The First Ipad Appeared

Published Date: 02 Nov 2017

Abstract

Microsoft announced its first tablet PC in 2002, 8 years before the first iPad appeared. However, the tablet was unable to make any impact on the market and was dubbed as an extension to a regular Windows PC. In that same year, Microsoft launched its smartphone OS the Windows Pocket PC (5 years before the first iPhone appeared) however, it too was unsuccessful.

While Apple is considered a leader in technology innovation, Microsoft is now seen as a trend follower and a copier of ideas. The company faces a threat to its leadership position due to its repeated inability to successfully produce a market-changing product.

This paper looks specifically at the case of the Microsoft Kin phone, which after 2 years and $2 billion spend in development and marketing was withdrawn from the market within 50 days of its launch. The analysis aims at identifying the behavioural factors behind this failure and the bigger challenge that they pose to Microsoft and its ability to innovate.

While existing studies of innovation failure within the technology industry attribute these failures to factors, such as fear of cannibalization and innovators dilemma, the root cause of this failure was personal conflict amongst developers and seniors leaders at Microsoft, the high disparity between Windows and other Microsoft divisions, and the oppression experienced by employees due to its unfair talent management system. Conflict theory is used as a lens to understand these factors, and to present recommendations for the future to help the company overcome this strategic challenge.

Table of Contents

Introduction

Innovation is no longer seen as an input oriented process requiring a substantial amount of R&D, but as an output oriented process that results in a commercial success (Heilmeier, 2000). This definition becomes significant when put in the context of today’s technology companies, which spend huge amounts on R&D, but are unable to produce a market-changing product.

This inability to produce a business success appears to be amplified in the case of incumbent leaders, that seem to have a great difficulty in crossing the abyss created by a radical technological innovation that revolutionizes competition in the industry (Hill & Rothaermel, 2003). The declining performance of incumbent firms in the face of radical technological innovations has been empirically observed in a variety of studies e.g. Cooper & Schendel, 1976; Foster, 1986; Henderson & Clark, 1990.

Microsoft announced its first tablet PC in 2002, (8 years before the first iPad appeared). However, the tablet was unable to make any impact on the market and was dubbed as an extension to a regular Windows PC. In that same year, Microsoft launched its smartphone OS the Windows Pocket PC, (5 years before the first iPhone appeared), however, it too was unsuccessful. While Apple today is considered a leader in technology innovation, Microsoft is now seen as a trend follower and a copier of ideas. This inability to successfully produce an innovation is the biggest strategic challenge facing the company.

Examining Failure

The weakening in incumbents performance has been attributed by scholars to their failure in embracing new technologies. The explainations for these failures include the differential economic incentives that the new entrants and incumbents face (Henderson, 1990), the forces of inertia that exist within incumbent firms and the embeddedness of the incumbents within an established industry network that does not initially value the new technology (Hill & Rothaermel, 2003).

Christensen (1997) argues that incumbent leaders almost always succeed with sustaining (non-disruptive) innovations that improve the performance of the technology against the standard metrics, but almost always fail to bring to market new disruptive technologies. He attributes this to the fact that leading companies tend to be influenced by the needs and requirements of their best customers and partners, who are, mostly bought into the existing metrics.

Other arguments are based on the fact that organizations are valued for their predictability and reliability and, hence they tend to foster information systems and processes that enhance these attributes; with the flip side being the fact that these systems require formalization and bureaucracy, which tend to inhibit change and result in inertia. (Hannan & Freeman, 1984).

The third group of explanations for this kind of inflexibility is attributed to the firms’ strategy (Hill and Rothaermel, 2003). They focus on the fact that every firm is embedded within a value network of suppliers, customers, investors, complementary product providers, communities, and so on, to which the firm has made strategic commitments (Ghemawat, 1991).

As is consistent with other large failures in incumbent innovations, a wide variety of factors contributed to the failure of Microsoft’s Kin phone. Although existing analyses of these failures attribute this to factors such as incumbent inflexibility, fear of cannibalization, and innovators dilemma, a deeper analysis reveals that the personal conflict amongst developers and senior leaders at Microsoft, the high disparity between Windows and other Microsoft divisions and the oppression experienced by employees due to its unfair talent management system resulted in the failures.

