I got to listen to 20 minutes of Google CEO Larry Page on stage at a 2014 TED conference today. One of the questions he was asked twisted along the way into some views as to why large companies fail. He said the common characteristic – which he’s doing everything to avoid at Google – is that of “missing the future”.
To that end, like a lot of people in the IT industry, I often hear of Microsoft being a case example of this. They generate tons of cash and are still hold stupendously large market shares in their core Windows and Office markets on PCs. They have also grown into a significant share of Enterprise IT based on what started as Windows NT and it’s associated layered products, and are cash generative with X-Box these days.
Bill Gates
That said, while I hold Bill Gates in high esteem (having met him twice and been singularly impressed both times – both in Microsoft’s early years), i’ve never been a Steve Ballmer fan. For me, he epitomised everything that got unseemly with the company. Gates knew his products well, could relate strengths and weaknesses against every main competitive product, and sold his own products based on their strengths. He had a darker, relentless and ruthless side, but that largely sat behind his main product focus.
Steve Ballmer
On the other hand, Ballmer was far more obsessed by financial performance and ratcheting up market share, primarily by tripping up competitors by all means possible. With that came a myriad of third party shills and supposed industry groups, campaigning hard with government bodies to impose sanctions on competitors, and to abuse the processes of standards bodies. They have strong armed vendors using Android into “licensing” demands with menaces, alleging use of their patents in the Linux code that is part of Android (but cannot relate in public which ones they are – and in test cases, have been shown to be possessing very weak and questionable claims). Then advertising campaigns under the banner of “Get the Facts” and more recently “don’t get Scroogled”, both with a reputation for poor accuracy and bringing Microsofts own brand reputation into disrepute, with no meaningful positive effect. Gone were all the pushes based on the strengths of Microsofts own offerings; instead just trying to trip everyone else up.
In the end, Ballmer got ousted by the board, albeit only after deciding to buy Nokia, electing to pursue a “Devices and Services” strategy, and to restructure the whole operation into one whole – removing the previous Business Unit, devolved P&L structure previously in place.
Strategy – Whoops!
A “Devices and Services” strategy is a particularly goody. In the industry, Apple follows a Devices model, where they run the entire value chain vertically – from basic hardware all the way up to services layered on top. On the other hand, Google run services that run horizontally across everyones devices, making profit from monetising customer purchase intents. So, a devices company try to keep all the added value around their own device from which they derive their money, whereas a services company needs their touch points to go across all devices that have market share in the industry. The two strategies are incompatible; i’ve yet to see the first example of a vertically integrated, horizontally integrated company exist.
With that “strategy” put in place, and all the previous warring Business Units now running under a centrally planned and executed structure, Ballmer did an exit stage left.
There is a case in recent history of a large high tech company that did an identically structured pivot attempt, and demonstrates one end game of such a “one company, one egg, one basket” strategy. I fear that this latest restructure puts Microsoft in grave danger of following the same example.
The Death of Digital Equipment Corporation (DEC)
I used to work for DEC, where 1957-1982 there were many customer industry focused product lines. Things like Engineering Systems Group, Graphic Arts (that’s Newspapers/Publishing), MDC (Manufacturing, Distribution & Control), Education, Commercial OEM, Technical OEM, Laboratory Data Products, etc. Some 130 of them, all pulling on the output of Central Engineering and Manufacturing, then applying their industry knowledge to ruthlessly deliver excellent value to customers in their target industries. Each product line paid for the sales presence they needed down to office level worldwide.
Sea Change
By 1982, there were some concerns in the Exec Committee that there was too much “who knows who” horse trading of capacity in manufacturing, so they elected to move to the same sort of model that Microsoft has just moved to. That of “one company, one strategy, one architecture” model, orientated around the strategic core asset – VAX (in the case of Microsoft this time around, it is Windows).
Aside from a financial bath in the very first quarter in 1983, where all the cracks in the processes that the Product line structure papered over got exposed, the company really mushroomed in sales performance. Unfortunately by 1987, some specific members of the Exec Committee started citing a date when they’d outgrow IBM in size (who were 7x DECs size at the time). DEC missed virtually every strategic product transition at the low end. Management hyped up attacking the high end with very expensive ECL chips, while the labs in Hudson had $300 CMOS VAX chips ready to go. The very impressive Prism/Mica chips (30x VAX 11/780) taped out. But an exec committee that kept on flip-flopping between 32 bit and 64 bit edicts into engineering, then losing patience with the delays they’d caused – and killing the very projects that were the foundation of the next generation CPU technology. Key staff left.
It took a further 5 years to get Prism/Mica out – adding a couple of instructions, fixing on a 64 bit address space, and calling it Alpha AXP. By then, the rot had set in. That Silicon was the fastest CPU in the industry by nearly 2x for getting on 10 years, but the company above it faltered. Ken Olsen (co-founder) got deposed, and Bob Palmer (new CEO) elected to move back to a different divisional model.
So, he had PC, Storage, Components & Peripherals to play in the now horizontally integrated markets, and a few vertical industry ones (Financial Services, Consumer Process Manufacturing, Discrete Manufacturing & Defence, Healthcare, Telco+Media+Transport). However, he also got the salesforce commissioned (something against the traditions of the company), and introduced a “two quarters missed financials and you’re out” ethos in the divisional heads.
These final moves were Digitals death knell. You either had a lottery on who didn’t get fired, handing extra responsibility to those leaders who happened to string together two quarters of good sales (largely by seasonal industry trends rather than own performance). Or the panic stricken ones would stuff their distribution channels with stock, hoping that would delay the inevitable for at least one more quarter.
Following a few Bob Palmer legal stunts with Intel and with Microsoft, the company was sold to Compaq, having accumulated losses in Bob Palmers 5 year reign equivalent to the total profits of the company in 35 years under Olsen. Given the above, I think Microsoft need to be extra vigilant not to go the same way.
Microsoft now have that same type of structure
The new organisation structure will give Microsoft every opportunity to follow in DECs footsteps if they are not extra careful. The key litmus test will come when the company needs to move from Windows to whatever platform needs to come next, and I currently see no seeds planted of what that will be.
To that end, there are some early green shoots, and some dark clouds. Mr Scroogled has been promoted to “Head of Strategy”, which I can only imagine is to leverage his Democratic political connections for the future; I can imagine no other background to suggest that any company wide core strategy is safe in his hands. On the good side, they have allowed Nokia to produce a low end Android based phone handset, and look to have decided to finally release Office on the iPad formally. Outside of that, no real news at all. Many commentators wax lyrical on the lack of strategy for the future they are aiming at, or where they have anything that’s meaningful in the now mobile and tablet growth markets, and indeed in public cloud servers where the economics (and share) sit resolutely with Linux.
Capitalism vs Communism – Corporate Editions
Meanwhile, the other side of my brain says that centrally planned monoliths have an over dependency on the cleverness at the centre, while the chaos that is capitalism distributes the risk. Microsoft is such a monolith, and i’m not sure how deep that central cleverness is.
Down history, a chaotic network will always defeat a hierarchy. Just ask Gorbachev.
“, itself based on years of analysis of customer behaviour in and around retail establishments).
”; Sir Terry was the CEO of Tesco until recently. I think the piece in the book introduction relating to sitting in front of some Government officials was quite funny – if it weren’t a blinding dose of the obvious that most IT organisations miss:
