Microsoft Sees Growing Pains at 30

By Mark Hoerrner

While Microsoft CEO Bill Gates talks a good game about his behemoth company being distinctly different from other corporations, it turns out that the software giant has hurdles common to all businesses. Like all thirtysomethings, the company is realizing itsit’s not as agile as it once was.

Perhaps one of the clearest growing pains surfaced when former executive Kai-Fu Lee left the Seattle software supercompany for greener pastures at Google. Naturally, Microsoft engaged Lee in a battle over a non-compete agreement, but the case is revealing more about the corporate fitness of Microsoft than it perhaps expected.

Lee depicted Microsoft as an Orwellian bureaucracy where internal business units compete with one another over the same product line, producing redundant efforts and creating a massive vortex for productivity. According to Lee, line managers often report to multiple business units and a host of executives, often with each unit or supervisor possessing differing goals.

Like any good mid-life crisis might invoke, Microsoft is going on a crash diet to trim corporate cellulite. It has repositioned its seven business units under three main umbrellas. Reorganization has become a regular part of the corporate lifecycle of global business, but it’s worth noting that while other large companies have downsized over the years, Microsoft has tripled its headcount since 1996, boasting 61,000 employees as of June 2005. Net revenues have climbed from $9.5 billion during 1996 to nearly $40 billion at present.

The company continues to be the leader in office software, with many firms reticent to engage newer software packages because of a longtime familiarity with Microsoft products. Microsoft Office 12, the latest incarnation of the company’s flagship productivity package, should incorporate more features than ever before, including an increased focus on the ".pdf" document format.

Despite fiscal success and having made it longer than most start-up software firms in the industry, the wrinkles are hard to hide. Microsoft continues to lag in the online search arena where Google and Yahoo! continue to dominate the market. Microsoft had initiated talks with Time Warner Inc. about creating a higher online presence through a partnership with America Online, but the talks have stalled.

Microsoft’s next most likely battlefield will be for online revenues and product development. The web makes it easy for even small firms to offer office products that may rival Microsoft’s dominance in that sector. A recent alliance between Sun Microsystems and Google may further complicate Microsoft’s future in securing a solid internet market share, but nothing has emerged as of yet.

The next couple of years will be critical for the Washington-state success story. After blowing out the candles on three decades in the software industry, Microsoft must look to a more confident, more mature corporate structure if it plans to survive for 30 more years.