9 Reasons Why Apple Beat Microsoft

Yesterday Apple overtook Microsoft as the world’s most valuable technology company.  According to the New York Times, Apple shares are now worth $227.1 billion versus a measly $226.3 billion for Microsoft, You may think Apple is winning because Apple’s products are better. You may even think Apple is winning because Apple’s marketing is so great. The truth is that Microsoft made a series of strategic blunders that have blunted it’s once-unassailable market position, giving Apple the opening it’s needed to push past. This post contains the 10 wrong things that Microsoft has done, thereby transforming itself from an erstwhile avatar into a soon-to-be also-ran. I believe that Microsoft’s problems have been programmed into its culture and it will be very difficult — barring a complete change in top management — for the company to recover its long-lost industry leadership.

Bailing Out Apple

·         What They Did: Microsoft threw Apple a life preserver when it was about to go under in 1996.

·         Why They Did It: Microsoft was terrified that if its only competitor in the market went under, Microsoft would look even more like the monopoly that it was.

·         Why It Was Dumb: Getting yourself in the position where the only way you can keep yourself from being sued is by bailing out a competitor is, by definition, a lousy strategy.

·         What Resulted: Oy!  Apple’s success is locking Microsoft out of several key markets that represent the high growth areas of high tech.

·         The Obvious Alternative: If Microsoft hadn’t become a monopoly, hadn’t alienated the rest of market, and hadn’t acted generally like complete jackasses, they wouldn’t have been in the position where they needed to do something so dumb

Feature Bloat

·         What They Did: Microsoft’s flagship application product, Office, keeps acquiring more and ever-more-obscure features.

·         Why They Did It: Microsoft’s revenue became dependent on customers buying upgrades to existing products.  The new features were necessary to justify asking customers to belly up another few hundred dollars for something that they already owned.

·         Why It Is Dumb: As Microsoft’s products become more difficult and complex, they become more difficult to use.

·         What Resulted: Asking more money for minimal value added is always a good way to annoy your customers.  In addition, products with feature bloat are abandoned the moment a better alternative comes around.

·         The Obvious Alternative: Convert to a subscription service, with additional charge for features that are only activated if people need them.  The model would generate less revenue, but in the long run it would result in happier customers and a stronger market position.

Bureaucratic Bloat

·         What They Did: As it’s grown, Microsoft has become increasingly bureaucratic and hidebound, making it increasingly unable to move nimbly.

·         Why They Did It: Microsoft has pursued an organizational strategy tends to centralize power.  While there are exceptions, the overwhelming tendency among top management is empire-building.

·         Why It Is Dumb: As a general rule, high tech companies become increasingly less effective and less innovative as they grow larger.

·         What Resulted: Microsoft is now widely (and correctly) seen as a company that has enormous problems bringing high quality products to market.

·         The Obvious Alternative: Large high tech firms constantly struggle with this, but the best approach is usually to decentralize around product groups or distribution channels, even to the point of creating smaller subsidiaries with their own P&L.  Such a structure would also help dispel the (correct) perception of Microsoft as a monopolist.

Windows as a Religion

·         What They Did: Microsoft keeps trying to push the Windows interface onto devices for which it is wildly inappropriate.

·         Why They Did It: The success of Windows in the marketplace has created the “Windows Everywhere” religion.  In order to get ahead at Microsoft, you’ve got to drink this particular flavor of kool-aid.

·         Why It Is Dumb: Windows is based upon a human interface design that was pioneered 35 years ago.  While it’s proven resilient on large-screen desktops and laptops with attached keyboards, it’s just not all that usable in other formats.

·         What Resulted: Microsoft has been roundly trounced in the handheld market first by Palm, then by Blackberry, and now by Apple.

·         The Obvious Alternative: Develop or buy operating environments that are appropriate for the devices that you wish to create or support — even if it’s an implicit admission that the Windows environment has limitations.

Stealing Code

·         What They Did: Microsoft has admitted to stealing code from another software developer.

