One of the biggest companies on the planet almost destroyed itself, but there's a lesson in its failure.
If you study business at all, you’ve heard Microsoft stories. It’s one of the most successful companies on the planet. The founder is legendary, the product ubiquitous. Yet, five years ago, the company was in deep trouble. Not because of its product, but because of bad management and bad organizational design.
Microsoft, like many companies, organizes its employees into teams. These team were evaluated with a method known as “Stack Ranking.” This rancid form of employee evaluation was popularized by Jack Welch, former CEO of GE.
The basic premise of Stack Ranking is simple. You rank your employees based on a variety of factors until you’ve created a bell curve. There are a couple of people at the top, a couple people at the bottom and most of the people somewhere in the middle. No matter what, in every division, there were people walking around who’d been told that they were the worst employees at Microsoft.
The rating system created a hyper-competitive environment where the employees were forced to compete against each other, rather than against their competitor. Steve Ballmer, the CEO at the time, boasted a 51 percent approval rating. Obviously, we know which side of the bell curve was voting for him.
It wasn’t just the rating system. Even the mission statement betrayed a loss of direction and a lack of focus. The original mission statement for the company was “A computer on every desk and in every home, running Microsoft software.” Short, to the point and goal focused.
Under Ballmer, it had become “Creating a family of devices and services for individuals and businesses that empower people around the globe, at home, at work and on the go for the activities they value most." Word salad, with no meaningful goals. What does it mean to empower people? Which devices and services? The new statement could work as well for Toys R Us as for Microsoft.
The market sensed the problem. The company had been trading flat for 8 years and it was no secret they needed a change. At this time, Microsoft (MSFT) was trading for roughly $26.00 dollars a share.
So, what did they do? And how can you apply it to your practice?
Click on page 2 to find out...
The first thing Microsoft did was commit to do whatever it takes to right the ship. This meant switching from a divisional design to a functional corporate design, organized more like Apple.
A divisional design basically makes each product its own little company, down to its own profit and loss. With a functional design, every dollar earned or spent affects the company as a whole. Now, every team affected every other team. No more “we’re great, they suck.” They had to succeed together.
Then, heavens be praised, they dumped stack ranking. Now, people were free to focus on taking risks and improving the company without trying to game rubrics and edge out their coworkers.
The changes turned the company around. Today, in 2018, Microsoft is trading for $90.00.
Microsoft nearly lost everything Bill Gates had built because they adopted bad systems. At one point, the divisional design and the stack rating probably looked like great ideas. Maybe they were more efficient, or seemed simpler. But the people who put them in place didn’t think carefully about incentives, or how making life easier for HR would affect the business as a whole.
What steps do you need to take to ensure you’re not creating systems, in the name of efficiency or otherwise, that will cause more problems than they solve? Ask yourself these 3 questions as you plan for the future of the practice.
What is our mission statement, purpose or vision?
While this might sound hokey, people follow leaders. To lead, you must know where you’re going, or at least where you’d like to go. Does your team know your 3, 5 and 10-year goals? Do you know your 3, 5 and 10-year goals? Maybe start with a next-week goal and build up. I’m not even kidding.
How am I developing my team?
Any team needs to make a simple commitment: “We agree to be better this year than we were last year.” What have you done to make sure every single person on the team can say “I have improved?” CE is great, but personal development can be better. You don’t hire roles, you hire people.
If being uncomfortable is the worst thing that can happen, you need to push the envelope. Track and measure new scripts and tactics. Commit to everyone just thinking about crazy ideas for 30 minutes rather than another useless staff meeting. You’re surrounded by minds - use them!
At the end of the day, what saved Microsoft wasn’t a new invention or innovation (We certainly didn’t buy the Zune). It was proper leadership combined with a more focused mission and fully engaged workforce.