Lessons for a Troubled Microsoft: How to Prevent a Meltdown

Rob Enderle

Microsoft is clearly under a lot of pressure to perform and executive management is attempting to get its arms around the internal problems. From the outside, it doesn't seem to be going well. In fact, from this local-to-Microsoft blog post, it appears to be going very poorly. Having been on executive teams dealing with problems like this myself, I can state categorically that this is neither surprising nor unusual, and these kinds of problems can be avoided. They just seldom are.


The apparent complexity of the problem(s) makes this kind of thing seem impossible from the inside. The post talks about a major product failure, leadership problems, acquisition problems, internal political problems, morale problems and economic problems. This isn't even an exhaustive list. While this looks impossible to fix, I've seen similar problems fixed twice (Apple and IBM), participated once and actually worked on the process several times.


Let's work through this.


Start with Perception


Every large company, successful or not, has problems. It often fascinates me when I watch someone leave a company that they think is poorly run and go to a startup, only to find that the previous place was run better. In addition, if people think things are getting better -- whether they are or not -- they tend to focus more on the work and less on the problems.


Management often feels it wants want to keep its strategic plans close to the vest to avoid criticism and to prevent competitive response. Both concerns are valid, but they leave the employee feeling that there is no plan and no leadership. In addition, management often feels the need to play down problems as a show of confidence. However, employees are living the problems and typically see this as management negligence or incompetence. This is almost all perception. (The "almost" part is problematic and we'll get to that.) But once you realize that, you can implement programs that go to the core of why people are complaining more and cooperating and working less.


The best way the take on these problems is for the management team to engage with employees by both listening to them and providing insight into the company's strategic plans. Candor is critical; the goal is to get people working as a team again. Employee surveys are generally ineffective because they aren't trusted and the results don't create the needed dialog.


Perception works both inside and outside the company. Recall that in the Apple turnaround, Steve Jobs started out with a company in deep trouble with products he had publicly called crap. He started changing the perceptions surrounding the company because he knew this would give him the time he needed to rebuild it. At IBM, Louis Gerstner changed out the entire marketing department as one of his first accomplishments. He knew that if he couldn't deal with the perception that IBM was failing, that perception would drive an unavoidable result. In both cases, by aggressively dealing with perceptions of unavoidable failure, both internally and externally, they bought time they needed to get the real work done.


Remove Executive Isolation


Executive access is a protected privilege, especially the larger and more complex the company. It's common practice to protect that privilege both by putting in place penalties for bypassing chain of command and restructuring internal information to make it more pleasing to the senior executive receiving it. This becomes a rose-colored filter through which the senior staff views the company, but it means the executive staff is increasingly out of date and out of touch with the company's real problems. At extremes, you can have falsified financials and massive customer and employee attrition before the CEO or executive team becomes aware that the problems in the company are serious.


The practice of isolating the executive staff is like a virus for which there is no true antidote. Even when I've seen the practice nuked, it seems to slowly revive itself. This suggests that an organization that wants to eliminate the problem would have to regularly re-examine the flow of information, much like you would look at a manufacturing process, and aggressively eliminate these filters, likely though redundancies and personal relationships.


Thomas Watson Jr., the guy who is credited with making IBM into a global power at its peak, used to regularly meet with random rank-and-file employees and have heart-to-heart chats. He'd ask them how they fit in the company. This kept him grounded in reality and made sure every employee also thought about his or her place on the team.


Protect the Good Critics


There are people in companies who just complain about everything and should be booted out. Others have a tendency to point out stupid things at the company and generally burn out. The trick is to know the difference and to protect folks who are good at pointing out the stupid stuff and who work to make sure the company doesn't do it. In Microsoft, that guy was Charles Fitzgerald. He finally gave up and left the company some time ago.


Having played that role at IBM years ago, I can tell you it is a thankless job. But given how many obvious mistakes large companies make, the value in someone who can call a spade a spade can be enormous. We actually experimented with this in the ROLM division in IBM by enhancing the internal audit organization so it could also look at business process and acquisition planning and execution. Unfortunately, we couldn't survive the entropy of standard corporate practice that drives out organizations that are different. We then tried it again in competitive analysis, but that organization lacked authority to act, and we simply became an early warning system for mistakes that were made anyway.


I think that with the right executive support, either practice could have been more successful. But critics, internally and externally, are often treated as problems to be solved and barriers to decision-making, rather than what they could otherwise be. Used well, they can help protect the company from making mistakes in the first place.


I've argued in the past that companies need a department focused on avoiding obvious, stupid mistakes. People who have the guts to point out a real potential problem need to be protected and nurtured, though people who are just contrary need to be eliminated. Telling the difference remains critical to doing this right.




Companies become very complex over time. One of the best turnaround efforts this century was Apple, and Jobs started by dramatically simplifying the company. Large corporations tend to grow both in size and complexity until they exceed the management team's ability to manage it. This is often when problems like those we are seeing in a number of industries become pronounced.


To deal with this complexity, companies generally create umbrella organizations with companies within companies, but this just layers on the complexity and puts a slowing bureaucracy over the mess. Different executive teams have different capabilities, so the company should conform to those capabilities, because people rarely conform to the company.


As highlighted in the book, "iCon Steve Jobs: The Greatest Second Act in the History of Business," Apple was remade to fit Jobs' skills to become a success. It continues to amaze me that after so pronounced a lesson, few seem to understand that it's critical to match the executive team to the company.

Wrapping Up: Break it Down and Document


Over the years, I've been brought in to address a number of complex problems and review both successful and unsuccessful attempts at recovery. Generally it comes down to having someone in power who can break a complex problem up into components that can be addressed individually. But generically, it is about managing both internal and external perceptions to provide time, getting access to clean information on the problems so you can craft solutions, and eventually getting rid of the complexity at the core of the issues.


After that, customer-loyalty efforts like EMC's Net Promoter Score work to stabilize, build loyalty and turn it into a strategic sales weapon -- all of which help return the company to a much better place.


In the end, the problems being identified at Microsoft are far from unique and far from unmanageable. But they do require focus to fix, ideally in a way that prevents such problems in the first place.


One final comment is that companies fail to document and don't preserve lessons learned beyond the executives who learned them. This class of problem recurs, calling for a program to capture what works and what doesn't that can be used by successive generations of managers. That could do a lot to assure the long-term success and survival of any company. Trust me, what Microsoft is going through is far from fun. Learn from its example and find a way to avoid that path.

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