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The Critical Path #94: The Limits of Executive Power

Sep 2, ’13 7:04 AM
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We begin with a defense of Ballmer for preserving great things, continue by condemning him for not having destroyed those very same things and end by asking whether anyone could have done the right thing.

via 5by5 | The Critical Path #94: The Limits of Executive Power.

  • http://iddqd-technology.com/ Chris Blanchard

    It’s good to see someone taking a more enlightened view on Ballmer’s tenure

    Seems as though we struggle to keep our cognitive biases in check when dealing with this topic – especially such a charged issue in Microsoft. Subjective experience and limited knowledge of management is sometimes mistaken as objective and well-informed.

    A methodical approach to innovation would really benefit from a cultural shift in perception of management – where priority shifts to thorough reasoning, properly grounded knowledge and constant doubt.

  • Rene Stein

    Within the first few moments, Horace states that the show will examine about how Microsoft “missed” the current trends in technology. This is my problem, does he use words differently from everyone else? Is he using a different term? Because Microsoft did not “miss” any technology trend. They were involved in each one and was pushing each one before they were popular.

    • Kizedek

      There are trends within trends. Later on Horace agreed with you — MS didn’t “miss” large trends like “PDAs” and “phones”. Where they missed within mobile was in treating it like everything else they did. They didn’t look at themselves or the trends critically, to see how they differed or could differ from their “business as usual” approach.

      They missed the commoditization of hardware on the low end (Google), and the margins that premium hardware could bring to pay for software development on the high end (Apple). These are both trends that MS has missed. And Surface and RT are too little too late. MS missed the asymmetries to their core businesses.

    • http://www.asymco.com Horace Dediu

      I hope you listened to more than a few moments.

      • Rene Stein

        Made it to half an hour, then, went to the lake. Last day of summer.

      • http://www.asymco.com Horace Dediu

        I see.

    • Space Gorilla

      As much as Microsoft was involved in many areas/trends in technology, they basically tried to repeat their success with Windows over and over and over. The problem of course is that Windows was never successful on its own merits, very few people used Windows because they loved it. Both Office and Windows were mediocre products. And while that may be good enough when computing isn’t yet mainstream and driven by the enterprise, the recent shift to consumer-facing devices has shown how weak Microsoft always was. It never mattered if Microsoft saw certain trends, because they were unable to capitalize on those trends. If Microsoft was able to create a great tablet, then they would have created a great tablet. They did not, and I would argue they’re not capable of doing it.

    • obarthelemy

      True dat.

      MS consistently misjudged the right way to tackle new markets (new UI, walled garden…), but they certainly never missed any trends, and were years ahead with mobile, tablets…

  • Rene Stein

    Later on, he is also applying generalities to the CEOs influence over a company without examining whether or not they actually apply in the case of Steve Ballmer. Whereas the executives he listed were only around the company for a while, Ballmer has been a high level employee at Microsoft since the beginning. He has had the time and been in position to shape the culture of Microsoft for 30 years.

    • def4

      So what? What is the point of all this nitpicking?
      You are just trying to look good by challenging trivial and inconsequential details.

  • http://whereandynerds.net/ Andy Assareh

    Slight bone to pick with what Moises was saying about folks at Microsoft having had to foresee the iPhone and it’s disruptive success. The general point here is not that they should have predicted the iPhone. The point is that they should have sought to make it themselves. They should have made it themselves.

    But again, it simply seems that is not in Microsoft’s DNA. (The belief internally that Xbox was a success and innovative.)

  • http://whereandynerds.net/ Andy Assareh

    May be a bit of a tangent, but Horace mentioned the thought of Apple having to fire the developer base of iOS at some point in the future. I’m curious how that applies to the Mac, which is a very mature platform and yet it doesn’t seem like Apple will have to do that for many years yet. Do we expect the mobile device platforms to die quicker? Or is there something different about Apple’s modern platforms.

    • Kizedek

      I was thinking about this myself. One conclusion that I came to was that Apple “accepted” it when everyone said the “PC Wars” were over. Jobs famously conceded that in one of his statements. He moved on.

      It is because of such “near death experiences”, as Horace mentions, that Apple could get creative and take drastic measures. It has happened a couple of times, which is why we can call Apple a “serial innovator”: When the company was in danger of busting, Apple ditched the Classic OS and started from scratch on top of Next (and, yes, there is something different about Apple’s modern platforms); when the PC Wars were “lost”, Apple had nothing to lose by putting lots of effort into a new market with the iPod; by the time that market was saturated and interest had waned, Apple had taken computing “to the next level” without worrying too much about legacy technologies.

      I think that by being willing to step back from Mac, Apple has come full circle and been able to create asymmetric platforms and products that actually complement and enhance each other! To the degree that Apple had to be willing for iOS devices to disrupt and replace the Mac as their signature product, so the new products and services have actually drawn interest and synergy back to Apple’s more mature platform. This makes one wonder if the “PC Wars” really are “over”.

      That Apple’s various platforms and products dovetail so well, is because Apple had a unified vision for its relationship to computing, not a Microsoftian vision of how computing had to be done around a particular mediocre platform and products. MS’ platforms and products had to be compromised because the vision called for their “legacy products” (Windows and Office) to be sustained and inserted everywhere in perpetuity.

      The real success of MS’ platforms and products were in the business agreements they were able to make with partners, not in the products themselves. As Horace noted, that made MS rely on an economic model that was/is hard to change. When times change, the model becomes unviable or outright disrupted; when a reactive change is required, the opportunity, time, freedom or authority to change it is hard to come by.

      Speaking of “legacy”, that made me think that you don’t leave a legacy by foisting your creation on people till they can take no more; you create a legacy by empowering people and changing things. Hopefully, that was built into Apple and that’s Jobs’ legacy.

    • Bruce_Mc

      I think the answer to your question is that the desktop and laptop computer OSs hit the “good enough” point five or six years ago. If there is no need to innovate, then there is no need for destruction, no need to fire anybody, just let everyone sustain the product.

      Instead of being fired, OS X developers are being poked and prodded a bit in the area of iCloud. They have also been poked an prodded a bit in the areas of sales and security with the app store and sandboxing set up by Apple. But that may be enough change in order to keep OS X doing the job people want it for.

  • Bruce_Mc

    The larger question towards the end was about why doesn’t the market reward innovative companies and why do so many of them stop innovating and die after 20 years.