·         Why They Did It: It’s obviously not Microsoft policy to steal code and that theft is apparently the action of a development partner in China.  However, the theft builds upon rumors and suspicions that have floated around in the industry for years, and plays into memories of various patent problems that Microsoft has encountered in the past.

·         Why It Is Dumb: Microsoft employs thousands of programmers. Surely it’s possible to throw enough manpower at a problem so that the software can be developed without stealing?

·         What Resulted: Microsoft’s brand image already suffers from the perspective that it’s not an innovative company and that it doesn’t play fair.  Getting caught stealing code causes people to question Microsoft anew.

·         The Obvious Alternative: Kindergarten rule: Don’t take what doesn’t belong to you.

Imitating Not Innovating

·         What They Did: Microsoft is well known as a company that takes designs and concepts  productized at other companies and then comes out with a Microsoft version of them.

·         Why They Did It: By letting other companies generate the “proof of concept”, Microsoft eliminates the risk of developing a product that flops in the market.  Microsoft figures that with its deep pockets and market position, it can easily clobber the early market entry that did the pioneering work.

·         Why It Is Dumb: While Microsoft’s strategy sometimes works (e.g. xBox vs Playstation), innovation is the soul of high tech, and trying new things (and risking failures) is how high tech companies learn and remain competitive.

·         What Resulted: Microsoft keeps coming into key markets late with products that aren’t sufficiently differentiated to create any positive buzz (e.g. Zune vs iPod)  Unless those products are tied to Microsoft’s monopoly, they tend to fail, leaving the company with a reputation as an innovation also-ran.

·         The Obvious Alternative: Microsoft should have developed Microsoft Research along the lines of IBM Research or Xerox Parc and made it a fountain of products for the rest of the industry

Monopolistic Bullying

·         What They Did: Microsoft used the combination of its monopoly position and deep pockets to effectively drive competitors out of business.

·         Why They Did It: Microsoft’s corporate culture became convinced that they were the “natural” owners of every software category and that they were “helping the customer” with practices that drove competitors out of business.

·         Why It Was Dumb: Monopolies are bad for consumers and businesses because they suppress competition, resulting in products that are overpriced and low quality.  And what’s bad for consumers and businesses is ultimately bad for the companies who sell to them… even if they’re monopolies.

·         What Resulted: Microsoft became embroiled in a series of anti-trust lawsuits which for over a decade constantly reminded the public that Microsoft was a company that put its financial interests ahead of the customer’s interests.  In addition, the ongoing negative perception of Microsoft has prevented the company buying companies (Intuit, Yahoo) that could help it in key markets.

·         The Obvious Alternative: Microsoft, as monopoly, had a vested interest in keeping that fact as low visibility as possible.  The company should have walked on three layers of eggshells when it came to anything that might be construed as anti-competitive.

Alienating Key Partners

·         What They Did: Microsoft has encouraged companies to build innovative applications atop of Windows, and then released their own products that were directly competitive, giving their own products the inside track on distribution and support.

·         Why They Did It: Microsoft got greedy and wanted not just wallet share, but the whole damn wallet.  Microsoft knew that because they had a monopoly on the operating system, companies would still build products on Windows.

·         Why It Was Dumb: While it’s true that other software companies were forced, by the nature of the market, to build for Windows, most of them did do reluctantly and with the sinking feeling that they’d eventually get screwed.

·         What Resulted: Other software firms are always looking for a safer alternative, thereby giving any Microsoft competitor (Linux, Apple, etc.) a huge boost in the market.  Furthermore, Microsoft has created a string of enemies in the software business who hold a grudge against the company, leaving it with few friends and allies when Microsoft tries to do new things.

·         The Obvious Alternative: Microsoft should have set up an impermeable Chinese wall that created a level playing field so that its applications did not have an immediate competitive advantage over other products.

Backward Compatibility

·         What They Did: Microsoft’s operating system group still insists on supporting features and concepts that are decades old.

