Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.
November 13, 2013 at 10:33 AM
If Microsoft begins a turnaround now to regain its innovative edge, the hinge won’t be the retirement of Steve Ballmer or any new device. It will be the elimination of the employee evaluation system known as stack-ranking.
This was the origin of the poisonous culture that has damaged the company, setting employee against employee, department against department.
Far from providing an honest evaluation of performance combined with benchmarks and coaching to improve, it required that a certain percentage of employees be deemed falling behind the bell curve — as in, find another job — even if they were excellent. Kurt Eichenwald described it in his influential Vanity Fair article, “Microsoft’s Lost Decade”:
Supposing Microsoft had managed to hire technology’s top players into a single unit before they made their names elsewhere—Steve Jobs of Apple, Mark Zuckerberg of Facebook, Larry Page of Google, Larry Ellison of Oracle, and Jeff Bezos of Amazon—regardless of performance, under one of the iterations of stack ranking, two of them would have to be rated as below average, with one deemed disastrous.
In an interview earlier this year with my colleague Janet I Tu, Ballmer seemed to begin backing away from the system as part of the company’s reorganization.
October 11, 2013 at 10:48 AM
The Microsoft CEO sweepstakes is under way. The Seattle Times’ Janet I. Tu recently wrote about the qualities needed in the successor to Steve Ballmer, as well as the top candidates rumored to be considered for the job: St. Alan Mulally of Ford and formerly Boeing; Paul Maritz, chief executive of Pivotal, former head of VMware and a one-time top Microsoft executive; Nokia chief executive Stephen Elop, and Tony Bates, former Skype president and current Microsoft executive vice president for business development and evangelism (who makes up these titles?).
Who do you think should lead one of the premier companies of the Puget Sound region? If you have a write-in choice, please use the comments field.
Read on for some of the best business and economy stories of the week and the haiku from your economics columnist and macroeconomic evangelist…
October 2, 2013 at 11:57 AM
According to Reuters, three of Microsoft’s largest institutional shareholders want Bill Gates to step down as chairman. The story says, “The three investors are concerned that Gates’ presence on the board effectively blocks the adoption of new strategies and would limit the power of a new chief executive to make substantial changes. In particular, they point to Gates’ role on the special committee searching for Ballmer’s successor.”
One can make the case against Gates by saying the author of The Road Ahead missed the on-ramps to search, smart phones and tablets. Whatever the alleged sins of CEO Steve Ballmer — stack ranking, excessive and toxic bureaucracy — were countenanced by Chairman BillG. On the other hand, Gates is the co-founder and first chief executive of the company, and one of the most respected technology leaders in history. He remains widely beloved in the company and a connection with its old glory. He is the largest individual shareholder. Also, having a separate chairman and chief executive officer generally makes for more healthy corporate governance.
But if that last assertion is so, why has Microsoft’s stock price stagnated? This cuts to the heart of the effort — or trial balloon — to move Gates aside and presumably bring in an imperial chairman-chief executive.
September 10, 2013 at 10:45 AM
Some top institutional shareholders are reportedly pressuring Microsoft to put Alan Mulally on the short list of candidates to succeed Steve Ballmer as chief executive officer. This is sure to gladden some hearts in Seattle. Mulally was the one who got away. He was the beloved head of Boeing Commercial Airplanes who was passed over when the CEO position went to outsider Jim McNerney. If Mulally had become the head of Boeing, this narrative goes, “things might have been different.” As in, better for the Puget Sound region. Mulally left to run Ford Motor Co. with great success. Ford was the only one of the Big Three that didn’t require a federal bailout to survive.
This involves some selective history. Boeing moved its headquarters to Chicago in 2001 under then-CEO Phil Condit, who wanted a “neutral location.” It’s unlikely that Mulally, in 2005, would have reversed that decision. Mulally also saw the early development of the 787 Dreamliner, and it’s impossible to know if the airplane’s delays and troubles would have been avoided had he stayed with Boeing. It’s also impossible to know if he would have resisted pressure to move some Boeing work out of the region. Maybe so. Maybe not. McNerney is said to “dislike Seattle,” especially the unions. Whether that’s really true or not, Mulally likes Seattle and skillfully handled the United Auto Workers at Ford.
The deeper question is whether the skills of a successful, large-company chief executive translate to any company. Cars aren’t airplanes, but both Ford and Boeing are large manufacturing concerns. Yahoo’s Marissa Mayer was previously with Google. On the other hand, Lou Gerstner, famous turnaround artist of IBM, had been chief executive of RJR Nabisco, and had also worked for American Express and McKinsey & Co.
