Eichenwald’s conversations reveal that a management system known as “stack ranking”—a program that forces every unit to declare a certain percentage of employees as top performers, good performers, average, and poor—effectively crippled Microsoft’s ability to innovate. “Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees,” Eichenwald writes. “If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”This sort of system is all too common, and although this is an uncommonly severe system, many businesses fall into the trap of creating competition between employees when in reality, employees want and should be judged on the basis of individual performance against a set standard. Any organisation which doesn't allow for the fact that all it's employees might be exceptional is cruising for problems.
According to Eichenwald, Microsoft had a prototype e-reader ready to go in 1998, but when the technology group presented it to Bill Gates he promptly gave it a thumbs-down, saying it wasn’t right for Microsoft. “He didn’t like the user interface, because it didn’t look like Windows,” a programmer involved in the project recalls.
A former official in Microsoft’s Office division tells Eichenwald that the death of the e-reader effort was not simply the consequence of a desire for immediate profits. The real problem for his colleagues was the touch screen: “Office is designed to inputting with a keyboard, not a stylus or a finger,” the official says. “There were all kinds of personal prejudices at work.” According to Microsoft executives, the company’s loyalty to Windows and Office repeatedly kept them from jumping on emerging technologies. “Windows was the god—everything had to work with Windows,” Stone tells Eichenwald. “Ideas about mobile computing with a user experience that was cleaner than with a P.C. were deemed unimportant by a few powerful people in that division, and they managed to kill the effort.”Microsoft ensured that innovation had to be approved, and filtered through a certain set of criteria (i.e. it had to be Windows). Two of the most innovative companies going, Apple and Dyson, have based their entire existence on the fact that they don't really care what consumers want right now, nor do they care what they do as a business right now, it's about creating the next innovative thing and then making consumers want it.
When one of the young developers of MSN Messenger noticed college kids giving status updates on AOL’s AIM, he saw what Microsoft’s product lacked. “That was the beginning of the trend toward Facebook, people having somewhere to put their thoughts, a continuous stream of consciousness,” he tells Eichenwald. “The main purpose of AIM wasn’t to chat, but to give you the chance to log in at any time and check out what your friends were doing.” When he pointed out to his boss that Messenger lacked a short-message feature, the older man dismissed his concerns; he couldn’t see why young people would care about putting up a few words. “He didn’t get it,” the developer says. “And because he didn’t know or didn’t believe how young people were using messenger programs, we didn’t do anything.”One of the great things about the internet is that it has provided a venue for consumers to experiment, and give clues about where the market is going. Social media was always going to happen, from the day that bulletin board systems existed the internet was going that way. It just didn't have a vehicle for it at the time. By failing to recognise a trajectory and taking advantage of it Microsoft sat on the outside while new innovators who understood the internet were able to step in and steal an entire marketplace for themselves.
These quotes are from the extract for the sake of simplicity, but I highly recommend the full article as it's a shocking set of revelations about a company which has largely gotten away with its own incompetence (albeit with the collapse of it's stock price). At least until now.