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Michael Baxter

The lesson of Steve Ballmer

Written by: Michael Baxter on August 28th 2013

Category: Thought for the day

Steve Ballmer, CEO at Microsoft, has announced his retirement. Now is a good time to reflect. Not so long ago, Microsoft seemed invincible; the company set for global domination. It is scary that one company can have so much power, but at least we could take comfort in the fact that its boss, Bill Gates, seemed to be such a nice man. Now some compare Microsoft to a dinosaur, lumbering in an environment to which it is totally unsuited. So where did it go wrong, and what lesson can we learn?

Let me make multiple arguments. First there is regression to the mean. Assume we live in a random world; that success cannot be predicted in advance; that the markets can no more know the future course of business evolution than nature can know the course of natural evolution. In such a random world, the rare successes will rarely be repeated by the same organisation and never repeated over and over again. Microsoft got lucky with DOS – it really did – Bill Gates as good as admitted it. It sort of got lucky with Windows. The chances of it repeating that were always slim.

I have touched on the topic of Windows many times before, so I won’t cover it in depth. But it does seem that Windows was a success largely because Microsoft admitted to its past luck. Windows never was a bet–the–company product; rather Microsoft experimented with lots of ideas, including beefing up DOS, a joint venture with IBM or Apple, and investing into the UNIX market. By doing this, the company took into account that predicting the future was not possible, and instead internalised the evolution process. Its strategy was not that much different from one that might be adopted by a bold venture capital firm; investing in lots of businesses in the hope that some will achieve their targets.

But with Windows 8 and the Surface, Microsoft totally failed to learn its own lesson. It did bet–the–company on one product. Steve Ballmer admitted it. If you keep making bet–the–company products, sooner or later you will get the call wrong – very wrong. Bill Gates got calls wrong too. He famously failed to predict the rise of the Internet. It was a major oversight, yet it didn’t really cost the company much at all.

What Steve Ballmer did bring to Microsoft was all the stuff that text books say needs to be brought. I love this article; it makes the point about Ballmer really well. See: If Steve Ballmer ran Apple

If Ballmer had somehow taken over at Apple, just as the iPhone was released, he would no doubt have done a magnificent job. He would have known how to squeeze every ounce of profit out of the product; how to optimise distribution; how to tie up with the corporate world. But, suggests the above article, what he would not have been able to do is know how to prepare Apple for the next big seismic change.

Text books tell you to do your research, to survey the markets; find out what customers want. The corporate graveyard is full of companies that only ever launched products they had thoroughly researched. The trouble is that customers don’t know what they will want. It is not their job to imagine what conditions will be like with different technology and marketing, when fashions change. So companies that rely on market research and do all the things that the text books say they should do, often fail to spot the next thing. It is classic innovators’ dilemma, and we have seen it over and over again. The study that first introduced the idea of innovators’ dilemma focused on the disc drive industry. However, the business travel industry that dismissed the idea of budget airlines; makers of cameras that failed to move with the digital revolution (think Kodak); and makers of smart phones that dismissed the idea of a touch screen smart phone all fell, or are falling, victim to innovators’ dilemma. Incidentally, when Apple launched the iPhone, legions of Blackberry owners said it was no more than a toy because it lacked a keyboard. RIM made the mistake of listening to its customers.

Steve Jobs, and famously so, in contrast was not a great one for market research. At Apple, design is everything. Designers who can envisage something different which few people think they will need are the gods. At Microsoft the marketers are the gods.

The venture capital firms tend to favour the marketers with their carefully researched business plans and projections. They lecture management at the companies in which they invest about the importance of focus, and sticking to the plan, and in so doing they create the culture where innovators’ dilemma type of failures are rife.

Apple will be a victim of regression to the mean too, one day. It cannot continue to outsmart everyone else with bet–the–company products. But for the time being, it is flourishing while Microsoft isn’t. This is because Apple is willing to disregard the market research and best practice of the marketers and try to invent products that few people think they need.  Its TV and smart watch products may flop, but I suspect they will do the very opposite.

Ballmer is logical and wise and pragmatic. Companies that are going to bridge the jump from one disruptive technology to the next don’t need those qualities. They need imagination, a willingness to experiment, and a great deal of luck.


These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: innovator’s dilemma, Microsoft versus Apple, Microsoft windows business evolution, regression to the mean, Steve Ballmer

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