I really wanted to spend more time researching and getting details and financial reports and so on to make this post, but a certain *cough* deal has forced my hand.
All of this is my personal opinion and in no way reflects any views of my current or past employers, and in fact I would expect many or most to disagree wholeheartedly. I'm not in any sort of position to do more than talk, not even influence. This is me. Okay?
Microsoft needs to turn into a spin-off machine.
There are a ton of reasons for this, I'll get into as many as I can remember and think of, but the core is that Microsoft's current way of doing business is fundamentally not working, and the recent announcement of the bid for Yahoo! for $44.6 *billion* could be the nail in the coffin. MSFTextrememakover has a wonderful item-by-item post on why it is a horrible idea.
More importantly to my way of thinking, this deal will increase organizational entropy in a big way. And that's death.
On the other hand, spin-offs are a wonderful way of resetting entropy, mostly for the company being spun-off, but also for the spinner.
The core of the idea: Retain and invest in the two cash cows, and use their profits to fund a program of:
- Spinning off all the existing businesses outside of those two. Try to figure out what products, suites, and current businesses would work the best together. Find the right people to lead them (not in terms of internal politics, but as business leaders). Packaging them will be difficult and time consuming, but I think it would be startling how much value there is.
- Incubate new ideas and products, focused on bringing them to the point where they can be spun off. Lots of thought needs to go into how to find people who are ready to be executive management teams for these new spin-offs. If the idea can't stand on its own as a separate company, cut it and reinvest.
- There is still plenty of room for acquisitions in this world, but the mindset is totally different. Now the idea is to buy complimentary businesses to work with incubated products, shoring up their weaknesses before spinning them off, or to dedicate enough resources to take a great idea, repackage it, add significant value, and then spin it back out into the world. Almost a VC or private equity type of a role.
In fact, that's a great way to think about it in general: Microsoft becomes a private equity company where the funding comes from the two most successful products ever.
Pros
- Career advancement, and reward paths that don't involve massive bureaucratic politics. You can help create a new, successful business, and get rewarded with options and new opportunities when the business is spun off as its own company.
- Huge recruiting power due to the above. You're not hiring into a faceless corporate black hole, you're being recruited into a very entrepreneurial company that is all about incubating and spinning off new businesses.
- By changing the focus of the company, you change the culture. Things have coagulated, everything is about safety and step-by-step career advancement. In a more entrepreneurial culture, taking risks is expected and rewarded.
- Most importantly, in this world the reward is tied to the business, not to the chain of command. You're working to create a successful new business that you want to be spun off, the big rewards come from being a part of that success, not just convincing upper management that you're better Partner material than your peers.
- Get away from the myth of synergy. A lot of time, money, and careers have been wasted trying to figure out a way to tie everything Microsoft does into a nice package that will magically make a huge multiple more money for the company than the individual pieces. This has mostly failed, and will continue to fail, and the few successes will not even pay for the costs of the failures.
- Increased focus on the bottom line in all aspects of the business. Every new business is seen in the light of its potential to create a new, separate company, rather than how it fits into arbitrary goals or organizational politics.
- Managing the company's billions is now an exercise in return on investment, rather than a shotgun of attempts to recapture the old Windows/Office magic.
Cons
- It really hasn't been done before that I'm aware of, it isn't clear the model will actually work.
- The entire management team and organization for the company is ill suited for this kind of a change.
- The company's goodwill and reputation are both pretty well in the toilet, and it would take some time before acquisitions could be made at favorable costs. Right now it seems like their only leverage is overpaying enormously for what they want.
- It isn't clear that talent the company has attracted/retained over the past half dozen years or so would thrive in an entrepreneurial culture, nor is it clear the culture could make such a huge change.
- Probably plenty more, that's all I can think of immediately.
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