Comparing Apple to Microsoft

I am not an advocate of annual or semi-annual job-performance reviews. The relationship between an employee and his or her boss should be daily. This means the employee that is doing well will know it. Likewise, the one doing poorly should also know it—or should at least be warned that improvement is needed. The problem with conducting only periodic reviews is that too often emotion and personal-relationship factors interfere with sound and useful review. Apparently, according to Kurt Eichenwald's article in the August 2012 issue of Vanity Fair, that is what has caused Microsoft to fall on hard times since Bill Gates stepped down as CEO. His replacement, a guy named Steve Ballmer, a friend from Gates' days at Harvard, took over in the 1990s. According to the article, Microsoft has been in decline ever since. Could the management style be to blame? Apparently, Ballmer is a tough guy who plays politics. One product manager is quoted as saying, “If you don't play the politics, it is management by character assassination.”

“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 around 2003 to save money by no longer providing towels to employees using the company showers, the response was pure fury. The older employees had millions, and the younger ones couldn't have a towel?” Eichenwald continues, “'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 towel,' a former lead software-design engineer said.” The towels were eventually reinstated, but Microsoft had gone from a business of creativeness to one of bureaucratization.

“There was this institutionalized system, and it was like designing software by committee,'” one engineer said. “Sometimes,” Eichenwald adds, “the problems from bureaucracy came down to a simple reality: The young hotshots from the 1980s, techies who had joined the company in their 20s and 30s, had become middle-aged managers in their 40s and 50s. And, some younger engineers said, a good number of the bosses just didn't understand the burgeoning class of computer users who had been children—or hadn't even been born—when Microsoft opened its doors. When younger employees tried to point out emerging trends among their friends, supervisors sometimes just waved them away.”

Undoubtedly those creative urges were viewed negatively on annual reviews.

A Company's Performance

“Many American companies that had adopted a much-vaunted employee evaluation system have lately been turning away from it,” reported Michael E. Kanell in the July 22, 2012 Atlanta Journal-Constitution. “[This] leaves Microsoft taking the heat. Known as 'stacked ranking' or 'forced ranking,' the process made famous by GE is really just a version of what teachers call grading on the curve: a few people at the top, a few at the bottom, and the rest clumped in the middle.

“The practice leaped into the spotlight—at least for people who study how companies perform—when Vanity Fair's August issue published a profile of technology icon Microsoft. The company's malaise, the author argued, was partly pegged to its evaluation system.” It was the same “management by objectives” process that I first criticized in September 1983 in “The MBA vs. The MBWA,” which appeared in Insurance Adjuster Magazine, predecessor to Claims. Back then, what Microsoft experienced in the early 21st century was called “The Great Malaise of the Eighties.” Management types with their MBAs were everywhere, suggesting certain pathways to prosperity. If Harvard Business School had suggested that the way for a company to make money was for all the executives to stand on their heads in the hallway with a nickel in each of their mouths, then hallways of corporations all over the nation would have been full of guys standing on their heads with nickels in their mouths. It might have worked, too; they would have been out of the way of the employees who actually were accomplishing things.

It was the anticipation of bad performance reviews that led Enron's employees to commit the dirty deeds that led to the company's demise and the loss of billions of dollars to those who had invested in it. “Performance” was translated to “bring in big bucks, even if you have to do it unethically.” This is the exact same mind-set that has ruined America's banks.

Until the 1980s I had never heard of a “performance review.” If I did well, then the boss let me know it. If I screwed up, then he'd let me know that, too, right on the spot. It didn't take a formal once-a-year sit-down session in the boss's office to find out if things were going well. Rather, one knew [how it was going] immediately. But the MBAs said that annual formal written reviews were needed, so every corporation and small business from Maine to Hawaii suddenly adopted performance reviews.

In this new Harvard Business School (or Stanford or MIT or wherever) MBO format, the chief guy dreams up objectives for the year, and each underling has to dream up ways of meeting the big guy's goals, even if those goals are virtually impossible to meet or are missed because of circumstances far beyond the control of the underling, like financial crises, natural disasters, or even war.

