The Future of Microsoft – Part 1

Right after the announcement that Steve Ballmer would be retiring within the next year I was bombarded with emails asking if this meant that X or Y would be sold off, or as the subject of a friend’s email asked “Is this the start of the breakup of Microsoft?”  Then right after the announcement that Microsoft would be acquiring Nokia’s devices business the question was “Is this Ballmer’s legacy?”  And of course there is the seemingly very popular desire for Ford CEO Alan Mulally to become CEO of Microsoft.  On a longer term basis there are the repeated calls to dump Bing, or Xbox, or reverse course on devices and go back to being purely a software company.  And then there is the general “forget the consumer, focus on the Enterprise”.  Frankly, I think a lot of these things miss the mark.  Both on actions and on what Microsoft’s real problems are.  So let’s dig in.

First let’s address the need for a new CEO and what characteristics that CEO should have.  Is Microsoft a company failing so badly that it is rapidly spiraling towards bankruptcy or does it remain one of the most profitable companies in the world?  Well, the later!  Some people keep talking about Microsoft like it was a few quarters away from bankruptcy, which is where Ford was when they brought in Alan Mulally.  Or Digital Equipment was when it ousted founder Ken Olsen.  Even mighty IBM was on that path when industry outsider Lou Gerstner was brought in to turn around the company.  Microsoft is nowhere near that situation, not that it couldn’t get to that point if it fails to get its groove back.  But it isn’t in need of saving so much as it is in need of two things.

First of all, over the last dozen years Microsoft has gone from being a leader or fast follower into being a distant follower on most computing trends.  The next CEO has to be sufficiently visionary in the technology space to return Microsoft to thought leadership.  This was obviously one of Bill Gates’ strengths.  Indeed one could argue that he was so good at it that he drove Microsoft to get into things too early, before the technology or market was actually ready for them.  Think Tablet PC as a prime example.  I think Bill is a far better (and much broader) visionary than was Steve Jobs, for example, but Jobs was better on driving execution excellence.  Jobs had better timing than Gates.  As a huge company Microsoft doesn’t need, nor can they probably find, someone with the qualities of either industry “god”.  And they don’t need to.  But they do need someone who gets the “vision thing” and both sees the future themselves and creates a culture that values it.

Second, Microsoft needs a CEO who will tolerate nothing less than execution excellence.  Most importantly, they need one who insists that Microsoft actually does what it says it is doing.  I’ll get into this more in Part 2, but let me put this out there:  For decades Microsoft has touted the value of being in both the consumer space and the enterprise space yet for the most part it has failed to take advantage of its presence in both places.  Microsoft’s next CEO can’t tolerate this.  The next CEO has to be willing to say “Nope, Windows 8 isn’t ready to ship” and miss the holiday season rather than damage the brand.  The next CEO has to be willing to say “thou shall unify enterprise and consumer email even if it means we take a hit on one or the other for a cycle (or two)”.  Or for this week’s embarrassing example, “NO, you can’t announce Remote Desktop support for iOS and Android unless you also announce it for Windows Phone”.

There are a lot of other things Microsoft needs from a new CEO, like fixing the culture of fear that has permeated the employee base the last several years, but those are not unique characteristics in selecting a new CEO.  Every candidate that is seriously considered will need to be someone capable of fixing that and a dozen other things.

I’m not going to try to evaluate all the rumored candidates in light of the above, but let’s focus on Alan Mulally for a moment.  I think he’s one of the best current CEOs in the world, and perhaps one of the best that there has ever been.  But does he have what Microsoft needs right now?  On the vision thing one might call out that Ford has been hitting some Grand Slams lately with cars like the Ford Fusion/Lincoln MKZ and taking leadership with the Hybrid versions.  And they are out front on plug-in hybrids.  And they’ve been in the lead on creating efficient internal combustion engines with Ecoboost.  And you can tour Ford’s historic Rouge River facility and see where a vision of modern manufacturing can take you as the Dearborn Truck Plant cranks out America’s most beloved (and profitable) vehicle, the Ford F150.  And you say that all proves Mulally’s the guy except for one little detail.  That’s all Bill Ford’s vision, he brought in Mulally to make it happen.

