Loss of Focus at Microsoft Worries Top Exec

By Peter Galli  |  Posted 2004-07-06

Loss of Focus at Microsoft Worries Top Exec

Microsoft CEO Steve Ballmer on Tuesday sent his annual e-mail update to all full-time staff telling them what the companys business priorities are and how the company is faring in meeting its areas of strategic focus.

In the lengthy e-mail, which was seen by eWEEK and is timed to coincide with the start of the software makers fiscal year on July 1, Ballmer moved to clarify the core issues facing the Redmond, Wash., company, telling staff that "looking ahead to FY05, I am excited.

"However, reading some of your comments in the MS Poll and in mail I have received, there are core issues that are not as clear to you as I would like. Will we be first with important innovations? Will process excellence lead to greater ability to make an individual difference?

"Will our focus on costs hurt employees personally and will it hinder new investments? Will we grow and will our stock price rise? Will the PC remain a vital tool and will we remain a great company?" he said.

Ballmer went on to say that he is "incredibly optimistic" about the future and that while Microsoft Corp.s strategies and initiatives are critical, it also must renew its culture and values—particularly accountability.

"Nothing breeds confidence like success—success in the hearts and minds of our customers, and success versus competitors, be they established, open source or startups. We must continue to compete as relentlessly as ever, while also reflecting our industry leadership responsibilities …

"We will work this year to bring more focus and rigor to developing our people: as individual contributors, as teammates, as thought leaders and as people leaders. Microsoft is the best place to be, and we will make it even better," he told employees.

Ballmer also addressed Microsofts vision of "integrated innovation" and how this would play out in the next generation of Windows products, code-named Longhorn.

Integrated innovation, he said, is about an experience in which a customer using Microsoft products together gets a "whole" that is greater than the sum of its parts.

"It is not about creating technical dependencies across groups for their own sake. Longhorn will be another major step forward on which we can add value to customers through integration," he said.

"We have a lot of hard work yet to do on Longhorn to deliver the right capability. We decided to release a number of products before Longhorn so we can take the time to get it right, and to prioritize the important security features of XP SP2 [Service Pack 2]," he said in the e-mail.

Next Page: Products must be better segmented for different users needs, Ballmer says.

Segmenting Products

But all products after Longhorn will deliver on integrated innovation by building on its next-generation capabilities, Ballmer said, adding that great innovations are not quick and easy. "Windows 1, 3 and 2000 all took time, and all were worth it. Longhorn has even more innovation and will be worth it, too. Bet on it," he said.

But he cautioned staff that the company needs to deliver products and services that do more to enable the complete customer experience. Products also must be better segmented for users with different needs.

"And we must evolve marketing to focus more squarely on the value proposition throughout the product life cycle, not just at launch. So many customers have yet to deploy our most recent advances, so we must not only help them understand why to deploy, but also demonstrate the benefits of deploying before we reach the Longhorn generation," he said.

Addressing the fact that many customers are shunning new products and continuing to use their legacy systems, Ballmer said Microsoft needs to work to change a number of customer perceptions, "including the views that older versions of Office and Windows are good enough and that Microsoft is not sufficiently focused on security.

"We must emphasize key positive perceptions of the strong manageability, and developer and information-worker preference, for our platform. We are effectively using independent studies by Forrester Research, the Yankee Group, IDC, Giga, Bearing Point and many others to change perceptions of the advantages of Windows over Linux when it comes to total cost of ownership, functionality and productivity advantages, support and security. We need to do work like this in every business to get customers to recognize our work and appreciate it fully," he said.

Staff members also need to make it business-as-usual to listen to the voices of customers and partners. "We need to be especially effective in hearing and satisfying the people who use our products every day—consumers, information workers, IT pros and developers," he said.

When Microsoft talks about "excellence," it means consistent, high-quality (and low-cost) execution in all it does, from creating products to serving customers and operating the business. "Were taking our work in security to the next level by implementing the Security Development Lifecycle [SDL] for all future products.

"This involves mandatory annual security training for all engineers working in product-development groups, and a series of security-related milestones integrated into the software development process of each engineering team," he said.

Next Page: Balancing employee benefits and the companys stock price.

Benefits and Stock

Ballmer also addressed the controversial issue of profits and the companys stock price, telling employees that the company has to grow its revenues to grow profits and cannot just cut costs. But acknowledging the competitive environment, he said, "We must ensure a competitive cost structure, or competitors will offer prices, services or innovations that we cannot afford to match.

"This year, we are targeting nearly $1 billion in efficiency improvement and cost reduction across the company, primarily by rethinking how we do things …

"Some employees have asked why we cant use some of our $56 billion in cash to avoid making the benefits changes. Using the cash reduces profits, which reduces the stock price. The cash is shareholders money, so we need to either invest in new opportunities or return it to them," he said.

Looking at the past year, Ballmer said the company made strong progress on several fronts that are essential for its future: It delivered new products that gave customers value and created opportunity for partners; it improved customer satisfaction among key audiences; and it made strides in connecting much more deeply with customers, he said.

"We favorably resolved the lions share of the 150,000 customer issues in our field response system for nontechnical issues. We have fixed nearly 70 percent of crashes and hangs experienced by customers in our key products this year by relying on our Watson technologies to statistically target our service-pack work," Ballmer said.

Turning to the threat posed by the open-source Linux operating system, Ballmer said Microsoft knows how to compete with Linux through innovation, quality support execution and facts-based customer education.

"We gained server market share, as did Linux, and are poised for more progress. Open-source software products have yet to provide meaningful customer value on the client compared with our offerings.

"We put most of our legal issues behind us in a year marked by the significant affirmation of our consent decree by the U.S. Court of Appeals, the framing of the EU [European Union] case for appeal and milestone agreements with key competitors," he said.

In keeping with his reputation as Microsofts cheerleader, Ballmer said in closing that even after 24 years there, he still considers it "an amazing company. The possibilities we can each create—to make a difference in our job, in our workgroup, with customers, in our communities and around the world—are unparalleled …

"Although Microsoft has grown in size, we are still, at the end of the day, a group of people each of whom can and does have an impact on our overall success. I just want to say how honored I am to work with each of you.

"This is an incredible, incredible company. We are well-positioned to help customers realize their goals and aspirations, and for us to do the same—simply by holding ourselves accountable and keeping our commitments," he said.

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