Steve Ballmer's Big Lesson for the Rest of Us

Harvard Business Review

The business media lit up over the weekend with the news that Steve Ballmer, the college friend who worked alongside Bill Gates to build Microsoft and was heir to the CEO job, will step down within a year. Ballmer, whose skills were in many ways complementary to Gates', took the helm of an already massive organization as it entered an era of relentless disruptive innovation by competitors. He managed to hold the stock price on a pretty even keel, but no better than that.

It's worth taking a step back to look at what all the chatter is about.

The debate has focused almost entirely on the leadership of innovation. Read just a few of the articles — some of the buzzier ones have been a condemnation by The New Yorker's Nicholas Thompson, an incisive critique by Derek Thompson of The Atlantic, and a counterargument by Timothy Lee in The Washington Post. There's a pattern in them. They argue over whether Bing was a respectable competitive response to Google or not; they give Xbox its due, while tending to cordon it off as a special case; they accuse Microsoft of being oblivious to the threat posed by Web and mobile apps, or point to evidence that it was responding. Ballmer is being damned or defended wholly on the string of innovative (or not) products released on his watch.

So the big lesson other CEOs should take away from this public trial is a cautionary one: this is how you, too, will be judged. We have known for a long time that innovation is the name of the game now. Peter Drucker made the point in HBR's pages 18 years ago, writing that "Core competencies are different for every organization .... But every organization needs one core competence: innovation."

We've known even longer that our legacy organizations are not geared to excel at innovation. This was the point of James March's classic 1991 paper Exploration and Exploitation in Organizational Learning. He pointed out that companies had much more to gain in the short-term, and therefore were tooled to compete, by exploiting opportunities already found than by exploring the business landscape for new ones. It's a point that Clay Christensen put his own twist on with The Innovator's Dilemma: Even when leaders know intellectually that groundbreaking innovation is imperative, they find themselves investing in incremental refinements to please their most sophisticated customers, and leave themselves wide open to disruption by upstarts. Geoffrey Moore once compared big companies trying to innovate to right-handed people writing with their left hands. All the apparatus may be in place, but if the organization isn't in the habit of doing it constantly, it will always be an awkward affair.

Despite two decades of seeing the problem, very few CEOs have thought seriously about how their organizations should be reinvented if innovation matters more than anything else. Well, guess what: it does.

Two other observations can be made about the public autopsy of Ballmer's career: It may constitute another small way that Steve Jobs left a dent in the universe. And it might be more about us in the end than about Ballmer — or any CEO.

I can't remember people obsessing about a CEO's legacy this much before Steve Jobs' decline forced the issue in his case. But I suspect this will not be the last departing CEO we will put under a glaring spotlight. And I predict, too, that the attention won't only follow titanic departures in the tech sector. We're figuring out that innovation is the be-all and end-all in every kind of business, and that the quality of leadership is a big factor in determining where it happens. At the same time, we have all gained access to immediate national conversations on the matters that interest us.

And the fact is that the matter does interest us. In the United States, there is a terrible anxiety about losing the innovative edge that has been our source of competitive advantage and can be our only salvation. Tyler Cowen's The Great Stagnation is a prime example; his reading of history convinces him that the U.S. has reached a "technological plateau" and reenergizing economic growth will be extremely hard to do. Peter Thiel, who innovated as a co-founder of PayPal, is similarly worried - and also worrying about the worry. "It would be hard to imagine the President of the United States declaring war on Alzheimers," he told a business crowd on Nantucket last year, "because our pessimism about technology has started to seep into the system."

This obsession over national competitiveness isn't only an American one. Smart people worldwide fret that the era of discovery is over and, economically speaking, we're now in for a rough ride. It makes me wonder if what we're really talking about, when we talk about Ballmer, is the fear of our own failure to innovate.

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