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11/18/2013
03:35 PM
Michael Endler
Michael Endler
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Will Microsoft's Next CEO Ditch Ballmer's Plan?

As Microsoft board closes in on a new CEO, the company's long-term strategy remains hazy.

Outgoing Microsoft CEO Steve Ballmer decided to retire after realizing the company's transformation would move faster under fresh leadership. When he announced his conclusion to the rest of the Microsoft board, other members accepted it without debate.

That's the story documented in a series of articles published Friday in The Wall Street Journal (subscription required). The articles affirm that Ballmer made the decision himself, rather than being asked to leave, and that both the CEO and the board recognize that Microsoft is playing from behind in crucial areas, such as mobile technology and Internet-based services.

What's not clear, and what's arguably of most interest to Microsoft's customers and investors: In choosing a new CEO, does the selection committee want someone who can accelerate the reorganization plan Ballmer has laid out, or does it want someone unafraid to institute radical changes?

In a sense, radical change is already happening, regardless of the company's future intent. Microsoft's revenue streams have already shifted, with more growth potential evident in its cloud and enterprise services than its traditional cash cow, Windows. That Microsoft's identity can no longer be tied to PC operating systems is quite clear. It's also acknowledged in Ballmer's reorganization plan, which abandons the silos that once divided the company and encourages teams to collaborate in building an ecosystem of unified and mutually reinforcing products.

But some influential shareholders are skeptical of Ballmer's ambition to compete with Apple and Google for consumers. Microsoft's decision to build its own devices has been especially contentious, especially after the company announced a nearly $1 billion writedown on unsold inventory.

Microsoft remains enormously profitable, but Ballmer admitted in interviews following his retirement declaration that the company might have missed the shift toward mobile devices, because too many resources were tied up in developing Windows Vista. Some shareholders no doubt look at the billions Microsoft has lost on Bing and wonder if the resources might be better spent on promising enterprise cloud products.

[ Want to make the most of Windows 8.1 on a desktop PC? Read Windows 8.1 Desktop PC Installs: 8 Tips. ]

Despite this uncertainty, Microsoft has advanced Ballmer's agenda ever since the CEO announced his retirement plans. Examples range from its purchase of Nokia's device business to the elimination of its notorious stack-ranking employee evaluation system.

The Microsoft board has implied that it wants more of the same under new leadership -- only faster. John Thompson, the board member in charge of the CEO selection committee, indicated shortly after Ballmer's announcement that the reorganization plan would continue as planned. He reiterated support for Ballmer's vision by telling the WSJ that the board wasn't concerned about Ballmer's plan -- only the speed at which he could execute it.

As evidence, the WSJ noted that Microsoft executive vice president Qi Lu was surprised when Ballmer rejected a 56-page report. He told Lu the revision could be no longer than three pages if it were to foster collaboration. Such exchanges evidently convinced Ballmer that, because he had instilled the company's outdated management culture, it would take someone else to instill a simpler, more team-oriented one.

But Reuters reported in early October that some investors are concerned about Microsoft chairman and founder Bill Gates's influence on the CEO selection process. They reportedly fear he will block radical changes that might become necessary as the reorganization evolves. If shareholder discontent escalates, Microsoft will need to respond.

Numerous reports claim former Nokia CEO Stephen Elop is a front runner for Ballmer's job. His selection could certainly appeal to Ballmer's dissenters. Coming from Nokia, he'd be unlikely to shut down Microsoft's device efforts, but as a CEO, he's shown a willingness to rock the boat; for example, he dumped Nokia's Symbian mobile OS in favor of Windows Phone. Citing people familiar with his thinking, Bloomberg reported this month that Elop would consider selling off Microsoft's Bing and Xbox businesses, and that he would focus on making Office a cross-platform success, including on Androids tablets and iPads.

But Bloomberg and others have also reiterated that Ford CEO Alan Mulally could be the board's top choice. Ballmer told the WSJ that Mulally helped him develop Microsoft's reorganization plan, which relies on some of the same principles that have helped Mulally turn Ford around. It's not clear if Mulally thinks Microsoft should shed businesses, but he at least represents the attitude, if not the strategy, to which Ballmer's plan aspires.

