Abstract

The case describes how Microsoft, a market leader in desktop computing in 1995 with a 95% market share, faced its share of problems from 2000 to 2010 with existing products losing market share and new products not taking off. Microsoft executives blamed the system of stack ranking for the lack of innovations in the company compared to competitors like Google and Apple. Upon realizing this, Microsoft ditched its traditional performance management system in 2013 and took several initiatives to help create a new Performance and Development (P&D) system. The new P&D system focused on employees’ skills and competencies and facilitated open conversations. Through ‘Connects’, employees received real time feedback that helped them learn, grow, and focus on their strengths and key learning areas. This flexibility allowed managers to discuss P&D all through the year. In 2018, the HR team partnered with Core Services Engineering and Operations (CSEO) and built a new feedback tool that would make feedback more actionable without triggering negative feelings. The new ‘Perspectives’ Tool was a result of studies on Brain science which showed that people were more receptive to feedback when they themselves asked for it rather than when someone wanted to give feedback. As part of Perspectives, employees were invited to suggest things that their colleagues should keep doing and actions they should rethink. These two new initiatives had an impact on changing the mindsets of employees. They also improved communication and coordination between and within teams. ‘Perspectives’ also helped Microsoft rethink how it was evaluating and critiquing employees and was a step forward in building the company culture. Satya Nadella’s push for a cultural shift and a growth mindset created an enthusiasm for a new era of innovation at Microsoft. These efforts to improve innovation, collaboration, and communication also led to a business shift. In November 2019, Microsoft achieved a one trillion dollar valuation, a 200% increase since Satya became CEO in 2014.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the importance of aligning corporate strategies with tactical and operational plans.
• Evaluate the need for changes in existing policies and culture based on future business needs and Know the benefits of effective performance management on innovation and culture.
• Learn the importance of the organization culture in molding a company to achieve its objectives.
• Understand how top management can effectively and in a timely manner engage with the HR team.
• Examine the various organizational and technological initiatives needed to implement a new performance development program.

Keywords

Microsoft; stack ranking; forced ranking; bell curve; performance appraisal; organization culture; employee feedback; communication; product innovation; Satya Nadella; motivation; cross-functional team;