Steve Ballmer steps down as CEO of Microsoft in 2014. It's a perfect opportunity for the company to change their managerial operating system and begin to again create equity for employees and stockholders.
First let's get
something straight. Steve Ballmer is worth $18 billion, which is not only more than 7.1 billion other people on this planet but roughly $18 billion
more than me. That alone may cause you discount my two cents about what he
might have done in his 14 years leading Microsoft. He's rich. I'm not. But in
my defense, I'd like to point out that I've created more wealth for my
stockholders than he has.
(I've created none.
Ballmer has destroyed between $50 to nearly $200 billion in stockholder value,
depending on whether you use the absurdly inflated, dot com bubble price that
prevailed when he took over or some more reasonable amount from about a year earlier.)
Secondly, as a company
becomes larger, it is more difficult to grow fast. You might grow 30% a year
for decades and then - at some point - your size relative to your industry or
even region will be capped by the growth in that industry or region. If Ballmer
had grown Microsoft's value as much in the 14 years he worked as CEO as it had
grown in the decade before, its net worth now would be more than global GDP. At
a certain point - like it or not - growth gives way to predictable dividends.
It may well be that Ballmer did as much with Microsoft as anyone could have and
Bill Gates timing for ending his tenure as CEO may have been as wisely
serendipitous as his timing for the start. But it's also true that while
Microsoft was dead center in technology in 2000 - in possession of the defining operating system and most
popular office software - all the significant innovations since (from smart
phones to web-based everything) have come from outside of Microsoft.
Simply put, Ballmer
could have done more for stockholders.
The reason he didn’t is
that he clung to an antiquated operating system in the form of a management
approach that depended on competition and control rather than cooperation and
freedom, a philosophy more interested in ranking people within existing
businesses than in creating new businesses. Put differently, Microsoft was
among the first to arrive at the new economy but then maintained the management
approach from the old economy.
Ballmer used a system of stack ranking for employees that forced
outcomes. Regardless of whether a team was all great or all atrocious, there
would be a few top ranked and a few bottom ranked employees, in every group, every
six months. The result was that employees focused on competing with each other
and focused on short-term results. It is hard to conceive of a system that does
more to squash innovation. Teams create new products and those teams need to
focus on competing with other teams, not each other. Knowing only this about
Ballmer one might well predict that Microsoft would be profitable (competition
can be good for creating efficiencies) but hardly innovative.
Of course this emphasis
on ranking mattered because rank in the organization matters. If you were CEO of
Microsoft, your net worth could put you among the top 10 or 20 in the world. In
this way, Microsoft was like the France of Louis XIV or Iraq under Saddam
Hussein; it’s good to be king. Contrast that with more evolved forms of
government; in the US last year, roughly 6 million Americans made more than
Barack Obama earned as president. Corporations are still largely unevolved
institutions where the reward for being at the top is closer to what Mubarak
might get than what Canada’s Harper would be paid. (Estimates of Mubarak’sprofit from running Egypt range from $1 billion to a staggering $700 billion;
Harper makes roughly $300,000 a year.) Ranking matters when position – rather than
innovation – is the best predictor of wealth.
Ranking suggests
something static. If you want to win the gymnastics competition, you have to be
flawless; ranking suggests clear criteria.
Creativity doesn't
measure against old criteria: it creates new criteria. Rather than rank people,
Ballmer might have done well to encourage entrepreneurship by giving employees
the chance to create wealth, just as he and Gates did. Microsoft is large
enough that it could have created internal markets that allowed employees to
create new businesses, using its $80 billion in cash to finance startups from within
the company. Microsoft has attracted phenomenal talent that has the advantage
of having seen generations of technology rise and fall. The potential for
entrepreneurial activity within Microsoft could rival that of most
states. But the incentives are not designed to encourage the creation of new
businesses but instead are designed to rank performance within the old
business.
The process for creating
wealth within Microsoft could take many forms. Imagine employees being able to
bet on different proposals because of their faith in a particular technology or
team, essentially R&D and new business development being conducted more
along the lines of entrepreneurs vying for venture capital. This would spur
the right kind of competition, a competition between alternate businesses and
teams rather than competition within them. The company might match - dollar for
dollar - investments made by employees in various startups within the firm, internally
publicizing various technology breakthroughs and ideas. The wisdom of crowds
could guide management allocation of resources and the emphasis would be on
actually creating equity, not just products. People would then cooperate to
create this value they'd invested in, working to create equity rather than
competing with one another for a fixed pool of equity.
In his foreword to
Robert Beyster's book about SAIC, William Taylor makes a really important
distinction, one that might be useful for Microsoft as they enter a
post-Ballmer stage.
“Much of our business culture is infatuated with
power - amassing it, holding on to it, using it to vanquish competitors and
dominate markets. In contrast, much of Dr. Beyster’s leadership philosophy is
about spreading freedom. And freedom, it turns out, packs a bigger wallop than
power. Power is about what you can control; freedom is about what you can
unleash.”
—William C. Taylor
If Microsoft can let go
of a ranking system that they feel gives them control over teams and instead
adopt a system – any system – that gives employees more entrepreneurial freedom,
they might begin again to create equity for their stockholders and their
employees who feel less controlled and more like entrepreneurs free to create
their own future. Microsoft is such an inescapably big and important part of tech that one can only hope they decide to evolve the company and not just their products. No company has done more to prove the importance of operating systems; its time they looked at the operating system they use to manage their employees.