The company portrayed the departure as voluntary, but it comes amid rising complaints among investors and a month after a disappointing earnings report sent the company’s share price down by 11 percent.
Among the problems was a $900 million write-off related to poor sales of the Surface tablet computer, praised by reviewers but largely ignored by consumers. Microsoft has struggled as well with the rollout of the Windows Phone and its latest PC operating system, Windows 8.
The product misfires, analysts say, fell into a familiar pattern, with Microsoft moving into markets after other companies already had established loyalty among customers. Its Zune music player lost out to Apple’s iPod. The Windows line of phones has made little dent in a market dominated by the iPhone and several Android devices. Microsoft’s Bing search engine lags far behind Google
Not exactly a track record of accomplishments to be proud of, is it?
No wonder Wall Street cheered Ballmer's retirement announcement by bidding up the stock 7 percent.
Just how did Microsoft get to be in such trouble?
Let's start and end with how the company is set up because therein lies many of their problems.
Microsoft is famous for having its divisions set up as independent fiefdoms at war with each other:
Organizationally, Microsoft has suffered from years of operating as a collection of silo-like divisions — some would say warring fiefdoms. The company has come under fire for failing both to develop fresh, creative products and to successfully follow others into exciting new markets.
Because divisions within the company would try and undercut other divisions in the company to protect their own turf, Microsoft was unable to capitalize on any of these exciting new markets.
For example, Microsoft had actually developed a tablet before Apple brought the iPad to market, but fighting within the company put that tablet work on hold until well after the iPad grabbed a huge part of the market share. By the time Microsoft released its Surface tablet this year, there was little market left to grab and the move was a failure.
In addition to divisions set up as independent fiefdoms at war with each other, employees within divisions are also at war with each other under the infamous Microsoft rank-and-yank employee evaluation system:
At the center of the cultural problems was a management system called “stack ranking.” Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor. …
For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings. And the reviews had real-world consequences: those at the top received bonuses and promotions; those at the bottom usually received no cash or were shown the door. …
“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said. “People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings.” Worse, because the reviews came every six months, employees and their supervisors—who were also ranked—focused on their short-term performance, rather than on longer efforts to innovate. …
Will Oremus at Slate notes how other companies have also used rank-and-yank systems to poisonous effect but eventually shelved those systems while Microsoft has stuck with it:
Microsoft wasn’t the first company to adopt this sort of ranking system. It was actually popularized by Jack Welch at GE, where it was known as “rank and yank.” Welch defended the practice to the Wall Street Journal in a January 2012 article, saying, “This is not some mean system—this is the kindest form of management. [Low performers] are given a chance to improve, and if they don't in a year or so, you move them out. "
As the Journal and others have noted, what seemed to work for Welch—for a time, anyway—has produced some ugly results elsewhere. Even GE phased the system out following Welch’s departure. But in an interview with the Seattle Times just last month, Ballmer indicate that he was sticking with it. From the Seattle Times:Q: A lot of people have slammed Microsoft’s stack ranking review system as contributing to a noncollaborative atmosphere. Is the kind of cultural change you want to effect possible with that stacked ranking system still in place?
A: We’re doing our performance reviews now. We’re finishing up our year (and there are) no changes to—no—I’ll say minor changes to our system. I think everybody wants to work in a high-performance culture where we reward people who are doing fantastic work, and we help people who are having a hard time find something else to do. Now, whether our existing performance-management system needs to change to meet the goal of fostering collaboration is something that Lisa Brummel [head of human resources] would take up.
This rank-and-yank system, btw, has been brought to public education via teacher evaluation systems promoted by old Microsoft CEO Bill Gates, so it seems that not only is Microsoft going to stick with a poisonous ranking system that has driven the company onto the rocks, the founder of the company is looking to take that system elsewhere and destroy even more with it.
Speaking of Mr. Gates, some are calling for Bill to return to his old company and right the sinking ship:
Jack Gold, a tech analyst at Gold Associates, is among many who believe Microsoft needs the type of jolt that can best be provided by someone outside of the company.
"They need a proven innovator with a track record of turning around big, sometimes unwieldy companies," says Gold, who suggests poaching someone from Google. If that doesn't work out, perhaps Microsoft can reach back into its recent past, he says.
"Maybe it's time," Gold says, "for Bill Gates to come back on a temporary basis."
I concur - it's time for Bill Gates to get out of public education "malanthropy" work, get out of bringing GMO's to the world, get out of cloud whitening to save the environment from global warming and galvanic skin bracelets to measure teacher effectiveness and get back to showing the world what a ruthless genius he is at navigating the technology industry waters.
Even better, since he's been promoting rank-and-yank teacher effectiveness evaluation systems all over the country, he can show us how it's done by continuing to use this poisonous ranking system at Microsoft while trying to right his sinking ship.
If Big Bill can fix Microsoft while continuing to rank employees on a bell curve and having the bottom 10% fired every year, then surely pubic school systems can do the same.
So go back to the old company, Bill, and show us all how it's done.