More important when it comes to Mulally the question is, what would he really do for Microsoft?  He’d fix a lot of the “dozen of other problems”.  He’d bring a lot more execution excellence focus.  But he isn’t the visionary.  And he doesn’t bring subject matter expertise into the picture.  Microsoft’s getting into the devices business so one might claim he brings manufacturing expertise, but he’s a heavy manufacturing guy.  Planes and Cars.  Microsoft is becoming a light manufacturing company, and contracts that out.  Mulally is an expert at dealing with a union-dominated blue-collar workforce, Microsoft is nearly entirely white-collar professionals.  Go through sales models, partner models, financial models, etc. and none actually match up with Mulally’s expertise.  So basically you are hiring a great leader, but not necessarily the ideal guy for addressing Microsoft’s core problems.

There are two groups of people rooting for Alan Mulally to become Microsoft CEO.  The first are the financial guys who want a quick boost in Microsoft stock price so they can make a huge killing and then walk away.  They don’t care if Microsoft is a leader in 10 years, or even if Microsoft still exists in 10 years.  All they care about is how much they can make from events that drive the stock price.  They’ll sell after a boost, buy after a dip, and short the stock if they think the company is getting ready for a fall.  They don’t care if Microsoft succeeds or fails, they can make money on either.  The thing they can’t make money on is a stagnant stock price, and that’s what they’ve had the last decade.  Mulally is a quick fix to the stock price problem, and if he doesn’t move Microsoft forward then they’ll profit from the slide down.  Individual investors like the idea of the stock price making a major move higher, but many will hold on hoping for better things down the road and then suffer badly if Mulally doesn’t turn around the company’s fortune.

The second group is people grasping at straws for one reason or another.  For many, anyone is better than Steve Ballmer and a proven leader like Mulally is easy to grab on to.  He’s like a Presidential-candidate who is the opposite of the sitting President.  A lot of people fall in love with the idea, not the reality.  There may be a lot of alternatives, but there is one who gets the real emotional support.  The others are Washington-insiders, he’s an outsider.  The others are the same old politics, he’ll bring change.  Etc.  It’s an emotional thing, backed up with logic but seriously colored by the gut reaction.  Mulally, great guy.  Not really the right guy.

In Part 2 I’ll address more of what a new CEO has to address and what I think Steve Ballmer’s legacy is.  And yes, I promise a quick turnaround on Part 2.

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13 Responses to The Future of Microsoft – Part 1

  1. Next CEO must demonstrate their ability to shut the Media and ensure they provide fair coverage of Microsoft.

    • halberenson says:

      I’m not sure “shut” is the right way of saying it, and no CEO can ensure the media does anything. However, Steve has not been particularly press friendly and I think that’s because he hasn’t had anything to say that would drive good coverage (like the vision stuff). The next CEO needs to be someone who can convincingly tell Microsoft’s story to everyone willing to give him a chance to do so.

      • hey, Steve J ”managed” media perfectly..
        1.’fix’ was what I had in my mind. 6yr old iPhone gets more coverage in NYT than the WP or Surface.
        2. 6 years after the iPhone was introduced, why do I have to read about preparations for the unveiling of iPhone?
        3. KINECT. How many articles do we see about the magical capabilities of this device? record-breaking as well.
        4. CEO should have targets of 4 positive articles with adequate gaps in the leading media outlets.
        5. Surface – do we ever hear about the perfectly integrated kickstand? or the clever smart covers?
        6. It would be generous of us to believe that it was probably MSFT’s fault that they do not get the media coverage. there are clearly other factors at work behind the scenes.
        7. MSFT has a stake in FB. FB owns Instagram. Yet, we don’t have their official apps for WP. Hello!!!!

        • 1 simple example: when MSFT was holding an event introducing WP8 with all the innovative features such as Kids’ corner, etc – they even had Jessica Alba on stage! – there was not a single mention of it in NYTIMES.
          when Apple unveiled iPhone5c,5s – NYTIMES had a live blog, had a Q&A section to answer the queries about them, quite a few articles celebrating the wonderful fingerprint technology. ABSOLUTELY NO MENTION OF Maps – and whether they have fixed it or not?; NO MENTION OF Google’s services on them; etc.
          even a mention of Kinect in any NYTIMES article – would definitely bring up the huge amount of R&D costs MSFT had incurred, obligatory Red Ring of Death reference, competition/disruption from gaming on iPad, etc.
          This isn’t Fair.

  2. I’ve always been puzzled by the Alan Mullaly commentary. Why would anyone want to hire a CEO with no actual expertise in Microsoft’s core businesses?

    If there’s any reason to consider him it’s because he’s an outsider, as you say. That means he can come to the table with an outsider’s view that is probably necessary for some of Microsoft’s weaker businesses. In other words he can say “guys, this is nuts” (like prioritising Apple and Google platforms over your own).

