The fact that CEO Steve Ballmer will depart Microsoft within 12 months is news, but that he would depart in the short to medium term is not news.
Ballmer has often maintained that he would retire from Microsoft as employee No. 30 and CEO when his children went on to the next stage in their education. Ballmer was never going to be around for another decade.
But it is curious that the man in charge would decide to retire just weeks after announcing a huge senior leadership team reorganization designed to take the company's transformation into a so-called "devices and services" enterprise forward. That's why the news struck me suddenly as I was sitting at my desk, coffee in hand, ready to begin what I thought was going to be a peaceful Friday morning.
Much will be written about Ballmer's tenure. In fact, a lot already has been written. But as this news becomes official, and I reflect over the years that Ballmer and Bill Gates worked closely together and, then, over the years where Ballmer himself was in charge and Gates retired to focus on his nonprofit work, I come away with one conclusion: The leadership of Steve Ballmer was full of unrealized potential.
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This analysis comes from two angles: The financial component of Microsoft's performance — which is absolutely important, given that the company exists to serve shareholders, generate a return for those owners and in general profitably serve their interests — and the visionary and innovative component of Microsoft's performance—also important because Microsoft essentially birthed the personal computing revolution. This company has, or at least had, the power to lead industries, affect change and generally drive actions around the planet as far as technology evolution goes.
Microsoft's Financial Performance: It's Hard Not to Be Impressed
Financially, Microsoft's performance has been excellent. Under Ballmer, Microsoft has started and grown more than 16 individual businesses that generate more than $1 billion of annual revenue. Its server and tools business has grown in double-digit percentages year-over-year for more than a decade now. Its portfolio of patents has it collecting money from every single Android phone sold, even without being involved in the manufacture of sale of those devices.
Microsoft Office, including Word, Excel, PowerPoint and Outlook, is the de facto corporate standard. As much as Google would like to try to get large companies to move to Google Apps for Business en masse, it simply isn't going to happen — and Microsoft will continue collecting handsomely for the privilege of running Office on millions of corporate desktops and laptops.
The company is solidly profitable, owns more than $100 billion of net assets and possesses more than $70 billion in free cash. Put under a lens that excludes anything but financial performance, this company is rocking, and as CEO, Ballmer deserves much of the credit for this admirable set of results.
Ballmer was executive vice president of sales and support before taking on the CEO reigns from Gates, so it makes sense that he is a numbers guy and would place a priority on delivering good-looking financial results to shareholders. It would be difficult to argue that he did not deliver on this important responsibility.
Microsoft Strategic Execution and Innovation: Neither Strategic Nor Innovative
From an innovation and strategic execution standpoint, however, the results are decidedly more negative. Take just a few examples:
- With the exception of much of Microsoft's server and tools business, which continues to churn out world-class software and services, the company has seen itself eclipsed in just about every major area in which it does business.
- During Ballmer's reign, we saw Microsoft fall behind in the mobile revolution. It languished with a Windows CE-based phone platform that no one cared about, took until 2010 to release an update to that platform and then scrapped the whole thing to re-release a Windows NT-based phone platform in 2012. The results are poor at this point in time, in terms of adoption, critical apps in the marketplace and sales. And far as tablets go, despite pioneering the Tablet PC in 2001, it let Apple dominate the tablet space and saw Google bring a tablet form factor to Android as well.
- Ballmer famously attempted to buy a failing search engine that's still flailing about (Yahoo) — and only by a stroke of luck was that acquisition undone. In response, Ballmer set out to develop Microsoft's own search engine, Bing, which is a distant competitor to the other major search providers.
- Microsoft has seen the precipitous decline in PC hardware sales, and Ballmer has failed to reenergize the marketplace with any product that would arrest this decline. He's also failed to release consumer oriented software and services that excite the mainstream.
- As if declining PC sales weren't enough, Ballmer made a gutsy call to directly compete with its OEM partners, who over the past two decades contributed significantly to Microsoft's wealth and dominance. As a result, OEM relations are tenuous, and the Windows RT operating system, one of Microsoft's tablet plays, hangs in the balance.
- Microsoft still has a couple divisions that seem to be perpetually losing money.
For my money, the deciding factor is the resurgence of Apple. Microsoft and Apple fought a fierce battle during the 1980s and early 1990s. By the mid-1990s, Apple was left for dead and nearly bankrupt. You may recall Michael Dell's famous words that Apple ought to just sell off its assets and return the money to shareholders because it was virtually worthless.
At Microsoft's pinnacle of power, Apple was essentially dead. But it came back.
Perhaps distracted by Thomas Penfield-Jackson and the antitrust trial, or perhaps hobbled by Bill Gates handing the reigns to Steve Ballmer in the year 2000, or perhaps for some other reason, Microsoft let Apple recapture its magic, begin the mobile revolution and make its way from "worthless" to the most valuable company on the planet Earth in 2012.
If Ballmer were aware of his competitors and able to articulate and execute a strategic vision, Apple would not have made such a dramatic comeback. It's that simple.
Candidates to Replace Ballmer Few, Far Between
This news begs the question: Who's on deck? The answer is much less clear. Despite the recent reorganization of the company's executive team, there's no clear cut successor. Microsoft is a diverse company operating in a number of sectors, so any chief executive needs the ability to clearly see and make decisions in a cross-discipline approach. He or she needs experience both in technology as well as business.
Of the current crop of Microsoft executives, only Tony Bates and Satya Nadella have the chops and experience that Microsoft needs in a visionary leader. Both have experience running organizations, are sufficiently technical to craft a strategic plan and continue the "devices and services" transition, and have the gravitas to be the chief executive.
Of the two, my vote goes to Nadella, who helms the only part of Microsoft that is both consistently profitable and growing world class offerings that meet with customer approval: The Cloud and Enterprise Group. (Of course, there's the distinct possibility the board will choose an outside candidate. At that point, all bets are off.)
Ballmer Was No Visionary, But He Didn't Mess Up, Either
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But Steve Ballmer wasn't a great CEO. Sure, the financial performance was great from a business standpoint, but shareholders weren't really rewarded with stock price appreciation — and much of that stagnation may well be linked to the lack of innovation, strategic response and execution that has beleaguered the software giant since 2000.
Ballmer was a mediocre CEO who managed not to mess up the money too much but lacked the vision and technical acuity to really respond to the changes in the technological landscape. The challenge to Microsoft now is to find someone who can get both of those facets down quickly.
Jonathan Hassell runs 82 Ventures, a consulting firm based out of Charlotte. He's also an editor with Apress Media LLC. Reach him via email and on Twitter. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.