Tech companies are the fruitflies of business strategy. Because conditions in their industry change so fast, the lifespan of a strategy is short. Many companies never make it past their first generation strategy (Commodore). Some manage to spawn a multi-generation line of strategies that keep the firm going, but the vigor of firm tends to decline as strategies become increasingly inbred (Sony, HP, and RIM).
Yet there is an important distinction from the fruitfly. Some businesses can change their environments through concerted action, dramatically reinvigorating their growth. Apple became the poster child for such a transformation over the past decade. This kind of courageous reshaping of an industry is rare, but there are roadmaps for how to achieve it.
Microsoft seems poised to follow this road today, at Apple’s expense. To write that sentence two years ago would have invited ridicule. But, patiently, Microsoft has been building its change vehicle for years, and it is about to roar to life. Windows 8 launches on October 26, and with it comes Microsoft’s best shot to transfer the company’s continuing strength on the desktop to tablets and smartphones, becoming a viable third competitor alongside Apple and Android.
To reach this cusp of reinvention, Microsoft has used six approaches:
1. Be humble – Ironically, bold transformations begin with humility. Microsoft has a look-and-feel to its software that is understood, if not loved, by over a billion people. Its core products – Office and Windows – churn out predictable profits at huge margins even though they have few rapid fans. The company recognized that it could re-order its industry only through fundamentally re-thinking these vastly successful products and users’ experience with them. Other companies would love to have Microsoft’s legacy, yet “Mr. Softie” is about to discard much of it through radically rethinking its interfaces with Windows 8. The start button, traditional icons, drop-down menus – gone.
2. Be decisive – It is tough to be both humble and decisive, yet Microsoft has pulled it off. Previous generations of Windows were hobbled by compromises. Users could do too many things in too many ways, leading to enormous complexity and bloated systems. Windows 8 is a leap into the future that will require users to re-learn very familiar functions if they wish to get much benefit from the revamped operating system. No doubt this was a tough call to make, but it enables the new environment to be far simpler and accessible than the old one.
3. Leverage your strengths – Microsoft believes its fortress on the desktop is strong enough to require users to adapt. No doubt there will be much grumbling, but people will change their habits because enterprises are not going to switch suddenly and massively to an Apple or open source environment. Once people adapt, there will be great advantages to linking a tablet to the Windows 8 environment, particularly in the coming wave of ultrabooks that function as PCs with screens that detach or transform into tablets. As users pick up more Windows 8 PCs and tablets, winning on the phone can come next. This is an approach opposite to Apple’s, whose current strategy is based on drawing users into the franchise through the carrier-subsidized iPhone, then selling people iPads and Macs. (Remarkably, it has thrown away many advantages of having a large installed base through changing the connector on its new iPhone 5, but that is a separate story of hubris).
4. Hit rivals where it hurts – If Apple retains its fortress iPhone, Microsoft may find it tough to make inroads into the tablet market. The iPad is just too slick a product, too nicely integrated into the iPhone, to encourage users to switch. Yet the fact is that most carriers really dislike the iPhone. They want to have it available, to be sure, but Apple requires far steeper subsidies from the carriers than do Android manufacturers. This is a big reason why the iPhone is so much more profitable for Apple than Android smartphones are for their makers. Another reason is that Apple’s lawsuits against Android manufacturers have left carriers concerned about relying too much on Google’s platform. Mobile carriers would be delighted to see another strong rival to Apple, and with Microsoft making a multi-channel push for Windows 8 they are likely to give handsets based on this platform substantial attention from their vast salesforces. Prior phones based on Windows 7 did not link to a newsworthy hook for salespeople, but carriers can piggyback on Windows 8 publicity to put these devices into the set of devices that consumers will consider.
5. Force change in your business partners – Microsoft is revving up in the hardware business, manufacturing what looks to be a high-quality Surface tablet based on Windows 8. Why? If it is seeking to reap giant profits in a hardware industry where fast and savvy firms have struggled, it is unlikely to succeed. But what if Surface is a way of demonstrating all that Windows 8 can do when it is tightly integrated with hardware, forcing other manufacturers to be as bold? Google did something similar with its early Android phone, the Nexus. The Nexus didn’t sell many units, but that was beside the point – it kickstarted Android phone makers. Microsoft is not relying on inertia to change its industry; it is providing both the Windows 8 carrot the Surface stick.
6. Know your innovation archetype – A few years ago I published a special report in Forbes that used a large survey of corporations to determine successful formulas for innovative firms. We found that there is no one successful formula, but rather four completely distinct ones. Companies trying to benchmark Apple, Google, and Samsung should be mystified, because these are three completely different companies. Microsoft knows it is no Apple, directed by a visionary leader. CEO Steve Ballmer set very broad mandates for Windows 8 and then got out of the way, empowering a first- rate team to be radical in a way that few giant companies permit.
Taken together, these six moves are transforming a company recently regarded as slow and shackled by its past. Microsoft is using hitherto ignored sources of influence to remake a vast industry. If the product proves worthy of the bold strategy, the outcomes could startle the former revolutionaries in Cupertino.