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Howard Anderson
Howard Anderson
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How Middle-Aged Microsoft Can Save Itself

Microsoft must reverse the five stages of decline before hubris descends into irrelevance, and it's too late.

Happy Birthday, Microsoft! You are now 37.

And like other 37-year-olds, you're starting to look ahead. And you don't like what you see. Your arteries are starting to clog. You've added 30 or so pounds (not all muscle) in the last 10 years.

Yes, you've done well, but the 12,000 millionaires you created by your 1986 public offering have pretty much moved on. Curiously enough, two of the three billionaires you created are still active, Ballmer more than Gates. But Gates is busy saving the world (thanks, Bill!). And Ballmer? He's sounding a little shrill these days. And it's awfully hard to compete against a religion (Apple, if you get my drift).

But worse, you have become ... irrelevant. Kind of like Madonna. She still sells a lot of music, but nobody really notices her. Oh, you have bought things (Skype for $8.5 billion), and you still dominate office software and PC operating systems. But Bing? Yammer?

You're kind of like a 37-year-old who goes into a bar and says to the young barmaid: "Where have you been all of my life?" And she replies: "Well, sir, for the first 20 years, I wasn't born."

OK, maybe Dr. Howard can help you out here.

You've got a disease. It's called middle age. It's harder to detect but easier to cure in its early stages; it's easier to detect but harder to cure in its later stages. You're about halfway.

[ Microsoft still wants to make it in the smartphone game. See Windows Phone 8: What Microsoft Needs To Compete. ]

Great companies don't fall gracefully. They pound along ... and then fall quickly. Evidence: Motorola, Circuit City, Kodak, Bank of America ... Shall I go on?

Jim Collins, in his book How The Mighty Fall," talks about the five stages of decline. Stage 1: Hubris. Stage 2: Undisciplined Pursuit Of More. Stage 3: Denial of Risk. Stage 4: Grasping For Salvation. Stage 5: Capitulation To Irrelevance Or Decline.

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You are Stage 1. Lots of hubris. See my July 20 InformationWeek column, "Microsoft A Victim of its Own Success." The last decade has taken you from invulnerable to vulnerable, from focused to defocused.

The hubris stage is when you decide that you're bulletproof, that your momentum will carry you forward. The next Windows will come out, the next Xbox 360 will magically appear, Windows Phone will wow people, you can come out with a tablet that people will just buy. You will run the numbers on Office and just KNOW it will succeed because you are Microsoft.

The next phase scares the hell out of me, and I hope it does you. This is where you scale hubris and decide that you have the management chops to just do more: more versions, more growth.

In case you haven't noticed, the "best and the brightest" don't work for you anymore. I teach at MIT; most of my best students went to work this year for Amazon and Google. You just ain't getting them anymore, and it's not the weather in Seattle. When you stop filling those key seats with the best people, then you fill them with the Seattle version of "suits." But don't worry, you're still racking up sales and profits.

Actually, I do mean worry. I'm being subtle, because right after Stage 2 comes the problem: You start going into Denial, saying "our best days are ahead of us." They ain't.

This is where the warning signs are easily explained away. We had trouble with foreign currency. We missed our projections because the economy in China/Greece/Spain turned down.

In your youth, you were a technology company, and a great one. When everyone hates you, you must be doing something right. Then you became a marketing company. And now you're a company that's financially driven. Just when you think there's nothing fundamentally wrong, there's something fundamentally wrong.

But the scariest stage comes next, and that is when you begin to lurch from side to side, trying to pull the proverbial rabbit out of the hat. And here is your enemy: the investment bankers, who will come up with beautiful PowerPoints showing you that if you would just make this and that and score this acquisition, then you would be back on the path of prosperity. Kind of like those ab crunchers they sell on late-night TV that promise to help you lose 30 pounds in 30 days. It took you 10 years to get to where you are (or are not). It may take you another 10 to get things right again.

We don't even want to talk about Stage 5--capitulation and irrelevance or death. This happens when you keep grasping for those magic potions, do multiple false starts, and "reorganize" (the McKinsey Full Employment Act).

OK, what do you want to do about it? Some companies make it out of this dilemma. Apple comes to mind. And to an extent, IBM, P&G, and Intel.

