Microsoft Board in Needle-in-Haystack Hunt for New CEO

Aug. 26 (Bloomberg) –- As Microsoft searches for a new CEO, Bloomberg's Sam Grobart takes a look at some of the things that need fixing on Bloomberg Television's "First Up with Susan Li." (Source: Bloomberg)

Microsoft Corp. (MSFT)’s next chief executive officer will need the expertise and strategic vision that can help the biggest software maker confront a broad range of threats that Steve Ballmer, for all his expertise as a salesman, was never able to repel.

Microsoft requires a product person like Marissa Mayer, who oversaw some of Google Inc. (GOOG)’s most-popular services including its home page, and was brought in to turn around Yahoo! Inc. (YHOO), according to analysts and executive recruiters.

The new CEO will also need to help Microsoft hone its strategy, comparable to Lou Gerstner’s overhaul of International Business Machines Corp. (IBM) The challenge: making up for a lost decade when Microsoft fell behind Google and Apple Inc. (AAPL) in smartphones, tablets and Web search -- and pushing it deeper into areas such as cloud computing, wearable technology and online advertising.

“It’s a challenge akin to searching for a needle in a haystack, knowing the needle isn’t likely there,” said Robert Sutton, a professor at Stanford University and author of several books on corporate management. “This is a massive effort in strategy, leadership and culture.”

Within Microsoft, Tony Bates, Satya Nadella, Qi Lu and Terry Myerson are the leading choices, people with knowledge of the matter said. Microsoft should look carefully within Google for possible successors, executive recruiters said. The operator of the world’s most-popular search engine is known for a fast-moving culture that has enabled it to find and succeed in new markets, such as cloud computing and mobile, where its Android software now runs 75 percent of the world’s smartphones.

Photographer: Andrew Harrer/Bloomberg

Ballmer’s move reflects the changes roiling the computing industry his company helped pioneer. Microsoft, which supplies the software running most PCs, lost almost half its value on Ballmer’s watch. Close

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Photographer: Andrew Harrer/Bloomberg

Ballmer’s move reflects the changes roiling the computing industry his company helped pioneer. Microsoft, which supplies the software running most PCs, lost almost half its value on Ballmer’s watch.

Fresh Perspective

Since Mayer is still in the early stages of an attempted turnaround at Yahoo and probably isn’t available, one candidate mentioned is Google Senior Vice President Vic Gundotra, who oversees Google’s social-networking efforts, according to Trip Chowdhry, an analyst at Global Equities Research. Before joining Google, Gundotra ran Microsoft’s successful software evangelism program to get software developers to write for Windows.

“Vic is probably the only executive, who can bring the much-needed fresh perspective to Microsoft, while still having a deep understanding of Microsoft culture,” Chowdhry wrote in a report on Microsoft’s succession before Ballmer announced his retirement.

John Donahoe, CEO of EBay Inc. (EBAY) was mentioned by executive recruiters as a potential candidate. A former consultant, he’s managed to transform the company into a broader e-commerce enterprise from an online auctioneer.

Better Strategy

Ballmer’s planned departure follows a management revamp, the Redmond, Washington-based company’s biggest earnings disappointment in a decade and the fifth-consecutive quarterly drop in personal-computer shipments.

“We’re in the era of the product person rising to the top,” said Martha Josephson, a partner at recruiting firm Egon Zehnder. “The best sales executive in the world cannot solve a lack of product vision.”

Executing on product vision has been a weakness under Ballmer, 57. While Microsoft was talking about using the Internet to deliver entertainment and other services to customers via PCs, mobile devices and televisions long before Apple conceived of iTunes, the iPhone or iPad, only the Xbox game console has been a clear winner. Microsoft’s foray into tablet computing has so far resulted in a $900 million writedown related to unsold Surface tablets.

“Microsoft doesn’t need a pep talk. It needs a better strategy,” said Roger McNamee, a longtime tech investor and founding partner of private-equity firm Elevation Partners.

Setting Course

At the same time, with huge cash flow and strong cost controls, Microsoft also doesn’t need an operational expert like Mark Hurd, co-president of Oracle Corp. (ORCL) As Hewlett-Packard’s former CEO, Hurd drove a huge run-up in the stock before he left amid a scandal over a personal relationship with a company contractor.

Hurd’s success came in part from cutting spending on research and development, said Jeffrey Sonnenfeld, a professor at Yale University.

“He starved future investment,” Sonnenfeld said. “He’d be the wrong guy.”

Before they start interviewing candidates, Microsoft’s board has to decide whether they think the company has a direction, and if not what should it be, said Joseph Daniel McCool, head of the McCool Group in Amherst, New Hampshire, which advises companies on succession and executive search.

“The question for the board is whether they think they already have a strategy and so can pick one of their known insiders, or whether they’re open to considering alternative strategies,” McCool said. “A strategic misdirection for Microsoft at this point could set things back quite a bit.”

To contact the reporters on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net; Carol Hymowitz in New York at chymowitz1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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