Microsoft feels the costs of mismanagement

The Internet as we know it today could not have been built without the vision of Bill Gates, the culture of innovation he nurtured at Microsoft Corp. and his personal rivalry with the late Steve Jobs at Apple.

But Gates relinquished his role as chief executive officer of Microsoft in 2000, and the company has been in a sort of slow-motion death spiral ever since. Recent months have been particularly brutal for the Seattle firm that gave us the personal computer, the mouse, the Windows operating system, the Microsoft Office suite and more.

In March, Microsoft fired two senior marketing executives of its Bing Internet search engine for allegedly misusing company funds.

In May, Forbes magazine selected Steve Ballmer, Gates’ hand-picked successor, as the “worst CEO of a publicly traded American company today.” Ouch.

“Not only has he singlehandedly steered Microsoft out of some of the fastest growing and most lucrative tech markets (mobile music, handsets and tablets) but in the process he has sacrificed the growth and profits of not only his company but ‘ecosystem’ companies such as Dell, Hewlett Packard and even Nokia. The reach of his bad leadership has extended far beyond Microsoft when it comes to destroying shareholder value – and jobs,” Forbes wrote.

The magazine pointed to the ticker tape of Microsoft’s stock price to validate its claim. Microsoft peaked at $60 per share in 2000, just as Ballmer took the reins. By 2002, it had fallen into the $20s and stands today around $30, half of its former self.
“Microsoft is a PC company, nothing more, as demand for PCs shifts to mobile. Years late to market, he has bet the company on Windows 8 – as well as the future of Dell, HP, Nokia and others. An insane bet for any CEO – and one that would have been avoided entirely had the Microsoft Board replaced Mr. Ballmer years ago with a CEO that understands the fast pace of technology shifts and would have kept Microsoft current with market trends,” Forbes wrote.

The latest volley against Ballmer was fired this month in a scathing report by Vanity Fair magazine.

Vanity Fair contributing editor Kurt Eichenwald interviewed dozens of Microsoft insiders to document the “astonishingly foolish management decisions” at the company that “could serve as a business-school case study on the pitfalls of success.”

In particular, Eichenwald cited the failure of a Microsoft management system known as “stack ranking,” in which managers of every department are forced to designate certain percentages of their employees as top performers, good performers, average performers or poor performers.

The system is inherently flawed. What do you do if you have a department full of top performers? Or poor performers?

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” a former software developer told Eichenwald. “It leads to employees focusing on competing with each other rather than competing with other companies.”

Competing in business today is tough enough, without incurring self-inflicted injuries.

Steve Jagler is executive editor of BizTimes.

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