    People, in groups, tend to want and expect things to get better. They do this to an irrational degree. The current economic system is not set up to deal with this. This is shown by the boom and bust nature of the economic system, from tulip bulbs in the 1600s to real estate in the US in the current century.

    As a corollary, people in groups tend to irrationally avoid thinking about destruction and about things getting worse. Again, our economic system is not set up to deal with this. Destruction is undervalued in the marketplace and under planned for in business and government.

    Disruption involves a lot of destruction, therefore people in groups avoid it to an irrational degree, which translates into punishment in the market. Note that environmentally sustainable products and processes also involve a lot of thinking about destruction, and they tend to be undervalued in the market as well.

  • Mark Gold

    Hoarce:
    Microsoft has been able to create successful products (Xbox, keyboards,…) as long as they were independent of comprimises made for OEMs.
    Apple produces products that have excellent hardware design, with integrated customer friendly software. When Apple makes comprises, it chooses to limit functionality while trying to keep the best user experience. Fluid responsive interface and long battery life.

    Microsoft unfortunately has in the past chosen to make hardware and software comprises to appease OEMS. These compromises tended to try to maximize the products functionality, but with a disregard to user experience. Clunky Interface, diminished storage and shorter battery life.

    Both Android and iOS are independent of Windows and OSX. Microsoft has failed to realize that a nimble responsive os is more important than a tightly integrated but clunky os. I suspect given enough time for battery tech and processor tech to evolve that Microsoft will be able to produce a nimble and responsive integrated (to Windows) mobile os. I suspect it would be a day late and several dollars short.

  • James King

    Wow.

    I’ve accused Horace of non sequitur reasoning before but this podcast takes the cake. Toss in some false dilemma, and it’s an interesting blend of logical fallacies. I’ll try to address a few of the most aggregious ones as I will likely miss a few, there were so many:

    Horace supposition 1: The “stupid manager” theory. Horace seems to think that it is convenient to think that “smart” managers suddenly become incompetent, preventing them from spotting trends or failing to address those trends that disrupt their core businesses.

    Response: “History repeats itself.” Maybe this one would be more appropos: “Those who do not learn from history are doomed to repeat it.” The point being that, as a species, we have a written record of all of our previous mistakes yet tend to repeat them constantly. Bottom line, even when we have a blueprint, people are prone to make decisions that are irrational. Numerous studies bear this out. Intelligence does not necessarily correlate to judgement.

    Horace is engaging in two logical fallacies: 1) Non sequitur (smart people always make rational decisions) and 2) argumentum ad auctoritatem (Ballmer is a smart guy, therefore, his inability to take advantage of trends which Microsoft clearly identified could not have been the result of exceptional incompetence on his part but other factors)

    Bottom line, Ballmer’s intelligence or success in one area does not necessarily correlate to other areas. Ballmer was very good at what he was good at and, based on the evidence, very bad at what he wasn’t very good at. Ballmer’s ability to manage the areas of Microsoft that focused mainly on the enterprise can easily be validated. But the same can be said for his ability to mismanage the areas of Microsoft that focused primarily on mobile and general consumers.

    Horace supposition 2: Executives are given too much credit or blame for a company’s success or failure.

    Response: Considering their compensation and authority, who else should get the credit or blame? Executives aren’t compensated just for their intelligence, skills and experience but also for their judgement. Jobs famously enforced Apple’s hierachy. Its executive leadership was given near absolute authority but the expectation was that failure was not an option. Jobs didn’t subscribe to the notion that his top managers were just part of a greater machine, he made it clear that they were the PILOTS of that machine. The company would rise and fall on their ability to make good decisions and use good judgement. That is why they made millions of dollars in compensation. A company is only as good as its leadership. That leadership starts at the top. Microsoft’s culture of brutal political infighting was not only tolerated, but encouraged by Ballmer. How can you attribute Microsoft’s inability to innovate in the consumer space to corporate culture without pointing the finger at the people responsible for the culture? Microsoft’s corporate culture is a definitive sign of a massive flaw in the personalities of its leadership. The same can be said of Nokia, HP or any company whose corporate culture stifles or impedes innovation or success.

    Horace supposition 3: If executivess are ultimately responsible for a company’s success, they are underpaid.

    Response: By this same reasoning, executives are grossly OVERPAID if they are not primarily responsible for a company’s health and growth. How can executives at large organizations justify their immense compensation if they are not ultimately responsible for the health of their company? What are they being paid for? Education? Experience? Track record?

    Once again, let’s look at Steve Jobs. For what was he compensated? Education? College dropout. Experience? To my knowledge, he never had any job other than being an entrepreneur. Track record? Many notable failures. NeXT was sinking like a stone when it was purchased by Apple.

    In the end, he was compensated for assuming responsibility for the health and welfare of Apple. He put the company on his back and carried it to greatness. How did he do it? By expecting excellence at every level of the company and making everyone RESPONSIBLE for that excellence. But in no area of the company was the expectation greater than at the top.

    Jobs is living proof of what a CEO can accomplish when you don’t let your ego drive your judgement. Ballmer, on the other hand, is famous for letting his ego cloud his judgement. If you say that a company in which he is the ultimate manager is beyond his ability to effect, then for what reason is he in charge? Why have a captain if the ship is steering itself?

    If executives are underpaid realtive to their responsibility for a company’s health and success, then the are WAY overcompensated if they are just cogs in a greater machine.

    BTW, even if executives ARE ultimately rsponsible for a company, they AREN’T undercompensated. A ship can’t run without a crew, it doesnt matter if it has 100 captains. Its a symbiosis, one that is not properly appreciated by people at the top. Blodgett over at Business Insider has written some great articles on the subject.

    Horace supposition 4: Disruption always leads to the inevitable demise of the previous generation of industry leaders because it inherently undercuts their core businesses making it impossible for them to “disrupt” themselves.

    Response: Horace uses the licensing of Windows Mobile/Windows Phone to support this point. His premise is that the market would not support the licensing fees of WM/WP in the face of the hardware subsidized iOS or the “free” Android.

