On MicroSoft

BusinessWeek features an interesting cover story on its 09/26/2005 issue about Microsoft: "Troubling Exits At Microsoft - Once the dream workplace of tech's highest achievers, it is suffering key defections to Google and elsewhere. What's behind the losses?"

Amid all changes in the marketplace, Microsoft's stagnant stock price and increasing attrition rate make for a troubled picture. The BusinessWeek article seems to suggest that Microsoft was different in the '90s, and only now, with Ballmer at the top and Google/Yahoo becoming better professional destinations, things take a while to come out of Redmond. However, one should recall that after shipping MS-Windows 95, it took Microsoft a long time to come out with MS-Office--a suite that was made up of various pieces, built or acquired.

Obviously, Microsoft is facing a fork on its road. On one hand, enterprise software needs to come out to the market in lockstep. Thus, most efforts to transform the Company into a mature business ought to be in areas dealing with large enterprise software. There are many models one could think of, yet one has to start from one's own premises. On the other hand, in the consumer space, where the innovation pace has been set by Google, Yahoo, and Apple, Microsoft would do well to think of ways to stay nimble and flat! In any case, there are always some who wonder: "When has Microsoft stood for (product) innovation?" pointing to the Company's long string of acquisitions. On the enterprise side, Microsoft should look at ways of getting better than IBM, on the consumer side it's got Google and Yahoo to worry about. Accordingly, there could be at least two different corporate entities, one targeting enterprises, the other consumers. No matter what the answer may ultimately be, trying to cut it into a size that fits all is just a dream, and no other entity has managed to be all things to all markets.

Forbes also has an article in its 09/13/2005 Business Strategy section: "Microsoft's Midlife Crisis"

This article goes into some of the details about daily life at Microsoft. The reader learns about a number of management initiatives launched by Ballmer, such as everything-reviews, or the dismissal of "6.5% of the workforce every year for inadequate performance." While these initiatives could make all the sense in the world, the reader is not given the context, either organizational or historical, in which they occur. This, together with the scattered complaints of its employees, leave the reader bewildered as to what the diagnostic and solution might be for Microsoft (culture) ills.

In fact, for the student of corporate culture, a better place to start thinking about Microsoft's situation would be to look at Mini-Microsoft, a blog where people with all Microsoft-related affiliations vent out about the Company. From there, I quote an anonyous reply that puts the employees' complaints in a better industry perspective:

Hopefully sites like this will add value to the discussions around the problems that MSFT faces and what can be done to address those problems.

But the fact of the matter is if anyone thinks MSFT is in poor shape in terms of innovation, morale, etc... take a look at the rest of the industry, and just the economy in general.

You want to be really depressed, talk to folks who work in the auto industry... or let's look into what ails the airlines... two bankruptcies in one day, and who's accountable? No one knows for sure, but a lot of pilots, flight attendants, mechanics, etc will be paying the price for management mis-steps...

Even in the hi-tech industry, think MSFT is bad? Try working for IBM, HPQ, Sun, SGI, Intel, or if services is your thing, try EDS, Accenture, etc. Talk about endless meetings, lack of passion, regular quarterly headcount reductions to cut costs, missing the innovation that made some of these companies great... MSFT isn't so bad by comparison.

However... just because MSFT isn't as bad off as these stalwart companies, I also can't deny that MSFT isn't as passionate, innovative, and hip a place to work as companies like Google, Yahoo, and other darlings of Wall Street and the media are. But they'll all end up in the same place as MSFT eventually (with the same BW or Forbes articles written about them), and those same passionate, innovative, A-Type personalities will move on to the next big thing.

It's part company growth and part Wall Street. Get big enough, get successful enough, and God forbid, go PUBLIC, and you can flush long-term innovation and employee morale right down the toilet. Bill and Steve are just as beholden to Wall Street these days as Immelt and Palmisano and Hurd... cost cutting, earnings, and stock price trump innovation, employee morale, and benefits every time.

