After running Microsoft for 25 years, Bill Gates handed the reins of CEO to Steve Ballmer in January 2000. Ballmer went on to run Microsoft for the next 14 years. If you think the job of a CEO is to increase sales, then Ballmer did a spectacular job. He tripled Microsoft’s sales to $78 billion and profits more than doubled from $9 billion to $22 billion. The launch of the Xbox and Kinect, and the acquisitions of Skype and Yammer happened on his shift. If the Microsoft board was managing for quarter to quarter or even year to year revenue growth, Ballmer was as good as it gets as a CEO. But if the purpose of the company is long-term survival, then one could make a much better argument that he was a failure as a CEO as he optimized short-term gains by squandering long-term opportunities.
How to Miss the Boat – Five Times
Despite Microsoft’s remarkable financial performance, as Microsoft CEO Ballmer failed to understand and execute on the five most important technology trends of the 21stcentury:
- in search – losing to Google;
- in smartphones – losing to Apple;
- in mobile operating systems – losing to Google/Apple;
- in media – losing to Apple/Netflix;
- and in the cloud – losing to Amazon.
Microsoft left the 20th century owning over 95% of the operating systems that ran on computers (almost all on desktops). Fifteen years and 2 billion smartphones shipped in the 21st century and Microsoft’s mobile OS share is 1%. These misses weren’t in some tangential markets – missing search, mobile and the cloud were directly where Microsoft users were heading.
.. Execution and Organization of Core Businesses
It wasn’t that Microsoft didn’t have smart engineers working on search, media, mobile and cloud. They had lots of these projects. The problem was that Ballmer organized the company around execution of its current strengths – Windows and Office businesses. Projects not directly related to those activities never got serious management attention and/or resources.For Microsoft to have tackled the areas they missed – cloud, music, mobile, apps – would have required an organizational transformation to a services company. Services (Cloud, ads, music) have a very different business model. They are hard to do in a company that excels at products.
Ballmer and Microsoft failed because the CEO was a world-class executor (a Harvard grad and world-class salesman) of an existing business model trying to manage in a world of increasing change and disruption. Microsoft executed its 20th-century business model extremely well, but it missed the new and more important ones. The result? Great short-term gains but long-term prospects for Microsoft are far less compelling.
.. Visionary CEOs are product and business model centric and extremely customer focused.
The best are agile and know how to pivot – make a substantive change to the business model while or before their market has shifted. The very best of them shape markets – they know how to create new markets by seeing opportunities before anyone else.
.. Between 2001 to 2008, Jobs reinvented the company three times. Each transformation – from a new computer distribution channel – Apple Stores to disrupting the music business with iPod and iTunes in 2001; to the iPhone in 2007; and the App store in 2008 – drove revenues and profits to new heights.
.. They know who their customers are because they spend time talking to them. They use strategy committees and the exec staff for advice, but none of these CEOs pivot by committee.
.. One of the strengths of successful visionary and charismatic CEOs is that they build an executive staff of world-class operating executives (and they unconsciously force out any world-class innovators from their direct reports). The problem is in a company driven by a visionary CEO, there is only one visionary. This type of CEO surrounds himself with extremely competent executors, but not disruptive innovators
.. When visionary founders depart (death, firing, etc.), the operating executives who reported to them believe it’s their turn to run the company (often with the blessing of the ex CEO). At Microsoft, Bill Gates anointed Steve Ballmer, and at Apple Steve Jobs made it clear that Tim Cook was to be his successor.
Once in charge, one of the first things these operations/execution CEOs do is to get rid of the chaos and turbulence in the organization. Execution CEOs value stability, process and repeatable execution. On one hand that’s great for predictability, but it often starts a creative death spiral – creative people start to leave, and other executors (without the innovation talent of the old leader) are put into more senior roles – hiring more process people, which in turn forces out the remaining creative talent
.. As process oriented as the new CEOs are, you get the sense that one of the things they don’t love and aren’t driving are the products (go look at the Apple Watch announcements and see who demos the product).
.. The problem is that a supply chain CEO who lacks a passion for products and has yet to articulate a personal vision of where to Apple will go is ill equipped to make the right organizational, business model and product bets to bring those to market.
.. The dilemma facing the boards at Microsoft, Apple or any board of directors on the departure of an innovative CEO is strategic: Do we still want to be a innovative, risk taking company? Or should we now focus on execution of our core business, reduce our risky bets and maximize shareholder return.
Tactically, that question results in asking: Do you search for another innovator from outside, promote one of the executors or go deeper down the organization to find an innovator?
