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During my summer internship at Microsoft in 2011, our VP had lunch with the ten of us in her organization who were part of the program. It was an opportunity for us to share with her what we were working on, and a chance for us to ask her questions about her experience and the future of the company. I remember one intern asked her what she would change about Microsoft if she could.

“Someone forwarded me an email the other day,” she said. “It was a cartoon of the org charts of the various tech companies. Have you seen this?”

We knew immediately what she was talking about – this cartoon had made the rounds in the tech recruiting circles. We laughed in affirmation. Yes, Apple completely revolved around Steve Jobs; Google seemed super disorganized.

“Well, I think they got it right,” she said. “And I think we could do without the guns.”

The way I see it, there are two big factors that led to a culture characterized by such internal conflict. The first is the fact that the various divisions at Microsoft were managed as six separate P&Ls, as if Microsoft were no more than a holding company. That’s partly due to an outdated business model and, as I’ve previously argued, partly due to the legal environment in which Microsoft was forced to operate for more than a decade. Ballmer’s “One Microsoft” strategy is supposed to remedy this by grouping products by functional areas (operating systems & devices, application & services, etc.) rather than have each product group operate completely independently.

The second and, I think, most significant factor is the stack ranking of employees as part of the annual performance review process. For those unfamiliar with the system, it was one whereby employees were ranked against each other to fight for scarce rating scores forced to a curve. I won’t go into details about it here, just because I think they’re kind of boring, and are about as useful as studying the org chart of the Soviet economic bureau, the mechanics of medieval torture devices, or other discarded tools of human suffering. Last year Vanity Fair published this article that does an OK job describing the system; while they mess up a few details they nail the pernicious impact this has had on collaboration and creativity. If enough readers want me to elaborate I could do a separate post on how stack ranking was actually implemented.

But it’s a new era at Microsoft, with our head of HR having announced that stack ranking has come to an end! While details on the new performance & development system are scarce, I’m in the camp that says there’s no possible way it could be worse than the old one. In short, the new system gives managers more freedom to compensate their people without fitting them to a curve (i.e., forcing someone to take the fall.) I’m a big believer that there’s no better system for an efficient allocation of resources than giving local actors the resources and authority to invest as they see fit. On that front, we’re taking steps in the right direction.

But the big question I have is how long will it take to undo the damage stack ranking has caused to Microsoft’s culture? Two decades later the economies formerly part of the Soviet Union are still struggling to develop free market dynamics and the institutions that support them. At Microsoft, those in positions of influence are those who previously excelled in the old system that emphasized competition over collaboration. Adam Grant had another fascinating article today on a similar topic: how much can a system change your behavior, versus how much do certain types of people select into a given system? I’m hopeful that the change we’ve made frees us to be the creative and collaborative organization we aspire to be.

Major Questions

It’s been about a decade since I thought much about choosing a college major. But for the last year I’ve been involved with the Microsoft Apprentice Program, which pairs Microsoft employees with high school seniors, so I’ve been spending more time thinking about the college application process lately. And last week on Haverford’s Alumni LinkedIn Group, there was robust discussion of this blog post, which asked, “What advice do you have for sophomores who are getting ready to choose a major?” My college isn’t one with a strong tradition of preparing students for careers in business (as opposed to academia, law, government, etc.) so I’m happy to play the part of the career-minded business student interpreting this question about college majors in a professional context.

I feel it’s become popular to say that what you major in doesn’t matter, that you can have any career with any major, and that you should follow your passion whatever it is. The “10,000 hours to mastery” theory popularized by Malcolm Gladwell posits that success follows dedication – do something you love, or else you’ll never put in the hours needed to excel.

I can certainly see the appeal of such a worldview – hasn’t the modern world placed enough pressure on our young people? Do we need to burden them now with the career concerns they’ll spend the next several decades of their lives worrying about? We all know plenty of career switchers, and even more whose current careers have little to do with their undergraduate studies. Certainly we can afford our college students four years of pure academic inquiry without the dirty business of making a living encroaching on their studies.

I’m not going to argue that college sophomores should blindly flock to the college majors that create the highest earners and shun those at the bottom (see below). I do think it’s something more of our college students should at least take into consideration, but there’s certainly a baseline of interest and aptitude required for success in any field.

I’m not going to argue for any specific major over any other. What’s more important than your major is the skillset you develop as part of your coursework. The way I see it, there are only two skills you need to develop in school:

1. Communicate Effectively. Learn to write well, become a functional-if-not-proficient public speaker, and understand the basic concepts for how people learn and digest information. No one ever said, “Wow, that person is really brilliant but not very articulate.” Formulating a great idea is worthless if it dies in transmission.
2. Analyze Data. Become comfortable working with numbers and extracting meaning from them. At its core business decisions are about making predictions regarding the future, and how you can change that future given your actions. Few business decisions require a Ph.D in Statistics, but virtually all require thoughtful analysis of numerical information.

If your college coursework develops these two skills, you’ve laid a foundation for a successful career in business. You can still major in Art History if you take a few courses in Stats, Econ, or other quantitative subjects. Similarly, if you major in Chemistry you should round out your experience with courses in Literature, History, or other humanities.

Outside of those two skills, don’t worry about it – learn as much as you can about what excites you the most. Learn to be an adult. Learn to be a good citizen of communities both local and global. Find out who you are as a person.

I’ll leave you with a quote I heard on the Ted Radio Hour last week: “Passion isn’t something you follow; it’s something you bring with you.”

Vote for Alan

I just got back from Philadelphia where I had the pleasure of meeting with first year MBA students at Wharton to discuss internship opportunities at Microsoft. We do an While it was my shortest transcontinental trip to date (on the ground for 25-hours), I was able to chat with a lot of students and was encouraged to see that MBA students’ interest in Microsoft specifically and technology generally has only increased over the last couple of years.

