Ostracized CEO Steve Ballmer To Leave Microsoft at Critical Juncture
“There is never a perfect time for this type of transition, but now is the right time. My original thoughts on timing would have had my retirement happen in the middle of our transformation to a devices and services company focused on empowering customers in the activities they value most. We need a CEO who will be here longer term for this new direction”
It is official; Steve Ballmer, after thirty-three years at Microsoft and thirteen years as the head of the company, has announced that he will be retiring from his post as the chief executive officer.
In the coming twelve-month transition period, Ballmer will gradually exit his position while supposedly laying the groundwork for the coming ‘transformation’ and contributing to the headhunting process for a suitable replacement. In light of this news, it seems an apt time to reflect on the legacy Ballmer leaves behind as well as begin asking some fundamental questions about what lies ahead for Microsoft in the post-Ballmer paradigm.
Legacy in Shambles
Steve Ballmer, following an illustrious two decades of management success within the ranks of Microsoft, stepped into the shoes of Bill Gates in 2000 as the chief executive; though he would be engaged in a hostile tug-of-war with Gates until the founder completely relinquished day-to-day influence as CSA in 2006. He came into the job knowing very well that the exponential growth and market dominance of the Gates Era would be extremely hard to match. Yet, he could not have foreseen that his time as CEO would turn out to be such an utter disaster.
It is important, however, to note that the executive’s reign over Microsoft did not begin as one of woes. Ballmer, immediately after ascending to the position of CEO, oversaw the zenith and golden age of Microsoft. Microsoft was the world’s number one software company in the world at that point: its dominance seemed un-threatened. It was in a financial and market position unrivaled by any potential competitors—so much so that it was even the subject of anti-trust procedures in the early 2000s that all most cleaved the corporation in half.
However, this honeymoon period quickly disintegrated when Microsoft took blow after blow—a process that seems to be continuing to this today. Starting with the bursting of the Dotcom bubble in 2000, which destabilized and decimated the stock value of Microsoft by a substantial margin, a tectonic shift in the technology industry caught the lethargic corporate giant off guard: from the explosive resurgence of Apple Inc. to the dominance of the mobile platform to the advent of social media and networking platforms. Countless innovations passed under the immediate radar of Microsoft management. This slowness and inability to react or direct progress only exacerbated the company’s inability to ‘keep up’.
Subsequently, his reign over the tech giant has in recent years been the target of scathing criticism. The popular opinion is that his management in general resulted in the wastage of Microsoft’s valuable assets and a failure to stay relevant in a constantly changing marketplace. The fact is the company has not spearheaded any major breakout in the last decade under Ballmer.
He has also overseen a string of
“..spectacular failures of Microsoft’s attempt at playing the ‘catch up game”
including the Zune mp3, which could not compete against Apple’s iPod, and the Windows CE PDA mobile platform which was outmatched by an array of OSs for tablet and smart phone devices. Another major investment that blew up in Ballmer’s face was the $650 million he decided to hedge on Barnes & Nobles’ Nook which ultimately failed to compete with both the tablet PCs and Amazon Kindle. Beyond devices, Microsoft has seen little success either as demonstrated by the meek success of its supposed Google-killer, Bing search engine, which even with improving search technologies was unable to make a significant in way into any market share—securing a meager 15% of total searches. Finally, all of these failures were only exacerbated by Microsoft’s inability to market effectively towards and connect with consumers—a skill others in the business had perfected.
Ballmer’s attempts at utilizing venture capitalism and large-scale Mergers & Acquisition investments, a supposed alternative to it’s internal lack of creative, have led to the acquisition of start-ups such as Internet advertisement agency aQuantive ($6.3 billion) and Linked-in facsimile Yammer Inc. ($1.2 billion); both of which have delivered disappointing results. Moreover, its hallmark $8.5 billion acquisition of Skype was met with great attention and even anticipation yet its inability to monetize this ‘giant’ acquisition has plagued Microsoft. In sum, the company under Ballmer has failed to utilize it’s vast capital, a $58 billion fund unmatched by any of its competitors, to development. On a related note, Microsoft spent $26 billion in R&D, in comparison to Apple’s relatively smaller $5.5 billion, but has today little to show for it in contrast to Apple which has produced one watershed creative innovation after another—clearly an exemplar of how incompetent Ballmer has been at leveraging Microsoft’s abundant finances and resources.
Besides Ballmer’s history of lackluster ventures and investments, another subject of recent public scrutiny and criticism has been his endorsement and continuation of the controversial and widely criticized Microsoft ‘bell-curve’ internal employee performance review system, which has been cited as deterring cooperation, creativity and innovation. The concept is that employees in each department are ranked by their productivity thereby, inadvertently, marginalizing collaboration, long-term development and risk-taking. This controversy solidified the Ballmer’s image as an incompetent administrator. Many critics have also pointed to this human resources controversy as a symptom of a greater issue with Ballmer’s management style over Microsoft. To explain, Ballmer’s tenure has often been characterized as one under a hot-headed and unequivocal leadership by the way of incidents such as when senior software developer Mark Lucovsky told Ballmer he would be leaving for a position at Google and the CEO responded by a tirade of expletives and a hurled chair.
