MSFTextrememakeover

Monday, September 10, 2007

Walking the walk versus talking the talk

Mini-Microsoft has a very good post that reviews the recent Company Meeting. Looks like he came away happy with the content. Most interesting to me - and a seeming highlight for some others - was Steve Ballmer giving a speech where he reviewed a company scorecard:

Especially impressive was SteveB's scorecard slide where he ranked red/green/yellow how we fared against each of Linux/Oracle/IBM/Sony/Nintendo/Google/Apple/piracy etc etc, customer satisfaction, revenue, innovation, hiring, etc. I don't recall that ever happening before. In meetings past I always felt the execs sidestepped issues of consumer perception and confidence.

(via a link provided in Mini's post)

I'd blogged some time ago that MSFT needed a consistent scorecard for each business unit. It was painfully obvious from various analyst/financial community events that each group has been free to cherry-pick whatever metric they felt put them in the best light - no matter how silly that item was. So I'm encouraged that one apparently now exists. Of course mine included profitability and market share. It's unclear whether this one does. I had also suggested that each business unit be forced to report their scorecard at the Company meeting. There's nothing like the peer pressure of thousands of fellow employees/shareholders when you say, reveal that you lost another $1B and got your ass kicked by Nintendo - not that I'm singling out any group in particular, you understand. Still, it's encouraging that a consistent competitive scorecard now exists and that Ballmer et al resisted the normal urge to color all boxes green (assuming green is good).

As I posted recently, a big problem for MSFT in the investor community is its refusal to acknowledge the many, many, mistakes and failures that have occurred this decade. Former hedge-fund manager and TV personality Jim Cramer captures this external perception nicely with this:

"Microsoft, other than aQuantive, feels it's better at everything than anyone," Cramer said. "Maybe it was at one time. But that's a terrible amount of hubris to run a company with."

In my view, Ballmer's credibility would actually be enhanced by being more forthright and self-critical publicly. After all, it's not like the mistakes and failures aren't readily apparent to all. So the real concern is that management is blind to them and/or not focused on fixing them. To that end, will shareholders see the scorecard -or at least a sanitized version - along with a candid discussion at the upcoming meeting? Don't hold your breath.

Getting back to Mini's post, I took a look through the comments. While some didn't like Ballmer's speech:

SteveB speech was a big drag.

What eloquence! Several others - Mini included - apparently did. What really struck me though, were the number of comments where purported employees were still looking for Ballmer to solve the company's many problems. For example:

I loved the meeting, and now my after thoughts - if Steve Ballmer was able to get that speech plugged into the org, to get that vision to drive the company, most of all the division I work for, then he's the greatest CEO on earth (that I know of), if not, he's just a pretty good speaker.

Many of you bash Ballmer, but I wonder whether his insistence at staying is because he realizes the 4 frat boy cheerleaders he has reporting to him are paper pushers. I hope that's the case, I hope he's just waiting for someone more inspiring to show up and then turn things over.

The first one claims to be from a [former] AQNT employee. So in that case, I can understand how he/she might be missing some historical context. However, as I read these and other comments where folks are looking to Ballmer as the savior, I'm thinking "Who do they think has been CEO since 2000?". Isn't seven years long enough that maybe Steve's impact in that role should already be visible? If so, does anyone seriously think that the lack of accountability, vision, and execution that has characterized the company this entire decade is suddenly going to change? For instance, if the "4 frat boys" are just paper pushers - which btw seems excessive, who hired and/or promoted them? Why are they still around? Answer: er...Steve and er...Steve. Now the caveat here is I didn't hear Ballmer's speech, nor do I know the context. Was it a long-overdue mea culpa for himself and the leadership team? That would be constructive. Or merely an explanation of the importance/difficulty of the current strategies? In other words, more excuse-laden calls for "patience"? Other? Who knows. And what are the concrete plans for overcoming the obstacles? As one poster commented:

He mentioned a meeting with the financial analyst community a few weeks ago. If I heard him correctly, he said they asked him, "How will Microsoft succeed?". His answer left me scratching my head. He basically said (paraphrasing), “because we have to”, “we have great employees”, etc. Is that really an answer shareholders and investors want or need to hear?

