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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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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.
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 ?
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.
majenkins
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majenkins,
User Rank: Moderator
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.
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.
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.
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"
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.
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.
jbelkin
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jbelkin,
User Rank: Apprentice
7/21/2012 | 12:08:14 AM
re: Microsoft A Victim Of Its Own Success
MS was in decline long before BG left. It's complicated as every company that fails fails its own way but basically, MS was built to be an enterprise sales organization. It was both illegal and legally ruthless in wiping out its competitors. And pre 1997, you could lock up manufacturers, distributors and retailers - after all - as Compaq found out in trying to load Netscape, who would want to lose their WIN OEM license? What changed in 1997? The birth of the consumer internet era. It took a few years before it crossed the threshold to mass market but that was the beginning of the end for MS. They were NOT built nor could they understand a world where people could randomly wipe them out of a market and they WERE POWERLESS to buy them out or "copy" their success as MS did with Lotus, Harvard graphics and even IBM PC DOS. They were in the midst of deciding WMA would the digital audio format going forward except college students choose Mp3. Even if someone technically owned Mp3, did the ten thousand shareware writers of CD converter software care? MS had no way to deal with guys in dorms writing Mp3 software. Same with Mozilla. MS could force OEM's not to load Netscape and set Explorer to not access Netscape.com but a browser crowdsourced by a thousand worldwide programmers who gave it away for free? Same with Google taking taking down MSN Search. MS also failed because they could not see more than 4 weeks into the future, perhaps that is the result of bureacratsrunning an enterprise sales org. The missed Google making HUNDREDS of BILLIONS from ad sales because they were so focused on the $20 dollars AOL brought in every month so they spent $5 billon on MSn as a portal. They saw that game consoles makers made $5-15 off of every game cartridge so they spent $20 BILLION to launch Xbox and missed the IPOD/IPHONE/IPAD market - worth how many HUNDREDS of BILLIONS? (not to mention by cramming a $5k PC into a $299 gaming console at a huge loss, they killed the high end Pc market). Basically, after WIn 98, MS has had ZERO successes in the consumer market. They have literally taken the HUNDREDS of BILLIONS of cash flow from Office, Server and WIN OS the past 10 years and set it afire. The stock trades arund the same price as it did 10 yars ago but MS has generated about $150 BILLION in cash flow in the past ten years (minus dividends) - how much do they have left to show for an decade? They thought they could apply the same game plan to consumers they did to enterprise competition but they were wrong and the internet allowed Apple to regrow (that and the fact that Apple decided - we'll just launch our own stores - the fastest retailer ever to a BILLION dollars). They devalued their own brand name with 10 years of ineptitude regarding viruses, malware and trojans plus a how many wonky OS releases and patches and security holes - not a huge deal with corporate IT having a job but at home, MS is the brand to avoid when consumers realized by 2000, MS WIN wa not a magic machine that would make their kids astronauts. That is why they acnnot sell a PC for more than $600 - no matter how much it looks like a MB Air, people will pay at least twice the price NOT to use WIN PC if they can afford it or help it. That is why theycannot sell mp3 players, watches, webtv or mobile phones (was the KIN the fastest shutdown of a BILLION dollar loss?) ... their failure is arrogance + bureaucracy + frankly, not to be blunt - stupidity. Yes, enterprise generates vast amount of cash flow and has huge sales but that alone does not mean you are smart in everything. Then you add in bureacrats who just want to protect their turf (Windows phones had to run the ENTIRE WIN OS) and of course, make sure no one succeeds without their imprint ... it's FINE to be an enterprise cash machine (Cisco was at least smart enough to realize they could do some things great) but it does not mean throwing cash at every problem will do anything (Zune and MS retail stores). But yet they continue to do it. Aagin, they think it's 1995 - let's lock Google out of mobile ad analysis by speing $6 BILLION dollars ... surprise, others are good at it also. Apple spent a few hundred millions to buy another mobile agency. And yes, BG was as lost as SB when it came to the internet era (remember he tried to sell MSn portal as the "better than the internet.") He only understood running a business as a legal and illegal monopoly. So, while it's nice that he's not wasting most of ill gotten gains on gold faucet heads, he is like Steve Wozniak - an important pioneer of the pre internet era but nothing more. like his pronouncement that Apple needs a tablet like the MS Surface (um, Bill, 100 million people already have the tablet they want) - he's just another old man now. Steve Ballmer is incredible that Ms shareholders and the board were so confused by enterprise revenue, they let him run MS into the ground. You really want a CEO that dismisses a product that in 5 years time generates MORE SALES than his entire company (iPhone). MS shreaholders they can only becoem as smart of IBm and go back to the business of business and not throwing money out the window.
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