Upset about having to pay $40 for a prescription or no longer having towels for your after-workout wipedown during lunch? Would you trade that for what other competitors and other industries offer? Probably not.

As I mentioned, just because MSFT isn't as BAD as the majority of companies, that doesn't mean it's as GOOD as Google, et al, in terms of passionate workforce, excellent benefits, stock options, innovation, etc. There is significant room for improvement.

But at the end of the day, I'm not certain any publicly traded company in America can sustain the entrepreneurial spirit that got them going in the first place, once investors become the key stakeholders. Just look at what happened to the HP Way... it got laid off and put to pasture... Gerstner made quick work of the IBM family, and the "Think" mantra morphed into making the elephant dance... on the backs of tens of thousands of layoffs.

Microsoft has the talent and people and money to re-invent itself and compete. And most likely, change will need to start at the top with Ballmer. Often times, executive shakeups produce near and mid-term results. But ultimately, MSFT's situation is more a function of the influence Wall Street has on good companies, than anything else.

In other news: This site is fantastic and I just saved a lot of money on car insurance by switching to GEICO. ;>

In the end, here's Goldman Sachs' position about the current situation at Microsoft:

Goldman Sachs maintained an "outperform" rating on Microsoft despite employee morale issues.

The research firm cited recent reports about a decline in morale among Microsoft employees. "Microsoft has never been the most innovative company," Goldman said. The rapid pace of innovation by competitors including Google has been a lingering employee concern, according to Goldman.

Moreover, the maturity of Microsoft's products has been a damper on growth, on the stock and on employee compensation, according to the research firm.

Goldman remains convinced that Microsoft still has "a lot of smart and highly motivated people," and that the product pipeline remains strong.

"The new product flow and innovation is impressive and increases our conviction that there are robust new product cycles upcoming that will be beneficial to the stock and a boost to morale," Goldman said.

So, all will be well when MicroSoft will have played all its cards (i.e. products on the pipeline). Until then, a cautious "outperform"...


fCh said...

The much talked about BW interview with Steve Ballmer is here: http://biz.yahoo.com/bizwk/050916/b3952008.html?.v=1&printer=1

Why all this fuss about Ballmer's interview? He's got asked the right questions and answered the right way. What would those who criticize him for his replies have wanted him to answer? Come to think about it! Hint: Microsoft employee/customer/competitor/partner/...

I think Ballmer knows full well the problems and so did few others at companies that got to the point Microsoft is in right now. Problem is that much fewer know or stumble upon the solution.

fCh said...

It is interesting how most blame is directed at management in these postings. And, to a great extent, management is responsible--otherwise how in the sky could they justify the salaries?

In ancient times, people used to vent their passions during carnivals, when kings and fools exchanged places for a brief. In the long interval between carnival days, it used to be religion. In democracies, we have elections. Religion has been replaced by shows and morale-building exercises (i.e. propaganda). When the individual contributor doesn't believe anymore in the show managers put on, it's time for a (ritual) reversal... So, managers, take notice!

Yet, where is the personal responsibility that arises from a conscious decision to grow up as individual and either clean up the mess around you or move on?

In the end, let's face it, the cake is in only one place!

Anonymous said...

Top Yahoo Position was actually the information I was looking for when I found your blog. this post is certainly a great topic fCh... Are you interested in trading links between our sites?

Anonymous said...


"These changes are designed to align our business groups in a way that will enhance decision-making and speed of execution as well as help us continue to deliver the types of products and services our customers want most," CEO Steve Ballmer said in a press release.

Under the new structure, Chief Technical Officer Ray Ozzie, an industry pioneer who created IBM's (IBM:NYSE) Lotus Notes and came to Microsoft when it acquired Groove Networks in April, will endeavor to help drive Microsoft's software-based services strategy across all of its new divisions.