I know what meeting he's referring to and that is a reasonable characterization of what Ballmer said. And no, it wasn't what shareholders and investors wanted to hear - hence the subsequent selloff.

I have mixed feelings penning this post. On the one hand, I'm happy that some employees left the meeting charged up. That's a good thing. I hate to pour cold water on it. On the other hand, unless Ballmer had an epiphany recently (or you subscribe to the "he wasn't really in charge until Gates left" scenario), logic suggests that MSFT under his leadership moving forward will be pretty much as it's been under his leadership so far this decade. Ballmer talks a good talk. He's been doing it for a long time. Sadly, results have proven that - for whatever reason - he can't walk the walk. So unless you're happy with the current status quo, real change is likely to require a new CEO.

Update: (another recap of the recent Company Meeting)

Update #2: Former COO Bob Herbold chimes in (courtesy Seattle PI's Todd Bishop). Excerpt (underline mine):

After giving other examples of how Porsche, Toyota and other large companies avoided business traps, audience member Janis Machala asked Herbold what trap Microsoft is stuck in. Herbold said that Microsoft is hiring plenty of people, but one of the big challenges is that it has not been able to launch profitable new units that complement its existing businesses. Microsoft also faces big hurdles as it attempts to transition to delivering software over the Internet, with Herbold calling it an "unnatural act" to ask 700 million people to upgrade their software through installations or buying new PCs. He said software "wants to come from a server."

Amazing how candid former execs can be after they are no longer face down in the SPSA feeding trough...

14 Comments:

  • Sadly, results have proven that - for whatever reason - he can't walk the walk.

    Where to begin (sigh).

    MS doesn't train managers like GE does nor has MS historically had the diversity of a conglomerate (like GE) that exposes managers to the differences (and similarities) of running various kinds of business.

    For all the fiscal success MS has enjoyed, it didn't really learn anything new over the years. Once IBM ceded the PC OS market, strategically MS has been coasting (well, surfing a really big wave) and has just been repeating its fast-follower, embrace & extend, customer lock-in tactics.

    No doubt MS presents managerial challenges, it is a large global software company, but those challenges are largely self-inflicted and the solutions always seems to be variations on 'spend more'.

    Based on the only metric Gates ever cared about or understood, cash flow, Windows and Office made MS highly succesful because the exploding PC market had so much 'low hanging fruit' which after IBM exited, was largely MS's for the taking.

    And consequently, managing MS has been an textbook case of 'making the right decisions for the wrong reasons' and now that the climate is changing, experienced management that makes the right decisions for the right reasons is in short supply.

    It's a bit like comparing the resume of someone with 30 years of experience vs someone with 2 years of experience at 15 different jobs.

    In a company that has two enviable cash cows that sustain the entire farm, is it any wonder the farmer knows only how to milk them?

    By Anonymous Charles, at 7:55 PM  

  • I like Steve, but have to grudgingly agree that if he was going to change things it should have already happened.

    By Anonymous Anonymous, at 12:11 PM  

  • True about who promoted the paper-pushers. But...

    Who approved the Xbox, knowing that it might lose up to $2 billion (hah)? Bill. (Read Dean Takahashi's book.)

    Who pushed and pushed and pushed for MSN when Steve hated it for years and never understood how it would make money? Bill.

    I think the acquisition of aQuantive was Microsoft's admission that MSN has been a debacle--watch, five years from now, Microsoft will be out of the portal/publishing business and just providing an ad platform. The platform always makes money. That's Steve's doing.

    $12B in telco investments to chase the chimera of interactive TV in the late 90s? Bill.

    The Great Plains and Navision acquisitions...hmmm. Don't know, but I'd guess that one has Steve's fingerprints on it.

    Antitrust debacle? All the senior execs working at the company at that time, but who set the tone? Bill. Steve's gone out of his way to settle with all private litigants and patent litigants, a way different approach than the MS of old.

