What is behind Microsoft and Apple's reversal of fortune?
17 October 2013

What is behind Microsoft and Apple's reversal of fortune?

A decade ago Apple was presumed to be over and closed for business. At that time, Microsoft was the dominant force in technology and to prove it Microsoft was fighting antitrust charges.

A decade ago Apple was presumed to be over and closed for business. At that time, Microsoft was the dominant force in technology and to prove it Microsoft was fighting antitrust charges. There has been a total reality inversion and times they are a changing. Microsoft's stock price remains flat in 2012 while Apple's has multiplied nearly tenfold.

What is behind Microsoft and Apple's reversal of fortune?

Microsoft generates roughly $20 billion a year in operating income on $58 billion in revenues. To investors it has become dullsville. There isn't enough innovation for investors to become thrilled.

Investors in the current landscape want to see lots and lots of growth which comes from innovation. Microsoft needs innovation and the company is not delivering it.

Failures to innovate comes in two formats:

  1. Failures of Innovation
  2. Failures to Execute

Failures of Innovation

Microsoft has recently seen a decline in it's ability to attract top talent. For many decades Microsoft was an employer of choice for the world's greatest software minds. Today this  is no longer the case.

Microsoft has also copied other innovations after other's have succeed. Windows was delivered after the Mac launched. The Surface tablet was delivered after the iPad.

Why couldn’t Microsoft make the iPad, iPod, BlackBerry or Kindle? After all, it's America's most famous and profitable technology company, the company that made PCs ubiquitous and affordable, the company that used to bring us the future.

According to former Microsoft Vice President Dick Brass's editorial in The New York Times, Microsoft "never developed a true system for innovation," but instead fosters destructive competition.

He cited two examples. His team invented ClearType, a graphic  display technology that made type more readable. The critically acclaimed innovation was designed to help sell Ebooks. ClearType didn't make it into the Windows products for a decade because other groups within Microsoft felt "threatened by our success," and falsely tore it down—one. The vice president even said he would not support ClearType technology in Windows unless Brass handed control of the programmers and program to him.

After Brass' team developed a tablet computer, the vice president of the Office group decided he didn't like the concept and refused to make compatible Office applications for the new tablets.

As Brass put it, Microsoft's "dysfunctional corporate culture" allowed "the big established groups" to "prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence."

Failures to Execute

Microsoft has a history of failing to execute on many brilliant ideas such as tablet PCs, e-books, smartphones, Web TV, and portable music players.

Some analysts have blamed this on too much mutually-destructive warfare within Microsoft.

In an interview in Der Spiegel, Craig Mundie blames Microsoft's failure in mobile on cyber criminals. Noting that Microsoft had a music player before the iPod and a touch device before the iPad, he claims a failure to execute within Microsoft resulted in Microsoft losing its 'leadership.'

The reason for the failure to execute, in his words: 'During that time, Windows went through a difficult period where we had to shift a huge amount of our focus to security engineering. The criminal activity in cyberspace was growing dramatically ten years ago, and Microsoft was basically the only company that had enough volume for it to be a target. In part because of that, Windows Vista took a long time to be born."

Innovation Versus Ongoing Operations

Innovation and ongoing operations are always in conflict. Whether innovation thrives depends a great deal on how these conflicts are resolved.

Ongoing operations are big and established. The leaders of ongoing operations have more concrete arguments for why they should get what they want. They face relentless pressures to deliver amazing results, every day, every month and every quarter. Its mind numbing.

Innovation initiatives are small and experimental. Innovation efforts offer only risks, hazards and distractions in the short run and abstract hopes in the long run.

It is very common that many innovation leaders feel that their biggest enemies are inside their own companies.

This is an internal war of opposites within any company. Its intense. Microsoft fell pray to this internal warfare and melted down.

Solutions: Forging Partnerships Between Innovation and Ongoing Operations

(1) Part one of the solution to this internal warfare is to forge improbable partnerships between innovation and ongoing operations.

Every initiative needs a close collaboration between its dedicated team and the performance engine, the group that runs the larger day-to-day business.

The success of this partnership can only be built on mutual respect.

There is a symbiotic reality to operations and innovation. Innovation leaders must recognize, first of all, that they need the performance engine.

Almost all innovations inside established companies build on existing assets.

(2) Part two of the solution to this internal warfare, they must realize that conflict in the partnership is normal.

The conflict is not the result of laziness or instinctive resistance to change. The war is the result of good people doing great work while trying to make the performance engine run as effectively as possible.

Leaders of the performance engine, must recognize that no performance engine grows or survives forever. At some point innovation must take place so operations is able to continue to operate by maintain new products and services.

Both sides depend on one another.

Microsoft has tripped over by stifling innovation through an overemphasis on ongoing operations.

The Role of Senior Executives

Of the many steps that are needed to make the partnership between ongoing operations and innovation work, the involvement of the company's senior executives is the most important action.

Senior executive must directly adjudicate and mediate low-level conflicts between innovation and ongoing operations. Senior management cannot spread themselves too thin and they cannot do too much or they will drown in the deluge of work.

How Apple Succeeds and Microsoft Fails

Apple has a performance engine, and it is a tightly run ship.  Apple deals with the tensions between today and tomorrow in two ways.

  1. Apple focuses on one big launch at a time
  2. Company leaders at Apple stays on top of every detail

Apple's focused launches build unity and direction within the organization. Apple's leadership keep the conflict and tensions to a minimum.

Microsoft has failed to resolve internal conflicts and senior executives have actually exaggerated these conflicts, making the situation worse.