SAROJANI NEUPANE[Wigan and Leigh,Nepal]2012

Microsoft: Competing on Talent CASE STUDY

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Microsoft: Competing on Talent (A) Christopoher A Bartlett

Summary of Case

In summer 1999, a front page article on Wall Street Journal reported that:

“Tired of grueling deadlines, frustrated by the bureaucracy that has accompanied Microsoft’s explosive growth, or lured away by the boom in high tech start ups, dozens of the company’s most capable leaders, all around 40, have opted out – at least temporarily….”

Foundations of Microsoft’s human resources philosophies, policies and practices

Recruitment: attracting the best and the brightest

Bill Gates had long recognized that it took exceptional people to write outstanding software. In the initial stages, they recruited “smart friends” extremely intelligent but not necessarily experienced, new college graduates.

In 1992, Gates acknowledged that “Take our 20 best people away, and I will tell you that Microsoft will become an unimportant company”. He considered helping his managers hire the best of all possible candidates as his greatest accomplishment.

For Gates, acquired knowledge was less important than “smarts” – the ability to think creatively, and experience was less important than ambition – the drive to get things done. And, to raise the bar continually.

One of the prime responsibility of Steve Ballmer, since he was hired in 1980 as assistant to thePresident was recruiting coordinator. Steve’s mantra was:

“We want people who are smart, who work hard, and who get things done”.

Microsoft had a standing policy “If you get a kick-ass guy, get him”

Selection: ensuring that the best gets in

Every candidate had to survive an intense interview process that many found harrowing. Ach was interviewed by atleast 3, sometimes upto 10 Microsoft employees. The candidates were tested more on their thought processes, problem-solving abilities, and work habits than on specific knowledge or experience. Indeed the company preferred people who did not have to unlearn different company values, work habits or technological approaches.

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Interview followed “drill down” approach; subsequent interviews will concentrate on areas thatthe first set found to be weak.

The purpose of interviews was to push the candidates until they failed, to get a full understanding of both their strengths and their limitations. Only, “hire” or “no hire” recommendations.

Prospective manager interviewed in the end. But, also, a so called “as appropriate” interviewerwas also involved so that only good gets in, and not just good people for specific jobs.

Tight control on head count; always n-1 philosophy is followed for staffing requirements.

Steve Ballmer preached that the default decision on a candidate is “no hire”; unless one can identify a clear reason why the person should be hired. This helped to keep the bar high, and a very low selection ratio.

A person who is just OK is blocking the seat for some one exceptional; a poor performer gets weeded out, a mediocre might continue to occupy the place.

Work environment: the caffeine culture

Hot house of innovation and hard work.Software developers dominated the company. Separate office cubicle, that can be done up to individual tastes. Creating a college like atmosphere. Provide a sense of social belonging.

Values of frugality: salaries were modest. Travel was coach class. No obvious status symbols.

The vision was “a computer on every desk in every home, running on Microsoft software”

Gates worked hard to keep the “small company” feel. He continually restructured the organization into small units – typically with 30 to 200 people – further dividing these into work groups with responsibility for a product, project or program. So, conscious attempt was to have a collection of small groups rather than an integrated entity.

The model was not efficient, but effective, stemming from the limited cross unit coordination.

Through out the 1980s and much of 1990s, much of the direction setting, coordination andcontrol was managed by Gates personally. His legendary intellect, high energy involvement and intensely competitive nature led him to adopt a very hands on style. He saw his role as assessing the fit and competitiveness of the entire product portfolio and making the tough technology versus commercial trade offs.

Development through stretch and challenge

There was very limited educational and training opportunities. But, there was may “stretch” situations. People move to manage 200 people from managing 10 people. This creates either growth or death.

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People could grow as individual contributors (say as technical gurus) or advance on the management track (as a product manager) but obtain same recognition, compensation, and promotion opportunities.

Vertical growth, as well as horizontal growth. For the latter, employees were encouraged to develop themselves by switching jobs, typically every 2 or 2.5 years.

Experiential learning: Microsoft had a long tradition of promoting people who were in charge of failed projects – “if you fire the person who failed, you are throwing away the learning.

Mentoring: New hires understood that it was their responsibility to learn from a whole range of experienced people including team leads, experts, and particularly their formally appointed mentors, often equally young but more experienced colleagues who took on the primary teaching responsibility in addition to doing their work.