    So yeah, I guess I'd argue that Steve hasn't been fully in charge for the last seven years, more like the last one or two.

    Still, lack of execution is endemic at all levels of the company. Heads should roll. If the top execs have any flaws, it's letting deadwood hang around for way too long.

    By Anonymous Anonymous, at 4:45 PM  

  • "True about who promoted the paper-pushers. But..."

    All good points. Thx. I should have been clearer. I don't think Ballmer initiated every company and shareholder-hostile decision that has come down since 2000. As you point out, he didn't. However, he did at least approve or acquiesce to all of them - as did the Board. So I don't see how he/they are any less culpable. More concerning for fellow shareholders and Ballmer, is that I'm confident the street in general sees it as I do and started the credibility/confidence clock from the day he took over as CEO. But let's hope you're right and he can turn things around now that Gates is winding down his own involvement. Because, unfortunately, no shareholder with clout appears to want to make a serious run at securing new leadership - regardless of how poor management's track record has been.

    By Blogger MSFTextrememakeover, at 7:32 PM  

  • You're a bit harsh on Herbold with the SPSA comment. He left before SPSA grants. He made his money as an executive on the old standard NQ Stock Option grants that only paid off if the stock went up and shareholders made money.

    MS doesn't train managers like GE does nor has MS historically had the diversity of a conglomerate (like GE) that exposes managers to the differences (and similarities) of running various kinds of business.

    Microsoft actually does train managers. The problem is, it doesn't reward or promote people who practice the management skills it teaches. Really a bizaare situations - Ballmer and the execs around him know that the company is lacking in managerial capacity, but come review time, they promote the people who do the best presentations or make the most compelling arguments in a roundtable discussion, and ignore the people who are able to create functional, well-run teams.

    MSN and XBOX and Zune all had (or still have) fantastic potential as strategic ideas, but poor execution has kept them from being profitable. And poor execution will keep any new efforts from being profitable until MSFT figures out it has been promoting the wrong skillset into managmeent positions.

    By Anonymous Anonymous, at 10:26 PM  

  • "You're a bit harsh on Herbold with the SPSA comment. He left before SPSA grants. He made his money as an executive on the old standard NQ Stock Option grants that only paid off if the stock went up and shareholders made money."

    Fair comment. My main point was the refreshing honesty from executives that seems to only occur after financial ties have been severed. Given that many of these folks are/were multi/multi millionaires, it would have been nice if they had had the courage to challenge convention before it became the current mess.

    "And poor execution will keep any new efforts from being profitable until MSFT figures out it has been promoting the wrong skillset into management positions."

    Well said. I agree 100%.

    By Blogger MSFTextrememakeover, at 7:55 AM  

  • My main point was the refreshing honesty from executives that seems to only occur after financial ties have been severed. Given that many of these folks are/were multi/multi millionaires, it would have been nice if they had had the courage to challenge convention before it became the current mess.

    I wasn't high enough in the company to know, but I got the impression Herbold was trying to fix at least some of the problems, but lost out in the internal politics and left.

    I really saw an inflection point in the company's overall competence around 2000-2001. A lot of things happened then - Ballmer taking over, the tech bubble crash, etc. But it was the company's reaction to the changes that was disturbing. SPSA is a perfect example. Before the tech crash, NQ option grants had made lots of people, executives and line level employees, wealthy (executives more so, but it's amazing how little jealousy there is when everyone is making money). Although there were complaints about dilluting the investor's shares with the buybacks, the reality is investors had nothing to complain about because they were making huge gains even with the dillution, and I firmly believe the option plan was one of the things that energized MSFT employees to accomplish so much growth.

    With the tech crash, those three groups of MSFT (I hate this word, but I'll use it) stakeholders were no longer making the money they had become used to, with the predictable consequence that eventually those groups would become disillusioned with the company if nothing changed.

    MSFT executives responded with the SPSA program, a boondoggle intended to keep the execs awash in the levels of cash they were used to, even if the company ceased performing. Employees had the link severed between the company's financial success and their own financial success so that more money could be diverted into SPSA, and shareholders were pretty much just ignored. The result is happy executives, disgruntled employees leaving in increasing numbers, less effective recruiting to replac ethem, and angry investors.

