At first, it started out as a speculation and it got quickly dismissed. However, more and more sources are reporting that Ford's (NYSE:F) boss Alan Mulally is the front runner for the CEO job at Microsoft (NASDAQ:MSFT) once Steve Ballmer retires.
All over the internet, there are discussions about whether Mr. Mulally would be a good fit for the CEO job at Microsoft. Usually those who oppose the idea of hiring Mr. Mulally as Microsoft's CEO argue that he doesn't have much experience in the software industry and that this would hurt his chances of success at the company. Furthermore, some people also argue that at the age of 68, he might not be able to serve the company for many years before it has to search for a new CEO.
If he moved to Microsoft, Mr. Mulally's job would be somewhat easier and somewhat more difficult than his job was when he took the helm of Ford in 2006. Back then, Ford was losing money, its market share was shrinking, the Japanese and Korean car companies were gaining on Ford, it had almost no presence in high-growth markets like China and limited presence in Latin America, and there were many complaints about the quality of Ford's vehicles such that buying a Ford vehicle was perceived as reserving weekly visits to the car repair shop at the time. Ford was fighting for survival, and as the company was making progress in baby steps, it was hit by the Great Recession, which pushed it back in survival mode (many people see Ford's decline in 2005-2006 and its decline in 2007-2008 as one big incident but they were actually two separate incidents. In 2006, Ford was making progress in many areas and it was improving its profitability. However, the company took a hit from the recession, which killed any progress it made until then, which created a perception as if Ford didn't show any progress between 2006 and 2008).
Back then, things were very difficult at Ford and there was only one target of success: avoid bankruptcy without getting government assistance at all costs. Accomplishing this one target would make Mr. Mulally successful, but succeeding in this task would take being successful in many different areas, such as restoring Ford's perception, its profitability, leveraging the company's global assets and creating one Ford that produces vehicles people will actually want to own and spend money on. In summary, the success of the task of avoiding bankruptcy was contingent on many different subtasks. In the end, Mr. Mulally proved successful and Ford turned around.
In Microsoft, we are looking at a completely different story. Microsoft's strengths and weaknesses are different from Ford's strengths and weaknesses back in 2006. Microsoft is highly profitable and it is a cash cow. The company has virtually no risk of bankruptcy anytime soon. Then what is the problem in Microsoft? Well the company's issues can be listed like this:
1) Consumers don't perceive Microsoft's products to be desirable (with the exception of Xbox). Apple continues to dominate high-margin consumer electronics because consumers see Apple's products as "cool" and Microsoft's products as "boring" because Microsoft is associated with office products like Word and Excel, which aren't that fun to use (unless you are passionate about writing or analyzing data on a spreadsheet).
2) Just like Ford of 2006, Microsoft's products could use a lot of improvement in terms of quality. Microsoft constantly sends updates and patches for its products because users continue finding bugs and problems in them. The company has a habit of using its consumers as testers, which frustrates a lot of people.
3) Microsoft tries to do so many things at once and it ends up losing its focus. Sometimes the company goes on a shopping spree and spend billions of dollars on smaller companies or products like Skype ($8.5 billion), Nokia Lumia ($7.2 billion) and aQuantive ($6 billion). While diversifying a company's product offerings is good, it is important for companies to keep their focus. Microsoft tries to accomplish too much at once and it ends up writing-off many expensive projects when things fail because of lack of adequate planning.
4) Microsoft's stock performance hasn't been that great in the last decade despite all the growth enjoyed by the company. In fiscal year 2000, Microsoft generated $22.96 billion in revenues and $9.42 billion in net income. Back then, the company's share price was around $40 (this was post dotcom bubble; during the bubble, Microsoft's share price was as high as $60). Fast forward 13 years, Microsoft generates $80 billion in annual revenues and $22 billion in annual income. Basically, today's Microsoft generates as much money in one quarter as 2000's Microsoft did in a year. Moreover, there have been many rounds of stock buybacks since then. Yet, today's share price is $37 and some change. Obviously, Microsoft was overvalued during the dotcom bubble and it took the company 13 years of growth to justify the value of 2000's share price.
Today, the company is decently valued but a lot of investors are unhappy that they didn't receive much from their investment in Microsoft with the exception of dividends. The true question is, can Alan Mulally fix these problems? If he can fix these problems, we can say that he would be a good fit to the role of Microsoft's CEO and it all comes down to this.
I believe that Mr. Mulally has already shown that he would be able to solve the first three problems. At Ford, he fixed the perception of consumers (does anyone remember how people used to make fun of Ford cars not long ago?), he fixed the company's focus by creating One Ford and he fixed the quality problems by improving the quality of Ford's vehicles. Interestingly enough, most of the criticisms Ford receives today stem from Microsoft's Sync system. As for Microsoft's stock price, I don't know how much control Mr. Mulally would have on that. However, we all know that he is well-liked and well-respected in the Wall Street community and he could definitely improve the investor confidence in the company, which would attract more buyers and raise the stock price.
Going back to the two main arguments people have against seeing Mr. Mulally as Microsoft's CEO. The first argument was that he doesn't have much experience in the software industry. I honestly doubt that he would need to be experienced in the software industry in order to run Microsoft. Today, companies are run by teams and as the CEO of Microsoft, Mr. Mulally would have many executives and senior managers under his command that have plenty of experience with the software industry. After all, Mr. Mulally won't be designing software; he will be running the business side of the company and he has plenty of experience in running large companies with several complexities.
As much as his age goes, this is something he will have to think about personally. Despite being nearly 70 years old, Mr. Mulally is very energetic and he certainly wants to keep working. There are many CEOs that successfully run companies at later ages, such as Warren Buffett who is 83 years old. As long as one is healthy and willing, age might not be an issue. If he actually takes the CEO job at Microsoft, Mr. Mulally can always train an insider to take the job after him. At Ford, he's been working with Mark Fields and many people see him as the next CEO of the company. There is no reason why he wouldn't develop internal talent at Microsoft. This article isn't a discussion of whether Mr. Mulally will leave Ford for Microsoft, but a discussion of whether he would be a good fit for the position. I don't see why Mr. Mulally wouldn't be successful at Microsoft.
Disclosure: I am long MSFT, F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.