Microsoft's Success: Business Philosophy & Luck Analysis

The Microsoft way:
Intense, pragmatic, thoughtfulness that informed its decisions.
 “Think” permeated its bloodstream through and through.
 Company of smart people, managed well – constantly learning as it went
 The way the smarts have been harnessed
 Extent to which the company has learned how to learn
Each succeeded by making the inventions of others broadly affordable.
The future is what matters – which is why I don’t look back to often
 Dismisses looking in the rear view mirror
 He cites historical examples whenever he discusses future strategy
 His historical sensibility saturates his analysis of the present and the future
Willing to delegate operational power to subordinates
 Gates already had 20 years experience heading Microsoft by the time he turned 40
 High profitability of its business
 Like software – assets were primarily intellectual property and a workforce of High IQ
people that had to be kept happy
Managing the company whose identity is inseparable from his own
Great stroke of luck which provided Microsoft with 10 good years was in 1980
 Signed a contract with IBM to provide the operating system software that would be used
in the IBM Personal computer
IBM couldn’t come to terms with Digital Research
 Then leading vendor of operating systems for microcomputers – IBM’s natural first
choice to supply the software
 Microsoft didn’t have an operating system to offer – bought a smaller companies
operating software system to adapt for the project
 Then they sold millions of copies of the software
An entire industry emerged based on hardware and software compatible with IBM PC
But Microsoft grew beyond this identity in 1990
 Windows still had memory management problems
 Customers and industry analysts ignored the product
Then ventured into word processing and other applications on top of the operating system
 Best selling application in any category eluded Microsoft
How do business philosophy and plain luck each contribute to the accumulation of great wealth?
 Distinguish the truly new from the not so new
 What portion of the company’s success is properly attributed to prior thought, conscious
strategy and deliberate decisions?

The company has many, many brainy people
 Cultivation of cognitive elite
Microsoft basic – sitting and thinking:
The sole responsibility of those who work in software development is to sit and think
 Sit and think and code – work of Microsoft employees
 Productive activity is purely cerebral
The environment in which sitting and thinking takes place:
 One of the essential deliberately crafted components of the company’s success
 Microsoft wanted an environment that would resemble the college campuses from
which many of its software developers had been directly lifted
 Fostering sheltering privacy in which the best programmers thrived
 Private thinking and private discussion cant take place
 Best software was created by groups on only a few developers – have small buildings so
employees can encounters co-workers in their daily routine
 Gates removed all the physical vestiges of corporate pecking order – egalitarian
atmosphere
 All offices had same furnishings and same dimensions
 Only senior executives, vice presidents and above got a bit bigger office space
 Message that he sought to convey – the company would not permit time-wasting
political struggles over offices – such offices would only detract from sitting and thinking
 Deliberately rebuked a totem pole of hierarchy
 Not interested in returning to egalitarian business so much as he wanted to extract the
maximum yield from his most valuable employees
 He defined the company as software developers and everyone else
 We’re trying to do a lot – getting it done quickly is critical
 Microsoft imposed no dress code to speak of
 Company launched a campaign in 1993 to eliminate all expenses that were deemed frills
 Campaign was intended to reinstill a small company mentality in a large organization –
where every penny counts, every new head count is precious and you feel personally
accountable for the top line, bottom line and everything else in between.
 Informal dress, no limos, no executive dining rooms, no-frills office furniture
Company occupied leased office space
Spent - $8000 per employee on non-mandated benefits
Stock options
 Most important benefit was perhaps the one that had made Microsoft a financially
comfortable place to work – ownership of Microsoft stock among employees
 Promoted employee stock purchases with a 15% discount and offered stock options to
some extent to all salaried employees who worked at the company for one year
 Relying on the appreciation in share prices as the main element in compensation rather
than salaries – salaries deliberately lagged behind comparable positions of rivals
- We’re using ownership as one of the things that ties us all together