Review and Reward: the Options driven Engine

Gates believed that employee ownership raised motivation and retention. Key employees were given equity in lieu of high salaries; a strategy that conserved cash for growth.

A well established linkage between individual performance and reward. Gate’s style of providing brutal, honest feedback got institutionalized in a process of direct, clear semi annual performance reviews tied to pay increases, bonus awards, and stock option grants. Setting specific quantifiable objectives every six months was the norm. Eventually, the acronym SMART was applied to performance objectives – SPECIFIC, MEASURABLE, ATTAINABLE, RESULTS BASED, TIME BOUND.

Learning from mistakes, during semi annual reviews. “the disease model of management”

Performance review interactions were soon recognized as one of its best employee development forums.

1 to 5 performance scale: 25% received 3.0 or lower, 40% received 3.5, and 35% received 4.0 or higher.

“The beauty of this rigorous review system is that it has become part of the fabric of Microsoft. People gripe and complain, but our surveys show that employees really appreciate that opportunity to reset goals and get a view of how they are doing”.

Most managers reviewed objectives every month or so with each individual, so that employees avoid performance review surprises and big deviations from the agreed goals.

There were very few 4.5 and only 2 or 3 persons with 5.0 scores across company every year.

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Reward: Merit increases were awarded on the basis of one’s present skills while bonusesrewarded achievements in the immediate past period.

Options were awarded on the future value to and potential at Microsoft.

Public recognition and awards were not widely employed, at least at the higher levels. “We tend to be very parsimonious with praise around here”.

Microsoft through the 1990s

From small personal start up, it was now a big company, but there was still a desire to hold on to the underlying people philosophies that many felt were at the heart of the company’s success.

Recruitment: Still viewed as a prime responsibility of everyone in the organization.

“The person being interviewed has to be smarter than half of your group.”n-1 rule for staffing the projects remained.

By mid 1990s, the campus recruitment vs selection ratio was 50:1. Out of all computer science graduates of USA (25000), 8000 were shortlisted, and after review, 2600 were targeted for campus interview, and 800 were invited for final interview and 500 were chosen.

Experienced recruits: Needed managers to fuel the growth. A team of 300 recruiting experts whose job was to identify the industry’s most talented people, build a relationship with them, and eventually attract them to Microsoft. Stalking the talent.

Performance of recruiters: number of “contacts” they maintained (that is, potential recruits),percentage of conversion to staff, and their performance once they joined the company.

Managing culture in the 1990s.

20000 employee level.

Started periodic employee surveys: designing, conducting and interpreting data on organizational climate and employee satisfaction.

Job satisfaction was consistently around 80% (compared to 73% in other IT firms and 64% inFortune 500 companies).Attrition rate: 7% in 1998, half than industry average.

Where then is the problem?

Amongst employee who have spent 7 years or more, and in senior positions, attrition was close to industry average.

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So, in 1997, internal experts developed “Organisational Health Index (OHI).

“With control over compensation largely outsourced to NASDAQ, the work environment became the biggest retention tool we had to manage…… It is about keeping alive our entrepreneurial spirit, ability for individual action, and the opportunity to make a difference”.

Steve Ballmer was appointed the President in 1998. Staff strength was then 30000. He conducted one to one interviews with a cross section of 100 employees. And concluded that the company needed two things:

A greater sense of clarity and excitement about the company’s direction, and More freedom to act without bureaucracy or red tape.

Accordingly, he proposed and the company changed its vision: “to empower people to do anything they want, any place they want, and on any device”. His second priority was to develop leaders capable of clearing the obstacles, making decisions quickly, and defining clear goals. His conclusion was that top management have to push authority down and replace it’s traditional hands on control with coaching – what he termed “turning over the keys”.

OHI measures, using 19 carefully selected employee survey questions designed to correlate directly to a person’s intent to stay at Microsoft, was implemented in the fall of 1998. The OHI data was tabulated and index created for each VP. Ballmer insisted that all VPs make OHI focus of their first slide in their annual business review meeting.

Development in the 1990s.

One of the constraints being faced: lack of sufficient capable managers and leaders.

So, the company decided to put on more effort on leadership and management development.

From “Darwinian approach to leadership development (happen chance) to formal leadershipdevelopment programmes.

Chief Operating Officer, Robert Herbold, recruited from P&G, where leadership development is taken very seriously, convinced top executives to review Microsoft’s key people more systematically.

