When you are "fat and happy" with billions in the bank, it's easy to let decisions drag on forever. That, of course, has been the problem at Microsoft for years. What Microsoft lacks always is a sense of urgency ever. Bill Gates built a megalith selling operating system software that almost all companies embraced. I watched Gates crush little competitors along the way using the "we might buy you so open your kimono" tactic more than once. He would see what they had, decide to build it himself and throw the potential mate into the discard pile. Nice guys don't get to be billionaires without that killer instinct. Gates always had his periscope up to find new things to include in his software. Somehow that spirit was lost in the last decade and things like the Cloud and Mobile simply were large categories for investment that were missed or done badly.
In a recent joint interview with Michael Bloomberg on Bloomberg TV about charitable giving , Mr. Gates explained how managing his charitable activities at the Gates Foundation is now his full time job. Yes, he remains an active Board member at Microsoft but NO he will not be returning to run the company full time. Sure, he is involved in the selection of the successor to Steven Ballmer. Subsequently, in the conference call for the December quarter results, there was no announcement of a successor to Ballmer. Margins began the inevitable decline that will accompany MSFT's transition to selling more equipment as a portion of its revenue mix and less software with its very high margins. Manufacturing carries far lower margins than selling software but it is clear that Microsoft must head in some new directions and Ballmer decided to steer the company into that direction. It has the wonderful luxury of gobs of cash in the bank with which to make acquisitions or to fund new concepts. But what are the management skills a new CEO must bring to this party to keep Microsoft relevant for decades into the future?
We are reminded daily that companies that sit on their laurels fall by the wayside. Innovation often is stifled in large companies especially after silos develop inhibiting the transfer of technical knowledge from one business activity to the other. Think Motorola on that one. Only a decade ago, Motorola was always in the top 10 U.S. companies in the category of patents issued each year. So was Eastman Kodak. Somehow, the older parts of both companies; the ones that generated the profits but were dying businesses, were able to throttle the necessary funding for the new activities that represented the future. In the end, both companies failed and have essentially disappeared as we knew them. Think, too, of Sears Roebuck. A century ago, Sears was selling from a catalog to folks across the country. Was there a better company to capitalize on the internet and move forward with gusto into this millennium? No! but no matter. Sears didn't see the new opportunity emerging and missed the boat. Now its parking lots are empty and it is struggling to even stay alive.
Microsoft missed a few important technology transitions in the last decade. Steve Ballmer was running the show since 2006 so a lot of those missed opportunities were on his watch. Now Microsoft needs a particular kind of leader with a complete skill set. That person needs to understand technology but also needs to have marketing skills for this environment that facilitates information sharing across silos, leadership skills to inspire the troops and bolster morale, Alan Mulally, Ford's CEO, was repeatedly floated as a top candidate but that never made any sense to me. He is an industrial guy who turned around Ford. He is a former Jack Welsh acolyte. (Remember that no matter how rich Mr. Welch made himself, he surely left GE in a heck of a mess that it has taken Jeffrey Immelt years to unravel.) Mulally's rich and he is a senior citizen. He has no technology expertise and I would guess he is the last guy on the planet to have Steve Jobs type visions of what the world might want to buy if we could just show them they need it.
The key internal candidate, is Satya Nadella who now manages Microsoft's enterprise activities. His tech credentials are good but it's not so clear how he fares when he becomes the face of Microsoft to the outside world. That's a different skill set than being a tech savvy person.
Stephen Elop has returned to Microsoft in anticipation of it shortly buying up Nokia of which he was CEO. He has been elsewhere and has now come back into the fold after stints at a few other tech companies. He has learned that there is another way to do things than again and again and again even if the product is going in the wrong direction. Think about why so many corporations refused to even try VISTA and stayed on Windows XP for a decade. Yes, the economy was in bad shape but what incentive did any corporate IT guys have to replace their XP machines?
When Elop arrived at Nokia he issued his famous "burning platform" email in which he said the company was standing on a burning platform and had no choice but to jettison what it had and start over. NOK embraced the Windows operating system that was a non player in the smart phone market in exchange for cash flow from Microsoft. Elop clearly imposed a sense of "Urgency" onto the folks at Nokia. In the course of a couple of years, Nokia scuttled Symbian which it correctly knew could not compete going forward. Now Nokia sells over 90% of all Windows phones. I marvel constantly at the thought that my wonderful Lumia 920 smartphone in the palm of my hand has computing power to match the 286 machine I bought in 1986 for about $6500 when we started Gramercy Capital 28 years ago. It took some getting used to but it takes wonderful pictures and the newer models have even better cameras.
The word missing at Microsoft for years is "Urgency." If that is the principal quality Microsoft must find in its new CEO, Elop would be in great shape to supply it. He showed at Nokia that he can make tough decisions with his back to the wall. Give him a pile of cash and all the knowledge inside Microsoft and he would probably be able to do great things. He also knows the internal workings of the company and wouldn't be starting to manage from ground zero. He understands mobile now, an area Microsoft pretty much missed. Microsoft also missed the move to the cloud and it has also been the constant victim of security attacks to its systems.
It's hard to know who was on the original list of 100 from which the Board is pruning its candidates. The company needs tech savvy, an understanding of how its internal mechanisms work, a sense of urgency and a vision for the future. It is a rich behemoth with billions in the bank. Those companies are never easy to run but younger should be better than older and a range of past experiences has to be better than an internal candidate who has no outside experience from which to draw idea for change. Gates said the other day an announcement might come this quarter. Ballmer as lame duck cannot be good for the company as the search process goes on and on and on. It underscores Microsoft's typical inability to move quickly on anything including something as important as who will lead the company forward after its founding generation moves into the background.
Mrs. Lappin, Gramercy Capital and its clients own shares in Nokia of the companies mentioned in this article. To follow Joan at Forbes.com click on the button at the top of this article. To follow her on Twitter: @joanlappin. For information about our firm and help with your portfolio: info@gramercycapital.com