First, kill the bean counters. Go hire the best young technologists. The stock price sucks, so don't worry about it. Spin them off into small teams. Don't buy big companies--you will just screw them up. Buy little companies with great brains--you want their brains more than their products. Put them into a separate company, where you own 50% and these young turks together have options on the rest.

Second, cut staff, big time. Maybe 20%. I don't know what all of those people do and neither do you.

Third, tell Steve it's time to go. He had a good run, but it's time. Keep Bill.

Let me recommend a book, Younger Next Year, whose authors say that if you work out hard six days a week, really hard, you can be physically younger a year from now. It takes discipline, commitment, and a sense of urgency.

Or as Lewis Carroll says in Alice in Wonderland: "If you don't know where you are going, any road will take you there."

Feel better. And Happy Birthday.

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User Rank: Strategist
9/20/2012 | 2:36:02 PM
re: How Middle-Aged Microsoft Can Save Itself
MSFT was built on the 5150 and the pent-up demand for computing created by the infamous corporate glass house

the "glass house" was secured (physically) for good reasons. and it created horrible log-jams of things folks wanted to do -- but couldn't get access/time for on the glass house system.

the 5150 allowed folks computing on their desks -- where they -- and their computers -- escaped from that glass house

but the new environment that was thus created featured -- and fed upon -- freedom of access and freedom of programming ...

but this success has proven to be its own worst enemy as sensitive tasks have moved into the unsecured environment without enough thought and planning . and this has resulted in the plague of malware that infests the internet today

XP/SP2 started to address this, and Vista/Windows 7 have helped

but what has become clear is that computer customers need two classes of machines: secured and experimental. MSFT doesn't have the secured type. Windows is beyond help: Linux is now 20 years ahead.

Game over.
User Rank: Apprentice
9/19/2012 | 6:30:51 PM
re: How Middle-Aged Microsoft Can Save Itself
Terrific article!
Andrew Hornback
Andrew Hornback,
User Rank: Apprentice
9/19/2012 | 3:09:19 AM
re: How Middle-Aged Microsoft Can Save Itself
I think the biggest things that Microsoft can do to get back in the good graces of all involved is to split up and focus more on what's important to each of the newly formed components.

An infrastructure related group with all of the server/server app/cloud related products; a services/hosted services group that encompasses things like Office 365, Bing and Skype; a consumer related group - consumer OSes, gaming systems, mobile devices.

I think the idea would be to embrace the fact that Microsoft is not going to run every bit of people's daily technology lives and concentrate on doing the things that it does VERY well. Make products more interoperable, secure and just plain work without turning end-users into techno-wizards. That's Apple's draw, why can't Microsoft do it?

And finally, they need to re-make the image of the company - which includes getting rid of Ballmer. One of the more radical moves that I'd consider to replace Ballmer... Scott McNealy.

Andrew Hornback
InformationWeek Contributor
User Rank: Apprentice
9/18/2012 | 2:25:42 PM
re: How Middle-Aged Microsoft Can Save Itself
Sorry, but I think you are the one losing focus here.

Look, Microsoft was way too early to the mobile game. Microsoft is not a hardware company and (for whatever reasons) the early mobile devices could not support what is needed to provide a good user experience. Even today, mobile has yet to live up to its potential... but it is gaining fast.

Anyone not embracing mobile is doomed to irrelevance. That is why you are wrong about MS and Win8. This is why Howard is wrong as well. Microsoft has recognized the power of mobile and the cloud and is rapidly re-inventing themselves. In fact, Win8 one ups iOS and OS X because it converges the OS across all platforms which is better for users, better for developers, and better for hardware OEMs.

