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Stanford GSB News

 

The CEO Must Steer the Corporate Culture, Says Steve Ballmer

March 2007

STANFORD GRADUATE SCHOOL OF BUSINESS—Microsoft CEO Steve Ballmer usually sleeps very well at night.

Only two issues tend to cost him rest: human resources challenges—be they personality conflicts or losing employees to competitors—and learning new business models.

To illustrate the latter, he cited the Linux operating system, which started competing with Microsoft Windows in the late 1990s by giving away much of what the Redmond, Wash., company sold to consumers and businesses.

"If somebody came to you … and said, 'Hey, you've got a new competitor [that] has no price [and] no cost,' you might stay up a night or two," he told an overflow student audience at the Stanford Graduate School of Business. "You really might."

But Ballmer was far from fretting March 15 when, as part of the student View from the Top speaker series, he visited the audience with thoughts on leadership and anecdotes from the business trenches.

Ballmer met Bill Gates at Harvard College in the 1970s, but unlike his future partner, Ballmer graduated and took at job at Procter & Gamble marketing brownie and muffin mix. Ballmer eventually enrolled as a member of the Stanford Graduate School of Business Class of 1981, but after his first year he took a summer job at Microsoft, which Gates had founded in 1975 after leaving Harvard. Ballmer turned down offers in consulting, finance, insurance and automobile manufacturing to become the 24th employee at a company whose future seemed anything but assured.

Ballmer's father told his son he was "completely nuts" for tying his fortunes to high tech. His mother asked him, "Why does anybody need a computer?" By the end of his first summer in Seattle, Ballmer had begun to agree with them. He told Gates he was leaving Microsoft. "You don't get it," he said Gates told him. We are "going to put a computer on every desk in every home."

That was the sales pitch that persuaded Ballmer to buy a house in Seattle and stick with the company, and the desktop revolution helped grow Microsoft from a startup with two dozen employees into a company that takes in more than $44 billion in net revenue and employs 74,000 people.

Microsoft owes much of its triumph to its ability to grow beyond the desktop software business model. It has expanded into servers, consumer electronics, and information/media. The success of the Xbox and the imminent rise of internet television will drive the next generation of growth, Ballmer said.

When asked how Microsoft intends to compete with Google, Ballmer dismissed the idea that Google's ascent threatens his company. Critics said the same thing about Linux, and Microsoft responded by increasing market share, he said.

Ballmer conceded that Google built one very good business on its search technology, but said "everything else [it produces] is sort of cute." Microsoft has shown itself to be a multi-trick pony when it comes to building new businesses, he said, and while it dabbles in robotics and other ventures, pet projects aren't "paying for me to come down to Stanford Business School."

Google is constantly producing new features, from maps to desktop software, video, and chat. But "I don't really know that anybody has proven that a random collection of people doing their own thing actually creates value," Ballmer said. Google is milking its search success, but the true test of a company is whether it can continue making profitable innovations, he said.

Despite having worked closely with Gates for so long, Ballmer was surprised by two things when he became CEO in 2000. The first was the feeling of having bottom-line accountability, and the second was that it's impossible to delegate culture and values. You can delegate finance, marketing, and even strategy, he said, but a CEO has no choice but to steer the culture of a company.

Good leaders should simplify problems without "making them seem so mom and apple pie as to be meaningless," he said. Leadership is a balancing act that weighs optimism against realism. Successful leaders encourage employees to take risks while still holding them accountable.

Ballmer said his biggest personal challenge is time and how to spend it. He uses a 35-row spreadsheet to balance travel, hanging out at home, and evenings out. Each year he gives himself a "nights away" budget, and he makes time to drop off his three young children at school and get home in time for dinner, or at least dessert. Aside from golf, which he enjoys, and running, which he has to do to stay fit, he doesn't have time for a lot of hobbies.

Ballmer described Gates as the smartest person he's ever met, a technical genius with business sense to match. But Gates is transitioning to a part-time role at Microsoft, which means the 27-year Gates-Ballmer partnership will have to transition as well.

It would be ridiculous to try and replace Gates, Ballmer said. Instead, Ballmer is focused on running a first-rate company, and to do that he's working to develop a new set of partnerships within Microsoft.

"You can have great things happen after great leaders [leave]," he said.

—Sarah Ruby