Microsoft needs innovator-in-chief

• The stage is set for Microsoft to bring in an innovator at the top
• The company needs to become much more nimble if it is to regain its edge
• Bill Gates will help a committee search for Ballmer replacement

SAN FRANCISCO — Microsoft CEO Steve Ballmer's looming retirement sets the stage for a successor who can infuse sorely needed innovation into the once-dominant software maker.

The company has suffered in recent years from its inability to move quickly and come up with exciting new products. Its lumbering pace stands in sharp contrast to the speed with which companies such as Facebook and Google update their services.

"The tech industry, more than any other, is one full of fast change and new trends. Microsoft just became very, very corporate," says Nigel Nicholson, professor of organizational behavior at the London Business School and author of The 'I' of Leadership – Strategies for Seeing, Being and Doing. "Microsoft is now looking like the fat kid on the block. You need (to be) slim, fast, agile" in order to innovate.

The list of executives whose names have been floated for the top job is long, including the likes of Yahoo CEO Marissa Mayer, Facebook COO Sheryl Sandberg and AOL CEO Tim Armstrong. Others mentioned include Nokia CEO Stephen Elop, Juniper CEO Kevin Johnson and Hewlett-Packard COO Bill Veghte.

"Tim Armstrong has a sort of a vision for a lot of where technology is coming together," says IDC analyst Crawford Del Prete. "Someone in that kind of realm could be interesting."

Should the company decide to go inside, possibilities include Julie Larson-Green, Microsoft's executive vice president of Devices and Studios, and COO Kevin Turner.

The retirement of Ballmer, who announced Friday that he would step down within the next year, comes at a time when it is widely believed that the company needs a shakeup at the top and a serious overhaul of its culture.

"There is never a perfect time for this type of transition, but now is the right time," Ballmer said in a statement.

The company, which remains hugely profitable, took its first steps toward the future in July when it announced a reorganization. Many were quick to point out that the consolidation under the new org chart positioned Microsoft more like Apple, putting in place a more direct leadership chain rather than a collection of multiple divisions often at odds.

But to pull off the turnaround the company wants, Ballmer, 57, would have needed the visionary chops of a Steve Jobs, Jeff Bezos or Elon Musk type, to chart a bold future and lead Microsoft beyond its core Windows franchise. And it's widely agreed that, despite his strengths, that's simply not Ballmer. The so-called Lost Decade, wherein Microsoft has missed big opportunities in product development, underscores that void, as does a stock price stuck in neutral.

AN IPHONE OOPS MOMENT

Jay Ritter, a finance professor at the University of Florida, agrees that change is critical, but he sounds a cautionary note. "Microsoft's leadership must be open to new ideas, but also must be sufficiently self-confident that the person is willing to acknowledge when there are no transformative opportunities," he says.

Ballmer may have unknowingly sealed his fate as early as 2007 when, before its launch, he mocked Apple's iPhone, a product line that would go on to eclipse all of Microsoft's product revenue combined and kick off the mobile wave.

"That is the most expensive phone in the world. And it doesn't appeal to business customers because it doesn't have a keyboard," Ballmer said in an interview in 2007. Apparently, struggling BlackBerry, which was very slow to adopt the touch-screen, didn't get that memo either, and also paid the price.

Organizationally, Microsoft has suffered from years of operating as a collection of silo-like divisions — some would say warring fiefdoms. The company has come under fire for failing both to develop fresh, creative products and to successfully follow others into exciting new markets. Think iPads, iPhones and Android software, which have thrived as mobile has exploded.

Microsoft will appoint a special committee — which will include board chairman and founder Bill Gates — to search for Ballmer's replacement. "I'll work closely with the other members of the board to identify a great new CEO," Gates said.

When Gates stepped aside in 2000 as the visionary chief of Microsoft, the company was still a dominant force in the tech industry. With his new focus on the Bill and Melinda Gates Foundation, it was clear that Gates' influence on the company would fade, and the company has suffered.

Microsoft lost what were seen as two possible heirs apparent to the top spot in the past year. Windows chief Steven Sinofsky departed abruptly in November 2012 amid rumors of growing tensions at the company, and Don Mattrick, head of Microsoft's Interactive Entertainment unit, bailed to become CEO of Zynga last month.

A LACK OF HOT PRODUCTS

While Microsoft's enterprise business continues to drive impressive sales, its consumer side has been responsible for a series of duds the last few years, culminating in the $900 million write-down of Surface RT tablet inventory last month.

The write-down "was the straw that broke the camel's back" in July, says Patrick Moorhead, a tech analyst who has closely followed Microsoft for 25 years. "That forced the board's hand" to make a change."

The company's consumer fizzles underscore the necessity for Microsoft to find an innovative, consumer-friendly CEO who attracts "risk takers and creative types," Moorhead says.

Independent tech analyst Jonathan Yarmis says there is no shortage of possible contenders: A.G. Lafley, newly minted CEO of Procter & Gamble ("he understands marketing, partnering with suppliers, injecting energy into staid companies); Ford Motor CEO Alan Mulally ("its cars are rolling technology showrooms"); IBM software head Steve Mills ("he'll never be the CEO there"); and Salesforce.com CEO Marc Benioff ("the only guy who could out-Ballmer Ballmer").

Yarmis and others have also mentioned former MIcrosoft execs Steven Sinofsky, Ray Ozzie and Paul Maritz.

But Microsoft is "most likely" to stay the course and look internally for a successor to drive its strategy and recent reorganization, says Gartner analyst David Cearley. "They want a smooth transition after removing the lightning rod that Ballmer had become among investors."

Ballmer, who joined the Redmond, Wash., company in 1980 as its first business manager, became CEO in 2000. He oversaw several key initiatives, including the launch of the Xbox video game console and the Bing search engine; the $8.5 billion acquisition of Skype; and several iterations of the Windows operating system.

Ballmer's departure from the tech giant arrives during a significant market transition. With more consumers shifting from desktop and laptop computers to mobile devices, companies are scrambling to keep up, Microsoft among them.

Jack Gold, a tech analyst at Gold Associates, is among many who believe Microsoft needs the type of jolt that can best be provided by someone outside of the company.

"They need a proven innovator with a track record of turning around big, sometimes unwieldy companies," says Gold, who suggests poaching someone from Google. If that doesn't work out, perhaps Microsoft can reach back into its recent past, he says.

"Maybe it's time," Gold says, "for Bill Gates to come back on a temporary basis."

Contributing: Brett Molina