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The Critical Path #95: Catharsis or Anticlimax?

Sep 6, ’13 9:45 PM
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A special episode in three parts: 1) Too many variables: The mechanics of the Microsoft Nokia deal 2) Climbing Everest without oxygen: The implications for Microsoft and 3) Post-abyss: The implications for Nokia.

via 5by5 | The Critical Path #95: Catharsis or Anticlimax?.

This one starts slow but ends with a flurry.

  • Horace, the way you described the “too many moving parts” issue (reorg+acquisition+execution leadership) made me think of this sort of thing:

    http://news.sciencemag.org/physics/2013/03/physicists-discover-whopping-13-new-solutions-three-body-problem

    “For 2 centuries, scientists tried different tacks until the German mathematician Heinrich Bruns pointed out that the search for a general solution for the three-body problem was futile, and that only specific solutions—one-offs that work under particular conditions—were possible. Generally, the motion of three bodies is now known to be nonrepeating.”

    Trivially, my implied social-sciences extrapolation of that classic physics knot entangles practically every business decision-making process. I just thought the metaphor helps to illuminate the chaotic (in the scientific sense) nature of predicting outcomes in such multi-varied interactive models, even after conceding the computationally convenient but fantastic assumption that deterministic laws rule the interactions.

    • On a perhaps slightly related sidestory (fourth body?), I’d love to get your take on the disturbance of such a delicate balance act by the appearance, in the middle of all this negotiating and critical high-level planning, of an activist investor openly pushing for the “common wisdom” of axing Ballmer and fleeing upmarket (still an easily disrupt-able dead end as you mentioned) plus the usual increasing of dividends/buybacks.

      What I find remarkable in connection to all this is the seemingly incoherent timing of all the announcements (as if rushed or fortuitously driven, the timing that is). This incongruence in the communication of such vital, perhaps fateful decisions desperately begs for the old “stupid manager theory” as an explanation. So, knowing how you love to challenge the dogged fallacy, I thought I’d try to come up with an alternative, more coherent explanation (if only just as a thought exercise) which takes into account the sure need to fend off this activist’s actions that might derail the painstakingly devised new strategic plans.

      So these were the recent Microsoft announcements:

      1. First announced was the reorg which obviously ran against the mentioned activist’s preferred upmarket/enterprise strategy, and seemed to solidify Ballmer as the champion of the reorg, further defying the activist investor (perhaps even foolishly empowering them). Devices and Services. Consumer and Enterprise. Integrate and License. Stock tanks.

      2. But a month later Ballmer gives in announcing his resignation within a year (perhaps so he can still see through the reorg and eventually hand off the ship heading in the right direction). Stock rallies. It begs the question though, why not avoid investor confusion by retiring Ballmer immediately instead of after a year, and then letting his replacement champion “her” new reorg which she will end up executing anyway, avoiding the lame duck awkwardness? Thus, announce in reverse: 2. then 1. To most pundits this one-two seemed backward. Notice however, the more logical two-one would offer the activist a small window, while the new CEO gets settled, to rally shareholder support for their “common wisdom” (but dead-end) strategy.

      3. Most puzzling, just a week after giving up Ballmer, the board signals a rather worrying weak hand when further appeasing the activist with the unwarranted, disproportionally huge prize of a board seat (as soon as early next year) for such a relatively small control of shares (0.8%). In return, the activist agrees not to fight any proxy battles (they’re free to push for their arguments in regular board and management meetings, just don’t rile up other shareholders). This effectively defuses any real or perceived risk of a shareholder riot reversing the reorg or the new added emphasis on consumer devices. Everyone, go home and have a very happy weekend and Labor Day, right?

      4. Labor Day, markets are closed. The last card is revealed and the hand is quite a shock for all, even if many had suspected it a long time ago. New direction not just confirmed but has been firmly set, full throttle ahead. Stock tanks. Most importantly (to this exercise) with the activist’s hands now tied, the company is free to pursue it’s dreams of being Apple.

      Unless, perhaps, someone else can show up and channel shareholder discontent?

      Sorry for the long “what if”.

      • Bruce_Mc

        I tend to agree. I think Microsoft is doing exactly what they want to do. The somewhat unusual timing of announcements may be to “cut off the oxygen supply” of the discontented stockholders group.

        As far as this goes:

        “(perhaps so he can still see through the reorg and eventually hand off the ship heading in the right direction)”

        I think of Steve Ballmer as more of a Sales guy than a Human Resources guy. I don’t think he would enjoy, or be good at, spending the next year or two on reorganization. As Horace suggested I think that he, along with other people at Microsoft, understand that.

        Perhaps he wanted to delay the announcement of his retirement so that he could get proper credit for the Nokia buy. I wonder if there may be another deal coming up that he wants to have credit for as well.

      • When I say reorg I mean “Structural/cultural/strategic realignment, a fundamental redefinition of what Microsoft is” of which the reorganization is just the first (key) step. I think Ballmer wanted to be part of setting the direction and charting the course ahead, although to me it would make much more sense to let his replacement do that, own it, and execute on it.

      • def4

        Right on!
        This is a much more sensible explanation and fits in quite well with Microsoft’s well known and battle tested reputation.

  • Michael Held

    On why Microsoft might have bought Nokias feature phone business:
    One of Nokias greatest strengths has always been distribution. Like Coca Cola there is hardly a place on earth where one can not buy a Nokia feature phone = great access to many developing markets where smart phones will grow strongly in the coming years – many of these countries skip traditional infrastructure investments like land-line phones or cable TV/Internet anyway. I guess historically distribution and sales channels are tied to the feature phone business.