    Considering the copious margins that smartphones have enjoyed for awhile now, I don’t agree with this premise. Microsoft failed to achieve critical mass because it brought the same mediocre user experience to all of its platforms, particularly its CE and mobile offerings. Horace seems to have forgotten that Microsoft crushed Palm by creating a platform that made high-performance gaming a reality to handheld devices. GAMES are always the best selling category of software on any end-user platform. The graphical prowess of Pocket PC/Windows Mobile is what ultimately buried Palm in its original iteration. I remember the exchanges I had with Rahul Sood that UX would ultimately be Microsoft’s downfall and that if it didn’t significantly improve its user experience, another company would supplant it. I wrote his an email essay titled “UX is the Final Frontier” right around when the original iPhone came out that UX for software platforms would be the next differentiator for computing platforms. Microsoft was not able to gain critical mass because it refused to acknowledge the value of UX, choosing to let it be driven by its engineers rather than HCI experts.

    But let’s put that aside for a minute… someone at Microsoft had to figure out a way to make money using a non-licensing model. And here’s the thing… app stores PRE-DATED the iPhone. In fact, there were at least two “app stores” that sold Palm and Pocket PC/Windows Mobile software as downloads many years before the iPhone. Microsoft could have simply PURCHASED one or both of the companies and beaten Apple to the app store ecosytem by 3-5 years. Bottom line, Microsoft had the tools to duplicate the iPhones success with very little impact to its software business. Even if Microsoft didn’t make a ton of money initially, the lock-in and app “tonnage” would have stop Apple and Android in their tracks.

    The notion that disruption is an “either/or” scenario is self-justifying. The factors that prevent companies from managing disruption effectively are created BY THEM, they are not external factors or factors that are beyond their control.

    I could go on but these are the main points. The bottom line is that Horace’s reasoning on this matter is flawed because it is chock full of logical fallacies. The Innovator’s Dilemma exists because ego and irrationality drive most of the decisions in organizations. They aren’t factors than CAN’T be overcome, simply factors that AREN’T overcome.

    • Walt French

      You’ve spent a very lot of words on a careless or incomplete understanding of Horace’s thesis. Ballmer (and even more, Elop) as stupid or worse, venal is a theme all over the web. Horace simply notes that somehow a man who is widely known to be very smart, got presented with some extremely challenging circumstances, and the result was not good.

      You’re familiar with “I’d rather be lucky than smart”?

      Your reductio ad absurdum argument is actually against a strawman. Because it’s popular to say, “disruption!” any time a company gets tripped up doesn’t mean that the claims of disruption made at this blog are the problem. In fact, Google did disrupt Microsoft’s business plan in giving away Android, not merely create a vastly superior product the way that Apple did; Google’s acts against smartphone incumbents fit near-perfectly against the definition, in ways that other changes don’t.

      Low-end disruption in the Innovator’s Dilemma examples usually happens over years, but Elop’s Burning Platform memo notes that Android had overtaken their smartphone business after only two years on the market (and when, to my eyes, Android was nearly junk). Apple re-defined the way that cellphone companies had to compete, and Google re-defined the way that software companies had to compete. The great innovator Nokia is dead, the same way that great innovator RIM is dead, from the one-two punch of 32-bit touchscreen UIs that neither firm could get quickly enough, and Microsoft is horribly wounded, possibly dead from Google destroying its OS business, and Microsoft will need years to understand the consumer, build out the ecosystem, get smart about hardware, etc, that went with their old business model.

      • James King

        “You’ve spent a very lot of words on a careless or incomplete understanding of Horace’s thesis.” – Walt French

        Really? What was careless or incomplete about it?

        “Horace simply notes that somehow a man who is widely known to be very smart, got presented with some extremely challenging circumstances, and the result was not good.” – Walt French

        Intelligence does not correlate to judgement. Horace made the point of stating he did not accept the “stupid manager theory” which, under the circumstances is just as good a reason for Ballmer’s inability to execute in the consumer/mobile space. Here’s why:

        Ballmer actually TRIED to do the very thing Horace claims someone in his position would have been insane to do. Yes, Ballmer invested BILLIONS in the very strategies that that would have supposedly undercut Microsoft’s business. The reason why is because THEY WOULDN’T HAVE! Here are your words:

        “In fact, Google did disrupt Microsoft’s business plan in giving away Android…” – Walt French

        I’ll do you a solid and accept that as fact. Microsoft is disrupted. What is the state of Microsoft’s business? That’s right, profitable and still growing. Windows and Office are still cash cows, its enterprise business humming. The bottom line is that it was a non sequitur fallacy to assume that Microsoft’s business was going to be negatively impacted by the process of self-disruption. The FACTS do NOT support that conclusion. Microsoft has been thoroughly disrupted and is still powerful and profitable. Microsoft could easily AFFORD to disrupt itself with little threat of severely impacting its core businesses

        If Microsoft had introduced exciting and disruptive products like the iPhone and iPad, it is more than likely that PCs would have experienced a halo effect from the positive feedback and network effects. If anything, succeeding in consumer and mobile WOULDN’T have “disrupted” Microsoft’s core businesses but STRENGTHENED them. Android and iOS became existential threats because Microsoft FAILED to create a compelling product. Horace’s narrative is simply incorrect.

        “Your reductio ad absurdum argument is actually against a
        strawman. Because it’s popular to say, “disruption!” any time a company gets tripped up doesn’t mean that the claims of disruption made at this blog are the problem.” – Walt French

        Yes, it does. The result of an action can’t simultaneously be the cause. To state that Microsoft’s disruption is a result of being disrupted is akin to stating that someone has a bullet in their chest because they got shot. Disruption is being presented as both cause and effect. It simply isn’t rational.

        Nothing “absurd” about that. Still looking for your strawman.

        “Low-end disruption in the Innovator’s Dilemma examples usually happens over years, but Elop’s Burning Platform memo notes that Android had overtaken their smartphone business after only two years on the market (and when, to my eyes, Android was nearly junk).” – Walt French

        By every objective standard, Elop was a failure. His memo had the effect of totally gutting Nokia’s still very viable feature phone business. What did he accomplish? He never even came close to regaining Nokia’s lost smartphone marketshare and now its feature phone business is gone as well. ELOP did more damage to Nokia than Android.

        Here’s another tidbit for you… the N9, the Meego Harmattan powered smartphone that was supposedly no good received HIGHER REVIEWS than almost any Lumia that has been introduced.

        Elop’s “Burning Platform” memo was one of the worst business decisions in modern history. You may as well be quoting your grocery list to me.