·         Why They Did It: Because Microsoft’s main advantage in the marketplace was always installed base rather than product quality, they’ve been terrified that the base might leave if they asked customers to upgrade to a significantly different architecture.

·         Why It’s Dumb: In high tech, you have to “eat your own young.”  In order to remain innovative, you sometimes have to dead end old technology and take the risk of losing customers to get back on the cutting edge.

·         What Resulted: When it comes to stability, security and usability, each version of Windows has varied between adequate (at best) and horrible (at worst).  For many people, the “blue screen of death” is Microsoft’s tag line. The constant problems, constant insecurity, and constant need for pricey support have created a constant drumbeat of bad feeling about Microsoft’s ability to release high quality products.

·         The Obvious Alternative: Microsoft should have designed a new operating system that dumped the backward compatibility features that have caused so many problems over the years, and then bit the bullet.  They would have weathered the loss of a few customers and gained a reputation as a company that can create a quality operating system.

Freeing up the sales force for selling

Freeing up the sales force for selling

Most sales reps spend less than half of their time actually selling. Here’s how companies can reshape sales operations to allow them to focus on their real job.

JULY 2011 / McKinsey Quarterly /

Here’s a situation that may sound familiar. “Inside” sales reps¹ at a global manufacturer spent 75 percent of their time away from the phones—pushing through stalled deals, scurrying for data to answer questions from customers, and cobbling together one-off proposals for even the simplest requests. Highly paid field reps spent 45 percent of their time on internal sales support and tracking the progress of deals. Developing a standard proposal required meetings with as many as seven people, and field reps had to spend up to three weeks of constant effort to get a special price approved. This model of inefficiency culminated when the company fumbled a new-product launch because it failed to meet the deadline for proposals to secure initial orders.

That was the wake-up call the company needed. For two years, it worked to streamline its global sales operation by creating “sales factories” comprising specialized sales support staff with clear responsibilities and deal coordinators to shepherd sales through the system on behalf of reps. Internal processes were standardized and simplified, and a comprehensive performance-management system was implemented. While not all companies can successfully achieve these difficult and time-consuming transformations, the rewards are worthwhile for those that rise to the challenge. When the program was rolled out country by country, in some cases the impact was felt in just four months: reps gained an average of 15 percent more time for selling, conversions of proposals to sales rose by 5 percent, and the cycle time for internal sales processes shrank by 20 percent.

We find these results to be typical at large companies, yet few tackle the problem: sales operations remain a great unmanaged cost center in many organizations and a woefully underleveraged source of growth and differentiation.

Tuning sales operations for growth

The guiding principle of all sales operations makeovers is to maximize time for selling and relationship building. That sounds obvious, but it’s critical to remember as the drive for effectiveness collides with the forces of rising complexity. Companies must understand the scope and scale of their sales operations and then promote efficiency throughout the sales process.

Identify problems and opportunities

Companies typically restrict their definition of sales operations to transactional activities such as deal configuration, quote generation, and credit checks. A broader, end-to-end view recognizes that the functions supporting sales are interdependent. Sales operations begin with transactional support—activities critical to processing deals—but also involve groups that work directly with sales but are not tied to specific transactions, such as help desks, finance, IT support, and human resources. In addition, there are projects to enable sales, as well as strategy and reporting activities including sales compensation, coverage analysis, and territory planning. All of this consumes the time not only of the employees directly involved but also (when not executed effectively and efficiently) of sales reps. In fact, many senior executives suffer from sticker shock when the true extent of sales operations is calculated: more than 5,000 people spending upward of $1 billion a year at one technology company, for example. Even in the best-run organizations, sales operations tend to be scattered and costs tucked into hidden budgets.

Gaining this comprehensive view of sales operations is critical to identifying opportunities to free up the time of reps so they can concentrate on actually selling, as well as to eliminate the duplication of activities. One approach is to find out where the process breaks down by following orders to completion from their point of inception—as far back as the qualified lead. Once this sales path has been mapped, solutions can be developed and standardized, with careful consideration to how actions in one area affect others.