August 26, 2013 at 10:34 AM
My two weeks away were timed for the part of summer “when nothing happens.” So much for that.
• There’s a school of thought in classical economics that in the long run monopolies always commit suicide. Why? They become so dominant and wedded to the enormous revenues of their monopoly that they are insulated from competitive forces, new ideas and market discipline. Thus, for example, they miss the next new thing, price their products at a disadvantage and fail to see, forgive me, the road ahead. If this is so, whatever the merits of the federal case against Microsoft, it behaved as a classic monopolist and paid the price. It failed to snatch the escape clause of this theory, which enables today’s oligopolies: Capture the government to perpetuate your power.
• Of course Steve Ballmer was forced to walk the plank. His statements, and my sources, made it clear he intended to stay as long as he wanted. Yet according to Kara Swisher of All Things D, “Ballmer’s timeline had been moved up drastically — first by him and then the nine-member board, including his longtime partner and Microsoft co-founder and chairman Bill Gates — after all agreed that it was best if he left sooner than later.” A potential proxy fight was one danger. The recent disappointment in earnings, and the broader washout of Windows 8 and the Surface tablet were likely the final straws. He lost the confidence of Gates, the backbone of his power.
• Microsoft is a very big deal to the Seattle area economy. For one thing, it employs 42,000 here in well-paying jobs. That alone is a rare asset in today’s America. Apple employs only 16,000 in Silicon Valley. In addition, it has been a magnet for software developers and spun off much talent which, in turn, started new companies. Why did Jeff Bezos put Amazon in Seattle? Maybe he likes the weather. But he also had his pick of top technology talent. Microsoft helps explain why Seattle punches so far above its weight class. We lack two world-class universities, one of Silicon Valley’s big advantages (we do have one, badly underfunded). But we have Microsoft. Thus, whatever happens under a new chief executive will have wide consequences for the future of the Puget Sound economy.
July 11, 2013 at 10:07 AM
When I held Friday’s poll anticipating today’s announcement of the big shakeup at Microsoft, most respondents wanted to wait for details before deciding whether it had a strong chance for success or not. Now we know, so I’m going to ask again. As the Seattle Times’ Janet Tu reports, CEO Steve Ballmer will realign the company by reducing the number of product divisions by half while centralizing such areas as marketing, finance and business development.
The goal is to help transform the software giant into a “devices and services” company better prepared for a world where PCs are fading, or at least growing much more slowly. Also to break down barriers between units and outside partners, move more entrepreneurially. Thus, engineering functions will be Operating Systems, Applications and Services, Cloud and Enterprise, Devices and Studios. In a memo, Ballmer wrote:
Going forward, our strategy will focus on 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.
We will do this by leveraging our strengths. We have powered devices for many years through Windows PCs and Xbox. We have delivered high-value experiences through Office and other apps. And, we have enabled enterprise value through products like Windows Server and Exchange. The form of delivery shifts to a broader set of devices and services versus packaged software. The frontier of high-value scenarios we enable will march outward, but we have strengths and proven capabilities on which we will draw.
Ballmer haters will not be satisfied; he’s staying. Shares are up more than 2 percent as I write. Read the story and tell me what you think. The comments section also awaits your responses.
Today’s Econ Haiku:
Europe goes left, U.S. right
Will the seams meet up?
July 5, 2013 at 10:16 AM
The word is that Microsoft CEO Steve Ballmer could announce a major reorganization of the company as early as next week. Don Mattrick, who led the division that produces Xbox is already leaving to become chief executive of Zynga. According to Bloomberg, Skype president Tony Bates might be placed in charge of acquisitions and relationships with software developers, while Windows boss Julie Larson-Green is given oversight of hardware engineering for all of Microsoft.
The speculation is a moving target. In early June, Kara Swisher of All Things D reported that a larger role was being contemplated for several executives, including Mattrick, as Ballmer moves to fulfill his promise to make Microsoft into a devices and services company. Now, not for Mattrick, obviously. Last fall, Ballmer wrote to shareholders, “This is a significant shift, both in what we do and how we see ourselves — as a devices and services company. It impacts how we run the company, how we develop new experiences, and how we take products to market for both consumers and businesses.”
