Killing Giants- A how to guide for demolishing an institution, demonstrated by Microsoft and copied by Universities

Posted on September 11, 2012


I read this good article, Microsoft’s Lost Decade by Kurt Eichenwald, and could not help but see the parallels between what was described and the modern university system (other systems too but this post will stick with education). I highly recommend you read the whole article. A brief excerpt from the article sums it up:

In those years Microsoft had stepped up its efforts to cripple competitors, but—because of a series of astonishingly foolish management decisions—the competitors being crippled were often co-workers at Microsoft, instead of other companies. Staffers were rewarded not just for doing well but for making sure that their colleagues failed. As a result, the company was consumed by an endless series of internal knife fights. Potential market-busting businesses—such as e-book and smartphone technology—were killed, derailed, or delayed amid bickering and power plays.

That is the portrait of Microsoft depicted in interviews with dozens of current and former executives, as well as in thousands of pages of internal documents and legal records.

“They used to point their finger at IBM and laugh,” said Bill Hill, a former Microsoft manager. “Now they’ve become the thing they despised.”

As you read the article you will see uncanny parallels between how Microsoft has crashed and burned over and over again and the mistakes currently being made by the university system in the United Kingdom (mostly the UK government management of the university system) and to a lesser extent individual universities and state university systems in the US.  Academics should be shouting from  the tops of buildings, marching through the streets of London smashing the Conservative party headquarters, at the very least storming the Bastille, etc. but they are doing nothing. They are following the exact formula that ruined Microsoft:

Amid a dynamic and ever changing marketplace, Microsoft—which declined to comment for this article—became a high-tech equivalent of a Detroit car-maker, bringing flashier models of the same old thing off of the assembly line even as its competitors upended the world. Most of its innovations have been financial debacles or of little consequence to the bottom line. And the performance showed on Wall Street; despite booming sales and profits from its flagship products, in the last decade Microsoft’s stock barely budged from around $30, while Apple’s stock is worth more than 20 times what it was 10 years ago. In December 2000, Microsoft had a market capitalization of $510 billion, making it the world’s most valuable company. As of June it is No. 3, with a market cap of $249 billion. In December 2000, Apple had a market cap of $4.8 billion and didn’t even make the list. As of this June it is No. 1 in the world, with a market cap of $541 billion…..

Exhibit A: today the iPhone brings in more revenue than the entirety of Microsoft.

No, really.

One Apple product, something that didn’t exist five years ago, has higher sales than everything Microsoft has to offer. More than Windows, Office, Xbox, Bing, Windows Phone, and every other product that Microsoft has created since 1975. In the quarter ended March 31, 2012, iPhone had sales of $22.7 billion; Microsoft Corporation, $17.4 billion.

Now, the UK university system is not exactly number 1 in the world, that usually falls to the US depending on how you measure it. However, the UK punches well above its weight in most measurements. For example, it is second in the number of international students studying in the country and their schools always rank highly in the different world ranking systems such the Times Higher Education or the Academic Ranking of World Universities. Not bad for a country with a fifth of the population of the US.

So what are the mistakes Microsoft made and that the University system is currently making? There are quite a few but here are three that really hit the nail for me:

1. Unequal share of rewards.

Almost every employee received a stake in the company through stock options. When the share price went up, everyone got richer. When it went down, everyone was—well, a little less rich. The mythology was true: in the early days Microsoft minted millionaires almost as quickly as it packaged software—the original 11 staff members besides Gates and Allen came away with sums ranging from $1 million to $100 million—and the result was that everyone ran full speed in hopes of pushing up the stock price a little bit more….

Many of the longtime executives let new employees handle the work while they themselves lolled around, waiting for the next vesting period when they could exercise more options—a behavior known derisively by the younger hires as “rest and vest.”

The permanent hire has pretty much disappeared from UK Universities except for those lucky enough to get a job several decades ago. Most new hires are now on several year contracts, some as little as 6 months or a year. There is no job security in higher education anymore and the means lower pay. Higher Education could never compete with the private sector on pay, still most staff make very nice wages, but at least you knew you had a job, that is gone.

1a. Unequal rewards but equal burden.

Small changes in corporate policy began to be perceived as slights to those who hadn’t been lucky enough to land at Microsoft in time to become millionaires. When the company decided in about 2003 to save money by no longer providing towels for employees using the company showers, the response was pure fury. The older employees had millions, and the younger ones couldn’t have towels?

“If you just add up the time people spent sending angry e-mails about the towels disappearing … I expect they lost a lot more money than the cost savings from the towels,” a former lead software-design engineer said.