    That said, I’m sure there are other outsiders that can achieve the same thing. Ballmer’s best and worst trait is that he has lived and breathed Microsoft for his entire professional career. So he knows the business inside out, but at the same time can’t see the forest for the trees in terms of messaging and execution. In 2013, Apple and Google know how to communicate and know how to execute. Microsoft simply doesn’t communicate clearly and doesn’t follow through on execution, or it moves too slowly to be in serious consideration.

    The new CEO needs to improve those things as a matter of absolute priority, especially considering Microsoft’s foray into manufacturing which is less outright profitable than software and services.

    • halberenson says:

      Mulally has been mentoring Ballmer for the last couple of years, so I do think he’s become somewhat of a known quantity to the Board. And it also means he’s not a complete stranger to the challenges facing Microsoft. It probably doesn’t take any convincing to get him back to the Northwest. He was going to retire from the Ford CEO position soon anyway. Etc. So there are good reasons to consider him. And to be honest, I see few high-tech CEOs who are both proven running such a large company and likely to consider a move a step up. So you have to look at guys like Elon Musk. Could you get him to focus on a single company at a time? Microsoft needs a full-time CEO. Then you go to the guys who aren’t CEOs but are ready to be. Know any, outside of Microsoft, in the tech industry who are ready for the challenge? So you are back to internal people who might be in that position.

      There is no perfect candidate, which makes it easy to lock on to a name like Mulally.

      Even Paul Maritz, who along many dimensions would be the best candidate, isn’t perfect. He doesn’t have the Consumer background, for example. But I’d trust Paul to figure it out. And he’d have the immediate trust and support of the employees and many other key stakeholders.

      • Bill says:

        Glad you expanded on your thoughts regarding Paul. He’d get my nod over Mulally – as good as the latter is. He’s young enough to see this through for the 5-10years+ that any MS resurgence is realistically going to take, assuming it’s still possible. And he’s one of the few who can claim deep technical ability and highly strategic business analysis skills. Ballmer obviously never claimed to be the former, but I never saw much of the latter either. In fact he seemed to relish ignoring every principle taught in Sun Tzu or most business schools entirely, relying instead on persistence to win the day. Not that it never worked, but it seemed less and less effective over the past decade. And too often “Every battle is won before it’s ever fought.” proved true, with MS finding that out the hard way years – and billions in losses – later.

        • Bob - Former DECie says:

          I never did understand most of the Surface advertisements, especially the one where the people at the meeting started dancing with their Surfaces. My wife and I watched that and then looked at each other and said, “What was that?”
          We did like the ones comparing the Surface vs. iPad features with the Siri-like voice. That at least gave you reasons why you should buy the Surface rather than an iPad.

  3. I’ll posit that the hype around Alan Mullaly is based on the fact that he was an advisor on Microsoft’s recent reorganization plans, and as Hal mentioned above it would be a boon for short term investors who are only concerned about short-term gains and who will walk away after the stock gains. Long term though, it probably would be a bad idea to have a non-techie, non-visionary person at the helm.

    I agree that Microsoft does have some weaknesses that need fixing though. We are at a crossroads, and though things are still pretty going well in Redmond, we’ve seen over the past few years that disruption can happen in the blink of an eye, and industry giants can turn into food for vulture capitalists within the span of a product development cycle (Blackberry, Nokia).

    Microsoft is going to face some significant hurdles over the next few years, and it doesn’t help that its reputation as a lumbering giant is causing them trouble still to this day. They missed the wave on mobile due to having to focus so much effort recovering from the failure of executing on Longhorn, and that’s forcing them to try to play catch up, but while they’re playing catch up their competitors are only accelerating their rate of innovation. At the same time, Microsoft is charged with integrating Skype into its products, and comparing how this is turning out with the ease of use of Google Hangouts and FaceTime, and how far Microsoft still needs to go to make Skype feel native in Windows and Windows Phone, it’s just an example of Microsoft’s underwhelming level of execution.

    On top of that, they’re also bringing Nokia into the mix — how much of Microsoft’s attention will be focused on making this transition go smoothly, and how will that affect their ability to execute on other parts of the Microsoft vision? The Longhorn debacle is proof that Microsoft can certainly spread itself too thin, and there were no major acquisitions going on at that time. Microsoft’s next CEO needs to bring together a bunch of disparate parts into a coherent, singular vision, and as it stands there is a lot of work to do to get them to that point. I’m rooting for them to make it happen, and with the right CEO and management team, it will.

