Why Microsoft's New CEO Will Be Exactly the Wrong Person

If history is any guide, Microsoft (NASDAQ: MSFT  ) will probably choose the wrong person as its next CEO. Instead of seeking out a person with the skills to lead Microsoft into the future, the CEO search committee will likely be wasting time by trying to recreate the past.

They'll look for someone who is young, trendy, mobile-friendly, and charismatic. In other words, they'll be looking for the exact opposite of current chief, Steve Ballmer.

Back to the future
The Microsoft of old was led by Bill Gates the visionary and Steve Ballmer the operator. Together, they rode the wave of the personal computer to unbelievable success and riches. Once Gates stepped aside, Microsoft's former No. 2 struggled to create a clear vision for the company, and was often forced to play catch-up with smaller, more nimble competitors.

The obvious, if flawed, takeaway for anyone looking at that history is that Mr. Softy now needs to find itself a young visionary like Mark Zuckerberg to come in and run the show. Instead of playing catch-up, it's time to infuse the company with a start-up ethos. Or so it appears.

It's not you, it's me
Corporations are made up of and run by people, so it should come as no surprise that they fall victim to the same cognitive biases that ordinary individuals do.

What happens when a relationship goes bad? The next partner you seek out often has exactly the opposite personality and characteristics of the previous one. Sadly, this isn't always the most successful strategy in the world.

You don't need to look very far to find failed corporate marriages. How about J.C. Penney and Ron Johnson? Or Yahoo!, before Marissa Mayer?

With history as our guide, we can expect Microsoft and its activist investors to roll out the red carpet for a young, tech-savvy entrepreneur with a bold vision of the future. The vision will be strong on buzzwords and light on execution details. And for that, he or she will be paid a king's ransom, upfront.

Boring guys rule
Hopefully, my pessimistic prediction will not come to pass. What Microsoft really needs right now is a capital allocator. That's right, Microsoft's future relies completely on how well it can reinvest the $20 plus billion of free cash flow it generates each year. That's the key question the search committee should be focused on.

With any luck, Microsoft will learn from history and one of its old, familiar foes. Back in the 1990s, Microsoft was a young buck, taking on the tech titans of old and beating them senseless, at a different game than the old guard was accustomed to playing. The old, plodding companies just couldn't keep up. One old-guard player, IBM (NYSE: IBM  ) , was in particularly rough shape in the early 1990s. But then a new leader arrived in 1993. His name was Louis Gerstner.

Gerstner was a consulting guy and, worst of all, lacked a bold vision of the future. In a meeting with Wall Street analysts he coined the phrase "logical incrementalism." The analysts, myopic and fearful of any uncertainty, panned his plan of attack and IBM's stock declined sharply.

But that's exactly the freedom IBM needed to reinvent itself and succeed in an uncertain future. While IBM wasn't (and isn't) considered a hot tech company by any stretch of the imagination, it has generated excellent returns for its shareholders. And that's exactly what Microsoft can do, too.

It's time for the board to step up to the plate and act in the best interests of long-term shareholders. They can take one step in the right direction by seeking out a great capital allocator without a bold vision for the future. For some companies -- at some points in their history -- the boring, operationally minded leader trumps the hip visionary. This is one of those times for Microsoft.

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Read/Post Comments (7) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On October 17, 2013, at 9:21 PM, techy46 wrote:

    Microsoft has done a pretty good job of building the world's largest software enterprise and I don't think they need a bunch of investing fools of financial analysts to squeeze the blood out of their amazing enterprise. Steve Jobs was a consumer and marketing visionary not a technology visionary. Do not equate Google's software socialism by giving away Linux aka Android with actually developing enterprise software.

  • Report this Comment On October 17, 2013, at 9:57 PM, symbolset wrote:

    Why are we even talking about this? Wasn't this actually decided months ago?

  • Report this Comment On October 18, 2013, at 3:24 AM, engguy wrote:

    Only an idiot would actually believe a capital allocator is good for any tech company! The point of tech companies is to break ground and take risks in the process. The easiest way to become irrelevant is to stagnate and pick low hanging fruit.

  • Report this Comment On October 18, 2013, at 4:14 AM, BeMyBest wrote:

    Shareholders' value can't be an end goal in itself. It's a by-product of having a good company with good idea about the future and good products that lead us to that future. Otherwise, no users. And thus no sales and no shareholders' value. VC Julie Meyer says that most elegantly - http://www.youtube.com/watch?v=I2IlOlgOsxU and Lars Kolind suggest the next Microsoft CEO should have the quality of bringing in "purpose" to the company in order to involve all stakeholders - http://www.youtube.com/watch?v=rQurGS6ZwF0

  • Report this Comment On October 18, 2013, at 11:48 AM, NoWindows8LockIn wrote:

    LOL. This article....WOW...have you been on the inside of IBM these days? It looks like a cross being a mental hospital and Holiday Inn. Very quiet, ultra-boring, definite NOT the new-hotness on the block.

    I think what you are saying is that Microsoft should go the way of IBM: boring, irrelevant, but with their tentacles so wrapped around their existing customer base, any customer who tries to leave is immediately choked to death.

    Sound like innovation to you? I didn't think so.

    When was the last time I.B.M. invented something cool? I mean, something that really got the market (consumers) excited? It's been at least 20 years.

    The reason is that IBM is in its maturity phase. Yet, it will slumber along, but its continued success depends on it taking advantage of some of the worst traits of human nature (fear, sloth, ignorance) than creating products that change the world.

  • Report this Comment On October 18, 2013, at 6:50 PM, badgerzilla wrote:

    I have been saying this for the last decade. Microsoft can make their investors rich and I was left quite a lot of MSFT. Ballmer was driving me crazy with him wasting all MS profits on bad investments like Bing. Why do they need to compete with all tech companies? They are more territorial than a horny tiger and in areas which they have never gone before. They should mark out a territory which they can logically cover and as their stock price grows, then expand into other areas but not before. Microsoft's stock is stuck at $35 per share and only pay a 4% dividend per year. Nobody is going to become rich owning MSFT!

  • Report this Comment On October 18, 2013, at 7:10 PM, badgerzilla wrote:

    It was three years after 9/11 that GOOG and MSFT were both about $35 per share. Today MSFT is worth $35 per share and GOOG is worth $1,011 per share. Any questions?

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