WRITTEN CASE ANALYSIS SECTIONS At a minimum, the followingsections are to be included in each written case analysis. Fulldiscussions, explanations, reasoning, and support are to beincluded as to demonstrate to the reader the student’s completeunderstanding, knowledge, and competencies of all areas ofbusiness.

Complete SWOT Analysis

Competitors –direct and indirect

CHRISTOPOHER A. BARTLETT

Microsoft: Competing on Talent (A)

In the summer of 1999, a front-page Wall Street Journalarticle was attracting attention on the

Redmond campus. Under the headline “As Microsoft Matures, SomeTop Talent Chooses to Go Off

Line,” the article reported: “Tired of grueling deadlines,frustrated by the bureaucracy that has

accompanied Microsoft’s explosive growth, or lured away by theboom in high-tech start-ups, dozens

of the company’s most capable leaders, all around 40, have optedout—at least temporarily . . .”i (See

Exhibit 1 for the article’s list of seniorlevel departures.)

Steve Ballmer, the company’s recently appointed president andCOO, was quoted as saying that

some of the departures were voluntary and some were not, openingopportunities for fresher,

smarter replacements. “We have a bench that is very deep,” hesaid. “We have people who are fired

up—driven—to lead the next generation.”ii Yet despite thepositive outlook, Ballmer clearly

recognized that Microsoft had to change or adapt some of thehuman resource practices that had

allowed it to assemble and retain what CEO Bill Gates proudlycalled “the best team of software

professionals the world has ever seen.” Just six weeks beforethe WSJ article was published, Ballmer

had announced a package of changes that sweetened salaries,allowed more frequent promotions,

and softened some of the pressures that had long been part ofthe” hard-core” Microsoft culture.

Still, there were some who wondered if the rumblings in thesenior management ranks reported

by the WSJ were not the signs of larger loomingproblems for Microsoft. It was a question taken very

seriously by Gates and Ballmer who understood very well that thecompany’s enormous success was

largely due to its ability to recruit, motivate, and retainextraordinary talent.

the company’s growth led to changes in the way such policieswere managed in the 1990s—and

sometimes to changes in the policies themselves. (SeeExhibit 2 for Microsoft’s growth profile.)

Recruiting: Attracting the Best andBrightest

Gates had long recognized that it took exceptional people towrite outstanding software. His

preference for hiring extremely intelligent, not necessarilyexperienced, new college graduates dated

from Microsoft’s start-up days, when he and co-founder PaulAllen recruited the brightest people

they knew from school—their “smart friends.” In subsequentyears, the importance of recruiting well was constantly reinforcedby Gates, who considered helping his managers hire the best of allpossible

candidates as his greatest accomplishment. “We’re in theintellectual property business,” he told

them. “It’s the effectiveness of our developers that determinesour success.” Underlining the

importance of hiring and retaining superior talent, in 1992Gates acknowledged: “Take our 20 best

people away, and I will tell you that Microsoft will become anunimportant company.”iii

For Gates, acquired knowledge was less important than“smarts”—the ability to think creatively;

and experience was less important than ambition—the drive to getthings done. Above all, however,

he wanted to use recruiting to continually raise the bar. “I’dhave to say my best business decisions

have had to do with picking people,” he said. “Deciding to gointo business with Paul Allen is

probably at the top of the list, and subsequently, hiring afriend—Steve Ballmer—who has been my

primary business partner ever since.” As Fortunemagazine once observed, “Microsoft has been led

by a man widely recognized as a genius in his own right, who hashad the foresight to recognize the

genius in others.”iv Almost from the day he was hired asassistant to the president in 1980, one of Steve Ballmer’s

primary responsibilities was to act as recruiting coordinator.It was an assignment he particularly

relished. According to one senior manager, “Steve’s mantra was,‘We want people who are smart,

who work hard, and who get things done.’ That simple mantra issomething that people still talk

about today.” And once the smartest, most driven wereidentified, Ballmer and his team were

relentless in getting them on board. “There’s a standing policyhere,” said Ballmer, “whenever you

meet a kick-ass guy, get him. . . . There are some people youmeet only once in a lifetime. So why

screw around?” In Fortune’s assessment, “The deliberateway in which [Gates] has fashioned an

organization that prizes smart people is the single mostimportant, and the most consistently