Where does this leave the CEO search? In all likelihood, Microsoft's board still doesn't know what it wants in the long term. Even if it has settled on a preferred candidate, that person probably can't know, either. The wheels of Microsoft's consumer-oriented machine are in motion, and it won't be clear for at least a few months which ones have traction.

It will mean one thing if Surface sales are poor, Windows 8.1 adoption is modest, and the Xbox One is soundly outsold by the PlayStation 4. But if any of these ventures succeeds, the outlook will be quite different. An enterprise focus won't help Microsoft stave off consumerization, at least not completely. But if the company can take over the living room, become a legitimate presence in the tablet market, or even make Bing a popular platform for mobile developers, the rewards could be substantial. The consumer experiment can't go on forever unless it proves its worth. Some aspects of it are surely destined for shutdown, but it's too early to say which aspects should go, let alone whether entire product categories, such as Bing, should be abandoned.

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Michael Endler
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Michael Endler,
User Rank: Author
11/19/2013 | 1:35:52 PM
Re: Elop or Mulally
This is an interesting question, especially if Microsoft plans to double down on consumers. Ridiculous as it sounds to some loyal Microsoft customers, the company is often criticized as much for its PR troubles as for its products, and though I hadn't thought about this angle when writing the article, I think Shane's bringing up a legitimate consideration.

I've heard a lot of analysts talk in recent months about Microsoft's "uncool" problem. Most of the time, I've attributed this talk to not only product issues (e.g. Windows 8.1 is what Windows 8 should have been), but also advertising (e.g. The first round of Win 8 and Surface commercials were terrible, but the newer ones have wisely shifted from hyper-kinetic editing and boardroom breakdancing to a focus on what the products actually do).

But the "uncool" problem isn't just commercials-- it's also public-facing representatives, including corporate execs. Just an example: how much grief has Microsoft suffered over its Xbox One strategy purely because a few execs did a terrible job interfacing with the public?

Zuckerberg is a part of what Facebook sells, for better or worse, and Jobs was (and is) part of what Apple sells. I'd be surprised if Microsoft used "coolness" and "youth appeal" as determining factors when selecting its next CEO, but I think Shane's bringing up an interesting point. Any one else have thoughts on this one?
Shane M. O'Neill
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Shane M. O'Neill,
User Rank: Author
11/19/2013 | 11:37:43 AM
Re: Elop or Mulally
I agree you should always lead with products not personalities. But consumer tech is different from the auto industry. This is the world of Steve Jobs (RIP), Jeff Bezos, and Sergey and Larry. Young, brash, self-made, famous. Consumers actually get emotional about these people. I suppose there's no reason you can't still market to the young and hip AND have a traditional CEO approaching his 70s, as long as the products are great. It's a good question, especially in Microsoft's case. What do people think? Would an older-than-Ballmer CEO be good or bad for Microsoft's image?
ChrisMurphy
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ChrisMurphy,
User Rank: Author
11/19/2013 | 10:14:40 AM
Re: Elop or Mulally
I disagree. Mulally isn't the "face of Ford" for its customers -- the face is the F-150 and the Escape and the Focus. Likewise, Microsoft needs its products to be the face of the company, not some star CEO. My 13 year old daugher won't buy stuff from Microsoft based on whether the CEO is 68 or 48 -- heck, we all look like old timers to her.
Michael Endler
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Michael Endler,
User Rank: Author
11/19/2013 | 9:53:20 AM
Re: Go Outside
Like Rob, I don't have the inside perspective necessary to choose among the leading candidates. But from where I sit, I wonder a bit unfair about commentators' attitude toward the "outsider" vs. "insider" idea. My kneejerk reaction about Elop is that he might, as you indicated, have too much "old Microsoft" in his blood-- but my kneejerk reaction to Satya Nadella, another leading internal candidate, is quite different. Microsoft's Windows and Office revenue streams have grown convoluted and, in some cases, clogged due to tactics designed to protect existing products and customer bases. But the enterprise and cloud products under Nadella's command have had fewer of these problems; indeed, whereas the Windows 8 strategy is largely about herding users into Microsoft's ecosystem and positioning Office as a differentiator over other tablet platforms, its cloud strategy has been far less partisan, and offers one of the more developed opportunities for Microsoft to cash in on competitors' success--e.g. by using Azure to deploy iOS or Android apps, etc.