    This typified the behavior of MSFT execs about the time Herbold left, and has continued since. They have been very selfish, focused on their immediate personal situation and not on the company's position, performance, or future. They act like feudal warlords, jealous of one another but banding together against outsiders, and convinced they are justified in looting their own countryside.

    I think that it's more than interesting that Herbold wrote a book about the dangers of fifedoms immediately after leaving MSFT.

    By Anonymous Anonymous, at 9:06 AM  

  • "I really saw an inflection point...."

    Your comment here is very interesting/insightful. Others should give it a read in its entirety. Thx!

    By Blogger MSFTextrememakeover, at 10:35 AM  

  • Since when did "stock" or "stock price" become four letter words??? Enjoyed Ballmer's candidness but what about the stock price??? Did any exec talk about it at the meeting???!!! What did our CFO say??? They covered every freakin number and metric except this one! Last time I checked senior execs and CEOs are still also judged by how the stock price of their company is performing. I wouldn't really care but a substantial part of my compensation is still tied to it. If our execs are no longer focussing on improving our stock price..... give us cash not grants.... "IT's THE STOCK PRICE STUPID!"

    By Anonymous It's the Stock Price Stupid, at 10:47 PM  

  • Anonymous notes:
    Microsoft actually does train managers. The problem is, it doesn't reward or promote people who practice the management skills it teaches.

    I wasn't clear. MS doesn't have a corporate ledership development program. It doesn't build a pipeline to select and grow leaders for the senior positions.

    Arguably, MS consequently wouldn't know leadership if it walked through (or out) the door. MS is all about "passion". It hires passion and trains for working harder, not smarter, to follow the competition, not customers.

    Fantasizing technology vs delivering business solutions that solve (or prevent) problems to customers are entirely different concepts. MS can't possibly be expected to deliver what it doesn't have or envision.

    Really a bizaare situations - Ballmer and the execs around him know that the company is lacking in managerial capacity, but come review time, they promote the people who do the best presentations or make the most compelling arguments in a roundtable discussion, and ignore the people who are able to create functional, well-run teams.

    You've made my argument. Promotion based on presentations and who you play pick-up B-ball with, does not train leadership, let alone reward execution.

    And I seriously doubt Ballmer recognizes a lack of managerial capacity. He recognizes not making the "big bets" pay off. He hasn't a clue why that happens or why successfull companies make incremental bets payoff. He may have a glimmer that something is broken. But his home-grown "passion" fed MS-myopia will never see it.

    There is a reason Redmond is called an echo-chamber.

    By Anonymous Charles, at 7:18 AM  

  • Charles, you and I don’t disagree. You’re entirely correct that MSFT doesn’t grow a pipeline of leaders and doesn’t recognize leadership walking through the door either direction.

    But Microsoft does have a pretty good Management Training program. The problem is, it’s this thing sitting off to the side, in no way connected with the actual practice of management or the promotion of people into and through management ranks. The skills and philosophy taught are irrelevant to making any career progress. In fact, managers (or rather, people in management positions) are actively encouraged to be poor leaders. Don’t ever make definitive decisions – that might be seen as micromanaging. Don’t state firm positions – that might unduly sway the people working for you. Don’t proactively resolve inter-group differences with your peer from the other group – that might constrain the people working for you. I swam upstream against this idiocy for several years and finally quit because I was tired of having to be a good manager in secret.

    And I seriously doubt Ballmer recognizes a lack of managerial capacity…

    Oh, he does, or at least I have heard him say those very words: “We lack managerial capacity.” But, then as the old saying goes, talk is cheap, and he certainly hasn’t done anything a reasonable person would think has a chance to fix the problem he’s complaining about. So maybe it’s just a phrase he read in a Jack Welch book. In fact, at the same time he’s saying we lack managerial capacity, the company continues to add headcount at an astonishing rate (are all those new hires going to magically manage themselves?) and is committed to increasing “span of control” for its existing managers (as if people struggling to lead two reports will get better when they have eight reports). On the other hand, Ballmer isn’t an idiot, but, as you point out, he only knows one way to address problems “more passion!”

