April 06, 2006

Is Microsoft Like GE?

On Craig Newmark's blog (that is, the North Carolina Craig Newmark, not the San Francisco one), David Foster comments on my discussion of Microsoft.

He writes:

"A computer in every home...Personal computers everywhere"...I don't think it's correct that a successful company must have only one mission, where "mission" is viewed at this level of specificity. The analgous mission statement for the original General Electric would have been "electricity in every home...electricity everywhere." This certainly would not have encompassed the jet engine business, or the healthcare business, not to mention the finance business.
In a decentralized company, divisions can have their own individual missions. With organic growth, these business divisions can emerge from an original core competency...as GE's jet engine business drew on the skills developed in making power generation turbines..but develop very different markets and missions.

My Comments

There was a point at which Microsoft envisioned itself as the next GE-style diversified conglomerate: In the mid-90's Microsoft went on an investment spree, building a TV company (along with GE!) and a content business, investing in cable and telecommunications, and so on.

But a decade later, things are unchanged. Microsoft is still the "Windows and Office" company (and Xbox too). What happened? My thoughts below...

An Observation about Growth

First, an aside.

I find it interesting that the undercurrent of most commentary - including Foster's observation above - is that "growth" is the obvious and ultimate goal. I think this way of looking at things may actually be the cause of the problem.

Most technologists got into the field because of the idea of "changing the world for the better," not the idea of "building the biggest company." Aiming for "growth for growth's sake" is a bit of a hollow mission, isn't it? And Microsoft's ruthless reputation notwithstanding, I believe most people at Microsoft are motivated by their beneficial impact on the world.

There is nothing wrong with growth. I am just not sure it is the actual goal.

Okay, rant over. Back to the topic at hand.

On Diversification and Microsoft

Today's Microsoft has a tradition of putting all engineers to work in a single campus in Redmond, where there is constant reorganization and tight supervision by a single small management team at the top. The structure makes it easier to tie new efforts to the powerful Windows franchise. It is a structure put in place on purpose. But the structure means it is a very different company from GE.

Microsoft's "integrated innovation" strategy ends up having two deleterious effects:

  1. A lack of imagination by leadership (who has too many things to worry about in Windows to really tackle more than one vision at once).
  2. A homogenous culture among product developers (who are moved between divisions frequently and end up looking at all the problems in the same light).

Despite attempting to enter many businesses, Microsoft is not diversified. It discovered that it cannot run a content business; and it has trouble competing in new markets that have a different character from its core business.

Two Solutions

But David Foster is right. There is more than one way out of the pickle.

The problem could be solved by splitting the company, or finding a management team that is happy with less control. I have suggested that in the past. Diversification could work, but it needs to be a structural change, and it is clear that the founders are not enthusiastic about that idea.

But recently I have also started to believe that non-diversification is okay, if the company can actually focus on their core competency.

Any person who has struggled with getting a modern PC to do what they want knows that the "personal computing" business is nowhere close to done with its mission.

There is plenty of life left in that old Altair.

Posted by David at April 6, 2006 06:44 AM

Thanks for the response. I'll try to comment further later today.

Posted by: David Foster at April 6, 2006 10:00 AM

OK...a few thoughts:
1)It's true that growth isn't necessarily the only appropriate mission for a firm. But companies pursuing a low-growth strategy should recognize it, and pay substantial dividends so their shareholders can get return in that way. Perfectly legitimate, but I don't think consistent with Microsoft's self-image.
2)People in multi-market companies aren't necessarily motivated only by money. There are certainly people at GE Healthcare and GE Aircraft Engine, for instance, who like those industries and who are committed to better patient care and aviation safety, respectively.
3)Your point about geography is a good one. Companies that are seriously committed to decentralization usually need to decentralize geographically, as well as organizationally.
4)One can always make arguments for "optimizing" things by tying everything together..keeping the opsys group and the applications group in close sync, for example...but this analysis usually doesn't consider the lengthening of decision cycles that takes place.
5)Although it may seem an unlikely comparison, GM has some of the same issues as Microsoft..the centralization of engineering and manufacturing brings about the same lengthening of decision cycles.

Posted by: David Foster at April 6, 2006 05:55 PM
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