 
Shane M. O'Neill
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Shane M. O'Neill,
User Rank: Author
11/19/2013 | 9:48:16 AM
Re: Elop or Mulally
I hope this doesn't sound ageist. But Mulally is 68 years old. If Microsoft wants to compete with Amazon, Google, Apple and Samsung for the hearts and minds of consumers (i.e. young people) Mulally's age could work against the company. There's no question that Mulally has tremendous experience and business acumen, but he would become, like it or not, the face of the company and Microsoft is already fighting the perception that it is not in touch with the times. If Microsoft backs off the consumer market (NOT its current plan) and focuses more on its core competancy -- enterprise software -- than Mulally's age is not as much of a factor.
rradina
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rradina,
User Rank: Ninja
11/19/2013 | 9:01:45 AM
Re: The right person for the job
Sometimes a bullet between the eyes is the only way to refresh a corporation's existing management structure.  A new light must be cast into the shadows because a divided corporation whose management has a lot of history will continue old practices rather than unite.  The delicate balance a new top leader faces is remolding those willing to think differently and replacing those who don't.  Although accepted at failing corporations, it's extremely dangerous at successful corporations.  New leadership will have to pick fights with quality, talented resources who for years have believed in all that they do.  Regardless of whether or not tech pundits believe they have lost their way, for the moment Microsoft is extremely successful and internally, those resistant to change have proof of their success.  In that environment, new leadership will be viewed as change for the sake of change.  For some, perhaps many, that's like messing with the 10 commandments.  They'll leave and if enough choose this path, it may cause their existing and highly successful products to languish.  

Microsoft languished for years but for the first time in a long time they seem to have a sense of urgency and are bringing out new products and ideas.  Unprofitable product lines must certainly be criticized but what is Microsoft if it drops the XBox, Bing and its new devices strategy?  I don't think Microsoft has the luxury of time to become another IBM.  IBM had the ability to transform itself into a services company while relying on existing product revenue streams.  The pace of disruptive tech is only increasing and given the strength of multiple competitors, all of Microsoft's current products are vulnerable.  If it isn't able to create new revenue-positive products, I don't think they'll die a slow death.  The first time revenue shrinks (not just missing predicated growth but an actual QOQ or YOY shrink), there will be blood in the water.  Customers and partners will be forced to pontificate how much they depend on Microsoft and for the first time, assess that as a potential risk rather than simply looking at how much it costs.  If that happens in numbers, it will snowball out of control.
samicksha
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samicksha,
User Rank: Strategist
11/19/2013 | 3:23:49 AM
Re: The right person for the job
I agree with wagner here, company wants someone to take MS in competition again, seeking to tough and suphosticated market i dont think Elop is best fit here, Elop was CEO for Nokia but being part of company he was unable to make comapany survive and at the end it was sold to MS at very low cost. I guess this is time to bring someone from outside the oraganization with broader view and judgement.
mwagner919
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mwagner919,
User Rank: Apprentice
11/18/2013 | 6:42:53 PM
The right person for the job

I'm intrigued by the idea that the board might support Ballmer's reorganization plan but think that someone else might be best to implement it. Generally speaking, when a CEO retires prematurely, it's because the board wants a different direction. If they wanted to continue in the same direction, they would have kept the old guy.

People who want Gates to step aside as activist chairman are right. He's just not in touch with the industry anymore. The work Gates is doing is important and admirable, but doesn't keep him involved in technology. 

mwagner919
IW Pick
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mwagner919,
User Rank: Apprentice
11/18/2013 | 6:42:05 PM
Re: Elop or Mulally
Mullaly is an intriguing choice. Can we really say that he has no experience with a technology company? Gartner has correctly noted that every company today is a technology company, and surely Boeing is a great example. Manufacturing giant jets is certainly not a low-tech operation!

Mullaly would bring perspective from a company that is -- or should be -- one of Microsoft's core customers. 
mwagner919
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mwagner919,
User Rank: Apprentice
11/18/2013 | 6:39:30 PM
Re: Go Outside
Elop should not be the next CEO. He's got too much Microsoft in his blood, and does not have a record turning around a struggling company and making it successful. 
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