If the goal is not met, then the underling's performance rating will suffer. If he or she was lucky and either met or exceeded the goal—usually through the effort of his or her own underlings—then that person received big pats on the back and a large bonus. The objectives were formalized in some format, and each section's own underlings were given their own objectives to meet on which their performance would be judged. What happened if the underling had a better idea, perhaps some new product or service that was not in the formal objective? Well, if it didn't fit the boss's objective, then it would get rejected, as apparently was happening at Microsoft. Who had time for such nonsense as innovation when there was an objective to be met? “Quit wasting time and get back to work.”

Now there is nothing wrong with a company having a goal or objective. The problem is when the objective becomes a fanaticism that blocks common sense and reality. This has happened to a lot of great companies. The goal became a god, and those who didn't worship that god got the boot.

Management by Wandering Around

Tom Peters' alternative to MBOs was management by wandering around (MBWA). The boss should wander around and find out what his or her customers and competitors really think, or what ideas for improvement the employees might have. That is what truly innovative executives did, whether or not it fit some Harvard Business Review model. When, back in 1983, I suggested that MBOs were a waste of time, several managers and executives called to thank me. They also suggested I might not survive long, because the company had seriously invested in this MBO business. They figured the bosses might not like my comments in the column. However, it was like those “monthly department meetings,” meaning another waste of time.

By the end of the year, nobody heard another word about MBOs. Everybody was too busy doing more important things. A few years later, after I was selected to conduct the “monthly meeting” of the division, that, too, came to an end. It was like the time Harvard (or some other ivory tower) suggested that departments should get together at a park and play children's games and have a picnic. Of course, the boss guys thought, that might be a useful project. But it, too, was a boring waste of time and money—tomfoolery for no good reason that took us away from accomplishing our jobs.

ISO 9000: The New Paradigm

Then came ISO 9000, sometime around 1995. Our then-CEO gave a talk about how important this new system was going to be and how, if we didn't know what it was, to go look it up, because it was coming, and we were all going to do it. So I looked it up. It was simply a system by which things were designed to a pattern, supposedly to fit international standards. Again I consulted the great business guru, Tom Peters, who suggested that it was the greatest pile of nonsense that had come along in years. One could design life preservers made of solid lead, he said, and as long as it was designed to a pattern it could be ISO 9000-approved, even if it was entirely useless. We never heard of ISO 9000 again, either.

Relationships and Job Performance Evaluations

Perhaps the fastest growing area of tort claims is employment practices liability. Once it consisted only of perils such as wrongful termination, but today there are a variety of individual perils such as sexual harassment; religious, age, sexual orientation, racial or handicap discrimination; and similar personal breakdowns between an employee and the employer. As with many such torts, a number originated in California and wound up as workers compensation claims: “My boss yelled at me, and now I'm depressed and have to receive psychiatric care and am now disabled.”

During the years I audited County of Los Angeles claim files I saw a number of such claims. California has all sorts of special laws that apply to employment practices claims and how they are to be handled. In investigating such a claim, the starting point was always the official personnel file—the one with the written annual reviews in it. More often than not, however, those reviews were simply personal opinions, and the employee's written responses demonstrated that personality conflicts were often the source of the employee's problem.

I recall one male physician at a county teaching hospital who was so nasty to students and other employees, especially women, that they often left in tears. He alone generated more claims than all the other staff put together. I never met him, but wish I had, if only to see for myself if he was as nasty as he appeared to be in these claims. I suspect, from what has been reported about Steve Jobs and his relationships with co-workers and his employees, that he undoubtedly left a few folks in tears as well. When one of the co-founders of Apple suggested that one key employee be awarded some stock in the company, Jobs refused. It's clear that Jobs was no Saint Steve. Perhaps he was the only worm in the Apple. Without him, will Apple become like Microsoft?