The towels returned, but the bitterness about cost-cutting didn’t end. Microsoft abandoned its gold-plated health-insurance plan—the enticement, some former employees told me, that had brought them there in the first place. Whiteboards grew scarcer. It even became harder to find office supplies.

If you work at a University you know what I am talking about- the cost cutting exercise. You are on a one year contract and now you have to pay for your own printing while professors enjoy the golden parachute into retirement.

2. Increased bureaucratization,

“People realized they weren’t going to get wealthy,” one former senior executive said. “They turned into people trying to move up the ladder, rather than people trying to make a big contribution to the firm.”

More employees seeking management slots led to more managers, more managers led to more meetings, more meetings led to more memos, and more red tape led to less innovation. Everything, one executive said, advanced at a snail’s pace.

As a postgraduate I sit on 3 maybe 4 (how does one not know how many committees one sites on? well two committees share a meeting so I am not sure if that counts as a single committee or two separate ones that meet right after each other). A postgraduates sits on 4 committees and that is only at the school level (made of three departments), I could sit on many more if I so choose. How many of these committees actually make decisions that matter? 0 (zero)! Now, I am using an an anecdotal example as evidence as example of what is wrong with universities which is one of the weakest forms of evidence one can use. However, I am pretty confident that you talk to any member of staff at a universality and they will tell you the same story, lots of committees that do nothing.

3. Ridiculous goals forcing bad decisions and even worse ways of measuring those goals.

By 2002 the by-product of bureaucracy—brutal corporate politics—had reared its head at Microsoft. And, current and former executives said, each year the intensity and destructiveness of the game playing grew worse as employees struggled to beat out their co-workers for promotions, bonuses, or just survival…

At the center of the cultural problems was a management system called “stack ranking.” 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. The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

Supposing Microsoft had managed to hire technology’s top players into a single unit before they made their names elsewhere—Steve Jobs of Apple, Mark Zuckerberg of Facebook, Larry Page of Google, Larry Ellison of Oracle, and Jeff Bezos of Amazon—regardless of performance, under one of the iterations of stack ranking, two of them would have to be rated as below average, with one deemed disastrous.

This sounds very similar to the Research Excellence Framework (REF), how the UK judges the quality of its universities and how much research funding they receive. Instead of competing against the world UK universities are pitted against each other in gladiator like game of research production. I say production because even though it is suppose to measure quality there is a quantity component to the measurements. A person has to produce so many “publications” regardless of quality, well just enough quality. There are other measurements, publications make up 65% of the rankings, such as impact of projects but even those are measured by range of impact. The results of this system was predictable at Microsoft:

Outcomes from the process were never predictable. Employees in certain divisions were given what were known as M.B.O.’s—management business objectives—which were essentially the expectations for what they would accomplish in a particular year. But even achieving every M.B.O. was no guarantee of receiving a high ranking, since some other employee could exceed the assigned performance. As a result, Microsoft employees not only tried to do a good job but also worked hard to make sure their colleagues did not.

“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said. “People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings.”

Worse, because the reviews came every six months, employees and their supervisors—who were also ranked—focused on their short-term performance, rather than on longer efforts to innovate.

“The six-month reviews forced a lot of bad decision-making,” one software designer said. “People planned their days and their years around the review, rather than around products. You really had to focus on the six-month performance, rather than on doing what was right for the company.”

We can already see this sort of system contributing to the problems facing higher education. The majority of the REF is based on research production and that can be bought AND IS BEING BOUGHT. My school recently posted job adverts for one year research positions with deadlines in time for them to be included in the REF. Guess what the requirement was? Already having for quality publications, the exact number required by the the REF. My school is buying higher rankings in the REF. This is a brilliant move on the part of my school, they game the system of funding for several years.

Come the next round of the REF, or whatever they are calling it then, more schools and universities will be copying this strategy. The real problem is that the universities are now sacrificing long term goals for short term ones. In two or three rounds of the REF we will see massive hiring periods of very short term contracts right before REFs and desert like conditions for jobs in-between as money is saved up for the next round of the REF and one year hires. Unless the world changes greatly in that time I do not see how it will be possible for anyone to conduct research when they are hired once, for one year, ever five years.  The REF will in effect kill off the pipeline of new researchers, not that this pipeline is in great shape now.

There it is, three beautifully destructive steps taken by Microsoft to destroy its business that are being taken up by Universities. Hopefully, someone wakes up to these problems before its too late.

Edit- an hour after posting this I read this article about how the REF is causing backlog in journals and ruining careers. Another side effect of the REF and poor choices being made by the Higher Education Sector.

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