Can Microsoft Culture Be Changed?

A piece on Forbes discusses the current state of Microsoft, and suggests a break-up as one way to fix the company. While I’m undecided on the breakup idea, the author made one comment early on as part of the argument in favour of a break up. This comment is one that I disagree with, and we have historical evidence the author is wrong.

Culture Change Is Not Impossible

The comment was about changing the culture. Specifically, they said:

“I’m afraid that changing an internal culture is a great deal harder than some seem to think and so I’m most unconvinced that this will actually be possible.”

First, I haven’t seen anything in other articles that says that changing the culture will be easy. Pretty much anyone who has commented on the idea has indicated that it will be very hard. Someone would have to either be optimistic or naive to think culture change would be easy, particularly at a large company like Microsoft. I’ve seen few that hold illusions about just how hard the transition will be.

Beyond that, though, is the assertion that the author believes it cannot be done. Apparently the author is unaware of history, and a historical event where a major company did change its culture, and quite dramatically. That company is IBM.

Parallels Between IBM and Microsoft

While Microsoft is nowhere near the dire financial straits that IBM was in around 1992, there are some parallels between their situations.

Consider IBM in the early 1990’s. This was a company that had been at the top of the technology food chain since the late 1960’s. They owned the heart of the biggest part of computing for the better part of 2 decades, the mainframe. IBM mainframes were de rigueur for medium and large corporations. IBM used that brand recognition to bootstrap the PC business, and helped to build the mid-range business for the AS/400. But inside IBM, the mainframe was king, and few tried to do anything that would compete with the mainframe. The company did a lot to minimize or eliminate overlap, and that lead to a disastrous initial foray into UNIX that fell flat on its face. IBM saw the first warning signs that UNIX servers, and even workstations, were going to cut into their business. But they remained beholden to a strongly-held belief that the mainframe was too big and too important to be replaced.

The parallels to Microsoft, or at least parts of it, are interesting. The heart of Microsoft’s business, the Windows and Office products, are under attack and seeing declines at the hands of tablets. Sure, Windows has lost a small amount of ground to the Mac, but the iPad has done more to cut into Windows licence sales, and Office licences that go with it, than the Mac has ever done. The iPad and the tablets that followed ended the netbook. It is cutting into the entry-level notebook market. Tablets are still a long way from replacing the more powerful workstation-class machines (both notebook and desktop), but for routine work, people are finding the iPad and Android tablets work just fine, thank you very much. Microsoft’s response has been, like IBM against UNIX, comprised of “more of the same”. So far, we’ve seen Windows Phone stumble along. Windows RT has been virtually DOA. Windows 8 has been largely ignored, and in some cases reviled, by the mainstream PC buying market. Microsoft just doesn’t have a real answer to the iPad, any more than they had an answer to the iPod or the iPhone. They haven’t responded with “better”, just “different, but more of the same”.

So, here you have a study in two companies with events separated by 2 decades. But both feature companies that were stable, senior and with deeply entrenched cultures whose roots go back decades. It would be easy to say that changing a culture that old and that entrenched would be impossible. But history says it can be done.

Rebirth Of IBM

While it is probably a bit of an overstatement, it is fair to say that the IBM that emerged under Lou Gerstner was nothing like the IBM he inherited that spent most of its time under Thomas Watson Sr. and Jr., as well as insiders groomed and trained by those two men or their successors. Gerstner was the first outsider brought in to run IBM. He came to the company when it faced a severely depressed stock price, falling sales and falling margins. They were in imminent danger of facing a restructuring under Chapter 11.

Before Gerstner, the company tried a couple of things to shore up the numbers. Having had a history of avoiding layoffs, IBM first tried to assign staff to sales organizations. The thinking was that more salespeople would lead to more sales, which would lead to more revenue. The problem was, it doesn’t work. More people (like the fallacy of more stores) just leads to continued or higher costs while the company spends money chasing deals they really can’t win, or has too many sales groups chasing too few customers. A flood of new “salespeople” with inadequate training and, in some cases, no skill for the job, harms the brand. It doesn’t strengthen it.

