Change Management Lessons from Microsoft and Apple [Case Study]

It’s useful to examine how others have approached change and transition. In this post, we’ll look at the change management lessons from Microsoft and Apple, two of the world’s biggest companies.

Both behemoth companies of the tech industry have recently undergone significant leadership changes in the last six years and the companies have changed significantly.

The divergence of the fortunes of Apple and Microsoft highlights perfectly the growth potential achievable from a combined approach of change and innovation.

Now, of course, Microsoft is still a great company with huge customer loyalty and some great products.

But this pales in comparison to its market dominant position of the 1990s.

It could be argued that antitrust legislation has had some negative effect on Microsoft, but closer analysis shows that it has failed to give consumers what they really want; innovative products that constantly push boundaries.

Apple, on the other hand, has flown in completely the opposite direction. It has taken its customers from the iPod to iPhone to iPad. Microsoft has seen some success with its Xbox, but contrast and compare to Apple’s successes.

Let’s first take a look at Apple:

An analysis of Apple’s culture under Job’s

It’s common knowledge for many, particularly after the biography by Walter Isaacson on Jobs, that his leadership style was autocratic, perhaps even domineering.

According to Vroom-Yetton-Jago Decision-making Model of Leadership and decision making, the culture of Apple under Jobs could be classified as Autocratic.

Specifically, “Autocratic A2” where the leader will consult people for some information, but will then make the decision themselves. Everything had to go through Jobs and that slowed things down.

Jobs expected the best from people and demanded excellence at all times.

He was famous for firing people, seemingly on whims in the hallways.

This take charge may have been the kind that was needed when Jobs took over. In 1997 when he’d taken the help, Apple only had months of cash in the bank. He stripped the product line down to just four products.

Drastic action was needed as well as energy and creativity.

Art Levinson, Chairman of Genentech, on behalf of Apple’s Board said about Steve Jobs resignation, “Steve’s extraordinary vision and leadership saved Apple and guided it to its position as the world’s most innovative and valuable technology company.”

Under Jobs, Apple soon began to thrive. Redesigning the Mac, becoming perhaps the best personal computer in the world, with the new OSX to go with it.

Apple also led the digital music revolution with the iPod and iTunes. Reinvented the mobile phone with the iPhone and led mobile computing with the iPad.

But such a leadership style does have its negatives.

The challenges of an autocratic leadership style, no matter how much information is solicited in decision making, is that it underutilises employee creativity and collaboration.

The Vroom-Yetton-Jago Decision-making Model of Leadership, says there is no ‘right’ style of leadership, only the right one for the situation at hand. Jobs may have been the right person with the right leadership style at the time Apple needed it.

Lesson one: don’t change what doesn’t need changing

“Apple is not going to change.” The transition to the new world under Cook.
Tim Cook wrote this in his first email as CEO when he took over from Steve Jobs in 2011 as Jobs had stepped down after diagnosed with cancer.

When Cook wrote “nothing will change”, he meant the strategy of Apple.

Cook had big shoes to fill.

Jobs had been the chairman and CEO of Apple for 14 years until Cook, a longtime Apple executive took over.

As Cook took over there was a great deal of scepticism on his ability to successfully lead the company and maintain the innovative output that had made it famous.

Cook knew the company well and presided over much of its success from the background.

Not involved in product design, for which Apple is famous, Cook was an operator: His last position was COO and responsible for the end-to-end supply chain sales and service that drive much of Apple’s success.

Given this, and the company’s general financial health, this was no time for drastic changes, hence the email to employees that nothing will be changing.

Cook’s style, intentionally, or inherently to him was the right one at the right time: Inspirational, inclusive and collaborative.

During Jobs tenure, he insisted many decisions went through him, which slowed things down. Cook changed that, modifying the structure and culture to allow for more decentralized decision making, autonomy and collaboration.

