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Commentary
7/20/2012
10:33 AM
Howard Anderson
Howard Anderson
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Microsoft A Victim Of Its Own Success

For all its cash and market advantages, Microsoft is a company in decline.

There's a wonderful article in Vanity Fair this month by Kurt Eichenwald, "Microsoft's Lost Decade," which details the cannibalistic culture that took Microsoft from invulnerable to highly vulnerable. Ten years ago, we all were echoing that Microsoft had all the applications, all the operating system revenue, and all the talent, and so was an impregnable fortress. It would swat all competitors like so many mosquitoes. And we were dead wrong.

Fifteen years ago, we were saying the same thing about IBM. Its profits were larger than those of the next seven computer companies combined and its R&D budget was larger than anyone else's profits. How could we be so consistently incorrect? It's a talent.

Eichenwald puts the blame squarely on CEO Steve Ballmer and makes the case that his talents lay not in technology, but in sales/marketing and other assorted alleged skills. But the real reason is management. Microsoft, like every other large company, was the victim of its own attempts to bring order to chaos. Ten years ago, everyone at Microsoft was getting rich--the stock appreciation alone created 4 million (!) millionaires as the stock options became vested. Then the music stopped. And when it stopped, the only way to get ahead was to get promoted. You couldn't get rich on your stock options anymore because the stock wasn't moving up.

[ If IT organizations don't get their act together, the best and brightest will chart their own destinies. See Here Comes Corporate Brain Drain. ]

Those who had gotten rich either physically or mentally checked out. Then Microsoft subscribed to the forced curve, which said that only 20% of any team could be judged "excellent," 50% had to be called "acceptable," 20% had to be labeled "deficient," and the bottom 10% had to be made eligible for "reduction." Sounds like some MBA theory; in fact, it's a lift from Jack Welch's reign at GE.

So what would you do if you worked at Microsoft and wanted to be a survivor? Would you gravitate to the high-performing teams? No way! Even if you were quite accomplished, you might wind up in that bottom 30%, and you wouldn't be promoted within your lifetime. No, No, No--you would migrate to poorly performing teams, where you could be a superstar. In the land of the blind, the one-eyed man is king. In a high-performing team, you might be cannon fodder even if you met all of your yearly objectives, especially if your peers exceeded theirs.

The second behavior of the Microsofties was even more insidious. In any team, you would delicately and subtly sabotage your peers. Did someone on your team need data by Wednesday for a report due to a Big Boss on Friday? Then why not send it late, send it incomplete, send it by interoffice mail. You sent it, didn't you? No one could complain that you were non-compliant, except that your peer would miss a deadline, which meant that someone's year-end review wouldn't look quite so good.

The result of all of this insidiousness: products were late and decisions were postponed--even as Microsoft racked up record earnings and cash kept accumulating. This dysfunctional "gaming the system" was just the sort of behavior which would have driven Steve Jobs crazy--and which he never allowed.

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There's a lag time between when a company gets into trouble and the world realizes it. For a while, everything is hunky dory--the company is cranking along, making some acquisitions, building derivative products. But there's trouble below the water line. In other words, its success is a predictor of its failure.

I remember a discussion I had once with Cisco CEO John Chambers. I was keynoting a Goldman Sachs conference evaluating the technology sector, and I was rating companies on growth, international sales, products, and the ability to handle adversity. I gave Cisco high grades on all but the last category, and Chambers was ripped that I would even suggest that he didn't face sufficient adversity.

"Howard! All of my key management is filthy rich, and they're all leaving because their stock options are golden--isn't that adversity?" Chambers said. I had to admit that I didn't think that when your company was worth half a trillion dollars you'd be crying the blues.

Every company needs to find some common enemy upon which to rally the troops. If it can't find such an enemy, it will find the enemy within. This is where the backbiting, the gaming of the system, the convoluting of the mission takes place.

Too many years ago, I rowed crew at the University of Pennsylvania. The coach, Joe Burk, had just installed the first ergometers right on the shell, where one to four lights would light up at the cox's position, depending on how hard you were pulling. The coach would follow the boat, looking over the cox's shoulder, and shout: "Anderson, pull harder! You're only lighting three bulbs!" And I would drive my legs harder... while he was looking. Then I (or my teammates) would slack off until the coach came by again. Needless to say, we didn't win many races.

This is what has happened at Microsoft (and IBM, AT&T, Yahoo, HP, Cisco, and SAP), and it will happen sooner or later at Google, Facebook, and Kayak. Maybe not at Oracle, as long as Larry Ellison remains the meanest SOB in the Valley and just won't put up with this BS.

Karl Marx said that capitalism breeds its own destruction, and I think he may have overstated his case. Sorry, Karl, but success can destroy a company much faster (examples: Wang Labs, Digital Equipment).

