The grumblings about Steve Ballmer's job performance have been so consistent over his 13-year tenure as Microsoft CEO that it was a huge surprise when he finally announced he was stepping down within the next 12 months.
Though it was portrayed by the company as a planned retirement, Ballmer may have been forced out ahead of his preferred timeline.
Now the stakes are incredibly high for Microsoft to name a successor who can take what's still an incredibly valuable, but less and less relevant, company and turn it into an industry leader again.
Though there are obviously many company-specific problems that the board and leadership team have to consider, here are a few ground rules the company needs to follow to avoid another decade of stagnation:
Pick someone who's confident.
Research shows that very confident, even overconfident CEOs, are more likely to take their company in a new technological direction. They underestimate the probability of failure and are more likely to pursue innovation rather than the status quo.
This dovetails nicely with one of Microsoft's biggest current issues — the fact that it's been slow to come up with innovative products, and has failed when it's tried to challenge others on their home turf. Think Bing vs. Google and the Surface versus the iPad.
The obstacles to innovation are very large, as Christopher Mims at Quartz points out. So many large and institutional investors own the stock that there's enormous pressure to avoid risks and deliver a steady dividend. And the company's products are so widely used and entrenched that users are resistant to any change.
Someone with the confidence to push past those obstacles and push for real change is needed, even if they're more likely to fail in some instances, and even if it means killing some profitable businesses.
Ballmer was always confident and frequently brash. But it was obvious that he was a business guy. The result is that Microsoft's revenue has grown massively, but its future as a technology company looks bleak. Moving forward will require someone with that same confidence.
Don't rush to hire a superstar or an outsider.
There's a temptation to go and pick up a "name" CEO, someone who will fire up shareholders, employees, and the media. It's a strategy that can work sometimes, as it has so far with Yahoo CEO Marissa Mayer.
Given the size and profile of the job, Microsoft will have its pick in a lot of ways.
But for CEOs, past performance isn't a guarantee of future success. In fact, research finds that award-winning CEOs, the ones who massively outperform and become media darlings, actually end up doing worse after getting recognition.
They spend time on activities outside the company, write books, and take board seats. They lose a sense of urgency, and the company suffers.
Better to pick somebody with a strong track record, the right skills for the company, and the abilities that correlate to success, particularly the ability to execute on plans rather than just talk about them.
Outside hires are exciting, Mayer being the prime recent example. And Microsoft is under more perceived pressure than most because Ballmer was so clearly an insider, closely identified with founder Bill Gates.
But insiders tend to have longer tenures as CEOs, and perform better than outside hires, according to Booz & Co.
That comes with a qualification: The tendency with inside hires is to tap people who have been "filtered," as Harvard Business School professor Gautam Mukunda calls it. They've gone through all the company's businesses, met every test, and managed large organizations. When promoting an insider, it's important that they're not so entrenched that they've lost perspective on the strengths and weaknesses of the organization.
The company's better off going with somebody with the experience and company-specific knowledge that tends to make insiders successful, who hasn't been turned into another generic leader who will keep the company on its current path.
Make culture change a priority.
If there's one thing to point to about Microsoft's failure, it's that the company was unwilling or afraid to invest in businesses that might hurt its core. A recent Wall Street Journal piece points to the fact that Ballmer killed investment in an innovative new tablet to redirect Microsoft into a new version of Windows.
That caution has led to a succession of extremely profitable businesses, that are now starting to decline.
A serious cultural shift is required. By reorganizing a culture that, by all accounts, made collaboration extremely difficult, the organization has made a start, but only that.
"I don't think it's Steve stamping it out from above; it's the culture stamping it out from below," an executive told the Journal.
The reorganization won't be enough. There's a culture problem down at the employee level. The way the company currently motivates people is one example. For a long time it used "stack ranking," where a certain number of people in a high-performing team were always rated "poor" in an effort to increase competition. It just pitted people against each other.
Beyond the day-to-day, there's a perception about the company that will be hard to erase — that it's a place where ideas go to die.
It's the reason talent flows away from and not into Redmond, and any new CEO has to completely change that.
As part of consulting firm Booz and Co.'s annual CEO turnover study, HBS professor Clayton Christensen helped a group of the consultancy's partners break down the core attributes of CEOs who respond well to industry disruption:
- The CEO has to take personal responsibility for the situation, and move quickly.
- They have to break down human inertia and complacency — make it clear that what happened in the past won't work, and impart what the future plan is.
- Find out who's on board, and quickly remove those who aren't.
- Keep the group of top leaders, the real decision makers, extremely small.
The business strategy is incredibly important. But finding someone who can articulate exactly what behaviors they want from employees and managers, and who has a plan for making them happen across the organization, might be even more crucial.
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