Did Microsoft experience a lost decade?
E-readers will never amount to anything
Eichenwald's case for a lost decade is very compelling. While Apple (NAS: AAPL), Google (NAS: GOOG), and Facebook (NAS: FB) were introducing dramatic innovations, Microsoft was concentrating on "Old Faithfuls" like Windows, Office, and servers. Since 2000, Eichenwald notes that Microsoft's market cap declined from $510 billion to $249 billion (as of June 2012).
Eichenwald believes that Microsoft's concentration on Office, for example, made it unable to introduce new products like e-readers, despite the fact that it was an early pioneer in this area. Ultimately, it was Amazon.com and Apple that benefited tremendously from this innovative new product. And debacles like the Zune and Bing only reinforced the notion that Microsoft was losing its edge when it came to technology. Eichenwald even quotes a senior member of Microsoft's leadership team who wondered in 2004 why Apple's technology was "so much better than Microsoft's."
Ballmer strikes back
Not surprisingly, Microsoft's CEO Steve Ballmer firmly rejects the notion that his company experienced a lost decade. In a recent interview with Forbes, he said, "It's not been a lost decade for me!" He notes that there are now 1.3 billion people using PCs today, and that there will be 375 million of them sold just this year. He adds, "So, is it a lost decade?"
Ballmer also wonders whether the stock market might not be the best barometer of how well a company is doing. And he thinks the company is creating excellent products like Surface, Windows 8, and Office 15, and that those products will ultimately result in rewards for shareholders.
The demise of a company culture
Eichenwald's criticisms should not be ignored, however, even if the notion of a lost decade is perhaps overstating the problem. Microsoft certainly missed a huge opportunity in smart devices, and it clearly saw Apple surpass it as a leader in developing new products.
Eichenwald offers a persuasive explanation as to why Microsoft fell behind more innovative companies over the past decade. Based on dozens of interviews with current and former executives, he identified "stack ranking" as the most destructive process within the company.
Stack ranking is defined as a process where "every unit is forced to declare a certain percentage of employees as top performers, then average, then below average, then poor." According to many of the executive interviews, this process led employees to compete fiercely with each other versus external competitors on whom they should have been focused. One executive believes that stack ranking explains why Apple's technology surpassed Microsoft's.
Time for new leadership
The big takeaway from Eichenwald's piece is that somehow Microsoft's culture went off the rails over the past 10 years. It seems to me that new leadership will be required to get the company back on track.
While Microsoft was having a disappointing decade, Apple was experiencing one of the most amazing decades in American business history. That may sound like hyperbole, but Apple's extraordinary performance backs up that statement.
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