The next CEO

So within a fortnight of my own departure, things appear to be entering a really interesting phase at Microsoft with Steve Ballmer’s announced retirement “within the next 12 months”.

It’s generated a flurry of press coverage,  a significant uplift in the stock price and one paradox that is being frequently mentioned is that on his watch Microsoft’s relevance in the technology market has been significantly dented, and yet throughout (more or less) the company has posted increasing  incomes and profits. Definitions of success seem tricky.

Another thing that is getting a lot of coverage is how Microsoft has fallen prey to Clay Christensen’s innovators’ dilemma; but the reading of that theory is somewhat simplistic in a lot of cases – take for example this article from The Washington Post where Christiensen’s “disruptive technology” is described:

“cheap, simple innovations that gradually displace a more complex and expensive incumbent technology.”

Maybe my memory is failing, but I didn’t remember the theory as being that simple: disruptive technologies are often less effective yet more expensive that the things they eventually replace – and it’s only after time that prices drop for them to backfill into existing markets. The example that Christensen gave was of successive hard disk drive innovations: 5″ drives, for example being replaced by 3.5″ drives which initially were much more expensive, but founded a new category of computers in Laptops. Once laptop manufacturer has got to a certain scale, and therefore the price of the smaller drives had dropped, they then become the tool of choice in desktop and server machines.

Think about the challenges that Microsoft has faced in the past decade, where the proving of a technology in a seemingly unrelated space then seep into the spaces that Microsoft has had market dominance. Smartphones and tablets are the ones that are getting much of the coverage, but credible Web-based software services, from consumer things like Facebook, Hotmail and Skype that have evolved into the business SaaS world are the other massive challenge to the corporation. If someone had told me 13 years ago that big corporates would be shipping out email to services like Office 365 and Google Apps, I’d have thought them crazy.

The challenge that any incumbent provider has, especially if they are US-based, is that often addressing such competitive threats early means that they would have to sacrifice existing revenue streams, and that makes for a very difficult discussion with shareholders in an governance environment where shareholders interests come above all other concerns. What that leads to is trying to continue to drive existing business, whilst then trying to compete in disrupted markets, but on a “net-new” sales basis, rather than heavily focusing on migrating customers from one technology to another. For as long as you are doing the old as well as the new no one (staff, customers, analysts or whoever) really believes it. Denial is maintained…

The sad truth is that a US company appears to have to be in really dire straights before shareholder concerns can be addressed by a radical repositioning. Think Apple on Jobs’ return; think (possibly) Yahoo! and what Marissa Meyer is currently attempting.  It’s difficult to see that the next CEO of Microsoft will find a company in that kind of state – so the extent that they will be able to significantly change the long-term fortunes of the organisation might be hampered in the same sorts of ways that the present management have found. The really interesting changes might not happen until Ballmer’s successor’s successor.

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