A formal approach was developed – a combination of career planning, early identification and job slotting programme.

From internal research, it was concluded that about 70% of a person’s development came from the job they were currently in; 20% came from mentoring relationships, and 10% from formal training programmes.

One senior executive explained about Ballmer:

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“He is not interested in HR. He is interested in “Do I have the right people in the right places making the right decisions for the company?”

Review and Reward in 1990s

“Microsofties wear golden handcuffs. They are the stock options that vest each year”.

“Sometimes I feel like I am running a volunteer organization”. Said one VP.

As the company grew, one major concern was the noticeable decrease in the understanding of what it took to succeed at Microsoft. As a result, around 1994, the company set out to identify the core skills, capabilities and values that were dear to old timers and those at the top, but less visible to new comers or those deeper in the organization.

To develop the “competency model” HR specialists asked 50 old timers to describe what made Microsoft successful. About 110 value ideas were identified, from which six “success factors” were freezed: taking a long term approach to people and technology; getting results; individual excellence; a passion for products and technology; customer feedback; and teamwork. Some were widely understood; but the last two were more recently emphasized values and tended to be more aspirational. For successful implementation of these six core values, a set of29 individual competencies were developed; with each one described behaviorally at four different levels of performance. These competencies, printed on cards, became the tool kit for performance review process, recruitment interviews, career development sessions, etc. There is a continued demand for the cards by managers.

Salary was moved from 50th percentile of the industry to 65th percentile. The number of non executive ladder levels were increased from 12 to 22 to reward high performers more frequently with promotions.

Protecting the Past, Building the Future

Work life balance: Ballmer is advocating this.People who were hired for their drive and passion didn’t easily rebalance their lives.Reality of business was such that there would always be pressures, deadlines, and demands that required extraordinary effort.

But, would any significant softening of the company’s hard core macho culture compromise the very heart of its competitive advantage. “It is a very delicate balance”.

Requirements:1. Case should be presented in Analytical way; positive aspects as well as negative aspects

as per the students understanding.2. Student should make Power Point Presentation along with the documented report in

group of two.3. Student should focus on the learning from course (Talent Acquisition) after solving the

case. It includes extension of Assignment B.a. Vacancy Positing (choosing the proper channel)b. Collection of CVs, Short listing c. Interview Pland. Selection of best candidates e. Induction Program

Students should prepare elaborative and analytical aspects of Talent Acquisition based on Point no. 3.

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Overview

Microsoft greatly impacted the way people around the world used computers, and created the goal for every desk in every home to have a computer. A large part of their plan to accomplish this goal was through hiring the smartest and most motivated employees. Steve Ballmer, the company’s COO, was quoted as saying “We want smart people, who work hard, and who get things done.#” To get the best employees, you have to offer the candidate something enticing. Microsoft saw their benefit as giving employees the opportunity to change the way people live and do business, and in turn, change the world. They recruited from the top schools, and when they saw a candidate they liked, they got them. Microsoft was an intense culture, who pushed their employees to be the best. However, as Microsoft matured and experience changes in their company due to explosive growth, they found it increasingly hard to and retain and motivate the extraordinary people that had worked their way up to senior levels within the company.

In Microsoft’s early days, they experienced the benefits of being one of the leaders in technology advancement. One of their best attributes was their reputation that made it appealing to top new developer candidates. Microsoft preferred creative, smart and motivated individuals to experienced and knowledgeable candidates when recruiting for new hires. They therefore recruited the top talent of top universities like Harvard, MIT and Yale. They looked for individuals that were not afraid of working long hours and under demanding constraints. They pushed their employees to the limit. Their “n minus 1” philosophy was an example of this by having one less employee than the work really required. Developers were also given stretch assignments that tested their ability to “sink or swim” in situations that were beyond what they may have been ready to handle at the current stage in their career.

Recruitment and Selection

Beginning from its initial days, Microsoft has believed in recruiting extremely intelligent staff, favouring intelligence over experience. Co founders Bill Gates and Paul Allen shared a preference‐ for hiring extremely intelligent, not necessarily experienced, new college graduates dated from Microsoft’s start up days. Microsoft’s recruitment strategies reflect their philosophy – Microsoft is‐ an aggressive recruiter and is often the first company to offer jobs to elite graduates at campuses and career fairs across the world.

