Skype Competes As a Differentiated Player in Essay

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Skype competes as a differentiated player in the VoIP industry. The company's business model is based on free distribution of its software, and then encouraging users to sign up for a payment plan that covers usage. The company's technology was once innovative but has now been commoditized (Blodget, 2011). The company was recently purchased by Microsoft for $8.5 billion (Saporito, 2011). The value of the company derives not from the software but from the company's 170 million-strong user base.

The company's strategy therefore relies heavily on throughputs. The most important input for Skype is the technology, which is now common. The technology allows users to interact with each other, using text messaging, voice or video calls. The company charges for this service, but still loses money. The main input for Microsoft is the user base. Without the massive user base, Skype has little intrinsic value and little means of generating income. Thus, the brand becomes a key throughput for the company, because it is the brand that attracts the users and provides an opportunity for the company to earn income.

The Nadler-Tushman Congruence Model emphasizes that in order for the organization to be successful, its inputs, throughputs and outputs need to be congruent. Given the lack of profits at Skype, the reasonable conclusion is that there is poor congruence, despite the company's substantial user base. This paper will illustrate how this is so.

Inputs

There are four key categories of input identified by Nadler and Tushman: environment, resources, history and strategy. The environment, characterized by rapid technological change, first created the opportunity that Skype seized but now represents an ongoing existential threat to the organization. The social environment for the company -- with increased use of technology and increased globalization -- has resulted in a dramatic increase in the need for efficient, low-cost means of communication, and Skype fulfilled that role.

The company has traditionally relied on a combination of human capital and investment capital to drive its business. Money and effort is spent on improving the existing Skype technology, developing enhancements and on developing entirely new product/service lines.

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The company's current business model is not profitable, so the development of these resources is important in order to add value to the current service that will allow the company to become profitable.

Skype has very little history on which to draw, and having undergone a series of ownership changes over the past several years, the company has not had the opportunity to build a consistent culture for itself. As a consequence, Skype is left without much benefit from the history input. With respect to strategy, the shifting strategy of the company in its short life also relates to its multiple ownership changes. The early strategy was focused on product development and market penetration. However, that strategy has shifted as Skype has been viewed by its more recent owners as an asset rather than a strategic entity unto itself. Blodget (2011) argues that the value of Skype to Microsoft lies more in its user base and social network. This implies that once again Skype is viewed by its owners as a means rather than an end. Microsoft may have little or no intention of trying to improve Skype's ability to monetize its user base, but may instead be focused on Microsoft's own ability to monetize the Skype user base for Microsoft-branded products.

The Congruence Model also emphasizes throughputs, the "key organizational components." With respect to task, there is the day-to-day operations of Skype and then there is new product development. Execution of the first task has been successful, and the 170-million user base is evidence of that. However, the company has failed to tie its user growth with revenue. While Skype earns revenue, its strategy as a cost leader means that revenue falls well short of costs. There is something lacking, therefore, with the individuals within the organization. The company's founders never really conceived how to monetize their invention, and nobody else who has owned Skype has been able to do this either.

The organization's systems therefore also seem to lack the key elements that link human and financial capital to….....

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