We find that companies often struggle with the results of this analysis, which reveals just how inefficient their sales operations really are. When one logistics company plotted its comeback from the recent recession, for example, it discovered that reps spent just 35 percent of their day actively selling, because they were consumed by nonsales activities such as billing-system updates, firefighting, and internal communications.

Optimize the entire sales process

Once opportunities to improve the sales process are identified, it’s critical to implement comprehensive solutions. Consider what happened at one company that worked hard to reduce the time needed for the steps in its sales process. Although it diligently improved each of them over the course of several years, the total cycle time worsened significantly, and frustrated customers began threatening to switch. Although the company had optimized the individual stages, the lack of end-to-end management led to enormous lags between them. Employees were measured on turnaround time, for example, and in an effort to speed things up began handing off work with incomplete information, which led to rework and delays. The cycle time doubled, even though each step was completed more quickly.

The company set out to transform its back office before it lost any major customers. For starters, it asked a few of them to serve on an advisory board for process redesign and followed a sample of orders through every step to see where delays occurred. The company soon discovered that deals worth just 20 percent of its revenue consumed 80 percent of the work in sales operations. The solution was to segment deals along three tracks, based on the value and complexity of orders—simple, medium, and high. Each track’s process was tailored to remove unnecessary steps; for instance, the company eliminated the need to go back through the full process when minor price changes occurred. Resources freed from simpler deals were reallocated to highly complex, large-value ones that required extensive customization and hand-holding. The advisory board provided feedback at every step. Although the new model required customers to change their own internal processes, they did so quickly once the benefits became apparent.

This new system cut the time required to complete deals by months, weeks, and days, respectively, for simple, somewhat complex, and highly complex ones—all the while delivering consistently strong service quality. The elimination of unnecessary steps cut the cost of sales operations by 15 percent. One customer was able to reduce by 25 percent the resources dedicated to interacting with the service provider.

Making it happen

Transforming sales operations isn’t easy. First, companies have a natural aversion to tinkering with the sales force—senior executives must overcome the common fear that disrupting it will jeopardize revenue. Second, executives from not only sales and sales support but other functions, such as finance, must work together to recognize and pursue opportunities. Third, successful transformations require steadfast support from the very top: someone must compel executives from across the organization to sit down, share data, and be willing to talk about what’s not working. A top leader must override internal politics, see the big picture, and focus on the best solution regardless of past practices.

In addition, new capabilities and talent may be required because successful transformations fundamentally change business processes and the ways multiple stakeholder groups interact, from customers to both the front and back offices. When one consumer-packaged-goods company redesigned its Latin American sales operations, for example, it centralized and streamlined many tasks (for instance, credit checks and the ordering of services) that had previously been carried out by sales support at the country level. This move freed support staff to pursue higher-value activities such as pricing strategy and postpromotion analysis and boosted the impact of the time returned to the sales team.

Finally, winning back and protecting selling time requires vigilance. The growth and proliferation of sales channels in the business-to-business and business-to-consumer worlds continually reinject nonselling activities into a sales rep’s day. In addition, old habits chip away at selling time: a rep’s reflexive response when a customer demands a quick answer is to drop everything and dive in, even when a modern sales support mechanism is in place to handle any issue faster and better. “It is key to stop reps from bypassing the new system, even if reps think they are more effective,” says one top sales executive at a high-tech company. “Their time is better used to sell.”

One company decided to address the problem by setting aggressive targets for metrics such as the number of meetings with new customers per week. Giving reps goals they could not meet without changing their behavior forced them to trust the process. Success became self-reinforcing: the more they stayed out of the support realm, the better they performed.

Viewing sales operations across an organization isn’t easy, nor is implementing changes that affect the entire sales process. Yet the more sales operations can be streamlined and back-office overlaps reduced, the more likely customer satisfaction will improve as deals close quickly and disputes are resolved promptly. At major companies, the result can often be hundreds of millions of dollars in higher revenues and lower costs. Such benefits speak for themselves.