    Well, rah, rah, sis-boom-bah Steve. I turned in my pom-poms, they were getting a bit ragged.

    By Anonymous Anonymous, at 10:30 AM  

  • Charles, you and I don’t disagree.

    Seems not, but I suspect we're talking two different kinds of management training. So, I'm not arguing against you, just clarifying what I meant.

    But Microsoft does have a pretty good Management Training program. The problem is, it’s this thing sitting off to the side, in no way connected with the actual practice of management or the promotion of people into and through management ranks.

    Training "leads", 1st or 2nd line managers how to be organized, track budgets and schedules and conduct employee reviews, etc., is useful especially if the career channeling mechanism is so broken that it isn't selecting for intuitive management skills and instead is promoting the best technician up the ranks. Anyone who can't manage 2 reports needs to be reassigned. The existence of such "managers" in any kind of number is an indicator of just how broken the 'training program' is. Training programs not only train the trainable, they're also supposed to weed out the illadapted or untrainable. Training programs are supposed to be a double-edged sword.

    Oh, [Ballmer] does [recognizes a lack of managerial capacity], or at least I have heard him say those very words: “We lack managerial capacity.”

    But "we" didn't refer to himself or Gates, Ozzie, Turner, or the top two tiers of management. That is where the lack of management training and experience is most costly. No one that I've read about at MS has the experience to effectively lead a global software, services, now manufacturing and soon advertising conglomerate. And no one will soon, not even in five years, were Ballmer & co to step aside. This will become increasingly evident.

    Based on results, this is a management team that doesn't even have core competencies in it's cash cow LoB, let alone the LoB they expect to expand into. And they won't likely be getting any soon. That is Gates' legacy (along with broken product architectures and nfrastructures).

    But the training needed is the kind that comes from being rotated every two years into a different business (like from Windows development to overseeing Zune or XBox manufacturing), the kind that teaches how to incite teamwork and how to measure customer satisfaction and grow marketshare, how to integrate acquisitions and grow acquired customer bases, how to manage for profits, ROI, and shareholder equity, how to set global strategy and build a team that executes the commensurate tactics.

    My point is, for Ballmer to recognize a lack of "managerial capacity" implies he recognizes what management skills are in short supply, and I don't see that Ballmer (or Gates before him) even knows what management skills are missing. He may think he needs more managers, when in all liklihood the managers he's got just need a lot less bureacracy, better product marketing, better infrastructure, and less angry customers and regulators. All of which can be laid at the feet of Gates and/or Ballmer. If you want to blame Gates, fine, but that doesn't change that Ballmer is paid (excessively) to be responsible.

    By Anonymous Charles, at 4:15 PM  

  • Did I mention angry regulators?

    EU's court of First Instance has denied Microsoft's appeal of the EU Commission's Anti-trust ruling.

    Documents are at: Recent Case Law re Microsoft

    Fines havn't been fully assessed (but will likely exceed a half billion USD) and additional fines may yet be imposed for Vista.

    The technical problem, I suspect, will be the required disclosure of OS interfaces which, considering the way MS deliberately weaves its apps into the OS, will make for some very convoluted and problematic documentation and may not even be adequate, but it will be embarassing. Look for further compliance actions down the road in 1-2 years.

    By Anonymous Charles, at 7:51 AM  

  • In reference to SPSA, this post on Barrons provides great insight into the perceived performance of the execs: Microsoft Proxy Gives Details On Exec Stock Awards

    Quote: "OK, now, knowing all that, what is interesting is how harshly they were judged for the latest fiscal year. Under the program, Turner and Raikes both were awarded 133,250 shares, compared to a target level of 260,000 shares and a maximum level of 390,000 shares. Johnson did worse, getting 58,500 shares, compared to the same target and maximum levels. Liddell received 46,250 shares, versus a target of 125,000 and a maximum of 187,500 shares."

    By Anonymous Anonymous, at 12:59 PM  

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