The next step was the unthinkable: layoffs. For the first time in their 75 year history, IBM had to lay off a significant number of people. It helped the numbers briefly, but it didn’t offset the fact that sales and margins continued to fall. Hiring people was hard, in part because the company featured a culture that was decades out of step. Technologists wanted a relaxed a contemporary work environment. They wanted to wear jeans and tee shirts to work. They wanted flexible work hours. IBM really didn’t offer that. I had colleagues that worked inside IBM, in some of their main labs, and it sounded like a trip back to the 1950’s. Shirts and ties at a minimum, fixed work hours, a ruthless clean desk policy and a rigid environment meant for Serious Work.

Gerstner’s First Day

Lou Gerstner arrived at IBM wearing khakis, a flannel shirt and casual shoes. He did this for a reason: IBM had to change to survive. Gone were the blue suits, more restricted dress code and inflexible work hours. The company offered beer and wine at company functions for the first time. People were urged to think differently, and work differently. It was a start, but it wasn’t the only change.

Part of the change included pushing the mainframe to the back, making it less prominent. Instead, the company focused more effort on their new RS/6000 UNIX servers, and did more to promote the AS/400, both in direct competition to the mainframe. IBM also started to put more emphasis on software, and worked to increase the services side. Divisions that didn’t contribute enough, or didn’t build on the brand, were either shut down, spun off or sold. Gone were the printers, telephone switches and attempt at the copier business. The retail effort on PC’s was diminished as the company focused on their real customers, the enterprise.

It took time. Some in the company were alienated. It wasn’t the IBM they had known from prior years. But it worked. With more effort put on sales and marketing, the RS/6000 climbed to give Sun and HP a run for their money on UNIX servers. The AS/400 business grew. Sure, the mainframe business shrank, and IBM was not longer primarily a “mainframe computer company”. But the turn-around created a company that was somewhat more nimble, and would see growth in their core markets.

Was success guaranteed? Of course not. Gerstner’s attempt to remake IBM could have fallen flat on its face. There could have been far more pushback to the cultural changes, as old-school IBM’ers decided they didn’t want to change, and new people gave up and left. IBM’s culture had been developed by Thomas Watson, Sr. starting back in the 1920’s, and had been very slow to adapt and evolve. Trying to overcome 70 years of cultural inertia is very hard, but it can be done.

Other Examples?

IBM is a single point. Certainly a substantial example, but it is only one, right? Changing corporate culture is certainly fraught with peril, and it can fail, even disastrously. When Ron Johnson took over JCPenney, part of his goal was a culture change. It didn’t work. Attempts to remake the culture at HP have been difficult, as have feeble attempts at fixing culture inside some telcos. GM is still struggling to remake their internal culture, as any attempt at change seems to be undone within months. But IBM isn’t an isolated example.

Ford was a company that required a massive cultural makeover, and one it got when it hired Alan Mullaly in 2006. Even Apple had to reboot their culture in 1997, when Steve Jobs came back, although that was a culture that had only been dysfunctional for just over a decade. Chrysler has had to remake their corporate culture a couple of times over their 80+ year history.

So cultural change at a large organization is possible, but it is very hard. I don’t know anyone that would expect otherwise. It will be a challenge for Microsoft. A lot of the current culture, and current attitudes, trace their origins back to when Bill Gates was CEO. When I worked there as a consultant in the 1990’s, it was essentially a big personality cult. You could tell when someone was talking about Bill Gates vs. Bill Smith just by the way the said “Bill”. The company has always tried to foster a competitive internal environment, and one which projected one image externally, but the real structure was different.

Trying to alter that, and the internal attitudes of the people who work there, will be difficult. The big challenge will come because the change won’t just mean repudiating what Ballmer has done (and which, I understand, few inside will lament) but it may also mean repudiating what Bill did as well. Unlike IBM and Ford, whose founders that set the tone were long gone, Bill is still around and corporate memories are recent. That will impact attempts at change, and any new CEO would be well-advised to recruit Bill Gates to help. Bill saying that things he set in motion have to change will carry more weight.

Changing Microsoft culture won’t be easy, not by any stretch. It will take a few years, at least. But history says it isn’t impossible. Hard, yes. Impossible, no.

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