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Steve Ballmer and The Innovator's Curse

The most common, almost universally accepted reason for company failure is “the stupid manager theory”. It’s the corollary to “the smart manager theory” which is used to describe almost all company successes. The only problem with this theory is that it is usually the same managers who run the company while it’s successful as when it’s not. Therefore for the theory to be valid then the smart manager must have turned stupid at a specific moment in time, and as most companies in an industry fail in unison, then the stupidity bit must have been flipped in more than one individual at the same time in some massive conspiracy to fail simultaneously.

So the failures of Microsoft to move beyond the rapidly evaporating Windows business model are attributed to the personal failings of its CEO. The calls for his head have been getting loud and rancorous for years. Taking this theory further, now that he’s leaving, the prosperity of the company depends entirely on the choice of a new (smarter) CEO.

It’s all nonsense of course.

Microsoft is composed of people, processes and priorities. And nothing else. The CEO is but one person, admittedly one with a high degree of authority. However, that authority is not unlimited. A change of leadership in a company may have some impact on a larger set of people, at least in the short term, but the bulk of existing resources, institutionalized processes, and priorities set by customers and cash flows limit what any one person can do.

What really causes a company to fail is disruption. The business model around which all products, customers and priorities are built; the culture, the skills and “DNA” of the company; is vulnerable. This vulnerability is why companies have considerably shorter lifespans than the people who work there. They are one of the most fragile of organisms: high infant mortality, with short, unpredictable lives.

Microsoft ascended because it disrupted an incumbent (or two) and is descending because it’s being disrupted by an entrant (or two). The Innovator’s Dilemma is very clear on the causes of failure: To succeed with a new business model, Microsoft would have had to destroy (by competition) its core business. Doing that would, of course, have gotten Ballmer fired even faster.

Steve Ballmer’s only failing was delivering sustaining growth (from $20 to over $70 billion in sales.) He did exactly what all managers are incentivized to do and avoided all the wasteful cannibalization for which they are punished.

If anything, Steve Ballmer avoided The Innovator’s Curse. Being successful with new market innovations would probably have led to an even shorter tenure. Destroying prematurely the pipeline of Windows in favor for a profit-free mobile future would have been a fireable offense. Where established large companies are concerned, markets punish disruptors and reward sustainers.

Steve Ballmer will not be remembered as favorably as the man who created Microsoft. But at least he won’t be remembered as the fool who killed it. That epitaph is reserved for his successor.