Microsoft is trying to catch up in a number of areas and make the shift to leapfrog in tablets and phones, not repeat the mistake it made with search. There’s also an activist shareholder in the background, even though MSFT shares are almost $10 higher than they were three years ago and dominant shareholder Bill Gates would block any activist attempts to control the board. Another issue about the restructuring is how it affects larger employment for one of the biggest employers in the Puget Sound. What do you think?
Read on for some important stories you might have missed plus the haiku…
June 10, 2013 at 10:42 AM
The Trade Development Alliance of Greater Seattle held its annual dinner last Thursday. Gov. Jay Inslee was the keynote speaker. I was on a panel with Len Jordan of Madrona Venture Group and Jeff Frazier of Microsoft, moderated by Bill McSherry of Boeing. Major sponsors were Boeing, Microsoft and Highline Community College. Among those buying tables were the Port of Tacoma, the Port of Seattle, the Port of Everett, Seattle Metropolitan Chamber of Commerce and Washington State Department of Commerce. In addition to public officials and business people, attendees included consular officials of other countries.
It was an evening that attested to the power of trade here, and to this community’s interest in the wider world. Both are big advantages. Gov. Inslee promised the state would do what it could to win the 777X, said Washington would “feast at the table of technology” and touted the increase in cherry exports under the new Korean-U.S. trade agreement as well as the 100,000th Chrysler exported from the Port of Gray’s Harbor. Our panel was put through the paces in predicting such things as China’s growth and Middle East air traffic in 2013. I’ve worked in cities and states that only gazed at their navels, measured economic success in the number of new tract houses built. This is far better.
On the other hand, we live in our own bubble. Washington is a net winner from the trade status quo. The same is not true everywhere. For example, a year after the free-trade agreement with South Korea was signed, the U.S. trade deficit was larger and the promised increase in American jobs hasn’t happened. South Korea is a currency manipulator, too.
May 8, 2013 at 9:45 AM
As of last month, Starbucks was holding nearly 1.7 billion in cash on hand. In June of last year it was nearly $2.5 billion. Microsoft had nearly $74.5 billion. Amazon.com, which invests heavily in its future, still boasted about $7.9 billion. All these figures are much higher than before the recession — and these companies are pikers compared to many. Apple, for example, has about $145 billion. In general, American corporations are holding record amounts of cash.
Economists at the Federal Reserve Bank of St. Louis set out to find the answers. One size probably doesn’t fit all. For example, some corporations are keeping profits earned in growing international markets offshore to avoid U.S. taxes. Some don’t seem to trust the safety of the financial system after the Panic of 2008, thus are keeping cash for acquisitions and operations rather than borrowing on a large scale as they would have done so in the past. Yet another explanation is the rising importance of information-technology firms, which use cash for research and development. I would add that cash gives management a tool to keep shareholders happy, with dividends and stock buybacks.
One thing that’s not happening is broad-based hiring. The nation still faces an unemployment crisis, despite record cash in corporate treasuries and a historic high (not adjusted for inflation) for the Dow Jones Industrial Average. Whether this is the new normal or a sign of continued uncertainty and low demand is a key question that isn’t answered.
And Don’t Miss: Bankers warn of farm, student loan bubbles echoing subprime | Bloomberg
Today’s Econ Haiku:
The snake eats its tail
April 24, 2013 at 2:08 PM
Even though the Dow Jones Industrial Average has pulled back today, Microsoft shares are on, what can be described for this staid company, as a tear. As I write, the stock is at $31.76, up nearly 3.8 percent. Back in February they were barely above $27. Shares have been climbing steadily lately, but the biggest reason for the latest goose is the emergence of ValueAct Capital Management as a small but still significant investor. Small because the hedge fund’s $2 billion investment represents less than 1 percent of Microsoft shares outstanding. Significant because ValueAct’s founder and chief executive, Jeffrey Ubben has a reputation as an activist investor.
A former managing partner at Blum Capital Partners and, before that, running Fidelity Investments’ Fidelity Value Fund, Ubben is “known for flipping things around, investing in companies and seeking out board seats and changes in companies it invests on,” writes Mellisa Tolentino on the blog Silicon Angle. According to the Wall Street Journal, “the disclosure revived hopes among some Microsoft investors that an influential shareholder could spur changes to a stock price roughly even with 2002 levels.” The story continues:
It also isn’t the first time a sometimes-activist investor has talked up Microsoft. Also at an investor conference nearly two years ago, hedge-fund investor David Einhorn lauded Microsoft, but said the company was being held back by the management of Chief Executive Steve Ballmer.