Leadership Matters – Ballmer Vs. Bezos

Not far from each other, in the area around Seattle, are two striking contrasts in leadership.  They provide significant insight to what creates success today.

Steve Ballmer leads Microsoft, America's largest software company.  Unfortunately, the value of Microsoft has gone nowhere for 10 years.  Steve Ballmer has steadfastly defended the Windows and Office products, telling anyone who will listen that he is confident Windows will be part of computing's future landscape.  Looking backward, he reminds people that Windows has had a 20 year run, and because of that past he is certain it will continue to dominate.

Unfortunately, far too many investors see things differently.  They recognize that nearly all areas of Microsoft are struggling to maintain sales.  It is quite clear that the shift to mobile devices and cloud architectures are reducing the need, and desire, for PCs in homes, offices and data centers.  Microsoft appears years late recognizing the market shift, and too often CEO Ballmer seems in denial it is happening – or at least that it is happening so quickly.  His fixation on past success appears to blind him to how people will use technology in 2014, and investors are seriously concerned that Microsoft could topple as quickly DEC., Sun, Palm and RIM.

Comparatively, across town, Mr. Bezos leads the largest on-line retailer Amazon.  That company's value has skyrocketed to a near 90 times earnings!  Over the last decade, investors have captured an astounding 10x capital gain!  Contrary to Mr. Ballmer, Mr. Bezos talks rarely about the past, and almost almost exclusively about the future.  He regularly discusses how markets are shifting, and how Amazon is going to change the way people do things.

Mr. Bezos' fixation on the future has created incredible growth for Amazon.  In its "core" book business, when publishers did not move quickly toward trends for digitization Amazon created and launched Kindle, forever altering publishing.  When large retailers did not address the trend toward on-line shopping Amazon expanded its retail presence far beyond books, including more products  and a small armyt of supplier/partners.  When large PC manufacturers did not capitalize on the trend toward mobility with tablets for daily use Amazon launched Kindle Fire, which is projected to sell as many as 12 million units next year (AllThingsD.com).

Where Mr. Ballmer remains fixated on the past, constantly reinvesting  in defending and extending what worked 20 years ago for Microsoft, Mr. Bezos is investing heavily in the future.  Where Mr. Ballmer increasingly looks like a CEO in denial about market shift, Mr. Bezos has embraced the shifts and is pushing them forward.

Clearly, the latter is much better at producing revenue growth and higher valuation than the former.

As we look around, a number of companies need to heed the insight of this Seattle comparison:

• At AOL it is unclear that Mr. Armstrong has a clear view of how AOL will change markets to become a content powerhouse.  AOL's various investments are incoherent, and managers struggle to see a strong future for AOL.  On the other hand, Ms. Huffington does have a clear sense of the future, and the insight for an entirely different business model at AOL.  The Board would be well advised to consider handing the reigns to Ms. Huffington, and pushing AOL much more rapidly toward a different, and more competitive future.
• Dell's chronic inability to identify new products and markets has left it, at best, uninteresting.  It's supply chain focused strategy has been copied, leaving the company with practically no cost/price advantage.  Mr. Dell remains fixated on what worked for his initial launch 30 years ago, and offers no exciting description of how Dell will remain viable as PC sales diminish.  Unless new leadership takes the helm at Dell, the company's future  5 years hence looks bleak.
• HP's new CEO Meg Whitman is less than reassuring as she projects a terrible 2012 for HP, and a commitment to remaining in PCs – but with some amorphous pledge toward more internal innovation.  Lacking a clear sense of what Ms. Whitman thinks the world will look like in 2017, and how HP will be impactful, it's hard for investors, managers or customers to become excited about the company.  HP needs rapid acceleration toward shifting customer needs, not a relaxed, lethargic year of internal analysis while competitors continue moving demand further away from HP offerings.
• Groupon has had an explosive start.  But the company is attacked on all fronts by the media.  There is consistent questioning of how leadership will maintain growth as reports emerge about founders cashing out their shares, highly uneconomic deals offered by customers, lack of operating scale leverage, and increasing competition from more established management teams like Google and Amazon.  After having its IPO challenged by the press, the stock has performed poorly and now sells for less than the offering price.  Groupon desperately needs leadership that can explain what the markets of 2015 will look like, and how Groupon will remain successful.

What investors, customers, suppliers and employees want from leadership is clarity around what leaders see as the future markets and competition.  They want to know how the company is going to be successful in 2 or 5 years.  In today's rapidly shifting, global markets it is not enough to talk about historical results, and to exhibit confidence that what brought the company to this point will propel it forward successfully. And everyone recognizes that managing quarter to quarter will not create long term success.

Leaders must  demonstrate a keen eye for market shifts, and invest in opportunities to participate in game changers.  Leaders must recognize trends, be clear about how those trends are shaping future markets and competitors, and align investments with those trends.  Leadership is not about what the company did before, but is entirely about what their organization is going to do next.

Update 30 Nov, 2011

In the latest defend & extend action at Microsoft Ballmer has decided to port Office onto the iPad (TheDaily.com).  Short term likely to increase revenue.  But clearly at the expense of long-term competitiveness in tablet platforms.  And, it misses the fact that people are already switching to cloud-based apps which obviate the need for Office.  This will extend the dying period for Office, but does not come close to being an innovative solution which will propel revenues over the next decade.

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