The reorganization consolidates Microsoft's seven divisions into three new ones, each led by its own president:

Microsoft's Windows Client, Server and Tools, and MSN divisions will be combined to form a new division called Platform Products and Services. It will be led by Kevin Johnson, former head of worldwide sales, and Jim Allchin, former head of the Windows division, as co-presidents.

Microsoft also said Allchin plans to retire at the end of 2006 after the launch of Windows Vista, the next version of the flagship operating system, and will be succeeded by Johnson.

Eric Rudder, former head of the Server and Tools division, will focus on the company's advanced development efforts and technical strategy, reporting directly to Chairman and Chief Software Architect Bill Gates.

Microsoft's Information Worker, or Office, and Business Solutions divisions will be combined into the Business Division, led by Jeff Raikes, former head of the Office division. Doug Burgum, who formerly led the Business Solutions division, which has failed to live up to some expectations, will report to Raikes.

Microsoft's Home and Entertainment Division and Mobile and Embedded Devices Division will be combined into an Entertainment and Devices Division. It will be led Robbie Bach, formerly chief Xbox officer.

Both Microsoft and Ballmer have faced mounting criticism of becoming bogged down in bureaucracy. They were most recently were lambasted by employees who aired the company's dirty laundry this week in a BusinessWeek cover story.

Matt Rosoff, an analyst with independent research firm Directions on Microsoft, noted that replacing Allchin, whose background is in computer science, with Johnson represents a shift in focus toward sales.

"It may be to some degree Steve Ballmer's idea that they need people with that kind of sales and customer-contact experience at the high level," Rosoff said.

Microsoft has been under fire for delaying its next release of Windows and dropping some key features from its release to meet the latest deadline. But Rosoff said he had no reason to believe that Allchin's retirement is anything but voluntary.

Rosoff also thought it particularly noteworthy that Microsoft was coupling MSN with Client, Server and Tools. The combination makes sense, Rosoff said, because MSN is the most logical vehicle for delivering hosted software from both divisions via the Internet. The company plans to do just that with the upcoming launch of its new security product called One Care, which was developed by the Windows group.

Gates has been pushing this idea of software-as-a-service for years now, but seemed to take up the calling with renewed vigor earlier this summer at the company's financial analyst meeting, Rosoff added. And it's a model that seems to finally be taking off with businesses, too, as evidenced by the success of customer-relationship management software maker Salesforce.com (CRM:NYSE) .

The reorganization follows Microsoft's hiring Kevin Turner, former president and CEO of Wal-Mart's (WMT:NYSE) Sam's Club, as chief operating officer last month.

It partially undoes the structure created under former CFO John Connors who left the company earlier this year. Under that structure, each division had its own chief financial officer, which was meant to create more accountability and greater focus on costs and profits.

Microsoft will continue to break out its sales and operating income according to the seven divisions and offer the same transparency in the future, spokesman Kent Hollenbeck said.

fCh said...

Yes, thank you for pointing this reorg out. So, the whole noise coming from the Mini-Micorosft blog has some corresponding actions at the corporate leadership levels of Microsoft.

Here's their own press release:

Microsoft Realigns for Next Wave of Innovation and Growth
CEO Ballmer appoints presidents of three core divisions; Allchin announces retirement plan.

REDMOND, Wash. — Sept. 20, 2005 — In order to drive greater agility in the execution of its software and services strategy, Microsoft Corp. today announced a realignment of the company into three newly formed divisions, each of which will be led by its own president. The Microsoft Platform Products & Services Division will be led by Kevin Johnson and Jim Allchin as co-presidents; Jeff Raikes has been named president of the Microsoft Business Division; and Robbie Bach has been named as president of Microsoft Entertainment & Devices Division. In addition, the company said Ray Ozzie will expand his role as chief technical officer by assuming responsibility for helping drive its software-based services strategy and execution across all three divisions.

The company also announced that Allchin plans to retire at the end of calendar year 2006 following the commercial availability of Windows Vista™, the next-generation Microsoft® Windows® operating system.