Conflict theory is used as a lens for understanding the circumstances for failure and identifying the best ways to improve collective action within the organization.

Conflict Theory

Conflict theory arose primarily from the work of Karl Marx and was further developed in the work of C. Wright Mills and Ralf Dahrandorf. It is based on the premise that society is made up of groups with conflicting values, interests, and goals.

Sherif (1966) explains that the most basic goal of any group is to sustain itself by maintaining its position in a constantly changing environment. Groups [1] come into conflict with one another when their interests overlap and become competitive. These groups in conflict view the other as the enemy, and develop negative stereotypes of each other.

Conflict theory generally consists of the following four assertions:

1. Conflict is Built into Society

Societies naturally tend toward conflict. This occurs because resources and power are distributed unequally (Farley, 2000). The traditional definitions of resources revolved around tangible items

such as money, and property. Today, this definition can be modernized to include knowledge as a scarce and valuable resource. By narrowing our definition of society to firms and their departments, we can identify a small subset of this society who possess technical knowledge. It is this group who makes the phrase ‘knowledge is power’ very relevant to the current discussion, and as such is a point of conflict.

2. One Group Becomes Dominant

Since competing groups have unequal power, one group usually becomes dominant. The dominant group then uses its power to exercise control over others. The dominant group can ensure that society operates in a way that serves its own personal interests. In the field of IS, the most obvious dominance relationships follow from corporate hierarchies. Senior management have effective dominance over their departments, middle managers are dominant over their subordinates, and so on. However, taking ownership of an information systems project has also been identified as a means of gaining power (Holmes, 2000).

3. Consensus is Artificial

When consensus appears in a society, it is usually artificial and is unlikely to persist over the long run (Farley, 2000). Conflict theorists argue that consensus in a society is based entirely on coercion by the dominant group. A consensus can also be achieved when a minority group accepts an ideology that is not in its self-interest. This can occurs because the dominant group exerts control over the "sources of influence and public opinion" (Farley, 2000). It may also come about because the dominant group, through sheer power and force, can create an atmosphere where the subordinate group feels that resistance is futile.

4. Conflict is Desirable

‘‘The moment two bubbles are united, they both vanish." (Japanese Proverb)

Conflict can be desirable because it causes opposing views to be presented and argued. In a setting where a high degree of conflict is accompanied by a high degree of collaboration, creative and innovative solutions are often the result. At present, product conflict is rare in hierarchical and dominant corporate relationships, but is more common in one-on-one and peer-to-peer interactions where compromise is more easily reached.

Microsoft

With the purpose of ascertaining the causes of non-productive conflict, artificial consensus, and high discrimination within the organization, it is critical that we begin the analysis of Microsoft’s Kin failure by taking a close look at the company’s history, culture and economic situation prior to its development. Details of this story have been collected from Rivlin (2011) & Gralla (2012).

History

Microsoft began its operations on April 4th, 1975 in Albuquerque, USA, founded by two young computer geeks Bill Gates and Paul Allen. The company’s main product, the Windows OS took it to the zenith of the information technology industry, with Windows being used by 90% of the world’s personal computer by the 1990s. However, the competitive landscape faced by Microsoft changed significantly post 1998 with the entry of new firms like Google, Facebook and the resurgence of its old competitor Apple.

Product Diversification

With new players quickly increasing market share in areas such as web search, social networking, and mobile apps, Microsoft was faced with the decision of either specialising in traditional software or diversifying its product portfolio and fighting the growing disruptive technologies. The company chose the latter.

Sidekick and Microsoft Kin

In 2008, Microsoft acquired the mobile-technology company Danger. The company develops the phone Sidekick, which is so popular that it has celebrity endorsers like Paris Hilton. Its founder Andy Rubin, is also founder of Android, a company that later becomes highly successful under Google (Rivlin, 2011).