        “Apple re-defined the way that cellphone companies had to compete, and Google re-defined the way that software companies had to compete.” – Walt French

        Neither would have gotten the chance is Microsoft had simply built a compelling product. It had all of the advantages. It failed. That is disruption “AS A RESULT” not disruption “BECAUSE.”

        “… and Microsoft is horribly wounded, possibly dead from Google destroying its OS business, and Microsoft will need years to understand the consumer, build out the ecosystem, get smart about hardware, etc, that went with their old business model.” – Walt French

        Then it’s a pretty good looking corpse. The fact is that Microsoft is a company still growing in revenue and profit, despite its failures in consumer/mobile. Far from dead.

        Pray tell, WHY does Microsoft “need years to understand the consumer,” etc.? Because it was “disrupted”? Or because PREVENTABLE strategic mistakes were made? Horace’s position is that there was nothing Ballmer could have done to prevent Microsoft from being disrupted which flies completely in the face of the fact the HE TRIED. Microsoft had the advantages of time, resources, marketshare, etc. It’s a self-justifying position to state that he was helpless, a victim of circumstance.

        “Finally, your name-calling strikes me as rude. All your insults and the time you spent on writing them, could evaporate because your failure to practice simple civility violates the site rules.” – Walt French

        What’s rude is to acuse someone of something they haven’t done. Please point out these “insults” and “name calling” I’ve supposedly hurled.

        You may impress others with your expansive vocabulary and Victorian writing style, but I have the benefit of a 154 IQ and over 15 years in technology. I’ve been having these discussions far longer than this forum has existed.

        You seem to have an acute case of hero worship when it comes to Horace and I think it is affecting your critical thinking skills. I think you are more than a little offended that I provided a pretty compelling case that Horace’s suppositions were incorrect. You shouldn’t take it personally and neither should he (if he does).

        If I’m banned from this site for providing a compelling counter-position, what can I do? If Horace is unwilling to have his ideas scrutinized, he’s in the wrong business.

        I will do you the service of explaining my tone… Horace made it clear in the podcast that he was defending not just Ballmer, but all executives in Ballmer’s position. I find that offensive and irresponsible. CEOs and executives should not be given free passes when they fail. They are handsomely rewarded for assuming the highest levels of authority. That also means assuming the highest levels of RESPONSIBILITY. Throwing around a theory that gives irresponsible leaders a free pass is the LAST thing corporate culture needs. It needs MORE accountability, not less. In this instance, Ballmer is rightfully being called out for both his successes and failures. He’s a billionaire, he needs no apologists.

      • Walt French

        @James King wrote, “Horace made it clear in the podcast that he was defending not just Ballmer, but all executives in Ballmer’s position.”

        Here you’ve succinctly stated what I claim you got wrong.

        Dediu has occasionally said that Microsoft was a very innovative company that apparently lost its mojo around 2000—and of course, Ballmer was appointed CEO in January 2000.

        The podcast is in no way excusing or defending Ballmer’s failures; Dediu is trying to analyze what they were and why they happened. His claims that others simultaneously transformed from successful/smart to failing/stupid is a good sign that something external to the various CEOs’ suites was the triggering force.

        If a semi rolls over in front of me on the highway, I may or may not be able to avoid the accident. The fact that previously-thought-of-as-good drivers hit a particular semi, does not prove that they all suddenly became bad drivers. They just got presented with a crisis that they couldn’t handle adequately—especially, quickly enough.

        The whole point of the “disruptive innovation” meme is that companies get put into a bind by a significant change in a competitor’s offering (especially, by a whole new class of competitors). As we agree, Microsoft kept churning out big profits in its PC business, but while claiming to want to tie in the consumer, it brought products that were technically fine, but late and or incomplete regards the ecosystem. I look at how Jobs attacked the consumer marketplace — understanding retail, the music industry, putting a retail CEO on its board, advertising …— and conclude that Microsoft wanted to be in consumer products but assumed it could somehow leverage its Windows dominance to get there.

        Phones are more of the same, PLUS such a wrenching change that the disrupted companies (including here, RIM, Nokia, Motorola, Sony-Ericcson, …) were unable to reconfigure their businesses quickly enough to deal with the new competition from 32-bit OSs, touchscreens, app ecosystems that devastated even the featurephone business by forcing the prices down to keep volumes. So even companies that knew their customers very well (e.g., RIM) and were very capable in distribution, etc. (eg Nokia), went down in flames.

        Each company has a unique set of circumstances, each watched its business go up in flames from being unable to respond effectively. In 2010, Jean-Louis Gassée applied the “three envelopes” joke to Microsoft, and I’m frankly a bit surprised, given the challenges, skillsets, Boards and company limitations, that Ballmer lasted as long as he did. I am no apologist for Ballmer, nor do I harbor the least doubt that Dediu was trying to do so. Worse, as I said in my first sentence of my original post, I can’t imagine where you concocted the notion.

        PS: your claiming, “I have the benefit of a 154 IQ” in the same post as “[i]ntelligence does not correlate to judgement” is just too good to let go without comment.

      • James King

        “@James King wrote, “Horace made it clear in the podcast that he was defending not just Ballmer, but all executives in Ballmer’s position.”

        Here you’ve succinctly stated what I claim you got wrong.”

        This is a DIRECT statement from the podcast. You’re claiming that I got a direct statement “wrong”? Did you actually LISTEN to the podcast?

        “The podcast is in no way excusing or defending Ballmer’s failures;”

        Yes, he is. See above.

        “If a semi rolls over in front of me on the highway, I may or may not be able to avoid the accident. The fact that previously-thought-of-as-good drivers hit a particular semi, does not prove that they all suddenly became bad drivers. They just got presented with a crisis that they couldn’t handle adequately—especially, quickly enough.” – Walt French

        This example fails because Microsoft had the advantage of being in the market well ahead of both Android and iOS. There was nothing “sudden” about the circumstances. Microsoft failed to make mobile products that created a significant enough barrier to entry. It had the advantages of time, resources, opportunity, market presence etc. plus a complete anticipation of the market. No matter how you cut it, it’s a PREVENTABLE failure.

