A decade ago Apple was presumed dead, and Microsoft was so dominant it was fighting antitrust charges. My, how times have changed. Microsoft's stock price has since hardly moved while Apple's has multiplied nearly tenfold.
This is a stunning turnaround, one that begs explanation, particularly since Microsoft remains a company with enviable financials. It generates roughly $20 billion a year in operating income on $58 billion in revenues, and it has a spectacularly clean balance sheet.
But that's not enough to thrill investors, who want growth, growth and more growth. To get it, Microsoft needs more innovation, and the company is not delivering nearly enough of that.
Failures to innovate come in two forms: failures of imagination and failures to execute. It is almost completely implausible to attribute Microsoft's stagnation to the first kind of problem. While some say the company has recently seen a decline in its ability to attract top talent, Microsoft has been an employer of choice for the world's greatest software minds for most of its history.
Therefore the problem can only be a failure to execute on an abundance of brilliant ideas, from tablet PCs to e-books to smartphones to Web TV to portable music players. But why? In an attention-grabbing op-ed article in The New York Times, a former Microsoft vice president, Dick Blass, offered a blunt diagnosis: too much internecine warfare.
That's probably part of it, but the crux of the challenge is that innovation and ongoing operations are always and inevitably in conflict. Whether innovation thrives depends a great deal on how those conflicts are resolved.
The problem, of course, is that it is never a fair fight. Innovation initiatives are small and experimental. Ongoing operations are big and established. Furthermore, the leaders of ongoing operations have more concrete arguments for why they should get what they want. They face unrelenting pressures to deliver outstanding results, every day, every month and every quarter. Meanwhile innovation efforts offer only risks, hazards and distractions in the short run and abstract hopes in the long run. No wonder, then, that so many innovation leaders feel that their biggest enemies are inside their own companies.
The solution is for companies to forge improbable partnerships between innovation and ongoing operations. Every initiative needs a close collaboration between its dedicated team and the performance engine, the group that runs the larger day-to-day business.
As with any partnership, its success can only be built on mutual respect. Innovation leaders must recognize, first of all, that they need the performance engine. Almost all innovations inside established companies build on existing assets. Second, they must realize that conflict in the partnership is normal. It is not the result of laziness or instinctive resistance to change; it is the result of good people doing good work, trying to make the performance engine run as effectively as possible. Leaders of the performance engine, meanwhile, must recognize that no performance engine grows--or even survives--indefinitely. Therefore each side depends on the other.
Of the many steps that are needed to make the partnership work, none is more critical than the involvement of the company's senior executives--and specifically, their direct adjudication of even low-level conflicts between innovation and ongoing operations. Obviously, leadership attention is a scarce resource. With a surfeit of fabulous ideas, it is tempting to try to do too much, and for senior leadership to spread themselves too thin.
Of course, Apple has a performance engine, and those that have been a part of it will tell you it's a tightly run ship. So how does Apple deal with the tensions between today and tomorrow? Even casual observers of Apple's innovation efforts can tell you two things: The company focuses on one big launch at a time, and Steve Jobs himself stays on top of every detail.
(Vijay Govindarajan, Forbes.com)