Why Microsoft's Next CEO Will Fail

Steve Ballmer isn't necessarily a bad CEO. After all, Microsoft's on strong financial footing. But Ballmer made enough bad product decisions--Zune, Kin, Vista and perhaps Surface--to suggest that Microsoft employees, swayed by a forced-ranking employee rating system, told him what he wanted to hear, not what he needed to hear. If that culture doesn't change, Ballmer's replacement will fare even worse than he did.

By Rob Enderle
Thu, August 29, 2013

CIO — Microsoft, like a lot of companies, adopted an internal employee review process called "forced ranking." The process, a byproduct of General Electric's turnaround, can be appropriate as a short-term measure to address a long pattern of reviews based on entitlement rather than performance.

Over the long term, though, forced rankings tend to pit employees against each other. They focus on assigning and avoiding blame, not finding and correcting problems. In such a system, it can be more lucrative to let a peer make an avoidable mistake than to avoid the mistake altogether — the peer will be fired or graded down, paving the way for a better review and higher raise for you.

In addition, Microsoft has adopted an internal research methodology that gives executives the data they want to see, not the data that reflects the real world. Decisions are often based on false facts.

Steve Ballmer, who graduated at the top of his class at Harvard and had a higher IQ than 98 percent of the folks in Microsoft, failed under these two massive disadvantages. The odds that the next guy will be as smart as Ballmer are low, but the odds that these practices will be retained are high.

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It's even more likely that Microsoft's new CEO will fail. In effect, by not fixing the reasons why Ballmer failed in the first place, Microsoft may have just assured things will get worse instead of better.

Forced Ranking Only Enforces Office Politics, Sets Firms Up to Fail

Forced ranking is a plague on business because it takes the single tool a manager has to motivate employees — the annual review process — and turns it into a problem. Managers rank their employees from top to bottom and must force out the ones at the bottom. It doesn't matter how good you are. What does is how good everyone else is; there are limited slots for rewards every ranking period, and there are also a few slots for employees to effectively get managed out of a job.

It doesn't stop there. Under forced ranking, a truly great manager who's able to choose the best people is at a huge disadvantage to a political manager who instead builds a team that fits his or her bell curve. Granted, this manager still have to get things done, but if you're good with setting expectations — something a politically focused manager is always good at — you can get ranked highly even if you have a poor team, as long as your team doesn't complain and you set your group's goals acceptably low.

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