A former vice president at Microsoft writes how destructive competition within the company is destroying innovation:
“For example, early in my tenure, our group of very clever graphics experts invented a way to display text on screen called ClearType. It worked by using the color dots of liquid crystal displays to make type much more readable on the screen. Although we built it to help sell e-books, it gave Microsoft a huge potential advantage for every device with a screen. But it also annoyed other Microsoft groups that felt threatened by our success.
Engineers in the Windows group falsely claimed it made the display go haywire when certain colors were used. The head of Office products said it was fuzzy and gave him headaches. The vice president for pocket devices was blunter: he’d support ClearType and use it, but only if I transferred the program and the programmers to his control. As a result, even though it received much public praise, internal promotion and patents, a decade passed before a fully operational version of ClearType finally made it into Windows.”
He adds:
“Internal competition is common at great companies. It can be wisely encouraged to force ideas to compete. The problem comes when the competition becomes uncontrolled and destructive. At Microsoft, it has created a dysfunctional corporate culture in which the big established groups are allowed to prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence.”
This is a classic problem sometimes known as the “not invented here” syndrome: if you did not invent it, you denigrate it.
Tomas Sjöström and I have a published paper on this topic. There’s lots of stuff going on in it but here is one key idea: Suppose two players are competing for promotion and one is more senior than the other. Then, the senior guy has the incentive to denigrate the work of the junior guy because the only way the junior guy can leapfrog him in the career race is if he has a successful project. So, the senior guy tries to squash the junior guys ideas. But the junior guy has the reverse incentives, to exaggerate the quality of his own work. It turns out that this incentive is easier to deal with than the denigration incentive. This is because exaggeration carries a risk: if your idea is tried out and is a huge failure, your career is in ruins. This reduces your incentive to exaggerate bad ideas. But denigration kills ideas so you never find out if the denigrator was lying. So our conclusion is that well designed self-assessment is better than peer review.
If only Microsoft listened to us, they’d be more profitable. Call me Bill, Steve Ballmer, anybody….
There is still one question: Does Apple have a better system in place to manage innovation? If so, what is it?
Cheap Talk 
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February 4, 2010 at 10:50 am
Anony Mouse
As someone who has spent the better part of two decades at Microsoft, I can tell you that Dick Brass is only half correct. There are a few points worth noting:
1) Very few people outside of Microsoft fully grasp the extent of autonomy that’s given to individual product units, but it’s rather extraordinary. Upper management, as a matter of policy, does not tell product units how to run their businesses. This allows upper management to do things like, go to product teams and say, “We think the internet is important. You have two months to tell us what you’re going to do about that.” That autonomy allows the entire company to turn on a dime as it did back in the mid 90’s.
2) There are counter examples of products that have involved collaboration across businesses within Microsoft to produce innovative results, the most recent example being the Bing app on the iPhone. It’s worth noting that none of the actual product development for the Bing app involved Microsoft’s Macintosh Business Unit. Yet, the Mac BU played a key role in actually getting the Bing app into Apple’s store. That’s the antithesis of the “not invented here” syndrome.
3) While there is risk aversion in various pockets within Microsoft, that risk aversion is not driven by fear of punishment. I’ve heard Jon DeVaan say, explicitly, that if you fire the failure, you also fire the experience that was gained from that failure. If you read Dick Brass’ op-ed carefully, at no point does he complain about being punished for failing to convince other product groups to buy into what he was doing. He left Microsoft, because he was frustrated, not because his career was in ruins.
The risk aversion that does exist is the normal form of aversion inherent in any business that needs to make choices about the allocation of resources. It’s easy to say, in hindsight, that someone made the wrong choices in terms of opportunity costs, but it’s very difficult to go back and say that those were the wrong choices given the information decision-makers had at the time.
None of this is to suggest that Microsoft’s future is rosy. However, Microsoft’s future isn’t anywhere as bleak as quite a few people have painted it to be. And, I’ve seen a marked increase in the willingness to collaborate between product groups that were formerly antagonistic in a variety of ways. I’d love to give some examples, but, unfortunately, that would require talking about things I’m not allowed to discuss.
On the other hand, if you ask me whether or not there’s been yet another round of upper management saying, “We think X is import. You have two months to tell us what you’re going to do about it,” my answer would be, “Yes.”
February 4, 2010 at 4:21 pm
sandeep
Thanks for your post. Economists have good data about what is happening outside firms (prices, profits etc) but little about internal dynamics and incentives.
February 4, 2010 at 11:16 am
chrismealy
It’s been said that Apple’s approach is to have Steve Jobs take the credit for everything. That would eliminate the denigration strategy. You’d be left with the incentive to make cool stuff because it’s cool.
February 4, 2010 at 4:22 pm
sandeep
Good point. If we all work for the team (the team is called Steve here!), then things work. Of course, I still care about my pay and promotion and if that depends on successful innovation, I might have a problem….
Sandeep
February 4, 2010 at 3:20 pm
Dan
Sounds like what we need to do to unlock the value hidden in Microsoft is to split the company into two parts. Windows and and MS Office on one side, and the rest of the ‘niche’ products on the other… Then they could innovate in peace.
February 5, 2010 at 4:26 pm
A new AP
What about Google?
February 7, 2010 at 2:20 pm
beau
steve ballmer
February 25, 2010 at 7:05 am
Pratik Poddar
@Anony,
Good that you are “close” to Mircosoft… Please help me answer question? Tell me one product that Microsoft launched first? Tell me one instance when we see Microsoft innovating?
Windows – after Macintosh
Windows Vista Graphics – from Mac
Windows 7 Graphics – from Mac
Mouse based graphics – from Xerox
Please give me one example
February 25, 2010 at 1:43 pm
John
How about word processing and spreadsheet software that actually works?
February 25, 2010 at 1:54 pm
John
I’ve worked at both large and small technology-based companies, one with 20,000 employees, one with 200, and one with 30. As I moved down the size ladder, I saw much less of the type of bare-knuckled competition that was taken as an assumption in this model, and a corresponding increase in the level of research productivity.
Perhaps it is related to the increasing ability of principals at smaller companies to judge the matter for themselves? This is certainly my favorite explanation for the old truism that it is more difficult for large companies to innovate.