Behind Microsoft's Bid
To Gain Cutting Edge
Mundie Follows Gates
As Long-Term Thinker;
A History of Catch-Up

By ROBERT A. GUTH
WSJ, July 30, 2007; Page A1

This article highlights the enormous role that culture plays in corporate growth. Prior ways of doing business often do not translate to future success with dramatically changing business environments and technologies. The people at Microsoft are as smart as they come (frankly smarter than most) yet the culture and dominance of the existing, giant businesses seems to get in the way. Interestingly, compare the “flavor” you get from this description of Microsoft with that of Apple’s from the last posting.

As the man designated to replace Bill Gates as Microsoft Corp.'s long-term strategic thinker, Craig Mundie is at the center of a daunting corporate challenge: positioning the company to survive and thrive in the post-Gates era.

That mission keeps Mr. Mundie rolling with his bag of dirt-hiding black clothing and chocolate-mint energy bars through airports around the globe. At Microsoft's far-flung research facilities, he huddles with employees whose work is sometimes ignored by the powerful product executives who set the company's agenda. It's up to Mr. Mundie, the company's chief research-and-strategy officer, to bring home long-term business opportunities.

"The bulk of the population comes to work every day and makes the trains run on time," says Mr. Mundie. "You've got to have a small number of people who think that it's their job to take risks....I view my job, in part, as making sure that the company supports the things that take time but end up being big."

Throughout its history, Microsoft has been slow to grasp some of the computer industry's biggest technology shifts and business changes. When it decides to embrace an innovation, the company has often succeeded in chasing down the leaders, as it did years ago with Lotus Development Corp. on spreadsheets that allow users to organize data, and a decade ago with Netscape Communications Corp. on Web browsers that transformed the experience of using the Internet. For years, this catch-up-and-surpass approach worked well.

Early this decade, however, companies such as Google Inc. and Apple Inc. exposed holes in the approach. Microsoft was slow to see the potential in Web search and online advertising, and despite heavy investments, has so far failed to catch industry leaders Google and Yahoo Inc. It also was late coming to market with its own music player, and despite a push, remains far behind Apple. Today, a host of Web-based software services from Google and others threaten to reduce the importance of Microsoft's personal-computer software.

One year ago, Mr. Gates, the company's chairman, announced that in June 2008 he would give up his post as "chief software architect" to focus full-time on philanthropy. He named Ray Ozzie, a software-industry star who joined Microsoft in 2005, to take over the higher-profile half of that job -- overseeing all software development, including flagship products such as the Windows operating system.

Mr. Mundie got the other half of the job -- charting the company's long-term technology course. Working mostly out of the public eye, the 58-year-old executive is trying to alter the corporate culture so Microsoft no longer misses emerging technologies and businesses. Mr. Mundie is "someone who can work well with the product groups and get their respect," Mr. Gates says. "It takes a unique person to do that." (Mr. Mundie continues to oversee Microsoft's public-policy and intellectual-property strategies, jobs he had prior to the change.)

Microsoft faces an onslaught of nimble start-ups and deep-pocketed competitors coming to market with breakthrough technologies. Microsoft's top executives -- Chief Executive Officer Steve Ballmer and Messrs. Mundie and Ozzie -- will together be judged on how successful they are both at expanding the company's existing businesses and choosing new areas for investment………..
……..Mr. Mundie's current challenge is twofold: To help the company's powerful product groups better adapt to technology shifts; and to make Microsoft a better incubator of new technologies and businesses. His goal, he says, is to move Microsoft to "the leading edge as opposed to the responsive edge in some of these new areas."

Over the years, Microsoft often has been late to recognize important trends, but after focusing on them, has caught up. In the 1980s, for example, Apple popularized the use of the mouse and icons to operate computers; years later, Microsoft adopted and spread that approach. In the mid-1990s, after Netscape demonstrated the importance of the Internet, Microsoft succeeded in quickly building Internet-related technologies into its products.

When the industry's focus began shifting from the PC to the Web, Microsoft's habitual tardiness began to hurt. Years ago, a few Microsoft managers had started a service for brokering online ads, but the effort died on the vine. Google built a huge business linking Internet search results to advertisements. Microsoft only started investing seriously in its own search engine in 2004, and it remains an also-ran behind Google and Yahoo.

Mr. Mundie says advances in technology that represent "fundamental change" or "whole new business opportunities" are "more disruptive, and so people aren't as focused on them" at Microsoft as they are on developing new features for existing products. "When they encounter them, they are naturally a bit more skeptical."

Microsoft's product groups -- business units built around products such as Windows and Office that produce much of the company's cash -- have long had enormous clout in its corporate culture. Star product-group managers, the company's so-called shippers, get the big, profitable products like Windows out the door year after year. For them, meeting deadlines is all-important; longer-term thinking about technology isn't.

Mr. Mundie is trying to help shift some clout to the company's long-term thinkers and to gain more attention for new technologies and businesses. He nurtures small groups in areas he considers promising long-term bets for Microsoft, such as health care, education and super-fast "quantum" computers. During the past year, to attract foreign talent, he has opened more than 50 small research centers in such distant locations as Egypt, Chile, Malaysia and Russia.

"I try to take these issues that look like they're big business opportunities, like health care," he explains, "and create a home for them in a company that historically didn't have any business in the health-care field."

Microsoft brings new technologies to market mainly through its traditional software products. Most of them ship at two- to three-year intervals. Mr. Mundie says that system can hold things up. "There's a bus," he explains. "If you get on the bus, you're out. If you miss the bus, well, the next bus is three years later."………….
………..Mr. Mundie says Microsoft does a good job of pulling technology from research groups into existing products. The challenge, he says, is anticipating what new technologies have the potential to become a big business for the company, or conversely, to threaten its foundation……..