        Ballmer didn’t just fail once, he failed MANY times in the consumer/mobile space. That’s more than a pattern, that is a trend. It’s completely semantical to state that Ballmer is “smart,” when he proved CONTINUOUSLY that he wasn’t in the areas of consumer and mobile. It would be semantical to claim that an astro physicist is “smart” if he is attempting to perform brain surgery.

        “The whole point of the “disruptive innovation” meme is that companies get put into a bind by a significant change in a competitor’s offering (especially, by a whole new class of competitors).” – Walt French

        That is the point. It wasn’t Android or iOS that caused Microsoft to fail in mobile, it was Microsoft’s failure that opened the door for Android and iOS. The mistake you and Horace have made is treating the RESULT and the CAUSE.

        Once again this is disruption AS THE RESULT, not disruption AS THE CAUSE. To act as if Ballmer COULD NOT prevent Windows Mobile from being disrupted is to ignore all of the significant advantages Microsoft had is relation to their competition. Bottom line, it was entirely within Microsoft’s capability to produce mobile products that could have locked out Android and iOS. It already had Apple’s example of the iMac and iPod to follow. It didn’t. Once again, that can only be considered a PREVENTABLE failure.

        “Phones are more of the same, PLUS such a wrenching change that the disrupted companies (including here, RIM, Nokia, Motorola, Sony-Ericcson, …) were unable to reconfigure their businesses quickly enough to deal with the new competition from 32-bit OSs, touchscreens, …”

        This doesn’t apply to Microsoft. It had all of this AHEAD of Apple and iOS. WinCE was (is) a 32-bit OS which was initially released in 1996 and Microsoft R&D had long been doing research on capacitive touch screens. It even had the advantage of Direct X. There was NO technology Apple or Google brought to the table that Microsoft didn’t have in a lab or in some working version. How can you or Horace claim that Microsoft was blindsided when Apple started later and used the same technology to create the iPhone. Hell, Microsoft could have did what Google did and created a shameless copy afterwards. Once again, these are PREVENTABLE errors.

        “… app ecosystems that devastated even the featurephone business by forcingthe prices down to keep volumes.”

        This is the cognitive dissonance that disturbs me regarding the tech industry. Feature phones are still a HUGE and would be bigger if it wasn’t for Elop’s bone-headed “Burning Platform” memo which ARTIFICIALLY ACCELERATED the decline of feature phones by declaring the “death” of the most significant feature phone OS on the planet prematurely. Elop shot Symbian in the foot and then declared to the world that it would never win a marathon.

        As for app ecosystems, as I stated before, they PRE-DATED the iPhone. They had absolutely NO effect on feature phone sales. Hell, Symbian had an ecosystem before the iPhone or Android. It’s a non sequitur.

        “So even companies that knew their customers very well (e.g., RIM) and were very capable in distribution, etc. (eg Nokia), went down in flames.” – Walt French

        Both Nokia and RIM were losing SHARE rapidly. What they weren’t doing was losing their INSTALLED BASE. Nokia’s was flat and RIM’s was GROWING. The bottom line is that the urgency was created by THE MEDIA and analysts like Horace. Both Nokia and RIM could have remained profitable as niche players for a long time; they could have lingered for awhile and used that time to create competitive products or introduce disruptions of their own. What sank their businesses was the MANUFACTURED urgency of Android’s rapid rise in SHARE. In was a convenience to claim that Nokia and RIM were “doomed.” Yes, EVENTUALLY. But what drove them into their graves were hysteria, the tech and finance media, and knee-jerk speculation that drove herd mentality.

        Stock shorters had every reason to bang the drum on Nokia and RIM’s supposed demise because it is a rare event to see massive sea change coming WELL AHEAD. Even a fool could see that, ONE DAY, all phones would be smartphones to some degree. As I stated to Ben Bajarin, the more predictable something is, the easier it is to manipulate. RIM and Nokia presented excellent opportunities for short selling, so the finance media and financial analysts drummed up as much hype as they could so force their stock DOWN. Once again, this artifically accelerated their downfalls. Their was millions of dollars made on Nokia and RIM’s demise.

        “Each company has a unique set of circumstances, each watched its business go up in flames from being unable to respond effectively.” – Walt French

        As the FACTS have shown, this does not apply to Microsoft. The disruption in its case was an EFFECT not a CAUSE. iOS and Android succeeded BECAUSE MICROSOFT FAILED, not the other way around.

        Microsoft is still and incredibly powerful and profitable company that is still showing GROWTH. That should not be the case if “disruption theory” were truly in play. Microsoft simply failed when entering into new markets. This was the result of ERRORS IN JUDGEMENT, not disruption.

        “In 2010, Jean-Louis Gassée applied the “three envelopes” joke to Microsoft…”

        In 1998, I attempted to get a meeting with JLG to encourage him to devote resources to “CPU emulation,” which would eventually become a little thing called virtualization. Be Inc. would have become a contemporary of VMWare. In the end, Be was sold for 11 million dollars, VMWare for 600 million. VMWare is a thriving company, Be a relic of tech history.

        JLG is also associated with the famous “Windows will never catch up to Mac OS” quote. Yeah, I don’t consider him an expert.

        “… and I’m frankly a bit surprised, given the challenges, skillsets, Boards and company limitations, that Ballmer lasted as long as he did.” – Walt French

        So are a lot of people. They are surprised that Ballmer could not make any headway with consumer and mobile even though he had the benefit of time, opportunity, resources, money, etc. and even the example of Apple right in front of him. But I guess he was just a victim of circumstance.

        I am no apologist for Ballmer,…”

        Never said you were though you have obviously bought into the notion that Ballmer is a victim of circumstances beyond his control.

        “… nor do I harbor the least doubt that Dediu was trying to do so. Worse, as I said in my first sentence of my original post, I can’t imagine where you concocted the notion.”

        From his direct statements on his podcast. But why should you believe your lying ears, right?

        “PS: your claiming, “I have the benefit of a 154 IQ” in the same post as “[i]ntelligence does not correlate to judgement” is just too good to let go without comment.” – Walt French

        What you lack in cogent arguments, you make up for with ad hominem attacks. Bravo. You sir, are a true wit.

        You may want to re-read the “Intelligence does not correlate to judgement” statement again. In fact, many time… in front of a mirror.

