How Microsoft Can Become More Innovative

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Includes: GOOG, MSFT
by: Barry Ritholtz

How could I not love this page one WSJ article about Microsoft (NASDAQ:MSFT)-the-innovator?

Throughout its history, Microsoft has been slow to grasp some of the computer industry's biggest technology shifts and business changes. When it decides to embrace an innovation, the company has often succeeded in chasing down the leaders, as it did years ago with Lotus Development Corp. on spreadsheets that allow users to organize data, and a decade ago with Netscape Communications Corp. on Web browsers that transformed the experience of using the Internet. For years, this catch-up-and-surpass approach worked well.

Early this decade, however, companies such as Google Inc. (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) exposed holes in the approach. Microsoft was slow to see the potential in Web search and online advertising, and despite heavy investments, has so far failed to catch industry leaders Google and Yahoo Inc. (YHOO). It also was late coming to market with its own music player, and despite a push, remains far behind Apple. Today, a host of Web-based software services from Google and others threaten to reduce the importance of Microsoft's personal-computer software.

What is the solution? Craig Mundie, the man designated to replace Bill Gates, has quite the challenge on his hands:

Mr. Mundie says advances in technology that represent "fundamental change" or "whole new business opportunities" are "more disruptive, and so people aren't as focused on them" at Microsoft as they are on developing new features for existing products. "When they encounter them, they are naturally a bit more skeptical."

Microsoft's product groups -- business units built around products such as Windows and Office that produce much of the company's cash -- have long had enormous clout in its corporate culture. Star product-group managers, the company's so-called shippers, get the big, profitable products like Windows out the door year after year. For them, meeting deadlines is all-important; longer-term thinking about technology isn't.

Mr. Mundie is trying to help shift some clout to the company's long-term thinkers and to gain more attention for new technologies and businesses. He nurtures small groups in areas he considers promising long-term bets for Microsoft, such as health care, education and super-fast "quantum" computers. During the past year, to attract foreign talent, he has opened more than 50 small research centers in such distant locations as Egypt, Chile, Malaysia and Russia.

Essentially, the approach is to tear a page from the R&D wizards at Google, and encourage greater creativity from the non-product groups (product groups are Windows, Office, Internet services, X-Box, etc.) to anticipate the next major shift in computing technology.

In other words, Microsoft, in seeking to become more innovative, is copying Google's model.

How classic is that!

Source:
Behind Microsoft's Bid To Gain Cutting Edge: A History of Catch-Up
Mundie Follows Gates As Long-Term Thinker;
ROBERT A. GUTH
WSJ, July 30, 2007; Page A1
http://online.wsj.com/article/SB118575380139081784.html

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