They were unabashedly focused on growth - did not pay a dividend to shareholders
 Return they received was purely appreciation in the trading value of the stock
 They themselves waived salaries of comparable positions at rivals
Microsoft did not like to see anybody leave
 Junior employee needs time to reach full potential
Most workers would remain – motivated by the pleasures of the work itself
 Employees who are already wealthy continue to work at the company – intrinsic
components of motivation
Success has to be earned, a day at a time, by eating weenies instead of shrimp – this is the path to
continued growth.
The founding culture – centers on the intellectuality of its challenges
 Provide an environment suitable for sitting and thinking
 Proper amount of comfort
 Right tools
 Freedom from distractions
 Yet not too comfortable
The setting in which work is conducted is important
A great many of the precocious youths have dropped out of memory
 While some of the plodding, but untiring and persevering ones are holding the reains of
government
Practical intellectual
 He consistently sort out and hired the smartest individuals in the computer industry
 Always hires the brilliant if he can
Microsoft’s principal asset – collective brains of Gates and his employees
Deliberate way in which gates fashioned an organization that prices smart people
 Single most important and most deliberately overlooked aspect of Microsoft’s success
Gates described unused mental capacity as unused bandwidth
 Sought to remedy it in his own life
 His questions are a process of searching for better ideas – that will replace incumbents
 When he discovers them – the database is updated
Exhausted his supply of smart friends – and had to identify and recruit smart strangers
Microsoft devoted its most intensive recruiting efforts to a handful of “target schools” that were
likely to produce the academic elite
Best programmers in gates view – who people who were super smart:
 Capability of grasping new knowledge extremely quickly – in “real time”

 Generating acute questions on the spot
 Perceiving connections between disparate domains of knowledge
 Possessing such familiarity with programming structures that a quick glance is sufficient
for them to understand a long printout of code
 Thinking obsessively about the code – even when driving and eating
 Concentrating with special intensity
 Having photographic recall of the code they had written
Intelligence over everything else
Microsoft sought a particular kind of smart person
 One who was also pragmatically inclined
 Verbally agile
 Able to respond deftly when challenged
Why don’t you have an answer? Are you stupid?
Gates looked for verbal facility
Certain operations elements:
 Large numbers of program managers –
- Responsible for defining code specifications
- Serving as liaisons between code writers and the marketers
- Shepherding the different pieces of the product from completion to release
 Product managers
- Marketing issues
- Familiarity with coding
- Big-picture bottom-line sensibilities of MBA -in order to judge sensibilities of adding
features
 Viewed software testing as separate from software design
Intelligence of industry experience
Microsoft harbors no prejudice against those who lack professional programming, testing or
technical project management experience
His company has pursued the very best more successfully than other companies
Best programmers are not marginally better than merely good ones
 They are an order of magnitude better
Company that recruits the largest number of super-programmers is most likely to win
Single programmers intellectual resources, through commercial alchemy, can create entire markets
where none had existed
No Ozzie, no notes
 Simonyi – father of Microsoft word
If Microsoft were to lose its best programmers – others would begin thinking about losing too
 Had to pay attention to retention and recruitment

Take our twenty best people away and Microsoft will become an unimportant company.
Economy’s shift to an information based dynamic
Never settle for second best – wait for the perfect fit
 Even if vacancy creates hardship on other members of the team
Companies success in past and future is tied to hiring the best brains
Some of the recruiting policies:
 Phoned potential leads from 6 am to 8pm
 Opportunities to take talent from rivals
 Acquired small companies to acquire talent
Rockefeller
 Charted my course by figures, nothing but figures
To gates credit, his response was on discovering Myrhvolds talents was to promote Myhrvold and
increasingly draw on his advice
We should characterize Microsoft as a ferocious learning machine
 It excelled at studying and rectifying its own mistakes
They were known introducing first and second products with serious flaws
 But returned with improved versions – without countering scorn
Sloan – my years with general motors
Feedback loops
 Output its fed back into the input – so that the organization becomes self-regulating
 Marketplace back to the company
 Employees back to management
 From management back to employees
Must establish feedback loops
They did not like to be surprised – they wanted information to flow down and up, whether good,
bad or indifferent.
In involved the more systematic collection of data on how computer users actually went about trying
to accomplish whatever it was they had set out to do.
The notion that Gates is lord of an “accidental empire” does not accord with the basic facts.
Basics of Microsoft:
 Era-defining new technology, microprocessor, arrived in the 1970’s
 Power increased at an exponential rate every two years
 Gates understood earlier than others that one consequence of this technological
development would be an expanding need for software that would run on small
computers.