Microsoft (MSFT) 'Stacked' the Odds Against Itself Years Ago

July 3, 2012 1:03 PM EDT
Most of what Vanity Fair features doesn't hit hard, move markets, or give sound financial tips. Take its expose of the best castles, villas, yachts, and islands to rent this summer. (Our answer: all, or any that are reasonable. Or, if you're well off enough to spend the equivalent of a mid-sized auto on one night in a Spanish castle, how do you not know about it already?)

Today, there's a gem: how Microsoft went down the Rabbit Hole and hasn't returned.

Most of the article is on Microsoft's (Nasdaq: MSFT) fixation with its Windows operating system and that anything tied to the OS wasn't worth exploring further. This includes an e-reader engineers made in 1998, which was denied by Bill Gates himself due to it not using a keyboard, which is what Windows was designed to use.

But, the most important takeaway from the report was the culture. Anyone who has taken a basic business class will tell you that diversity and culture can drive innovation via the different backgrounds and experiences employees bring to the table. Microsoft liked that idea, but added a twist: rate your employees.

Not just rate, but rate on a mandatory scale. As in, not everyone in your group could've been a star today. It was called "stack ranking," and Microsoft demanded that groups rate a certain "percentage of employees as top performers, good performers, average, and poor." Everyday.

The author interviewed former engineers at Microsoft and said each one pegged "stock ranking" as the number one killer of achievement at the software giant. That's because, instead of looking to how you can get the company more competitive with other companies in the same segment, you're sole focus is to how you can outdo peers.

That logic is literally the worst you could have at a company, no matter what the size. Though internal competition is good, imagine walking in on a Tuesday and being told you had poor performance on Monday. Now imagine that company is as big as Microsoft, where job candidates are literally lining up around the block to get in.

Would you really care what IBM (NYSE: IBM), Apple (Nasdaq: AAPL) or Hewlett-Packard (NYSE: HPQ) are working on? Or, what Jim down the hall is? That's how you eliminate any global domination you once had and now find yourself playing catch up.

Shares of Microsoft are up 0.4 percent.

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