At the beginning, the recruitment strategies at Microsoft included sourcing people from the elite educational facilities such as Harvard, Yale, MIT, Carnegie Melon and Stanford. Microsoft‐ recruiters would visit these universities “in search of the most brilliant, driven students”. Experience was not required and it was in fact, preferred that new employees had no experience. The selected recruits would undergo a selection process which was focussed more on problem solving and thought process & composure testing exercises rather than the actual technical‐ ‐ interviews. This interviewing process was seen as one which would push the interviewees to the limit of their creative and analytic abilities rather than their familiarity with a computer programming language. The importance of hiring the right people is also shown in Microsoft’s ‘n

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minus 1’ strategy which means less people are employed than are required. This policy reinforces that hiring the right people is more important than hiring just to fill a position.

Microsoft retains the same basic principles as they have expanded but had to change their methods when the number of new employees required could no longer be sourced only from universities. The recruiting practices continue to be active rather than passive, with Microsoft ‘head hunting’ the best staff. These staff are found, monitored and recruited from other companies by over 300 recruiting experts. These staffs actively recruit suitable employees and focus on the right type of person rather than the right type of skill level Microsoft uses human resources for competitive advantage, basing its success on having the very best people in the industry and inspiring them to be the best. It is this that leads to Microsoft’s unique recruitment practices.

What is most crucial here is that Microsoft’s recruitment practices meet its human resource needs. It is an important sign of the focused approach of Microsoft, with its actions always leading towards its ultimate goals. Some important factors to be considered in recruiting staff include that the recruiter should be from the same functional area and that candidates should not be deceived about the negative elements of a job. The interview process at Microsoft reflects this with the new employee being interviewed by the manager. The recruitment process also goes further than just informing the employee about the negative aspects, instead the recruitment process actually tests the employee on the negative aspects, putting them under the same type of pressure they would be put under on the job.

Motivation

The key to supporting the motivation of your employee is to understand what motivates each of them. While the recruitment and selection process at Microsoft aims to employ people who will be motivated by the environment they are provided, the HR department at Microsoft takes great care to understand such needs and try fulfilling them for the employees. Opportunity and environment to allow the employees to progress and self develop is a part of the work culture that the HR staff is expected to adhere to. The fit between employee and organization is important to motivation and this is what Microsoft ensures. Microsoft ensures that the goals of the organization are understood via its strong culture and by employees being clearly aware of what is required of them.

Motivation can be described as providing a work environment in which individual needs become satisfied through efforts that also serve organizational objectives. Microsoft achieves this by incorporating their goals into their human resource management programs. The people recruited and the systems within the organization all serve to motivate the type of people that Microsoft values.

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Employee motivation can also be related to Maslow’s hierarchy of needs theory. This theory has the top level of the needs theory as self actualization28 needs, which is a person`s need to be‐ self fulfilled. Maslow describes that the way to achieve this is to “provide people with‐ opportunities to grow, be creative, and acquire training for challenging assignments and advancement”. This is exactly what Microsoft provides for its staff and also exactly what it expects, for them to be the very best they can be. The link can also be seen here between the type of people that are employed and what is expected. Microsoft hires the very best people, for these people to achieve self actualization they need to be pushed harder than most and given‐ greater opportunity to achieve than most.

Satisfaction and Loyalty

Microsoft attempts to cater to the needs of its employees by recognizing that the majority workforce comprises fresh graduates just out of college. This is the premise behind Microsoft setting up its offices as ‘campuses’ rather than plain workspace and parking space setting that was the norm before Microsoft. The environment it provides also includes every employee being free to decorate their office as they please; and the provision of subsidized food and drink.

Employee satisfaction was also afforded by the opportunity for growth, development also occurred by encouraging horizontal transfers, and employees were encouraged to develop themselves by switching jobs. Top management is required to coach lower levels and assisting in their development. These practices are designed to increase employee satisfaction and commitment to the organization, while maintaining the same spirit the small company began with.

This program, which was initiated during the early 1990s during the recession, also became known as ‘turning over the keys’. The premise at that time was to retain the talented employees and keep them motivated by offering them new areas of learning and self development. In the hindsight, however, this was a unique exercise of employee empowerment and succession planning, where the mentor would teach the protégé the skills and fineries of a position before moving on to the next position and leaving a worthy successor.

For many organizations, empowering employees is seen as a relatively new approach to handling and motivating employees – one which requires gradual changes to the corporate government and the work culture. However, in case of Microsoft, it can be seen as an inverted view – wherein the idea of employee empowerment was an inherently intrinsic part of the work culture since its inception.