Prior to closing the deal with Danger, Microsoft executive Matt Bencke meets with Danger employees and is quoted as saying "We’re going to put jet fuel on the Danger fire". To everyone at Danger, this meant that they had a great product, and Microsoft was going to help them to take it to the next level (Rivlin, 2011).

The Development

However, two months later, Danger employees realise that it had been wishful thinking on their part. Most of them are tasked with helping others inside the company to develop a new Windows based phone aimed at teens, to be called the Kin (Rivlin, 2011).

What is more surprising to them is that a larger team within the company is working on another operating system called the Windows Phone 7 OS. The Kin team is told that their phone needs to be compatible with the Windows Phone 7 OS. However, the development of the Windows 7 Phone OS slips, and the Kin development team is forced to work with a partially built version of the new phone OS.

The launch

30 months later in April 2010, Microsoft releases the Kin. Its services are priced at $70 per month. The phone lacks features such as instant messaging, You Tube and an online app store. 48 days later, and after $2 billion spent on developing and marketing the phone, Microsoft withdraws Kin from the market and announces its discontinuity.

Analysis and Interpretations

The case has been analysed by two categories of investigators: journalists and academicians. Given their time constraints and limited comprehension of socio-technical systems, journalists constraint their attention to the most apparent failings and criticize the most noticeable business targets. The academicians on the other hand have focused mainly on the theoretical models of development and the dilemma faced by platform leaders when faced with disruptive technologies or radical innovations.

According to Christensen (1997), platform leaders success makes it difficult for them to change, even though their technology must evolve or become obsolete. Microsoft engineers tried to force fit Windows onto new platforms, the Internet, and then mobile phones, rather than create optimized software and then link the platforms back to Windows (Cusumano, 2011).

Hannan & Freeman (1977) attribute the resistance to change to the reliability and accountability of platform leaders to their primary consumers.

While factors such as these are true, they are however only the tip of the iceberg and there lies a more deeper structural problem within the organizations which needs to be addressed.

A Deeper View

In the following paragraphs I analyse the case of Microsoft Kin through the lens of conflict theory.

Organization Conflict

One group becomes dominant

Windows was at the heart of Microsoft’s business, and thus the division and its head Steven Sinofsky were extremely powerful, and controlled the lions’ share of resources within the organization. Inside Microsoft it was known as "licking the cookie." That is when a group within the company, typically Windows, declares its intentions to work on a feature or a product, thereby preventing others within the company from taking it on (Rivlin, 2011).

The Windows Power Block was eventually dictating terms to other teams within Microsoft. In the case of the Kin phone, while its developers had been asked to make their phone compatible with the new Windows 7 Phone OS, the Windows team slipped on their deadline.

This forced the Kin development team to adjust their system design and architecture and make do with incomplete specifications for the OS, which eventually contributed to its failure.

Consensus is artificial

The second consequence of power disparity amongst organizations is the artificial consensus that arises due to the acceptance by minority groups of the strategy and ideas suggested by the dominant group.

In the case of Microsoft Kin, the employees of Danger came to an artificial consensus. They expected Microsoft to help them take their product Sidekick to the next level, however they were bundled into a team to work on a Windows based phone called Kin. The situation was further aggravated when they were required to make the phone compatible with the Windows 7 OS, even though the development of the Windows 7 OS had missed a deadline and hence the Kin team did not have all the specifications.

The resentment was obvious, and Danger employee Cid Halloway was quoted as saying "They paid all this money for our industry know-how and our experience, but basically no one listened to us; It was not a happy few years". Halloway quit the company soon after the Kin cancellation (Rivlin, 2011).

Another Microsoft employee was quoted as saying "Embarrassment all over campus from the rank and file about the Kin announcement, no one thought that it was a great product to launch anyway to begin with"(Yarow, 2010).

The artificial consensus therefore, between Danger developers and Microsoft, directly impacted the quality and innovative functionality of the Kin phone.