One reason I love going back for recruiting is I always get great questions from students. They’re a great barometer for what about the company is top-of-mind outside of the Redmond bubble. For example, relatively few students asked about the re-org and how it was impacting our work, despite it being a frequent topic of speculation for many of us at the company. But lots of students wanted to talk about our search for a new CEO, and what follows is a longer form explanation of what I told them.

While I think the smart money is on Stephen Elop, I want our next CEO to be Alan Mulally. I don’t have anything against Elop, I just haven’t read an entire book dedicated to his work as I have with Mulally. And after doing so, I think Alan would be perfectly suited to fix three core aspects of Microsoft that I think are broken.

 

Expertise in Manufacturing

While Mulally may not have spent his career building software, I would argue that manufacturing experience is even more in demand at Microsoft. A former aerospace engineer who has worked on some of the largest, most complex products ever constructed, he can help us become the world class hardware maker we aspire to be. We have a hundred-thousand people that can help him understand what he needs to know about the software business. What we need is someone who can help us prevent another $1 billion write-down from making more Surfaces than the market wanted.

Willing to Kill the Sacred Cows

At Ford, Mulally saw that there were too many brands that were diminishing the power of the Blue Oval. Some of these were legacy brands that had served their purpose in the past but were no longer profitable (Mercury), and others were vanity foreign brands that the Board cherished but were of dubious value to the company (Jaguar, Volvo, Aston Martin). Shutting down or selling these brands were difficult options for dealers and board members to stomach. But this consolidation was crucial to his One Ford strategy of improving the efficiency of marketing, product development, and manufacturing, in which he was eventually successful.

At Microsoft, our sacred cow is on-premises software. We need a leader who’s willing to make the tough decisions to transform us to a services world. Currently we talk a lot about the importance of the cloud, but we’re addicted to the on-premises revenue to make our quarterly numbers. An example of this is how we compensate our field sellers for cloud versus on-premises deals. While the Customer Lifetime Value of cloud services is higher than our on-prem equivalents, we don’t pay our sellers on the CLV; we pay them on the revenue generated for that year. This is an area where Amazon excels. Your Kindle doesn’t cost $79 to make; they’re losing money when they ship that to you. But they’re smart enough to know they’re not getting rich by selling devices, they’re getting rich by selling media those devices help you purchase. Similarly, we need someone who’s willing to have a lower-than-expected quarterly earnings call as we shift to the cloud in order to drive our long term goals, and to instill that ethos in every part of the organization.

Transform a Company’s Approach to Competition.

When Mulally first got to Ford, all of his top executives would be driven home each night in a Jaguar. This disturbed him for three reasons: they were only experiencing the company’s own products, they weren’t even experiencing its core product, and they weren’t even driving themselves! How could they possibly put themselves in the shoes of a customer? What Mulally did to change this culture was to buy a fleet of competitive automobiles, and insist that his top lieutenants drive one home each night and evaluate the experience.

Because Microsoft makes a product in just about every technology market, it’s easy for us to exist completely within our ecosystem both as business users and consumers. And many of us do. While I happen to love my Windows Phone, for example, there are few things that irk me more than when one Microsoft employee chastises another for having an iPhone. Steve Ballmer has said before that he wants all Microsoft employees to be using and evangelizing our products, saying that we are the company’s best salespeople. I completely disagree. First of all, most of us are terrible salespeople. Second, we should be our company’s best competitive research team. It’s alarming to me the number of executives that have never owned an iPhone, had a Gmail address, or used SalesForce.com in a previous job. Where our competitors are ahead, we need to face reality and close the gap. Where we’re ahead, we need to shout it from the mountaintops! But it’s difficult to do either if we don’t live in the same technological world as our customers do.

I’d be remiss not to mention my own general manager is actually a major proponent of experiencing the competition’s products, not just talking-the-talk but also walking around with an iPhone and using an iMac at home. We need more of that. Once in a while we need to run meetings with WebEx, use Evernote for a week, and try prepping for a business review using nothing but Google Docs. Competitive intelligence shouldn’t be a specialized role, as it is today, but a part of every Softie’s job.

This isn’t just a major cultural issue, but a strategic one as well: what is our relationship going to be with our competitors? As we become more vertically integrated (i.e., making our own hardware) are we going to mimic the Apple model and become a more closed platform? How actively are we going to push our services onto our competitors’ devices? (e.g., Office on iPad). Will we continue to “first and best on Windows” mantra? Should our first-party applications (Office, Skype, Yammer, Outlook.com) have a superior experience on our own operating systems as a way of luring consumers into our ecosystem? Or should our services be available on all platforms, leaving our devices to fend for themselves?

My hope is for the latter. I want us to redouble our commitment to develop first-class experiences for our customers by delivering our applications to users regardless of what device they’re on. We should also have a compelling set of devices that excite users, and provide them with a differentiated operating system experience superior to what they can find elsewhere. But too much of the world has migrated away from our products for us to force customers into an all-or-nothing decision. We need to deliver value to our customers where they are, not where we want them to be.

A frequent criticism I hear of Mulally is that he’s too old (68 years old). But I’d argue that the areas where we need help are cultural as much as anything else, and that he was able to have an incredible impact on Ford in 3-5 years. The Mulally era wouldn’t need to last for 10-15 years, but could set us up for success for decades to come.

Either way, I can’t wait to find out who the next CEO will be and the strategic direction in which they will take the company. Who’s your candidate of choice? What are the most important issues you think they need to tackle?