Microsoft: A Lesson In Management

Passion and pragmatism are an unusual combination of traits in a CEO. But the ability to run hard and then reverse course is allowing Microsoft's Bill Gates to make the jump from PCs to the Internet. It is a leap worth studying, for few leaders in business mr in government are able to make such a cosmic adjustment either conceptually or in practice. We tend to fight the last war, repeat the same behaviors, and solve the same problems. It can be deadly.

Gates came close to blowing it. Dominant in personal computer software, Microsoft Corp. spent the early years of Net growth obsessing over Windows and cooking up proprietary ways of doing things in cyberspace. While techno-hipsters were on the World Wide Web, Gates was finishing Windows '95 and beating back government regulators worried about Microsoft's alleged anticompetitive practices. Based in Redmond, Wash., Microsoft was far from Silicon Valley, where the Net was hot. And, although only 37 in 1993, Gates was a generation away from Gen-Xers using the Net. By the early '90s, Netscape Communications, Sun Microsystems, Yahoo!, and a host of startups had already taken control of the Net.

Think IBM. General Motors. Philips. Apple Computer. Olivetti. Corporations with market dominance that lose it when technology and the markets change everything before them. That was Microsoft at this point--an amazing 20-year success, dominant in its field, stupendously profitable. And nearly blindsided. By the time Win95 was shipped in August, 1995, Netscape had gone public, launching a bull market in Internet stocks. Netscape's Web browser had Microsoft-like dominance, and Sun's Java software was becoming the Net standard.

Gates grew up watching IBM falter and Digital Equipment nearly crash and burn--up close and personal. He knew it could happen to Microsoft and created a corporate culture that spent little time celebrating a project's completion. Instead of beer busts, Microsoft launched postmortems over what should have been and what could be next time. This process helped save the company. In 1994, at an executive retreat, younger employees boldly spoke out about Microsoft's failure to deal with the Net--and implicitly, Gates's failure to lead them into this new territory.

Gates did a 180. He replaced his passion for product with a pragmatism for business. Entrepreneurs usually are wired for obsession and are often wedded to a position. Think Jim Manzi and Lotus Notes, Ken Olsen of DEC, or Steve Jobs and the Macintosh. As new Web software standards threatened to make Windows irrelevant, Gates agreed that the Internet was going to drive demand for PCs and software. He opted to play by the Internet's rules, not the PC rules Microsoft had written with Windows. Gates ordered that Microsoft become Web-centric, dumping that which didn't fit, and reshaping everything else. In Silicon Valley parlance, Gates showed he was willing to "eat his young" to stay on top.

Gates may yet fail. Microsoft is working its 20,000 people around the clock to develop browsers, Web servers, and other Net software. Every week brings another Microsoft Internet announcement, from joint venturing with General Electric Co. on MSNBC, to publishing Michael Kinsley's Slate cyberzine. Gates is late, and he has to battle Sun's Scott G. McNealy and Netscape's Jim Clark, both students of Silicon Valley history, too. But at least Gates is in the game now, his second. In a world where change is the constant, CEOs and political leaders should take note. Pride often goeth before a fall. Bill Gates was wise enough not to let it happen to Microsoft.

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