  • Les_S

    So it seems that the only way to attempt “crazy shit” 😉 or dealing effectively with the innovators dilemma is by the company experiencing a near-death experience and having a leader who’s authority in killing the company’s successful approach is acceptable to the organization. So the only question is has Apple absorbed this approach in a way that allows that kind of “crazy” behavior to be acceptable to the organization as standard practice and part of the leaderships (Cook et al) mandate.

  • stefnagel

    1. One definition of a leader is someone who will take us somewhere we would not go on our own. Fair to say, Ballmer was not a leader. A manager, not a leader.

    2. A leader must have external authority to lead; internal commissioning is not sufficient. That authority is a narrative, a song of wisdom, of experience. Jobs had it: He went into the wilderness, where all great narratives begin, he stayed loyal to the Apple mission to build computers for the rest of us, and he succeeded at Pixar in the wider, nontech world. Ballmer was a complete insider; he had no leader cred.

    3. Nothing opens orgs up to change like a big huge threat. Like death. Orgs open to change and development when they face obvious and imminent destruction; Apple faced oblivion at the point Jobs returned; Ballmer is only now just beginning to feel threatened.

    4. Leaders do better with start ups than with rich enterprises. Nothing narcotizes like success and money. Jobs returned to Apple when it had fallen to start up status; Ballmer runs a Titanic; nobody on the Titanic thought they faced imminent death.

    5. Even when an org is facing demise, the change required will not be deemed growth; it will be viewed as mutation. Cus’ it is. When the first salamander grew a leg, it was an aberration in protosalamanders; it was no longer a protosalamander.

    6. Hence, coming round, the need for a leader who enjoys special divine dispensation. Everyone else would do well to jump ship and paddle away in a startup.

    • http://www.asymco.com Horace Dediu

      Profound.

    • Walt French

      Popping up today on CNet:

      Sculley said he didn’t have the business expertise at the time to fully understand what visionary leadership was. “What would have happened if we hadn’t have had that showdown?…I did not have the breadth of experience at that time to really appreciate just how different leadership is when you are shaping an industry,” Sculley said, “as Bill Gates did or Steve Jobs did, versus when you’re a competitor in an industry, in a public company, where you don’t make mistakes because if you lose, you’re out.”

      (w/ my emphasis)

  • Walt French

    Horace wondered at the end about the problem of companies’ rapid rise and fall.

    Lots of apparent value is destroyed when a company flounders. Not many of the assets are recyclable. The idea that Microsoft’s ground-breaking efforts could be consigned to the dustbin are astonishing.

    But the question has been dealt with before; the Wikipedia writeup on the Theory of the Firm offers a good intro to the work of Ronald Coase (who died Monday):

    In simplified terms, the theory of the firm aims to answer these questions:

    1. Existence. Why do firms emerge, why are not all transactions in the economy mediated over the market?
    2. Boundaries. Why is the boundary between firms and the market located exactly there as to size and output variety? Which transactions are performed internally and which are negotiated on the market?
    3. Organization. Why are firms structured in such a specific way, for example as to hierarchy or decentralization? What is the interplay of formal and informal relationships?
    4. Heterogeneity of firm actions/performances. What drives different actions and performances of firms?
    5. Evidence. What tests are there for respective theories of the firm?

    Firms exist as an alternative system to the market-price mechanism when it is more efficient to produce in a non-market environment.

    The last-quoted sentence is the point here, methinks: when commoditized products exist, there’s no need for a company’s internal “market” for say, a smartphone OS, and the internal battles for which Microsoft is famous.

    • stefnagel

      Walt, can you unpack this a bit? How does the theory of the firm relate to Microsoft’s assets?

      • Walt French

        For somebody with a preference for Econ over Business, all the stuff Horace has been discussing about integration, RPP etc falls under The Firm. But it’s just a different way of knowing where to look for valuation and strategy.

        The biggie for me is the build-vs-buy question. Microsoft used to be satisfied with tightly-integrated software—only. That made it monstrously powerful and profitable, while it handed off the low-margin, competitive stuff to the hardware guys, who needed to pay the Tax.

        Now, they want to be MicroDevices&Services. They claimed that OEMs were insufficiently motivated to do innovation, so they built the Surface hardware, and they claimed difficulties coordinating with Espoo. Both are flat-out false. PC OEMs recognized that Enterprise users don’t buy gadgets (tablets, Yogas, cutesy standups) and also that Win8 didn’t have the consumer moxie to sell to the other half of Microsoft’s target market. And WP8 is actually pretty well-engineered to work reasonably well on lower-power hardware, so the customer gets good battery life while Nokia gets better margins.

        Services is an even worse disaster: file-sharing, backups, media-sharing, … Microsoft has withheld their (supposedly, pretty good) cloud services from serving about 99% of mobile users. Lord knows if they’re getting much of anything from Apple for the wider use of Bing.

        Microsoft appears to be stuck on the “vision” of Windows leveraging out to the whole world, without a strategy for making it happen. They are “integrating” a couple of failed efforts (Win8/RT, tablets, WP). This flailing around highlights the problems with their existing assets. Under Ballmer, the funny org chart of hostilities between groups has flourished, integration at its most negative. (I long have opined that splitting Microsoft as Judge Penfield decided, would have been the biggest favor the company could’ve had handed to them.) The inflexibility, turf wars and infighting have sapped Microsoft’s ability to do anything different than the script, hence the massive failures such as Kin, aQuantive, Office on RT. (Zune, I dunno. I think a different failure.)

        These failures of integration sap the value of those assets. Microsoft has one of the most quality-oriented software cultures in the world, but it’s come about with the inability to jump into new projects. WP7 was a pretty shell atop WinCE; WP8 the ground-up re-write based on NT that should’ve been started in 2006, when rumors of the iPhone got real. Good engineers, set to ridiculous projects that kill their resumes, instead of exciting things that people kill to get assigned to.

        So the very real assets have depreciated badly; they’re only good for keeping the aging Windows franchise bumping along, losing a few percent of usage each year. This is a monstrous economic loss because as NT shows, it could have had huge economic value. (WP8, like iOS, is a more solid system than Android but will amount to nothing.) Microsoft simply doesn’t know what to do with what it has (other than the stuff it’s been doing forever).

        Sorry, I didn’t have time to write a shorter answer.

      • stefnagel

        Thanks! Got me thinking:

        I worked in book publishing, an enterprise that lives and dies by its authors or writers, not always the same thing. So I do view all business through this lens.

