How to Turn Microsoft Around: A Primer, Part 2

Rob Enderle

In my last post I talked about the problem at the core of Microsoft's flat performance last decade as being an inability to determine who its customers were. But I left out one well-defined group that was targeted. Before posting the solutions, I'd like to explore the problem with IT again and how -- and this isn't just a Microsoft problem -- a broad cross-section of vendors treat IT as a customer when it isn't. This is likely one of the reasons IT spending hasn't mirrored consumer spending, in terms of revenue growth, in enterprises. Demand generation isn't being focused on the right group. Changes such as the PC trend in the '80s and public cloud services today initially tend to go around IT and are embraced by IT only in the late phases. That's largely how Microsoft's predecessor, IBM, got surprised in the late '80s. Let's explore this.


IT Isn't a Customer

IT is effectively an internalized VAR (value-added retailer) or service provider. It's clearly influential, but the cash comes from line management and not staff. IT remains staff. Oracle and IBM tend to treat IT more like partners trying to create a solution for a common client that IT owns, which has proven to be successful path, but only when wrapped heavily with IT's own services.


Dell just stepped up recently to the realization that to truly embrace IT, you have to have services to supplement IT's own. However, unless you can drive demand for the related technologies and services to line managers, you simply won't get access to the larger pool of money. This past year defined that problem in spades. Companies didn't stop spending, they just shifted money away from IT projects as their own corporate incomes fell and the inability to position IT projects against focused line purchases by vendors likely increased this impact significantly. What I mean is line managers now have fixed-revenue-based budgets and have to trade off what they spend money on. Vendors they are talking to will likely have an advantage over vendors they aren't and most vendors in Microsoft's class don't talk to Iine managers very often. No wonder IT spending has been poor and IT job satisfaction has been so low.


Microsoft's IT Problem

A variety of large (many multinational) companies are trying to answer the question of whether the organization can step away from Microsoft entirely and move to Apple/Oracle, Google/Linux, or some other mix. Increasingly the result is coming back that, yes, this is possible. Line management is supporting the exploration and move, at least initially, because it doesn't understand what it is losing and needs to free up cash for its own revenue-generating projects and market recovery.


Organizations tend to be several versions back on key products, integration often is a work in progress, and IT historically is understaffed and has a tendency to blame the entrenched vendor for the resulting problems. That entrenched vendor is often Microsoft, which still faces a world largely populated with an installed base of obsolete products.


This has partially resulted from an expense-reduction spiral that Microsoft itself started when it positioned against UNIX the mainframe as a lower-cost alternative. Once the savings have been achieved, the IT organization finds itself in a cost-cutting spiral that eventually puts Microsoft on the next chopping block against even less expensive alternatives like Google's. If a vendor doesn't stabilize prices and build up both trust and satisfaction, it will become the victim of the very cost cutting it started. That appears to be the case here.


Line has the ability to drive additional spending based on additional value, but IT generally is stuck in cycle where it justifies additional spending by showcasing cost savings. It doesn't own the line processes it is augmenting, so it isn't in as good a position to argue top-line benefits for new technology as line managers are. And top-line growth assures the sustained use of a technology, not bottom-line savings because savings, no matter how good, tends to hit the law of diminishing returns while there is unlimited upside to growth, particulalry during a recovery.


IT Doesn't Drive Demand, it Helps Fulfill it

So, though IT might be the buyer, in the end, it's not the primary customer. Ironically, had IT been doing a perfect job, PCs, which were largely driven by line organizations, would have never become as popular as they are.


If IT is treated as the customer, line needs are subordinated to IT's and demand for the related products will be hard to maintain because the line increasingly won't see the value. With IT treated as a VAR and line management treated as a customer, shortcomings are supplemented and demand can be managed to protect existing product footprint and foster sales growth.


Wrapping Up

So Microsoft, as an institution, not only has no decision hierarchy based on a defined customer type, one of its primary "customers" isn't a customer at all. IT represents a customer, influences a customer, but IT isn't the customer. It is interesting that users are closer to line managers (because they tend to report to them) then IT is. Both Google and Apple are focused on users, but both still need access to an enterprise-class service organization to penetrate corporations broadly. What folks forget is IT in many companies can be that service organization and, as a staff organization, they work for line management.


This means as line managers become convinced -- and you can see this process being driven into the U.S. government at the moment -- that Web-based tools should supplant Microsoft, they likely will drive the conversion and IT will simply have to comply. Because Microsoft uses multiyear enterprise agreements, it might not see the full extent of market erosion, any more than IBM did in the late '80s, until it is too late to respond effectively. This may also help explain why IT spending has been so flat for nearly a decade. In other words this isn't just Microsoft's problem.


Next we'll talk about the solution.

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