Microsoft's Lost Decade

The Bubble Bursts

• Many of the longtime executives let new employees handle the work while they themselves lolled around, waiting for the next vesting period when they could exercise more options—a behavior known derisively by the younger hires as “rest and vest.”
• Within a year, Microsoft had lost more than half its value, never to return to its soaring heights of the past. The stock options—once the golden key to untold wealth—were underwater.
• The Microsoft Millionaires were now working alongside the Microsoft Minions. […] A financial fissure tore at already strained relationships between the Old Guard and the new blood.
• Small changes in corporate policy began to be perceived as slights to those who hadn’t been lucky enough to land at Microsoft in time to become millionaires. When the company decided in about 2003 to save money by no longer providing towels for employees using the company showers, the response was pure fury. The older employees had millions, and the younger ones couldn’t have towels? “If you just add up the time people spent sending angry e-mails about the towels disappearing … I expect they lost a lot more money than the cost savings from the towels,” a former lead software-design engineer said.
• “People realized they weren’t going to get wealthy,” one former senior executive said. “They turned into people trying to move up the ladder, rather than people trying to make a big contribution to the firm.”
• More employees seeking management slots led to more managers, more managers led to more meetings, more meetings led to more memos, and more red tape led to less innovation. Everything, one executive said, advanced at a snail’s pace.
• Sometimes, though, the problems from bureaucracy came down to a simple reality: The young hotshots from the 1980s, techies who had joined the company in their 20s and 30s, had become middle-aged managers in their 40s and 50s. […] When younger employees tried to point out emerging trends among their friends, supervisors sometimes just waved them away.
  • AOL Instant Messenger let you set a status that friends could scan on their contact list to see what was up; MSN Messenger did not. Younger employees thought this a useful feature–a nascent urge that has since been slaked by social media platforms–but higher-ups blocked it

“The Bell Curve”

• By 2002 the by-product of bureaucracy—brutal corporate politics—had reared its head at Microsoft. And, current and former executives said, each year the intensity and destructiveness of the game playing grew worse as employees struggled to beat out their co-workers for promotions, bonuses, or just survival.
• At the center of the cultural problems was a management system called “stack ranking.” Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees.
• a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings.
• [E]ven achieving every [goal set by your manager] was no guarantee of receiving a high ranking, since some other employee could exceed the assigned performance. As a result, Microsoft employees not only tried to do a good job but also worked hard to make sure their colleagues did not.
• There was some room for bending the numbers a bit. Each team would be within a larger Microsoft group. The supervisors of the teams could have slightly more of their employees in the higher ranks so long as the full group met the required percentages. So, every six months, all of the supervisors in a single group met for a few days of horse trading.
• On the first day, the supervisors—as many as 30—gather [and make a first pass at assigning team members to rankings]. Usually, though, the numbers don’t work on the first go-round. That’s when the haggling begins.
• The best way to guarantee a higher ranking, executives said, is to keep in mind the realities of those behind-the-scenes debates—every employee has to impress not only his or her boss but bosses from other teams as well. And that means schmoozing and brown-nosing as many supervisors as possible.
• Current and former executives said that, each year, they tried to explain to Microsoft’s top executives why the company was struggling in the quality of its innovation compared with Apple, Google, and other competitors.
• The information was conveyed through employee surveys conducted every six months. Time and again, the message from the responses was the same: groups at Microsoft that are supposed to be working together aren’t, a symptom of the stack-ranking program. And in response the company did … nothing in particular.

Jobs Creation

• Ballmer’s key business philosophy for Microsoft was so antiquated as to be irrelevant. The Microsoft C.E.O. used to proclaim that it would not be first to be cool, but would be first to profit—in other words, it would be the first to make money by selling its own version of new technologies. But that depended on one fact: Microsoft could buy its way into the lead, because it always had so much more cash on hand than any of its competitors. No more. The advantage that Ballmer relied on for so long is now nonexistent.