Microsoft drops stack ranking system: Did the incoming CEO make that happen?

We’ve heard that Microsoft’s board is eager to bring on a new CEO before the end of the year to replace outgoing Steve Ballmer (see Who’s calling the shots?), and there is a short list of people being discussed: Stephen Elop (former Microsoft exec, former CEO of Nokia), Alan Mulally (now CEO Ford), Paul Maritz (former Microsoft exec, now CEO of Pivotal), and Tony Bates (former CEO Skype, now Microsoft’s head of evangelism and business development).

I believe that those that have deep experience at Microsoft may have a correspondingly deep aversion to the company’s stack ranking approach to employee evaluation and compensation. The approach — where managers are required to fit their direct reports against distribution targets, so that a certain proportion must be considered as not meeting expectations for their job, independently of whether or not the manager agrees — has led to wide-spread dissatisfaction among managers and employees. In fact, many attribute the company’s ‘lost decade’ to the internal stresses, outright competition and sabotage that the approach creates, such as Vanity Fair contributing editor Kurt Eichenwald.

Yesterday, Microsoft changed its long-standing policy, as was revealed in a memo from Microsoft Human Resource lead, Lisa Brummel, in which she stressed moving away from ranking on a curve, the need for more feedback to employees on their performance, and a transition to greater levels of teamwork and collaboration.

Ballmer has been CEO for quite a while, and he’s supported stack ranking all along. He could have changed that at any point, but did not. It’s reasonable to support that others in the organization, like Brummel, have been advocating for a change for a long while. Ballmer is a lame duck, so it’s conceivable that Chairman Gates gave Brummel the go ahead on the change.

There are a number of aspects of the reorganization that was started in June 2013 that have not been completely solidified, and the status of Stephen Elop is one aspect of that. As the Nokia deal is finalized, Elop would be taking control of the Microsoft devices group, which will include Nokia devices. But if he comes in as CEO, that would have to be rejiggered.

Leaving aside Elop’s status, is it possible that a CEO has been picked? One that wants stack ranking dropped immediately? My feeling — and it’s just that, a feeling — is this: one of the candidates has been picked, and he’s made it clear that stack ranking is a terrible system, one that is linked to a great deal of the dysfunction going on inside Microsoft. That would argue for someone with deep experience at Microsoft, like Maritz or Elop. And of the two, Maritz has had exposure to more modern software companies’ talent management models, like VMware and Pivotal.

Taken from another angle: it would be bad to make this change prior to a new CEO coming on board who wants to take some other approach to talent management. The board would be tying the hands of a new CEO. So you have to figure that at least all the candidates being considered are opposed to stack ranking, even if they haven’t made a final choice.

This transition will the start of a positive change at the software giant. The next step is to announce the new CEO, and begin the long process of finding a new vision and focus for Microsoft.

An aside: the news of Microsoft’s abandonment of stack ranking comes right on the heels of Marissa Mayer’s newest black eye: a brouhaha arising from the company’s stack ranking system (see Apple Q4, Gates disses Zuckerberg, Mayer’s Cultural Revolution, and Chautauqua) and the griping that it is causing there, for all the same reasons.


At long last, some analyst love for Microsoft

With Microsoft, Wall Street tends to focus on the negative when it should keep an open mind about the many options available to the next CEO, said Nomura analyst Rick Sherlund.

Microsoft results point to the future, one that is all business

Microsoft posted its quarterly results yesterday, and in shows a company in a continued trajectory toward the business market, and a rapidly declining consumer side.

The strong showing of enterprise products and services — which grew 10% to $11.2 billion — managed to overcome the poor showing of devices and consumer software, which only grew 4% to $7.46 billion. Net income of $5.24 billion, up from $4.47 billion last year.

The buzz that Microsoft might announce a successor to Steve Ballmer, the CEO who has announced his near-term departure (see Microsoft’s Ballmer stepping down in next 12 months), but that turned out to be wishful thinking. The discussion of various candidates continues, with the same old names being reported: Alan Mulally of Ford, Paul Maritz, a former Microsofty now at Pivotal, Stephen Elop, now at Nokia but soon to become part of the pending merger, and Tony Bates, now at Microsoft but the former CEO Skype.

Ballmer — as I have said many times in recent months — continues with the same old story, that Microsoft will ultimately prevail in the consumer push it is making into companion devices (smartphones, tablets), gaming, and search. I predicted that the company will send tens of billions before coming to its senses, and finally focusing on being the leading enterprise software company. And they continue down that rat hole. Here’s Ballmer:

Our devices and services transformation is progressing and we are launching a wide range of compelling products and experiences this fall for both business and consumers. Our new commercial services will help us continue to outgrow the enterprise market, and we are seeing lots of consumer excitement for Xbox One, Surface 2 and Surface Pro 2, and the full spectrum of Windows 8.1 and Windows Phone devices.

Well, he’s half right.

Sooner or later, Microsoft will have a leader that will spin out or shut down the consumer side of the business, and use that company’s considerable resources toward becoming the leading enterprise software company. Instead of playing an endless game of catch up with Google and Apple, they can turn their attention to Salesforce, Oracle, IBM, and SAP. But they will have to stop tinkering with tablets and copying Google Glass, and double down on tools for a new world of work, or they may find that Apple and Google will be displacing them.

Apple announced this week that the company was making its suite of office productivity tools free for new hardware buyers, taking direct aim for Microsoft’s dominant position with Microsoft Office (see Apple moves to edge out Microsoft Office and Google Drive). Google Apps has been a thorn in Microsoft’s side for years. And Microsoft still doesn’t have Office on the iPad. Time is running out. And if they lose with Office, they may wind up losing it all.