Lessons From Ballmer's Microsoft

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Now that Satya Nadella has been announced as Steve Ballmer’s replacement, many of us are focused on both retrospectives and outlooks based on Ballmer’s reign and Satya’s skillset. But focus appears to be more on the events – not on the foundations for them, so the lessons tend to be lost in the rhetoric of blame, particularly for the failures.

However, the causes for things like Zune and Windows Vista had little to do with Steve and a lot to do with the organizational structure of Microsoft, particularly the loss of key human assets like Bill Gates, Brad Chase, and Brad Silverberg. They also had to do with an early decision by Steve Ballmer to stop being Microsoft’s cheerleader and instead become kind of a Stepford CEO.

Let’s talk about the “why” behind Microsoft’s decade slide.

Windows 95

Windows 95 was effectively Microsoft’s iPod. It was the magic product that people lined up for and that founded Microsoft’s response to the Internet (it came with Microsoft’s first browser).

It was a national event. Yet instead of doing what Apple did when they worked out the launch cadence that made the iPod, iPhone, and iPad successful – repeating that success – Microsoft instead appeared to run screaming from it.

Part of this was because the company wasn’t equipped to handle the massive support load of a product that was so successful so quickly. But that was largely due to a decision by Debra Willingham, Microsoft’s then head of service, to limit the number of support calls the firm would accept. This concealed the problem and inflamed customers, turning what was a massive success into an embarrassing failure. The right thing to have done was to address what caused the problems and then repeat the efforts – exactly the strategy Apple took under Jobs once the iPod was successful.

Forced Ranking and Staff Retention

Like a lot of companies, Microsoft in the 1990s followed Jack Welch’s poorly thought out advice and implemented Forced Ranking. This widely used process was created to address a problem at GE where there simply was too much entitlement and employees weren’t being reviewed properly and problem employees weren’t leaving the company.

While this practice does address the problem it has significant and even more damaging side effects if left in place. It favors those that game the system and do stupid things like intentionally hire underperforming employees to assure the review curve or torpedo peers’ efforts so they get ranked lower ensuring the saboteur higher ranking and benefits.

Smart motivated employees tend to tire of the nasty environment that Forced Ranking tends to create and they move on and, if they don’t, they get backstabbed and generally are forced out of the company.

Microsoft’s success also made many of these early successful employees very wealthy, which provided them with opportunities to leave that otherwise wouldn’t have been there. People like Brad Chase and Brad Silverberg who assured Microsoft’s success in the 1990s weren’t around to help Microsoft last decade as a result. The very best often found, or believed, the grass was greener outside of Microsoft.

Resourcing and Intelligence

Often companies going after new markets allocate resources based on what executives feel is adequate and there is no analysis to determine what is actually required. In addition, in many cases executives are so focused at events outside the company or on personal politics inside that they are unaware of problems growing inside the company. They don’t understand the causes behind the external trends.

One of the really bad practices in firms like Microsoft – and it appears to correlate highly with firms that have Forced Ranking – is market research groups that tell the executive what they want to hear and not what they need to know about the outside world. Executives learn that good news is far better for their careers than bad news and when both practices are in place the CEO is effectively blind to both inside and outside trends.

From Zune to Windows Vista, mistakes that were made early on were covered up and became catastrophes because Steve Ballmer’s view of both what was going on outside the company and inside was obscured, so his decisions tended to make things worse not better, largely because he was working off of manipulated and incomplete facts.

Had he known how much it would cost to run against the iPod head on, he likely would have chosen to create a phone first and get ahead of Apple because that path was more affordable. Had he known that Vista was broken he would have made the changes necessary to fix it in a more timely fashion. Had he understood earlier that Forced Ranking was killing Microsoft’s ability to execute he would have eliminated it sooner.

Granted part of the problem was Steve’s temper and his tendency to lash out when upset, which had his folks focused on not getting him angry but, in the end, they cost him his job.

Lack of Mentoring

The CEO job is fundamentally different than any other job in a company. Your reporting structure is no longer well defined, everyone seems to feel they could do the job better than you, and your decisions have a massive ability to damage the firm’s valuation.

You effectively move from relative obscurity to being the face of the company and most don’t get much mentoring in the job. The board isn’t that engaged, the preceding CEO goes off and does other things, and there really isn’t that much effort put into training successors for what is generally the most important single job in the company. It’s kind of weird when you think about it.

Steve Ballmer had been the Microsoft Cheerleader when he got into the role of CEO and you’d think that would have been a huge asset. But he largely gave up that duty and didn’t really backfill himself, adopting a stuffy corporate personality that didn’t seem to work for him or the firm.

It was as if he tried to be what he thought a CEO should be and not what a CEO is. It was almost like he’d been cloned and the clone lost many of the skills that had made Ballmer so successful prior to becoming CEO: his passion, his candor, all seemed to evaporate over a few short years. I’m convinced Steve got some really bad advice and that badly hampered his public persona.

Marketing PR

One of the really bad decisions in the last decade was to eliminate much of what protected Microsoft in the prior decade. Corporate marketing, corporate analyst relations, and corporate PR went through massive changes or seemed to get eliminated, which removed any ability to tell Steve Ballmer’s story or balance the mistakes with the successes.

Part of it was a staff drain and changes at Microsoft’s corporate PR firm. But other parts were decisions apparently out of Steve’s own office. It was as if someone wanted Steve to look bad and was working behind the scenes to make that happen. A CEO has to own the firm’s image and maintain their own and that doesn’t get done unless the resources are there to make sure that happens. Eliminating this capability was very detrimental in hindsight.

Wrapping Up: Lessons Learned

A lot can be learned from Steve Ballmer’s time at Microsoft and it does appear that Satya Nadella is implementing changes in Bill Gates position and that the board has put a true mentor over him in John Thompson. My bet is he’ll also fix the intelligence component of Microsoft and fortunately Steve already eliminated Forced Ranking so he starts with a number of powerful advantages that Steve didn’t get. What made Steve’s reign troubled can be fixed and could have been before. Now we’ll see if the fixes provide the results they should to ensure Microsoft once again rises to its true potential.

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