Denise Young Smith, Apples HR executive said, “Apple’s HR chief: Working with Tim Cook ‘actually helps you to be a better human being’”

This was made manifest when Cook announced Apple’s first corporate social responsibility program, something Jobs had resisted.

“We have stepped up our social responsibility. We have talked about things and been more transparent about what we’re doing,” Cook said in an interview with The Washington Post when asked how Apple’s culture has changed.

Strategy
Apple is a product company with core competencies in product design and extending that user experience all the way through to the buying experience of sales and service.

Apple’s succeeds itself with superior and differentiated products, matched with a proprietary rather than open source approach to technology, locks customers in for longer due to switching costs.

Where to from here? 
Apple is a huge company with a humongous amount of cash on the balance sheet and no obvious places to invest it. There is scope to sell more iPhones in India and China, but the market for smartphones does appear to be maturing.

Apple is reportedly entering into car technology and self-driving cars, but it’s hard to know how much of this is core to the corporate DNA.

Warren Buffett recently invested, buying $9 billion of stock, so he certainly thinks the future prospects, on balance, looking positive.

Microsoft’s underperformance and transition to new CEO, Satya Nadella

Steve Ballmer, succeeded Bill Gates as CEO of Microsoft in 2000 and held the office 2014 when Satya Nadella took over the reigns.

Microsoft’s results were less than stellar during Ballmer’s tenure.

Microsoft’s share price is 40% lower than it was in 2000, while Apple’s share price has risen from around $50 to over $500 during the same period.

Unlike Cook, Nadella had two jobs: reboot the organisational culture in addition to redefining the company strategy and focus.

Organizational reboot at Microsoft

Nadella’s first focus was on the organisational culture, as he believes, like Peter Drucker, that “culture eats strategy for breakfast”.

Talking to The Economist, Nadella’s said:“We need a culture that allows you to constantly renew yourself”. Transforming the bombastic competitive style of Steve Ballmer (see the YouTube clips of Ballmer running across the stage and yelling “I love this company”) to one of openness and collaboration, yet delivering real world results.

This was an imperative. Consider the stats: 71% of the workforce is actively disengaged. Annually, this costs U.S. organizations $300 billion.

And:

Companies with highly engaged employees have 5 times higher shareholder returns.

Microsoft wasn’t failing by any stretch of the imagination, but it did need a boost of authentic energy to avoid languishing along the likes of IBM.

An apt quote from Bill Gates summarises the need for a transition to Nadella: “When your business is healthy, it is difficult to behave as if you are in a crisis. That is why one of the toughest parts of managing, especially in a high-tech business, is to recognise the need for change and make it while you have a chance.”

[addimage card of Gates and this quote]

Nadella led by example, as he described the Wall Street Journal, that while he’s not a fan of a lot of meetings, he schedules long-form meetings with his leadership team each Friday. Sometimes lasting eight hours.

Nadella’s cultural operating rhythm is guided by the following:

  • Openness and collaboration from secrecy and silos.
  • Value for innovation.
  • Diversity

Nadella then turned his attention to strategy.

Keeping strategy easy to understand is important. As John Kotter highlights, well-crafted mission and vision statements impact business results, as it guides the day-to-day behaviour and decisions of everyone in the company.

Source: https://www.slideshare.net/haileycowan/kotter-eight-steps

The last strategy under Ballmer was unwieldy. It was“ to create a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most.”

Nadella redefined what Microsoft was about in simple, uniting and clear statement. The current stated strategy isBuild best-in-class platforms and productivity services for a mobile-first, cloud-first world

To carry this out he outlines three core tenants: (see 2015 annual report)

  • Reinvent productivity and business processes.
  • Build the intelligent cloud platform.
  • Create more personal computing.

The results speak for themselves. Microsoft’s share price nearly doubled since he took over.

Following the reformed strategic direction, Microsoft has invested in Azure, it’s cloud-based platform, and while not profitable yet, it does provide scale for Microsoft’s other products, such as Office.

The hardware division has been a hit with the Surface Book, which is developing a loyal following. In this division is also the virtual reality play of Hololens.