        Keeping great authors in the “house” is a critical task of publishing management. Occasionally it can mean allowing a writer to pursue a personal challenge not aligned to the house central list or purposes.

        When we see tech companies desperately flinging product all over the landscape, as Apple did in the nineties and Microsoft now, and Google all the time, I wonder if the difficulty is internal and related to their “writers,” those who write the software programs and the blueprints for hardware.

        With the rise of Microsoft’s competitors today, Google and Apple, the leverage of in-house writers must be huge. Now add the pressure of the App Store economy and the possibility of earning a living as a cottager rather than a corporate cog. The stress to keep in-house creators happy, challenged, and harnessed to the central purposes of the org must be astounding.

  • claimchowder

    I am positive that Microsoft would not have been disrupted in the way they were, had they used their enormous resources to actually create a single product that was worth buying. Instead, they kept re-iterating the same Windows with technically insignificant “upgrades” from XP onwards, and adding toolbar after clumsy toolbar to office until if was completely unusable.
    This is not what people are willing to pay money for. Why is that so hard for managers to understand?

    It is NOT about maximizing shareholder value. It is about maximizing the value to the CUSTOMER. If you fail to generate any value to your customers, then all you are doing is milking the cow to death. Which works for a while, but not forever. Luckily!

    Microsoft failed to produce any desirable product in the last fifteen years, and their products are universally loathed. But they had the whole industry locked into their monopoly of poor products. OF COURSE nobody would buy their other products that are labelled “Windows” anything. Why would they? Certainly not because Business Theory 101 proclaims that MS has to position their new products on a successful line of predecessor products (or something to that effect). Customers don’t care about business theory! They care about what value is provided to them, and by whom, and for what price. And Microsoft has been terrible at that for a terribly long time.

    I have been enjoying Horace and Asymco for a long time, but recently it seems to be missing the obvious too often: You gotta have a desirable product, otherwise all your business optimizations will ultimately fail. Which it did in the cases of Microsoft, Nokia, RIM, Motorola and many, many others. And did NOT in the case of Apple. Which is the essence of “what it takes to be great”.

    The rest is optional optimization. Even people like Balmer could do that.

  • DarwinPhish

    Your part about Windows Mobile and disrupting Microsoft’s business model was interesting but missing one very important point: Windows Mobile was a pretty bad product. In 2005, MS was on its 4th major revision of Pocket PC/Windows Mobile and it still had many, many blaring problems. Versions which came after it, including ones released post-iPhone were still very weak.

    Even if they had given it away for free, I doubt it would have sold better and if it was actually usable, I do not think licensing fees would have held it back. The real question, for which there are plenty of obvious answers, is why they could not make a decent mobile OS after so many years.

    • El Aura

      Or why did MS succeed in the game console market but not in the phone market. Because it was the same company, the same CEO that succeeded in one market but not in the other. Which implies that there were outside factors.
      Of course, one outside factor was that Steve Jobs didn’t try to enter the game console market. I always wondered: How would smartphones look like today if Apple hadn’t entered the game?

      • http://www.asymco.com Horace Dediu

        The only success Microsoft had in the game console industry was in spending vast amounts of money, most of which will never be recovered, to gain a foothold in a dying business.

    • Walt French

      Part of the reason WM was such a crummy product was that it attempted to provide a computing-class experience on exceptionally less hardware than what we use today. The OS was based on the assumption of a 16-bit chip, capacitive touchscreens were not better than resistive ones for styluses, memory was severely constricted.

      The original iPhone came out with a CPU that ran something like 350 MHz; today’s chips have (almost?) ten times that power. It had 128MB RAM (less than Flash requires on this laptop), versus the new Samsung Note having 3GB (24X as much). Today’s iPhone screen is almost 5X the number of pixels.

      But while Apple is famous for using as few resources as possible, they provided themselves incredibly more capability versus WM by choosing a 32-bit, versus 16-bit OS and CPU; capacitive, multitouch-capable screens; and much more. We look back at WM today and note all its shortcomings, but when it was first engineered it was pretty close to the cutting edge.

      To my mind, Microsoft’s failing is the same disruption that befell everybody else. In 2006, rumors of an Apple phone were rife; Microsoft intelligence—somebody doing Horace’s old job—should’ve known they were going to offer an OSX-based spinoff. But the work on WP8, which is an NT-based spinoff, didn’t start until many years later. Somebody (and the buck stops with Ballmer) actively decided not to worry about the new competition, and then after the app store success and Android’s announcement, those same somebodies committed to the disastrous Kin project; plus WP7, a stopgap pretty face atop WM, rather than an all-out effort to meet the new competition head-on.

      Net-net: WM was a pretty good product for its era. It was disrupted by Apple’s multi-year vision and hard work on iOS, and by Google’s multi-year vision on commoditizing the phone OS. Not knowing the critical points inside Microsoft re: phones, I can’t tell whether Ballmer was not well-enough advised, whether he failed to respond decisively to the iPhone, whether he was distracted by desktop or server business issues, or whether their organization’s strengths do NOT include rapid response, so execution was inadequate.

      Note that if you KNOW your developers can’t turn on a dime, you have to start a year or two earlier than you would otherwise; the failure to respond comes back to a failure to understand the markets.

  • Karun R

    Your part about Apple also using stack racking made me think. I have had the experience of having to stack rack my team – the biggest challenge was not just arguing with your peers but to rank different types of employees together.

    Which leads me to the functional organization – if instead I was stack ranking a group performing a very similar functional, it would have been a lot easier to manage. And the stack ranking should stop in the functional area and not lead to “my top designer is better than your database architect” scenarios.

  • DesDizzy

    Horace. Listened to your podcast yesterday evening (walking around the park). Although interesting, I feel that you trend towards the academic in your analysis and over complicate. Ultimately, the board and the executive committee are responsible for strategy and execution. The two most important people within this cohort are the chairman of the board (COB) and chief executive (CE), although in many US corporations COB & CE are combined.

    Don’t buy your thesis that a brilliant CE cannot turn into a useless CE (see Dinosaurs). Circumstances change and tools change. Just as Churchill and other great leaders were perfect for wartime, equally they were not suited for peacetime. One of the most difficult things to do, as you acknowledge, is to change the direction of a successful company. This does not mean that it is impossible, or should not be tried, it just means it is much more difficult, to be Jonah!

