Is Microsoft Too Big to Fail?

Vanity Fair published an article in August titled “Microsoft’s Lost Decade.” The article is summarized for me in the following quote:

“The story of Microsoft’s lost decade could serve as a business-school case study on the pitfalls of success. For what began as a lean competition machine led by young visionaries of unparalleled talent has mutated into something bloated and bureaucracy-laden, with an internal culture that unintentionally rewards managers who strangle innovative ideas that might threaten the established order of things.”

The problem with companies that have had the marketplace and economic success that Microsoft has enjoyed for many years is that they can continue on for a number of years without having to face the cause of their decline. Microsoft has had every opportunity to “stay at the top of its game” but instead it lost its pre-eminence to the likes of Google, Facebook and Apple.

Microsoft had the money and the talent but, as this article argues, it did not understand the science of behavior and has grown from a garage or basement company to a global giant through technical and marketing expertise. I believe its problems are caused by the mismanagement of positive reinforcement. And I must say that in the garage or basement of the beginnings of what has become Microsoft, I am sure that there was no one there who had any depth of knowledge of the most important element in designing the systems, processes and management practices of any business – positive reinforcement! If there was they would have understood that old Greek saying, “Every success sows its seeds of destruction.”

I pick on Microsoft because of the article, but it is by no means the only company to face this problem. Many have faced it but did not know how to change behavior in a way to reverse it. Think of Rolls-Royce, Pan Am, F. W. Woolworth and Waterford Wedgwood – all had great products, reputations and market share but either no longer exist or are much diminished. How does that happen so often?

Everyone has heard that “Success breeds success.” But that is the problem. Positive reinforcement increases the behaviors that produce it. People and organizations resist change simply because it is difficult to stop behaviors that provide you with immediate and certain reinforcement (saving time and effort as you have done the same thing for many years with success) when change offers you uncertain success accompanied by the extra time and effort required to learn new habits (i.e. to adapt to change). Every day you do the same thing you did yesterday, you are a day behind someone who worked all night figuring out a way to do what you do better, faster or cheaper.

The leadership problem is clear to me but difficult for those who don’t understand positive reinforcement as a scientific, rather than a common-sense concept. To stay in the game, leaders have to change behavior at a time when they are least likely to do so — in the middle of success.

I have read about the early excitement of the people working on computers who couldn’t wait to show others what they discovered. In those days sleep was a luxury that the pioneers thought they did not need and was a waste of valuable experimental time.

When companies grow to the point that they have more employees than the founder can see every day, they almost always create systems and processes that limit that excitement and engagement – the forerunners to innovation and creativity. From all accounts, as Microsoft grew, Bill Gates and his executive team expected the same commitment, focus on the work and long hours that they gave when developing the company. Gates gave employees great freedom in doing the work — varying their hours in the office, occasionally working from home, time to take care of personal and family needs, etc. However, as occurs in most organizations that start out that way, those freedoms became problematic as some people took liberties that were not productive.

As is most often done, the solution instituted to manage the behavior of those who took advantage of those freedoms was to burden everyone with a formal appraisal and stack ranking system. No matter how they are positioned, these systems are predominately driven by negative reinforcement and generate internal competition, not only between departments but among individuals in the same work unit. Microsoft’s competition should not be inside the company, but rather focused on external competitors. I have written much about this based on my decades of working with companies whose challenges are similar to Microsoft, and know that these systems and processes are associated with a negative organizational culture, and the only reason they survive is that almost all companies use them.

The systems Microsoft used to secure its status as a highly productive, externally competitive and innovative company has done the opposite. In the early days there were many things that people did every day that caused a great deal of excitement for everyone in the company. Now it tries to generate excitement using the Cookie Monster and a gospel choir rather than building reinforcement into its work processes and management behaviors.

It may seem strange to say that positive reinforcement is leading to the condition Microsoft finds itself in today, but it is. If you only know positive reinforcement as a pat on the back, telling a person that he or she is doing a good job or giving someone a bonus or reward, you have a limited understanding of a very valuable business and interpersonal tool.

Is Microsoft too big to fail? It is not the size of the company that would cause it to fail so much as it is the failure (my opinion) to understand why and how human behavior changes over time. We know that behavioral drift occurs if not managed well. Therefore, if you know behavior as a scientific subject, it is possible to prevent problems that most large organizations face in terms of sustaining the kind of culture that got them where they are today.