Microsoft also recognised where its core customers hang out and bought LinkedIn for an incredible $26 billion to exploit synergies with their Artificial Intelligence (AI) investments.

Change management lessons: The failure to innovate generally comes in two guises.

The first of these is the failure to imagine the future. This imagination relies on people.

Freethinkers, who accept the responsibility of innovation, perhaps even creating new markets in the process, are attracted by companies that will allow them to indulge their creative side.

The second failure to innovate is in the execution of innovation, which is for the most part driven by collaboration.

In a report by Google in 2010, The Decisive Decade: how the acceleration of ideas will transform the workplace by 2020, showed there is an 81% correlation between collaboration and innovation.

Both Apple and Microsoft are able to attract top talent. This top talent produces the creative ideas that go on to produce the innovative products that customers love.

Apple had the balance right under Jobs, and while concentrating power at the top, was able to exploit the collaboration required to turn out great products people loved. Cook is driving the collaboration still more.

Microsoft under Ballmer somehow went wayward and would seem to be better exploiting collaboration for innovation under Nadella.

Microsoft has seen tablet PCs and smartphones come from its creative pool of talent. Yet it is Apple that has emerged as the now dominant force in the new consumer markets.

The result is clear to see: while Microsoft’s share price is 40% lower than it was in 2000 when Nadella took over, while Apple’s share price has risen from around $50 to over $500 during the same period.

The brick wall to innovative progress

You can have all the creativity and free thinking available to you, but unless you can transfer these ideas onto the shop floor and then through to customers in a meaningful way then innovation will stay on the drawing board.

Apple’s product evolution perfectly describes the innovative process. Innovation has its feet firmly in the shoes of small steps. They are experimental in nature and part of an innovative culture is the acceptance of failure.

The problem that organisations like Microsoft face is marrying up these small, experimental innovations – with their inevitable failures on route to big successes – with their need to generate revenue. And that is rarely, if ever, a fair fight.

Existing operations are large, established, and revenue and earnings generative. Managers of these operations have the clout to get their way: after all, without them, the company would have no profits.

On the other hand, innovation is by its very nature risky with no guarantee of profit generation. Experimentation distracts focus from existing businesses.

The most vociferous of enemies to innovation is to be found inside an organisation.

Solving the internal conflict between innovation and the status quo

Clearly, Apple succeeded in doing what Microsoft has consistently failed to achieve: it has solved the riddle of partnering existing operations with an innovative culture.

Steve Jobs was able to instil his own innovative thinking to the entirety of Apple’s business model. He constantly pushed his creatives to move forward, giving them ‘official permission’ to do so when he said things like:

‘I think if you do something and it turns out pretty good, then you should go do something else wonderful, not dwell on it for too long. Just figure out what’s next.’

Building internal partnerships toward innovation

Innovative leaders and the leaders of existing operations first have to realise they need each other to exist.

Both Nadella and Cook transformed the organisational culture with a focus on collaboration to aid innovation.

In the case of Apple, the strategic direction didn’t need changing, it was to recognise the company they had become required a new way working if they were to keep up the cutting edge product innovation.

Microsoft needed to change both strategy and culture.

The lesson is that the innovation does not appear out of nowhere; it’s created by the structures and management approaches put in place by management.

The importance of leadership in managing change for innovation

With such internal conflicts and the resistance to innovation an unequal battleground, senior management must take a senior role in not only establishing but then promoting an environment where innovation is embedded in the culture of the organisation.

It may be that leaders will have to get their hands dirty, becoming involved in the adjudication of low-level conflicts.

While these conflicts may be concentrated between the self-interests of the innovators and the existing business, it is likely, also, that as the innovation culture grows the number of bright ideas will explode.

Trying to do too much at one time is as damaging as doing nothing.

Steve Jobs had the magic formula and Cook is extending it in a new way. Nadella also understands. There is the need to produce profit today and innovate for a profit tomorrow.

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