overlooked aspect of Microsoft’s success.”v

Although the need for experienced managers led the company torecruit some key people from

other companies, in the early days Microsoft’s favoriterecruiting grounds were elite educational

institutions, particularly Harvard, Yale, MIT, Carnegie-Melon,Stanford, and a few highly targeted

others. As growth increased recruiting needs, the net spreadwider, eventually targeting 15

universities in the United States, four in Canada, and six inJapan. Microsoft recruiters made visits to

each of these schools in search of the most brilliant, drivenstudents—“once-in-a-lifetime” people—

paying little attention to prior experience. Indeed the companypreferred people who didn’t have to

unlearn different company values, work habits, or technologicalapproaches.

Before being hired, however, every candidate had to survive anintense interview process that

many found quite harrowing. Each candidate was interviewed by atleast 3, and sometimes up to 10,

Microsoft employees. During the interview, the candidates weretested more on their thought

processes, problem-solving abilities, and work habits than onspecific knowledge or experience. And

because developers played such an important role inMicrosoft—writing the lines of code that were

Microsoft products—their recruiting process was particularlyrigorous.

Technical interviews typically focused on programming problemsthat candidates were expected

to answer by writing code. Some managers posed scenarios withkey information missing to see if

the candidate would ask for data or just move straight to asolution. Then they might throw in an

oddball question like, “How many times does the average personuse the word ‘the’ in a day?” meant

to test the candidate’s deductive reasoning, creative problemsolving, and composure. If a candidate

gave such questions 30 seconds of thought and said they didn’tknow, the interview was effectively

over. If they were incapable of creative problem solving, theywere not an appropriate candidate.

Next, an unfamiliar but practical problem—for example, describethe perfect TV remote control—

might be thrown in to see how the candidates broke down theproblem, how simple or complex they

made the solution, and if that solution solved customerneeds.

As soon as the interview was over, each interviewer would sende-mail to all other interviewers,

starting with the words “Hire” or “No Hire,” followed byspecific feedback and suggestions for

follow-up. There was no “gray area”—a good candidate who justcleared the bar was a “No Hire.”

Based on earlier e-mails, people interviewing later in theafternoon would refine their questions to

drill down in areas where the earlier interviewers thought thecandidate was weak. The purpose of

the interviews was to push the candidates until they failed, toget a full understanding of both their

strengths and their limitations. (See Exhibit 3for an interview feedback email.)

After all the input was in, the hiring decision had to pass twoscreens. If the reviews were

favorable overall, a final, end-of-the-day interview with thecandidate’s prospective manager was

scheduled. Based on his or her own impressions and the commentsfrom other people in the group,

the prospective manager then made the hire/no hirerecommendation. But to assure that only top

candidates were hired, a so-called “as appropriate” interviewerwas also involved in the interviewing

process. A senior manager explained:

Very often, the “as appropriate” interviewer is a person who isoutside the hiring group, a

person really solidly grounded in Microsoft culture andcommitted to making sure that we hire

only those who are going to be good Microsoft people, not justgood people for specific jobs.

That person has veto power, which puts a system of checks andbalances in, because the hiring

manager may feel a lot of pressure to fill a job, while the “asappropriate” interviewer doesn’t.

Microsoft’s tight control on headcount further reinforced thepressure to resist settling for the

merely satisfactory candidate. Even in the early days, when thecompany was growing extremely

rapidly, Gates and Ballmer insisted on hiring fewer employeesthan were actually required to carry

out the work. The internal code for this philosophy was “nminus 1,” where n was the number of

people really needed. Said one senior HR manager:

[Beyond hiring smart, driven people] the second principle SteveBallmer was preaching was

that the default decision on a candidate is “no-hire.” In otherwords, unless you can identify a

clear reason why we should hire this person, we should not hirehim or her. . . . That principle

has been really important in keeping the bar high and ourselection ratio very low.

The company’s credo was that an adequate but not outstanding newemployee was worse than a

disastrous appointment. “If you have somebody who’s mediocre,who just sort of gets by on the

job,” Gates explained to Microsoft managers, “then we’re in bigtrouble.” The “big trouble” Gates

saw was that, while poor performers were quickly weeded out, amediocre employee might continue

to occupy a place that could be filled by someone brilliant.