After 13 years as Microsoft's CEO, Steve Ballmer is leaving a company worth about half as much on the stock market as when he took over and facing a future that, if anything, looks to get worse before it gets better. Declining PC sales, increasingly aggressive and confident poaching of its territory by rivals like Google and Apple, and a persistent failure to connect with mobile computing suggest that Microsoft’s era of relevancy may be passing, if not already gone.
Ballmer’s high-profile exit during a low ebb in his company’s fortunes has owners of other businesses pausing—and looking for lessons for their own enterprises. Dave Newmark, CEO of Encino, California-based Bid4Spots, says he sees Ballmer as a leader whose strategy of building desktop computer software has simply run its course.
“When I look at the companies that have succeeded more recently, it’s not about developing tools for use on a desktop computer,” Newmark says. As examples, he points to both Google and his own 15-person firm, which provides an online marketplace for radio stations selling advertising time. “[We’re] doing something that only the Internet can do, which is bring information down to the level of the individual user,” he says of today’s tech winners.
The typical entrepreneur may not have Ballmer’s 11-figure net worth, but any entrepreneur can learn from his troubled tenure. Chief among those lessons is that you should never ignore a threat to your basic business model, says David King, a management professor at Iowa State University.
King compares Microsoft’s mobile computing challenge to a small retailer trying to cope with Walmart coming to town. “It’s a direct challenge to their business model,” King says. Microsoft’s model was based on people updating software every few years when they bought a new PC. “Now the mobile model has disrupted people having to buy new software with a new PC,” King adds.
Rather than react to the challenge with the force it deserved, Microsoft instead focused on maximizing profits from its Windows operating system and Office application software. A key event occurred in 2010, King says, when Ballmer killed a project, codenamed “Courier,” to develop what was rumored to be a tablet-type device.
“About the time the iPad came out, he’d canceled the project that could have been applied to their next Windows update,” King says. “He’d clearly focused on their dominance in operating systems.” Partly as a result of this emphasis, the Zune was a poor cousin to the iPod, Windows Phone is leagues behind Android in mobile operating systems, and the latest iteration of Windows lacks appeal for users of either tablets or desktops.
Mishandling The Handoff
Ballmer has told people not to worry. In a letter to Microsoft employees announcing his planned departure, he wrote, “Microsoft has all its best days ahead. Know you are part of the best team in the industry and have the right technology assets. We cannot and will not miss a beat in these transitions.”
While the statement has the characteristic Ballmer bluster, what it doesn’t have is substance, especially when it comes to in-house leadership. Instead of carefully preparing Microsoft insiders to take over, Ballmer has allowed potential strong candidates to leave, so the company now has little option other than to seek a new CEO externally. “He’s cycled through a lot of leadership since 2008,” King says. “They didn’t really manage the pipeline.”
Other corporations have done better when it comes to transitions, King says, pointing to General Electric. Before longtime CEO Jack Welch left GE in 2001, he groomed three internal candidates to take over. The two who didn’t ascend at GE left to become heads of other major U.S. corporations, while Welch’s successor, Jeffrey Immelt, still holds Welch’s old job.
When outsiders come in, it can lead to drastic talent loss, as well as confusion among remaining employees who, understandably, don’t know what to expect from the new face in the corner office. Owners of family businesses can learn from GE’s experience, King says, by making sure members of the next generation of leadership candidates have the skills and commitment to continue the enterprise. “If you want to keep it in the family, make sure you have someone with the education and experience working in the business,” he suggests.
The Classic Business Paradox
Of course, in a company with nearly 100,000 employees, not all the blame can be laid at Ballmer’s feet. He did, after all, join the enterprise when it had just 30 employees and helped to craft one of history’s most successful businesses. King says the real problem that led Microsoft to make its missteps lay in the corporate culture. Ambitious employees company-wide found the surest route to good reviews, pay raises and promotion was not in innovating new businesses but in finding ways to make more money from existing businesses. And that worked, until the existing businesses started running out of customers.
There’s no doubt that luck plays a role as well. Diversification is risky, and a leader who let a profitable business languish in order to pursue a sideline that failed would, if anything, be more heavily criticized than one who did the reverse. “It’s a classic business paradox: whether to exploit existing product lines and capabilities or try to explore new ones,” King says.
Business owners who want to resolve this paradox need to occasionally step back from daily operations and examine pluses and minuses of current strategy, King says. One way is with the venerable SWOT analysis, in which a business’s strengths, weaknesses, opportunities and threats are systematically identified and evaluated, along with appropriate responses.
Building The Future
It’s probably safe to say a lot of that has already gone on at Microsoft and more will be done in the future. Already, the company is proclaiming itself a “devices and services provider" rather than a "software publisher." If an outsider comes along to completely free it of its lingering cultural dependence on an outmoded business model, that could be a good thing.
Meanwhile, today’s business owners are focused on building futures that, with luck, will parallel Microsoft’s first 30 or so years, when it seemed like an unstoppable behemoth. For Newmark, succeeding in the post-Ballmer era means developing platforms to leverage the Internet’s power to bring people and information together. “To me,” Newmark says, “that’s the key to success in the Internet Age.”
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