Can Microsoft Break a Legacy of Insular, Siloed Behavior?

| About: Microsoft Corporation (MSFT)
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Microsoft reminds me of Sony. A history of engineering excellence. A culture where the engineer is king. Preservation of this culture even as growth forced greater functional responsibility and a siloed organization. The curse of scale and a rigid corporate hierarchy moving the company farther and farther away from the customer. And, of course, the predictable disconnects between the needs of the market and the products released from these engineering-driven organizations.

But a recent piece in carried in Computerworld indicates that Microsoft might be trying to shake things up a bit, by bringing in outsiders at senior levels to drive change.

Before Brian McAndrews agreed to take charge of a crucial piece of Microsoft Corp.'s online advertising business, he insisted on a key condition: that he be granted certain power over the engineering part of the operation.

The new job didn't have to include that authority, but McAndrews, new to the company, argued that to succeed in his mandate -- leading the charge against Google Inc. -- he needed it. And in Microsoft's engineering-driven culture, such a team could promise something else for McAndrews: longevity as a Microsoft executive.

That Microsoft granted his request illustrates a new approach Chief Executive Steve Ballmer is taking as he tries to expand the software company into new areas from online music to videogames to Internet advertising. Ballmer has found he must tap outsiders rather than rely so heavily on homegrown managers as in the past.

How Microsoft fares with McAndrews will be a test for Ballmer, who has tried over the years to make the company a more hospitable place for outside talent. Another test will be Don Mattrick, whom Microsoft hired this summer to head its videogame group after a long career as a top executive at game giant Electronic Arts Inc.

The stakes are huge. Microsoft has a long, long way to go to make up ground on Google in advertising, and by giving an outsider the keys to the operation Steve is admitting something very important: that being born and bred by Microsoft doesn't necessarily imbue you with super-powers that make you best suited to run a strategically critical business. This is so unlike Microsoft. I am truly impressed.

Still, a combination of forces within Microsoft -- its engineers' exalted stature, its insular culture, its sheer size -- make integrating new executives a lingering problem. Often through Microsoft's history, decisive and aggressive outsiders have been worn down by the second-guessing of Microsoft veterans before stepping down to less-prominent roles or leaving altogether.

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That is one reason Kevin Johnson, president of Microsoft's Platforms and Services division and McAndrews's new boss, says he is trying to be hands-off. "He's used to being CEO," Johnson says of McAndrews. "If you let him run his business and let him achieve the goals he wants to, we'll be fine."

McAndrews comes into a group that is known for clashes between the advertising and technical sides of Microsoft. He may able to avoid such disruptions thanks to his insistence that he have an engineering team. His job is to manage the relationships with ad agencies and the Web sites that run advertisements. By controlling an engineering team, he also oversees the technology for buying and selling online ads.

Mr. McAndrew's is no dummy - he is leaving nothing to chance. Control over the entire value stack for his organization, severing dependence on the legacy engineering team that would invariably have messed with him once they disagreed with his strategic vision. But the fact remains that Steve and Kevin are letting this happen, and running an experiment that, IMHO, holds one of the keys for whether or not Microsoft is going to once again become a growth stock or to remain mired in bureaucracy, milking the OS business and failing at everything else. If Steve and Co. can't shake up the culture now, when competitive challenges have never been stiffer, then the game is over. They should just admit they're an oil well and cash their OS royalty checks until it runs out. But for now they're taking one last swing. Hopefully they connect.