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The downfall of innovation at Microsoft

Microsoft used to be the tech industry leader, now it's playing catch up. Kurt Eichenwald has written about the state of the company in the August issue of Vanity Fair.

Kai Ryssdal: Microsoft closed down today: $29.99 a share. Apple traded up: $613 a piece. Google flat at $585. That's a fairly stark, albeit just a single, indicator of the state of the high tech world right now. A world that might well be summed up this way: Whatever happened to Microsoft? How could a company that was so far ahead, get so far behind?

Kurt Eichenwald digs into exactly that question in the current issue of Vanity Fair. Welcome to the program.

Kurt Eichenwald: Thanks for having me here.

Ryssdal: This is kind of a no-holds-barred hard fall on Microsoft here, what happened to this company?

Eichenwald: Well the worst thing that happened to the company is they forgot what they were. You know when you are a great software company and then become a great server company, and you are watching everybody in the industry with a little bit of jealousy, and thinking well, 'I want to be a device company, I want to be a game playing company, I want to be a search engine company, and I want to be everything everybody else is,' you start doing lots of things and not many of them well.

Ryssdal: Was there something structural though about how Microsoft lost its way? That's the gist of this article, that this company has forgotten what it was and can't get back to where it wants to be. 

Eichenwald: Well the worst thing at the company is, well what you're talking about by taking on all those different product lines and businesses, is a demand for an immense amount of innovation. And the same time they've created an internal corporate culture that actually prevents people from innovating. Probably the worst thing, and they talked about it in the article, is a system called 'stack ranking.'

Ryssdal: These are employee evaluations, tell us about those, because you spent a lot of time on this.

Eichenwald: Suppose you are in a unit with 10 other people. Your boss thinks every one of you is spectacular. Well it doesn't matter because at Microsoft, you have to designate two of them as spectacular, four of them as mediocre, and then the rest as terrible. What you've done is create a system where every employee is not only trying to do their best, but every employee is trying to make sure that their colleagues don't. Creating that environment is the exact opposite of what you want to do in terms of encouraging innovation. 

Ryssdal: The other thing though about Microsoft and innovation is -- and you know, technical experts out there, call me if you think I'm wrong -- but they're always a day late and a dollar short, almost literally. 

Eichenwald: Well that's what's called not having a vision. Starting in the early 2000s, the man who now is their chief executive -- Ballmer -- would say we are going to be last to cool, first to profit. And last to cool, what that means is, we're not going to be cutting edge. We're going to look at what other people do and we're going to do what they do. For example, the people in the search engine division, Bing, were always telling me, all we did was just follow Google. Nobody had time to come up with their own ideas because because there is so much bureaucracy. One of the things I mention in the article is that the iPhone right now, something that didn't exist five years ago, has more in sales than all of Microsoft combined. And you look at that and say what last to cool means is also last to profit.  

Ryssdal: How much of this though is the CEO of Microsoft, Steve Ballmer? Say what you will about Bill Gates, he hasn't been day-to-day hands on in that company for what -- 10 to 12 years now. But a lot of what Microsoft is today is what he built, right?

Eichenwald: Well the whole veering off into devices and search and the rest of it -- I don't think that Bill Gates was stomping his feet saying don't do that, but these were really -- Ballmer was the guy in charge. If you are going to go into those areas, you need to go into those areas with, again, a vision of how you are going to do it differently. Now the wave has passed by them and they are still trying to surf. 

Ryssdal: Kurt Eichenwald, his article on Microsoft is in the August issue of Vanity Fair magazine. Kurt, thanks a lot.

Eichenwald: Thanks for having me here.

 

 

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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