In 1975 Bill Gates and Paul Allen created a company called Microsoft. A little more than twenty years later, Microsoft is a leader in the field of computer programming. Gates and Allen both had big plans for their fledgling company and came up with different ways of managing people and products in order to create possibly the most effective and versatile workforce of any corporation in existence. To study Microsoft’s way of doing business is to look at the company from many angles, from a managerial and organizational standpoint to its process of developing products and services for its customers.
To truly understand Microsoft’s way of doing business is to view how the companies different project groups and divisions work together to create superb products that the consumers desire, there really is no one true secret to Microsoft’s success.
From an organizational standpoint, Microsoft starts by using an extensive interviewing process to sift out the smartest, most qualified individuals to perform all the tasks associated with their specific workgroups workload.
“We start using the very best practices, which was just hiring great people and having small teams…”(Cusumano pg. 25) Gates said of his selective hiring process. Every group manager, line manager and program manager not only has the leadership and managerial skills needed to keep the process moving along, but also the technical skills that their subordinates use. This may remind some of the way the enlisted ranks in the military perform their assigned tasks. With a leader who possesses the technical skills, decisions can be made without consulting technical advisors, and can be made with a great degree of accuracy. Regarding his choice of middle management Gates stated “We don’t have non-technical management trying to make technical trade-offs.” (Cusumano pg. 26). Microsoft often promotes from within, again similar to the military, this provides the greatest common knowledge of the tasks at hand and how to effectively get the job done. By using these types of people as managers, small workgroups could become large workgroups but still function as efficiently. Microsoft also thought that all of its development should be performed at one site, this allowed project groups to share information and test their specific programs together with the least amount of downtime and hassle. Microsoft’s workgroups are also organized by the product they are designing in order to allow these groups to function together and exchange technical information easily, “People in these jobs work in multifunctional teams organized by product, with some mechanisms to integrate across the product groups.” (Cusumano pg. 35).
Microsoft not only has a formal organizational “chain of command”, but also what they consider a “brain trust” of employees from every level who work together to create product ideas and “plans of attack”. Microsoft also does a good job of retaining its employees by giving them a plethora of stock options and retirement plans to fit everyone’s own personal investment style. While Microsoft’s salaries may seem a bit on the low end of the scale and the fact that they pay no overtime might discourage some, more than a few of the companies employees are millionaires. “Approximately three thousand out of Microsoft’s 17,800 employees are also millionaires due to the stocks they own…”(Cusumano pg. 117). Microsoft has biannual bonuses of up to 15 percent and allows employees to use up to ten percent of their salary to buy stock at 85 percent of the market value. Most employees work very long hours sometimes for a few days straight, Jim Conner said of Microsoft employees “You get weird cases where people actually move into their offices… I would have to order people to go home because they were exhausted. They would work for three or four days straight…”(Cusumano pg. 95). With an organizational setup where everyone knows everything about the assignment they are currently working on and all employees feel included and have the drive and the technical skills to get the job done, it is no wonder that it has one of the most productive workforces around.
Microsoft not only leads the programming industry, it helped define and create the industry. By creating innovative and useful programs, Microsoft also created an ever expanding market for their products. By creating the best in GUI (graphical user interface) operating systems, Microsoft paved the way for a huge home PC market. Along with the home PC’s came a brand new market for more operating systems. By creating a new market they insured a continued demand for products which Microsoft is more than willing to supply. “Operating systems now account for about one-third of Microsoft’s revenues” (Cusumano pg. 132). Microsoft also uses another strategy to produce continued demand for their products by continually updating their products with new capabilities and features, which in turn eventually renders older versions of the same program obsolete. Chris Peters stated that “In a sense Office makes the individual apps(applications) obsolete” (Cusumano pg. 146). Microsoft also enters into exclusivity contracts to keep the companies products in the forefront and to keep sales from slowing down. “Hardware vendors can reduce the OEM price by as much as $30 dollars if they agree to install Windows 95 on 50 percent of their PC shipments or adopt the Windows 95 logo and sign a contract by a particular date” (Cusumano pg. 161). Entering into these contract makes perfect sense from a business and marketing standpoint, but has drawn allegations of monopolizing the industry from their competitors. While it is true that Microsoft has what would appear to be a monopoly in this industry, it would be absurd to have more than one or two operating systems because it would limit the supply of software for each system. Microsoft simply has a good product and an excellent marketing strategy. “Microsoft’s contracts with leading PC producers in effect isolated IBM when it tried to introduce such alternatives to Windows a Presentation Manager an then OS/2” (Cusumano pg. 161). By using strategies like these Microsoft has become and remained a leader in the industry.
In order to be proficient at producing and shipping products on time and with the least amount of problems, Microsoft uses certain methods of production such as continually testing their programs as they build them. Also as mention before they develop all programs at one site. “Despite the benefits of electronic mail and it extensive usage at Microsoft, single-site development allows project personnel to get together physically on a regular basis and to explore ideas interactively” (Cusumano pg. 285). By allowing different workgroups to share ideas and share problems they encounter, these workgroups will be more efficient and hopefully prevents them from running into the same problems that their fellow employees encountered. By continually testing the programs as they were developed, Microsoft enables the immediate shipment upon completion of the programming. This process of testing frequently also allows Microsoft to keep a close eye on the progress of each project and allows them to put more programmers on the project if needed in order to keep it on track. As stated by Mike Maples, “If you do it right, the time from when you finish the product to when you can get someone the whole product is very short…. It does make the process much more predictable. You know much earlier in the process when you’re in really bad shape…. You know where you are” (Cusumano pg. 277). By developing the product at one site, with multiple teams of programmers working together on separate sections of the programs, and by having the program ready to go the second it was completed has allowed Microsoft to introduce products and programs to market quickly and inexpensively.
Bill Gates truly has a keen eye for business and has steered his company in the correct direction in order to create a well organized corporation. Microsoft has used good policies in order to build a strong, intelligent and loyal work force, not to mention excellent benefits and stock options in order to keep their employees happy. By using middle managers with technical backgrounds Microsoft allowed project managers to make technical decisions without the concern of making technical tradeoffs. By working in small groups that overlap in responsibility and work at one site, employees could be as productive as possible and do their jobs with the utmost precision. By frequently updating programs and entering into exclusivity contracts, Microsoft has made sure that there will be a continued demand for their products in the future. Microsoft creates markets for its products and product ideas by designing new technology and getting in on new technology early on. Microsoft’s frequent testing of programs and products during and between every stage of the design process allows them to make sure projects are running smoothly and also allows them to ship the finished products to market quickly. Bill Gates has proved that he and Microsoft have what it takes to make it in today’s business world, with good policies and good employees Microsoft is here to stay.
Cusumano, Michael A., Microsoft Secrets, New York,
The Free Press, 1995.
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