A possibly redeeming aspect of the CEO’s tenure is the development of the hit consumer product Xbox game console—a device franchise that has generated more than $60 billion. Ironically, the lack of upper management intervention and planning, coupled with its distinct features divergent from the conventional Microsoft software, is touted as the reasons behind its extraordinary success. Tragically, however, even this lone accomplishment seems to be in danger as the most recent launch of Xbox One faces harsh reviews and public lambaste.
Finally, the most recent ‘flop’ and possibly the greatest on the CEO’s record is the Surface debacle—a business failure some have cited as the nail in the coffin for Ballmer and one that caused his early departure. A product intended to launch the company into the tablet arena as well as to directly compete with Apple’s iPads line-up, the Surface tablet failed to accomplish those goals in spectacular fashion. Microsoft has already announced that it had lost $900 million in the project due to the company’s failure to get the tablets off the shelves and into consumer hands. Ballmer, in his usual understatement, commented in an interview, “we made a few more than we could sell”. By few more he meant millions. The Surface will remain a defining, lost opportunity of major proportions in Ballmer’s legacy.
“With such questionable management, Ballmer has naturally become a less than popular figure even amongst his compatriots in Redmond HQ.”
Ballmer has a standing 46% approval rating among employees; a rate that is half that of Google, Facebook, Twitter, Oracle and a number of other industry peers who were surveyed. Shareholders and the board seem to have little confidence in him either with the Microsoft share value falling 50% in the last decade unadjusted for inflation: a tremendous business failure.
While Ballmer’s Microsoft has dabbled in various areas, the end product is a company direction-less, spread too thin , and with little to show for it. All this seems to be confirmed by the fact that the day Ballmer announced his retirement plans, Microsoft shares rose 7% in the NASDAQ exchange—maybe the most potent testament to how the business world and public view Ballmer’s leadership.
Steve Ballmer leaves behind a broken legacy—one that can hardly be described as stellar. It is likely that, even with some early success, the moniker ‘Microsoft’s Lost Decade’ will go down in Silicon Valley history as one synonymous with the retiring MS CEO. Unlike Larry Page (Google), Steve Jobs (Apple), Elon Musk (Paypal), Jeff Bezos (Amazon), Mark Zuckerburg (Facebook) and countless others, Ballmer will not be enshrined in the pantheon of iconic or innovative tech-CEOs. Neither does the retiring executive have a forgiving history of philanthropy characteristic of the industry to compensate; it maybe a good idea for him to start.
Ballmer's Miss List as CEO
Beyond Ballmer—Microsoft at a Crossroads
Even with his public image or controversial legacy, Ballmer will exit Microsoft comfortably with a more than healthy net worth of $15.2 billion. Microsoft’s future, in contrast, seems much less certain, and at this point much less lucrative in proportion.
The company will be left in a battle to maintain 85% of its revenue from software from the likes of Apple and Google as they continue on their paths towards the post-PC era. Microsoft is faced with an array of daunting hurdles before it can achieve its goal of making the transformation from a 20th century titan to a 21st century innovator. The pressure to innovate and ‘strategically move forward’, to actually achieve it’s mantra of becoming a “software and devices company” is at high stakes—a struggle for survival in a hyper-competitive market place that demands both business savvy and creative products.
“Microsoft’ future, in contrast, seems much less certain and, at this point, much less lucrative in proportion”
As for who his successor may be is also unclear as there is no obvious successor standing by, but there are some prospective candidates. Names mentioned include Ballmer aide-de-camp COO Kevin Turner, Netflix CEO Reed Hasting as well as numerous others in Microsoft’s ranks of senior management. However, indisputably, Stephen Elop seems to be the front runner of them all. The Nokia CEO and Microsoft alumnus is positioned as a shoe in for the job, especially so with the recent $7.2 billion acquisition of Nokia’s devices into Microsoft. Yet, there are concerns regarding his lack of experience as CEO and the mediocrity of his time at Nokia. There is no need to hold your breadth if you are wondering about a Gates returns scenario because the definite answer is “no” despite certain media rumors,
Ultimately, however, a committee including founder Bill Gates and the board will be determining, with the consultation of executive recruitment firm Heidrick and Struggles International, who will head up Microsoft for the coming years. Yet, the greater concern for Microsoft may very well not be who leads. No matter who the next CEO is to be, a smooth succession process will be essential and imperative.
Gloom, doom and uncertainty is however not inevitable—there is a potential rebound in the horizon. With the retirement of Ballmer, Microsoft has the resources to pull off a rebound. The company is still replete with deep pockets, software and a growing gamut of devices under its belt. Better marketing and financing already available assets could really revolutionize the impact Microsoft has on all aspect of the techno-sphere and how profitable it is.
What is for certain is that this is a critical moment in Microsoft history, if not the history of the entire industry. Though this time next year Ballmer will no longer occupy the executive office in Redmond, Microsoft is faced with the choice between making this the beginning of the end or the end of the beginning. With a currently liberalizing management structure and the recent acquisition of Nokia’s device and services division, Microsoft is beginning to shape itself into an actual functioning company . It will be interesting to see how Microsoft will fare in the end—if it is to sink, swim or soar once again to reclaim the position it held pre-Ballmer as the undisputed ‘King of Technology’.