    The academic/economists inclination is to strive for overarching theories that explain all. They always fail, because different tools work in different contexts in different times. To say that it was impossible for MSF to come up with a skunkworks version of a phone to match the iPhone & iPhone eco-system (see Xbox) is patently absurd. However, they did not either in strategy or in execution. Therefore they failed and the CE and COB and senior exec’s are clearly to blame. They didn’t adapt or evolve (see dinosaurs), so others who can adapt and evolve will survive.

  • normm

    I’m a physicist, and my problem with “disruption theory” is that it is so non-quantitative. As a comparison, consider the current recession. I could say, “all complex systems eventually have large collapses.” That’s an explanation, but doesn’t predict a time-scale. With better regulation and visibility into markets, perhaps the time scale can be made much longer for financial collapses, in which case the current problem is not the generic instability of complex systems, but that of how to organize systems to combat regulatory capture.

    Similarly, you say that incumbents eventually succumb to disruption. The key word is eventually. Why is Microsoft fading now, rather than ten years ago or ten years from now? Does that really have nothing to do with better or worse management decisions?

    Microsoft had several failed incursions into the mobile space, long before there was any real competition with the PC world. It seems to me that disruption theory is silent on whether a successful company can finance and benefit from new and unrelated businesses. If Microsoft had treated mobile as new and unrelated, there shouldn’t have been a problem, at least initially.

    There are also many ways to benefit from mobile. As you have pointed out, Microsoft already makes more money from Android than Google, just from IP licensing. Microsoft could also make money from apps on mobile, without abandoning software. It still has a strong brand in the enterprise, and a record of long-term stability, that would both be of great value to mobile startups, if it could take a stake in their success without entangling them in the borg.

    • http://www.asymco.com Horace Dediu

      Business has not yet exited the middle ages. Management cannot be a science because the scientific method cannot be applied. This is itself due to the lack of published data. Data that could inform the theory building process is not only hidden from external eyes but it’s also compartmentalized and hidden from internal discussion (and destroyed quickly.)
      I sometimes think the notion of business historian is oxymoronic. Business resists inspection. Even self-inspection.

    • Walt French

      As a quasi-scientist (co-author of one published paper) and mostly econ/finance/business analyst, I appreciate several aspects of the Asymco approach.

      Covering change in business, Horace hypothesizes what factors might be most important, collects empirical data, and makes testable predictions / analyses about how those factors play out. It’s an order of magnitude looser than the sort of models that characterize orbits or chemical reactions, but very unlike the non-scientific—no, make that anti-scientific—rejection of observations we see in say, “creationists” or climate-change denialists.

      This AM I read an interview in which he predicted Microsoft’s future role in some key tech businesses. Obviously, with 100,000 very bright and motivated employees, one cannot predict what will emerge from their minds over the next 24 months from anything other than crude aggregate models. But fearlessly, he noted the absence of elements which could support significantly new products or features, and predicted the next 12 months will not show anything ground-breaking. The major reorg, leadership and merger change were all considered based on a seat-of-the-pants estimate of what other organizations do with those changes. He may not have spelled out that a CEO change costs X months’ disruption to strategy, or that it takes Y months to accommodate a 40% change in the sales channels, but that’d be hopeless false precision, anyway.

    • poke

      I have the opposite point of view. I think disruption theory often tries too hard to dress itself up as a science. Disruption theory essentially describes a strategy that entrants fall into by necessity and incumbents might possibly benefit from by making significant organisation changes. I think Horace has done a good job of explaining why Microsoft couldn’t have made the necessary changes to pursue a strategy of self-disruption. You can’t predict a time-scale because you’re not dealing with a physical system.

  • Walt French

    There’s a damned-if-you-do, damned-if-you-don’t, fun pairing right before (below?) this comment: @normm says Horace is insufficiently scientific in showing how his models work, and @DesDizzy finds he over-complicates things with models.

    Both could be right in that EInstein famously said that everything should be as simple as possible, but no simpler, which itself is one of those teases.

    @normm, you must be familiar with this problem in ALL social sciences — that’s certainly my read of economics, where “animal spirits” are invoked as explanations. The systems are just over-parameterized because there are too many possible contributions and too few examples. Somebody who has been gut-checking his intuition for a decade or so, and looking for guidance from the best B-school models I’m aware of, is probably as good as we’ll get.

    • DesDizzy

      This is a very interesting argument in itself! My background, in response to norm, is as an underwriter (life & general) and latterly in risk management (banking & investment – models/derivatives etc). I have found, via my experience in various multi-national concerns (all of which would rate within the top 30 globally), that you try to add “common sense” to quantitative/scientific analysis, whether by actuaries/quants or economists, in order for it not to be useless.

      And I think this dovetails nicely with Steve Jobs view that you need a combination of the arts and science for sustained success/applicability. Models have severe limitations, in that they have to make crude assumptions and they are not dynamic. The “Art” of management comes in with the ability to be semi-dynamic i.e. know where things are headed and being able to filter the assumptions into those that are important and those that are not. That’s what senior management is paid for, whilst junior management do the scientific/quant stuff.

  • Jonas

    I liked the part where Horace compared companies to machines and described managers as caretakers of these machines. I think this comparison can be used to illustrate some of the points Horace made:

    Machines take one or several inputs and convert it to one or several outputs by going through a process (= RPPs).

    The initial building of the machine (= creation of the company) determines most of the characteristics of the machine (= business model). Once the machine is running, the machine caretaker has to make sure it keeps running and producing output by maintaining it (making sure the machine is well oiled = e.g. has enough capital) and fine tuning some parameters to make it more efficient.

    The machine caretaker probably doesn’t have the authority nor the knowledge to fundamentally change what the machine does. Also, to do that you would usually slow down the machine significantly (= near death experience) in order to swap out parts of the machine and replace it with new ones
    If the machine can’t be modified to do the new job good enough, it will be replaced by a new/different machine from the marketplace.

    If the machine is initially build with a more broad function in mind (= mission based, functional org), it won’t be nearly as efficient but can be more easily modified to use different inputs or produce different outputs.

  • Karthik

    If it’s tough to fight the corporate anti bodies within a company, when can a disruptor (a regular CEO) lay the seeds of disruption? Especially when the company is minting $$. Is near death a pre-requisite for disruption?