Every technology ages and a company must continue to innovate. For instance, Apple is falling victim to their own success because they are no longer innovating. They are coasting at this point while their competitors are running right by them in terms of shear functions and features. Without Jobs, they are afraid to mess with success. Long term success dictates that you must recognize when these lulls become dangerous to your survival and then act upon it.
User Rank: Ninja
9/17/2012 | 11:37:50 PM
re: How Middle-Aged Microsoft Can Save Itself
Change does not equal innovation and WinRT isn't mature at all. Yes, Microsoft has over a decade of experience in the mobile arena, but everything Microsoft ever put on a mobile device eventually flopped big time - and not because the world wasn't ready, but because it was just mediocre product that did not address user needs.
Microsoft wants to do everything and everywhere and compete against everyone. This causes them to lose focus as can be seen with Win 8. Other than 'Metro' there is nothing groundbreaking new in Win8 and Metro is already years behind the competition. Microsoft should get out of the mobile and Internet business and instead focus on true OS innovation (so that we don't have use the same clunky two decades old NTFS on all our Windoze boxes) and making absolutely fantastic development tools. VS is still excellent, but it ages with .NET and already left Silverlight behind. And within a few years Microsoft will have to kill off .NET the same way as they did with VB6 and for exactly the same reasons. But then it will be not enough to just change or have one new gimmick, because everyone else already does that and is much faster and better at it.
So, in order to achieve that major shift, Microsoft has to do two things first: fire Ballmer and stop naming everything "Windows".
User Rank: Apprentice
9/17/2012 | 9:23:58 PM
re: How Middle-Aged Microsoft Can Save Itself
On the surface it looks like a good article. Deeper down it just provide a glance of the issues any large company has. In which area to expand my business, and with what software technology should I continue. The company needs to establish a knowledgeable management team to streamline its operations. Steve may not have the interest any more in doing this, but it looks like Bill still cares for his baby. Technology wise MS is still a powerhouse.
User Rank: Apprentice
9/17/2012 | 8:52:02 PM
re: How Middle-Aged Microsoft Can Save Itself
Excellent!!! On the money. One hopes that Redmond will read this because it would be very sad indeed to see them slide down the slow path to irrelevance.

It's been evident for years that Mr. Ballmer is part of the problem, not part of the solution. At this point perhaps the wisest thing that Microsoft can do is to open his golden parachute and look for a visionary executive, whether that person be a technologist or no, who can bring together the right expertise within the company to articulate a new roadmap for Microsoft with ruthless objectivity.

In a universe where everyone is articulating the same converged strategy overall, what will differentiate Microsoft from Google say in a way that makes them relevant? If they can't answer that, then move gracefully to the second tier so that at least they don't tank altogether.
User Rank: Apprentice
9/17/2012 | 7:37:20 PM
re: How Middle-Aged Microsoft Can Save Itself
What amazes me is that people who should know better complain constantly about Microsoft's lack of innovation - and now these same people complain because Microsoft is changing things too much. Windows 8 is a transformative technology, I don't think this fits your mold of a company that is sitting back watching the world go by Mr. Anderson. I have been in the technology business for many years and worked with everything from IBM operating systems, through early Unix, SCO Unix, Sun and NT. I am constantly amazed by the quality and innovation that comes out of Microsoft. They have made their mistakes; people and companies that take risks often do. .Net,.C#, WPF and now WinRT are mature, comprehensive and very productive technologies. So it appears Mr. Anderson has simply jumped on the bandwagon of tearing apart Apple competitors just because Apple is doing phenomenally well. I would have expected something more from somebody with your credentials.
User Rank: Strategist
9/17/2012 | 6:51:35 PM
re: How Middle-Aged Microsoft Can Save Itself
A 'great software' company??? The 'world's best software'??? about fighting religions.

Let's actually get them to be a good software company for once, and not just a giant one. It would help them if they were nimble, obviously. On the other hand, just shedding jobs for the sake of it hasn't really helped the US economy in over 30 years since it became the mantra of the corporate types (sure, it helps you make money, but doesn't really add anything to your company).

Best yet...go as an open source company. :)
User Rank: Ninja
9/17/2012 | 6:25:24 PM
re: How Middle-Aged Microsoft Can Save Itself
Thank you for putting your finger on what's turning Darth Vader into Dark Helmet. And yes, Ballmer needs to go (should have gone in 2006, if not before), as he's fixated on restoring the glory days of the 1990s, undoing the antitrust cases, and manipulating the markets and legal system, instead of making the world's best software (which MS is still capable of doing).
Unfortunately, I don't think Bill's all that interested any more, and even if he was, the policies that no longer work are his (but if he can't fix MS, it's unlikely that anyone else will be able to either).
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