Individual Conflict

Microsoft’s Stack Ranking System

Stack Ranking was Microsoft’s Appraisal and Talent Management system. The system required every business unit within the company to declare a certain percentage of employees as top performers, some as average and others as poor performers (Vanity Fair, 2012). This meant that within a team of 10 people, irrespective of how well they performed, 2 always got graded excellent, 7 got graded mediocre and 1 received a terrible review.

By systematically denying its employees the opportunity for upward mobility, Microsoft created a vicious environment of politics within the organization, which crippled its ability to innovate.

The employees automatically started competing with each other, and were focused on becoming more visible to managers than becoming better engineers. Owing to the deep and intractable loyalty of Microsoft higher ups towards the Windows OS, employees became increasingly reluctant to present new ideas that were not compatible with Windows.

Microsoft engineer Brian Cody is quoted as saying " Whenever I had a question for some other team, instead of going to the developer who had the answer, I would first touch base with that developer’s manager, so that he knew what I was working on. That was the only way to be visible to other managers, which you needed for the review" (Vanity Fair, 2012).

The destructive competition therefore, gave rise to individual conflict amongst employees, and prevented healthy collaboration between them, which directly impacted the development of the Kin phone.

Conclusion

Innovations when used strategically allow firms to achieve competitive advantage (Ireland & Hitt, 1999), create value and growth (Amit & Zott, 2001) and achieve superior performance.

In the case of Microsoft, it was well ahead of Apple in developing a number of innovations, such as the Tablet PC and the smartphone OS. However, it was unable to use these innovations strategically to its advantage. While theoretical models, such as Christensen’s Innovators dilemma provide insights into the strategic reasoning of an organization’s management and help explain the decisions they therefore made, they fail to account for any structural or behavioral factors that created the circumstances that eventually led to the failure of innovations.

Any analysis of an innovation failure would therefore, be incomplete without a deep behavioral analysis of the organization.

This paper used the conflict theory to analyse and explain the behavioural factors that eventually led to the failure of the innovation. However, this theory can also be applied vice-versa and be used in a prescriptive manner to identify the areas of improvement.

Recommendations:

1. Change in the talent management system

While conflict is a part of society, when it occurs alongside collaboration (Vaaland & Hakansson 2003, see Appendix A) and within certain norms (Pondy, 1967) it leads to higher amount of creativity and productivity within the organization. However, as seen in Microsoft’s case, the stack ranking system was highly discriminative, led to individual conflict amongst employees, and prevented a healthy collaboration.

A quick comparison with competitor Google reveals the stark contrast in their approach to talent management. Google employs a 360-degree feedback evaluation method for its employees. Instead of employees receiving feedback only from their supervisors, employees and managers are allowed to nominate ‘peer reviewers’ from anywhere across the organization. The system encourages transparency in the process, and reduces chances of discrimination. (also see Appendix B - Google)

It is therefore, essential that Microsoft revaluates its talent management system and makes it more transparent to ensure a higher degree of collaboration amongst its employees.

2. Re-structure its organization design

Microsoft is currently organized into 5 business divisions: Windows & Windows Live Division, Server and Tools, Microsoft Business Division, Online Services Division, Entertainment and Devices Division (Microsoft Annual Report, 2012). While its Windows division is valued at $107 billion, its other divisions such Entertainments and Devices, are valued much lower at $3.6 billion (Tech Crunch, 2010). This huge disparity in valuation was also a reason for the huge disparity in power between Windows and other Microsoft divisions, which directly affected the success of the organization by not only limiting the creativity of its other divisions but also by making the overall organization less responsive to the market.

The company must therefore, consider re-structuring its organization design, which would reduce the interference of its Windows division in other divisions and would align the company better with its competitive market environment.

3. Re-align strategy, culture

The senior leadership at Microsoft needs to overcome their inertia of Windows, and must re-align their product development strategy to make it more agile and responsive to the needs of the users. For this Microsoft could learn from the example of Apple, which went from being a computer company, to capturing the music industry, and then the smart phone industry.

Apple’s agility comes from the direction and vision of its senior management, and its corporate culture, which expects employees to move on to radically different and new tasks once they have completed their existing tasks (Ere.net, 2011).

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