used on the desktops of branch-office employees, says Jerry Silva, a senior analyst with TowerGroup, which advises financial-services companies. That leaves Microsoft well positioned to provide the server software that runs branch operations and, eventually, data-center workloads as well. But some aren't convinced Microsoft has the chops to do that. "To get into the middle office, you have to focus less on cost and more on scalability and reliability," Silva says. That includes improving Microsoft's poor reputation for security. "Banks are risk averse," he adds.

Microsoft is moving quickly, expanding industry-specific sales and support teams, developing application accelerators and industry-enabling layers, and seeking more partnerships with vendors that have deep industry roots. In just one day this month, Microsoft Business Solutions revealed a customization guide and other technical resources to assist partners implementing its Retail Management System, while Microsoft and BearingPoint disclosed plans to jointly develop IT systems for government users.

How much more is there to do? Consider that Microsoft Business Solutions sells to approximately 80 industries in Europe (a result of its acquisition of Denmark-based Navision in 2002) but only about a dozen industries in the United States. That leaves more than 60 industries to go if Microsoft mimics its European strategy here at home.

CEO Ballmer sums up his company's overall vertical push this way: "We've made great progress. We have great capability today that we didn't have a couple of years ago. Yet I believe there's a whole lot more that we can and need to be doing."

Microsoft has already made its mark on the technology industry. Your industry may be next.