“These changes are designed to align our Business Groups in a way that will enhance decision-making and speed of execution, as well as help us continue to deliver the types of products and services our customers want most,” said Steve Ballmer, chief executive officer at Microsoft. “It’s great to have extremely successful broad leaders with strong track records in driving growth and innovation leading these three very important areas for the company. We see a new era of opportunity to provide greater value to our customers by weaving both software and services into forms that suit their needs. By bringing together the software experience and the service experience, we will better address the changing needs of our customers’ digital lifestyles and the new world of work.”

Microsoft Platform Products & Services Division

Johnson will succeed Allchin, taking ownership of the Microsoft Platform Products & Services Division, which comprises Windows Client, Server and Tools, and MSN®. To ensure a smooth transition, Johnson and Allchin will serve as co-presidents until Allchin’s retirement next year. The new division’s mission is to enable exciting user experiences and drive customer value through continued innovation in the software platform and software services delivered over the Internet.

“We are focused on creating exciting user experiences and enabling developers to build great applications with the combination of software and software-based services,” Ballmer said. “Our MSN organization has great expertise in innovating quickly and delivering software-based services at scale. The platform groups have great expertise in creating a software platform and user experience that touches millions of people. By combining these areas of expertise, we will deliver greater value to our customers. David Cole, senior vice president, will continue to lead MSN, reporting to Johnson.

“I speak for the entire Microsoft family when I say how proud and appreciative we are of Jim’s immeasurable impact on our success as a company and on the millions of customers who are able to reach their potential everywhere using our software,” Ballmer added. “Jim is a key visionary and design architect who will help continue to lead us in the coming year.”

“I absolutely love this company, and I am fully engaged in making great products,” Allchin said. “My passion for Microsoft is as strong as ever. While I will call it a day at the end of next year after Windows Vista ships, I’m confident the world-class team of people I’ve been fortunate to work with will ensure we execute on our long-term mission.”

The company also announced that Eric Rudder, senior vice president of Server and Tools, will be taking on a new role working directly for Bill Gates, chairman and chief software architect. Rudder will focus on some of the company’s key advanced development efforts as well as overall technical strategy. Rudder will transition into his new role following the launch of Visual Studio® and SQL Server™ 2005 later this year.

“Eric has done a great job of driving broad usage of .NET with developers and has led incredible growth and success within our server and tools business,” Ballmer said. “I look forward to having Eric apply his engineering talent and intellect in these new areas.”

Microsoft Business Division

The Information Worker business and Microsoft Business Solutions (MBS) will combine to form the Microsoft Business Division, with Doug Burgum, senior vice president, reporting to Raikes. This division will deliver software and software-based services that enable organizations to succeed in today’s constantly evolving workplace by amplifying the impact of their people. Microsoft is uniquely positioned for this opportunity with the new division’s programs, servers and software-based services addressing the spectrum from structured business processes to personal productivity needs.

Microsoft Entertainment & Devices Division

The new Microsoft Entertainment & Devices Division, which combines the current Home and Entertainment Division with the current Mobile and Embedded Devices Division, will consolidate Microsoft’s industry engagement around devices to deliver even richer and more relevant scenarios for individuals at work, at home and when they’re mobile. It will also bring more focus to the company’s efforts in entertainment and related devices and services. Accordingly, the senior vice president of Microsoft’s Mobile and Embedded Devices Division, Pieter Knook, will report to Bach.

The Future

“As we head into the next 18 months of amazing releases driven by innovation in each of these three core areas, we are more excited than ever about our ability to help individuals and organizations large and small reach their full potential,” Ballmer said. “With our 30-year heritage of delivering low-cost, high-volume products to market, no other company in the world is better positioned to deliver the software and services people and organizations need to achieve excellence.”

The link is: http://www.microsoft.com/presspass/press/2005/sep05/09-20ExecChangesPR.mspx