  4. louisila says:

    I Agree that going into specif pro’s and con’s should be left up to the people deciding “direction” for the company. That said, one could easily make the argument that they should hire a visionary to decide who they should hire.. =)

    In order for Microsoft to function like a viable organism (i.e. organization) they are going to need “visionaries” peppered through out the organization who are capable of acting as a team, and penalized for acting as “too caviler”. There are numerous anecdotal examples of inside initiatives that are direct competitors, duplicating effort, abandoned (with and without good reasons/motives). Although this has proven to be a model that works well for academic institutions like MIT/Berkeley for producing the best People, they are not necessarily good for producing the best results (products/research), for a good model of that we need to look at the recent list of Nobel awards in the sciences and we quickly see that interdisciplinary cooperation can lead to massive rewards. In my (Im)Perfect Vision if the world this would also alleviate some of the fear (of failure, or whatever) of which you allude. getting back to the organism analogy, currently Microsoft is suffering from a serious autoimmune problem, and if left untreated will slowly eat away at the core of the company. Get the whole organism functioning correctly (catch it’s breath) then worry about standing up and only once we can move an entire leg (branch) in the same direction as the rest of the company (without trying to rip itself from the torso) get back into the race. … it worked for the other major competitors….

    • andisimo says:

      Disclosure: I work for Microsoft.
      I think that’s the whole purpose of One Microsoft. The leadership team has made huge efforts to unify the work that goes on at the company to stop doubling up on effort and also creating inconsistent experiences across products. The company is doing this at the same time as making a big shift from a software company to a devices and services company.

  5. Andy says:

    Absolutely agree with the “visionary” bit. That’s been what’s missing from the recent reorg.
    Microsoft has been moulded into a “devices and services” company, and the units have been realigned to support compelling cross-former-org-chart execution of the vision…

    Please insert vision.

  6. AS147 says:

    First I would like to say bravo on the article. Having followed MS for a long time and read lots of stuff which didn’t really seem to make sense or had a not so well hidden agenda this is perhaps the best I have read in a looooong time. Hal, a colleague of mine sent me this link and he talked about your background and I am glad he did. I agree with the vision thing and you hit the nail on the head, they don’t have to lead but they have to follow fast behind. There are countless examples today where that works so I won’t bother repeating them.

    So what would I like to say after all that guff above??

    MS has technology that is great, good enough and in a few instances not really very good. MS has a fantastic edge on the rest as they have first place in homes and enterprises vs the competition. MS executes reasonably well when organized and they clearly can make some fantastic technology. So with all these positives on the balance sheet why are they slipping?

    Yes it is about getting the organization together but some companies mess up their technology and still do well (Apple, Google). Some companies make fantastic leading technology and fail (Digital).

    The common thread is the message in the twitter, rabid fed news cycle that is the consumer information machine “Communication is King” executed well you could sell snow to an Eskimo, done badly and you couldn’t sell a cup of water to a thirsty man.

    MS messes up with its execution and technology not very much more than its competitors but what it hasn’t done is capture the hearts and minds of its customers and suppliers.

    So as an ex insider Halcan you please tell me who in heavens name is directly responsible for the consistently atrocious marketing. Almost 98% of MS marketing when compared to the competition looks at best amateur at worst down right spine chillingly awful. Then you combine that with years of allowing (who could stop him) Ballmer booming on the stage like some uncontrollable buffoon and it does nothing to help MS. Don’t get me wrong I am neither a marketing expert nor do I profess to state that what Steve Ballmer has done is all bad but as I hope I have demonstrated, you need to get the message out there because without it all the other good work is for almost nothing. It does not serve the customers or the hard working staff and supplier chain that support MS.

    In terms of the next CEO. He needs to be there for at least 5-10 years (so younger than Mulally) be more visionary (so not Mulally), has very little time to learn MS so no time to learn the industry (not Mulally), and must be willing to routinely try and fail at stuff in order to succeed (again not Mulally).

    I look forward to reading part 2.

    p.s. I came across an MS inconsistency with the SQL BU and the group responsible for clustering. To you this is probably par with your understanding but for me it blew me away. Deploying Lync we asked what was the recommended method to achieve high availability of the SQL system for Lync. The answer came back Mirroring, however in a tech document another group within MS had released details that Mirroring was being deprecated and should not be used ! Left hand, right hand!? It took weeks talking to people in the US at Tech ready and I swear to God its as if we affected MS decision making and they reversed their statements on what was and wasn’t supported after they realized that the two MS groups hadn’t spoken to each other)!!!

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