October 10, 2010 — Some Advice for Microsoft Most of the industry pundits and experts feel free to give unsolicited advice to Microsoft. They do so early and often. I don’t know if this is a human characteristic, or an American characteristic, but the attitude goes something like, “If you would just listen to me, everything would turn out alright.” There are some pungent observations about opinions, of which everyone seems to have one (an opinion, not necessarily an observation). So in giving my unsolicited advice to Microsoft, I try to remember that (1) I am not responsible for the P&L for Microsoft, (2) I probably know less about the challenges of running a large business than Steve Ballmer, and (3) I try to pay attention to the old question of, “If you’re so smart, how come you ain’t rich?” So now that I have established my credentials we can begin. Since Microsoft grew so quickly and is now so large, we have to recognize that large amounts of money and energy are required to manage the behemoth and keep it on track. This means the senior management is forced to consider the needs and demands of multiple special interest power groups within the company. This includes divisions which contribute the bulk of the corporate revenue (such as for Office and Windows). It also includes the visionaries in the Research and Development arms as well as those in the uncompetitive businesses which have been directed to produce (such as Windows Mobile). The CEO constantly engages in the delicate balancing act of appeasing the hyper-aggressive managers of these fiefdoms, while trying to set the direction for the company as a whole. Tough job. I’m glad I don’t have it. Staying on top of the activities of eighty IT employees is quite enough, thank you very much. On top of everything else, Steve Ballmer made the news again when the board dinged him for half of his bonus because the company did not deliver in key areas. This was significant news, not because of the enjoyment many people derived from seeing Ballmer get slapped, but because the Microsoft board is apparently determined to take governance seriously. They are doing what a board is supposed to do – hold the corporate officers accountable. I view this as good news. The bad news is the corporate performance. The board is unhappy with it, the share price indicates the market is unhappy, and I guarantee you the corporate management is unhappy with this state of affairs. Things are so much easier when you deliver quarter after quarter of growing sales and fat profits. So the mercurial Ballmer is probably screaming, “Just fix it!” His lieutenants are highly motivated to fix it. The mid-level managers want to fix it. But nobody can quite agree on how to do this. So, okay, here comes the advice. When your organization cannot seem to develop and market innovative new products (and, in fact, the organization views innovative ideas as a threat and strangles them in infancy), you have to bypass the organization. IBM did this in 1980 when it sent Bill Lowe to an isolated office in Florida and tasked him with developing a microcomputer. The IBM PC would not have survived in IBM’s corporate jungle, in fact, the IBM culture succeeded in killing the PC’s successor (the PS/2) by trying to make it conform to the world as IBM understood it. But for several years, IBM had a product which stood astride the microcomputing world. So, Steve, start setting up your skunkworks teams. Keep them isolated from the rest of the company. Keep it a deep secret so nobody in corporate knows about it. Park a team somewhere in the mid-west and instruct them to build a killer version of web-based Office. Tell them their goal is to have a product that stomps Google Apps into the ground. Sure it will cannibalize Office 2010. But better for Microsoft to eat its young than anybody else (which will surely happen). You have a team working on innovative ideas for future operating systems? Park the team in Florida. Maybe set them up as a separate company. Fund them well, and let them drop a product in the market. Better yet, have them open source it. If it dies, you probably lost less money than the Kin debacle. More likely, you might seed a renaissance on the desktop, which would benefit everyone, including Microsoft. Now, for part two. You have some mature businesses which have passed their peak. They are very nice, profitable businesses. But they don’t fit into the Microsoft mold of high-growth businesses. So, sell them off. Let somebody buy a division and take the head-count with it. Carve off a piece of the corporate G&A to send along. It’s an opportunity to take an axe to the corporate bureaucracy without all the caterwauling that usually goes with it. It’s now somebody else’s problem. It adds to the cash hoard which you can use to fund more innovative startups. Without the moribund and arthritic divisions ferociously defending their turf, you can do pretty much whatever you want. It’s very liberating. In the 1980’s Bill Gates was often quoted as saying he wanted Microsoft to be the IBM of software. He pretty much succeeded. Now Microsoft is facing a situation not unlike IBM faced in the early 1990’s. Lew Gerstner then set a strategy for IBM, and cold-bloodedly carved out businesses and people that did not fit into that strategy. This included numerous profitable businesses and a lot of very good people. Very few people today are willing to say that strategy was a failure. But, IBM is a very different company today. Microsoft can sit on its huge pile of cash and mine its businesses for a generation to come, but unless it’s willing to take dramatic and radical steps, it will eventually fade into irrelevance. Remember IBM and the BUNCH.