Groucho Marx (no relation to Karl) was once told that a solution was so obvious that "a 5-year-old child could see it." His answer: Send for a 5-year-old child.

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MyW0r1d
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MyW0r1d,
User Rank: Strategist
7/20/2012 | 9:57:01 PM
re: Microsoft A Victim Of Its Own Success
I would propose looking at it from another angle, that the enemy is not always an individual or competitor. Sometimes the enemy is complacency, lack of vision (ever heard "I don't know" response), or indecisiveness. These are definitely harder to sell to the mass of employees because they are not as easily identifiable as the competitor, but I think they qualify for the label of enemy all the same.
Don108
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Don108,
User Rank: Apprentice
7/20/2012 | 8:39:46 PM
re: Microsoft A Victim Of Its Own Success
"Every company needs to find some common enemy upon which to rally the troops."

This is a myth promulgated by shortsighted CEOs who can't do any better, journalists of low quality who look for competition and controversy to sell papers and magazines (virtual or tree-based), and of course, the lowest of the low, bloggers who run out of ideas, have no ethics, and are just posting click bait.

No, companies don't need a common enemy. Rather, they need a clearly enunciated common direction. There may be enemies along the way, but if all you have is enemies, you're only going to be reactive instead of proactive.

If everyone knows what the common goal is, and part of the path to that goal includes originality and excellence, a company will move ahead. It is the companies that focus on the common enemy rather than a set of forward-looking goals that end up in the forgotten dumpsters of time.

If Microsoft is intent on simply facing off against Apple (or another perceived enemy), they must always wait for their foe to act and then respond. Their greatest success with consumers over the past few years had been the Kinect, an attachment that has nothing to do with Apple, Nintendo, or Sony.
Mark F
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Mark F,
User Rank: Apprentice
7/20/2012 | 8:16:21 PM
re: Microsoft A Victim Of Its Own Success
How do the article's statements about the various insidious and destructive performance evaluation trends within MS square with its recent nomination on several fronts as the best place to work in IT, even in the world ? Just search "microsoft as a place to work"
TJN
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TJN,
User Rank: Apprentice
7/20/2012 | 6:50:48 PM
re: Microsoft A Victim Of Its Own Success
Microsoft has never been a leader in IT. They copied and improved what was already out there. They spent tons of money on usability labs yet Vista was a poor replacement for XP. We will see whether Windows 8 will be an eagle or a dodo.
TJN
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TJN,
User Rank: Apprentice
7/20/2012 | 6:46:57 PM
re: Microsoft A Victim Of Its Own Success
No one has come up with a foolproof performance evaluation system, but a good manager can smell a gold bricker better than any evaluation formula. Teams should be evaluated and if they can't produce, they should be broken up and the members assigned to a new team. If a member is consistantly on a losing team, he/she should be carefully reviewed.
majenkins
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majenkins,
User Rank: Ninja
7/20/2012 | 6:21:11 PM
re: Microsoft A Victim Of Its Own Success
I noticed that you didn't list Apple in the "it will happen to" group even though Jobs is gone. Maybe you figure it already happened once before about the time they kicked Jobs out. I tend to think it will happen again myself.
Mentor
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Mentor,
User Rank: Apprentice
7/20/2012 | 6:13:54 PM
re: Microsoft A Victim Of Its Own Success
Pretty soon they'll be doing the IBM earnings games as revenue and market mind share their continues declines. However, they won't succeed since they don't have the foreign investments IBM had to cushion the blows to the earnings. They also don't have the enormous fixed assets sales that IBM had that fueled their services business in the 90's nor able to unlock the treasure in a pension like IBM did via their employee cash balance shenanigans and the foreign exchange game with outsourcing that IBM plays now very well is losing steam with the worldwide economic fallout.

Windows 8, if it works well with mobile, and if they treat their developers nice, might save them but the odds are against it. If they have as good Mobile OS, and it's well priced and supported, and they can develop a true partnership that attracts developers who are losing money with piracy with Google Android and are under the boot with Apple iOS, then they can regain some of their old mojo. Unfortunately, once you acquire the arrogance that come with market dominance you can't regain the crown. Next on the chopping block.....Apple.
cesaruap
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cesaruap,
User Rank: Apprentice
7/20/2012 | 6:08:57 PM
re: Microsoft A Victim Of Its Own Success
The problem of the perversity in these enterprises performance evaluation systems for the empoyees is well described , but , are there alternatives ?
Host
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Host,
User Rank: Apprentice
7/20/2012 | 6:02:41 PM
re: Microsoft A Victim Of Its Own Success
With Gates gone, Microsoft lost its positioning thrust.
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