[Editor’s Note: Christopher Budd worked at Microsoft for more than 10 years, specializing in security response and communications.]

Christopher Budd

Yesterday every current and former Microsoft employee felt the earth shift. Microsoft announced that the “stack rank” system for reviews — in which employees are rated and rewarded on a fixed curve — would be retired and replaced with something new.

To call this a major development is an understatement. In some ways this is a bigger development than the “One Microsoft” reorg or Steve Ballmer’s retirement as Microsoft CEO. It’s a development that gives hints about what we might expect to see in the coming months at Microsoft.

To understand why this is such a big thing, it helps to understand the importance this system has played at Microsoft.

First, stack ranking has been an integral part of Microsoft culture for decades. The system has undergone changes over the years (I count three changes to it since I started there in 1999) but the fundamental principle has been there a very long time. And for much of that time this system was viewed as sensible and part of what made Microsoft what it was. When I first learned about it in 1999, after I started at the company, my fellow employees spoke about it in a positive way. It honestly didn’t make a lot of sense to me then, but it did to everyone else. This system was as much a part of the unique culture of Microsoft as Bill Gates was.

Steve Ballmer and Bill Gates at the 2006 news conference announcing Gates' retirement plans. Robert Sorbo/Microsoft
Steve Ballmer and Bill Gates at the 2006 news conference announcing Gates’ retirement plans. Robert Sorbo/Microsoft

Second, where reviews at other companies I’ve worked at were typically a thing that you just did once a year and were done with, reviews and performance management at Microsoft constitute an employee’s and manager’s central focus. At Microsoft, everything that you do will in some ways tie back to the review process and stack ranking. The way you get someone to do something for you at Microsoft is to make sure that it aligns with their goals and supports their case at review time. If what you want doesn’t support someone in stack ranking, you likely won’t get it. It’s not an exaggeration to say that the stack ranking systems influences what employees do nearly all day, every day.

With this background, you can see how eliminating the stack ranking system is a huge change of direction for the company. In a way, it portends a bigger change in company culture than Bill Gates’ departure did. And this huge change seemingly came out of nowhere overnight. It’s these points, the size of the change and the speed of it, that make me think this change tells us more about what’s going on at Microsoft and what we might expect yet.

The last time I saw Microsoft make a change this large and this fast was May 26, 1995 (four years before I joined). That’s when Bill Gates sent the famous “Internet Tidal Wave” memo to Microsoft executives. That set in motion a huge change not only in the company direction but its culture too. It was the closest thing I’ve seen to a large company turning on a dime, ever.

When I look at this huge change in the company culture, coming nearly overnight, and combine it with the equally sudden and unexpected announcement of Ballmer’s retirement, it leads me to wonder if we’re not seeing the hand of Bill Gates behind this. I’m loathe to be another “Bill Gates is coming to save Microsoft” voice: clearly they’ve been wrong many times. But a swift, decisive redirection of the company is characteristic of Gates when he’s focused and driven. He has been largely absent for the past decade. It could be possible he’s turned his eye back to Microsoft and decided he needed to do something. If Gates is behind this, my own feeling is that he’s gotten involved to change course, get a new captain he can rely on and leave it once again.

Whether Gates is behind this is purely speculative (for example, my wife who also worked at Microsoft disagrees with me on this). But what’s clear is that this is a decisive, bold step. For those who worried that Ballmer’s replacement would amount to no real change, only Windows dressing (pun intended), this step should allay those fears. I think we can conclude that there’s going to be more big changes yet to come. And that makes me think that the next CEO will be Alan Mullaly because, out of the rumored list of candidates, he would represent the greatest change for the company.

[Editor’s Note: Check back tomorrow for a different perspective on this topic from GeekWire Chairman Jonathan Sposato, another Microsoft veteran.]

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  • TheCompeteGuy

    I agree that Alan Mulally will be the “chosen one”…at least he should be. Many are speculating that Elop will be it and I understand the reasoning behind it; however, I believe that Elop brings very little new to the table for Microsoft. No offense to Elop. He’s smart and he’s a good business man, but so is Steve Ballmer. Microsoft has become stale and it needs something new and fresh. Despite being a profitable and successful “business”, the unique nature that made Microsoft great in the past seems to be missing since Gates’ departure. It needs someone who’s both an engineer at heart and a solid businessman. Mulally brings both to the table. Gates would be remiss in passing him over.

  • Diff

    No doubt this has the signature of Bill Gates all over. But I sincerely hope MS will surprise everyone by naming Eric Schmidt as new CEO. Does Alan Mulally really understand the new tech world? And even if so, does he have a good sense for where it’s heading in the future? You can say about Schmidt what you want, but he has big corporate experience AND understands new tech. Of the 5 finalists however, Mulally seems the least objectionable. But a tech visionary he is not.

  • Joe

    I wonder many lawsuits it took to lead Microsoft to reverse the stack-ranking decision? This has the signature of lawyers all over.

  • FormerSofty

    The interesting thing to me is the degree of
    tension between regular employees and management at Microsoft. I’ve been to company meetings where entire
    sections booed when executives got up to speak!
    When I was there, I thought it existed because you have a lot of
    free-spirited techies who tend to reject a lot of direction anyway. However, I’ve since moved to other companies
    with people who are just as technical and authority-adverse and I don’t see
    nearly as high a degree. Perhaps this
    exists because of the stack ranking system, but I believe that it’s more than
    that. I think Microsoft has a lot of issues
    it needs to clean up with this shift in executive leadership.

    • FormerSofty

      Sorry, don’t know why my comment above got so ‘unformatted’ when I posted it!

  • Tom

    The implications and meaning behind Microsoft’s elimination of stack ranking will continue to be discussed and debated. But you succinctly cut to the heart of the matter. As a former employee I can attest that stack-ranking (ultimately/often) was how you got your coworkers to cooperate. Question is, will a new system result in a healthier and more collaborative company culture? I hope so.

    • Mark-in-Seattle

      My wife joined MSFT in late 1981 (employee #89) when the blipit was still the company logo and the org chart fit on one 8 1/2 x 11 sheet. She worked for Jeff & Tricia in CorCom(?) and was responsible among many tasks for Mr. Gates, for the startup of Microsoft’s first foreign manufacturing plant (Ireland). She had a fantastic time working with so many talented and hardworking individuals, no backbiting, no second guessing, if a decision needed changing, you just changed course…done… time was of the essence.

      However as the years went by and the org grew it became much less entrepreneurial at levels below the most senior. Employees would send her cover-my-ass emails asking virtually; what should I eat for lunch, unheard of back in the early days. The famous work ethic slipped to a point that it was hard to find middle managers after 3pm on many work days. Stack Ranking was implemented after she left the firm, but the ship was already heading in the wrong direction and many of the early crew were moving on to other jobs. Very unfortunate.

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