.. Steve Jobs and Bill Gates (and 20th century’s other creative icon -Walt Disney) shared the same blind spot: They suggested execution executives as their successor
.. if the board decides that the company needs another innovator at the helm, you can almost guarantee that the best executor – the number 2 and/or 3 vice president in the company – will leave, feeling that they deserved the job. Now the board is faced with not only having lost its CEO, but potentially the best of the executive staff.
.. The irony is that in the 21st century, the tighter you hold on to your current product/markets, the likelier you will be disrupted
.. Increasingly, a hands-on product/customer, and business model-centric CEO with an entrepreneurial vision of the future may be the difference between market dominance and Chapter 11.
Summary:
- Innovation CEOs are almost always replaced by one of their execution VPs
- If they have inherited a powerful business model this often results in gains in revenue and profits that can continue for years
- However, as soon the market, business model, technology shifts, these execution CEOs are ill-equipped to deal with the change – the result is a company obsoleted by more agile innovators and left to live off momentum in its twilight years
The Volkswagon Settlement: How Bad Management Leads to Big Punishment
Still, as striking as some of the details of the settlement are, the scandal shouldn’t have been surprising. For decades, Volkswagen has practiced a management style that imposes rigid goals and punishes middle- and lower-level employees who are unable to keep up with the pace. The origins of this approach, known as top-down control, date back more than a century, to the work of the industrial-efficiency guru Frederick Winslow Taylor. In its current iteration, the concept typically sees executives formulate bold strategic objectives and timelines for new products and services, with little input from others in the company. Although these aims are often presented as guidelines, not mandates, management rarely treats them as negotiable. In turn, rank-and-file employees, pressured by the expectations placed on them, try to deliver at all costs.
Although top-down culture is increasingly being discredited in favor of greater organizational coöperation and worker empowerment, it is still prevalent, embraced to varying degrees by big names like Apple, Nissan, General Electric, and Boeing. In some cases, it has been costly: while reporting a feature on Boeing for Portfolio magazine some years ago, I observed that the company’s difficulties in getting its vaunted Dreamliner off the ground were directly related to the “aggressive goals-fearful employee” dynamic.
.. few other companies apply top-down control so unremittingly, and that this was the likeliest explanation for why its engineers were willing to commit crimes and defraud the public to save their jobs. As one person who had worked closely with Volkswagen told me, the company “is fuelled by intimidation at every level, which creates a borderline, or sometimes over the borderline, unethical culture.”
.. “Everyone in that company was adversarial,” the consultant who worked with Volkswagen told me.
Political ‘Hunger Games’ roils Trump’s inner circle
According to interviews with more than a dozen people on or close to the campaign, staffers are increasingly dividing themselves into competing factions aligned with Trump’s three top officials – embattled campaign manager Corey Lewandowski, who still commands deep loyalty among many of the people he hired; deputy campaign manager Michael Glassner, who has a growing group of supporters; and newly hired strategist Paul Manafort, who was elevated this week and is building his own fiefdom.
.. That stretch coincided with his daughter Ivanka Trump having a baby, which limited her availability as a trusted adviser to her father. He was even caught off guard when he appeared on a Wisconsin conservative radio show without being informed that the host Charlie Sykes was leading the state’s #NeverTrump brigade, and he lost the state by double digits a week later.
.. “I’ve got state team leaders in Indiana who’ve been furious for months … they’ve had no campaign material, no ground game, no nothing and they’re going into these states 15, 20 days before the primary and it’s just too late.”
.. The in-fighting has further damaged morale inside the campaign, said multiple staffers and former staffers. They cited slow repayment of expenses, a confrontational management culture and mass layoffs in states that have already voted.
.. But one former staffer said “nobody trusts anybody” on the campaign. The former staffer, who stays in touch with current staff, added “especially since the shakeup, people are trying to save their asses, and throw their rivals under the bus, and campaigns don’t win that way.”
College Presidents Should Come from Academia
Today, one-fourth of college presidents have business backgrounds and lack any prior experience managing a college or university. Boards of trustees tend to favor those who, like them, have business backgrounds, and executive search firms retained to identify candidates for presidencies seem absolutely convinced that a business background is an asset.
But business people are generally unprepared and unqualified to manage a university.
.. First, most business people believe in a management hierarchy, while universities function best in a state of managerial anarchy. The purpose of a college or university is to promote new thinking, new ideas and new perspectives. In this way, innovation and hierarchy are incompatible.
.. Second, most business people have a pseudo-practical orientation. They want to know, for example, whether a particular course of study will lead directly to a secure job and better wage. Many disdain the liberal arts and can’t understand why someone would want to study philosophy over accounting.