Three aspects of tasks that affect job satisfaction are job complexity, degree of physical strain and perceived value of the task. Microsoft manages this by providing the high complexity high achievers require and by ensuring the perceived value of the task is high. This high value is communicated via the high achieving culture the company maintains.‐

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This issue can also be looked at in terms of an employee’s role. There are three factors associated with roles – role ambiguity, role conflict and role overload. Role ambiguity is kept low by Microsoft because of the consistency in the culture and in what is required; role conflict is also kept low due to clear goals and objectives; Role overload is kept high, with employees pushed to their limits. In most organizations this would be a concern, but Microsoft’s awareness of this means that they specifically seek employees who will react well with role overload. jobs and felt like they were changing the world. It also created natural work units consisting of 30 to 200 people, which again were divided into work groups. This clarified the task identity and task significance for the employees. Microsoft gave autonomy to these work groups, so that they could decide when to start to work or when to play volleyball. Horizontal transfers helped personal growth through job switching. Key people were allocated from one project to another which accelerated training and development process by increasing skill variety. The employees were not discouraged by the fear of failure since in the organizational culture of Microsoft, failure was considered as a part of learning curve. Even the brutal criticisms by Bill Gates became a source of motivation...

Rewards:

As an organization, Microsoft still follows the firm belief of its followers in linking employee ownership with employee motivation and retention. Critical to this is the link between individual performance and reward, with semi annual performance reviews linked to pay increases, bonus‐ awards and stock options. The formal review system also includes more common evaluations by managers to ensure no unexpected deviations. The system also includes the process of employees evaluating themselves, these self evaluations then being sent to the manager who does their own‐ evaluation. The employee and manager then meet to discuss the review.

In terms of performance, employees are measured against specific measurable goals, usually termed as SMART goal sunder Organizational Behaviour Terminology Specific, Measurable,‐ Attainable, Results based, and Time bound.‐ ‐

Stock options awards are based on whether the employee is considered a long term asset of the‐ company and awarded on this basis. This is an important symbol of Microsoft’s commitment to retaining good employees. In ‘Ideas That Will Shape the Future of Management Practice’ human resources is described as being the way of the future with it being argued that we will see a more mature articulation of the importance of people as a firm’s only sustainable competitive advantage. The change is described as giving high reward for high performance with the focus on a partnership. Microsoft recognizes the importance of its people and this is reflected in the reward systems, in the sense that not only current achievements are rewarded but also rewarded are stocks to those employees that are seen as valuable future assets of the company. This can be seen as a prime example of the focus on a partnership that Microsoft aims to foster with its employees.

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Important to the reward system is also the fact that there are two reward paths available, one for those following the technical path and one for those following the management path. The skills of employees can be divided into three areas: conceptual skills, human skills and technical skills. Typically, conceptual skills become more required and technical skills less required as one moves up the corporate ladder. Microsoft is a company valuing technical skills, due to the nature of its product. In most organizations, employees with conceptual skills would be rewarded by moving up the corporate ladder, while those with technical skills would not advance. Microsoft, however, offers two advancement paths – allowing those with technical skills to advance as technical experts, just as those with conceptual skills advance as managers.

Reward systems are an important part of organizational culture; they communicate to employees what is valued by the organization. By having these two reward systems, Microsoft effectively communicates that both sets of skills are valued. This is also an important sign of Microsoft’s consistency. They recruit people for technical ability and so not rewarding for it would be dissatisfying to employees.

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Advantages DisadvantagesRecruitment Open opportunities to new talent. Ignores the experienced people from

the industry. Opens door for new and creative ideas. Ignores the dependable and loyal

group of people. Require high supervision. Ignores the group who need little

supervision and motivation to do the task.

Lack of experience in satisfying customer and solving problems.

Ignores the manpower who have years of experience in satisfying customer and solving problems.

New and innovative ideas. More recruitment and retention cost.

Selection: Only best candidate gets selected. takes long time, energy and money

Work environment: Easy control over small group of

people. High cost

Easy correspondence within the team. Highly depended on team member.

Review and Reward Helps to motivate the team. Individual focus more on personal goal

than that of the company.

a. Vacancy Posting (choosing the proper channel): Arrangement in which a firm posts a list of open positions (with their descriptions and requirements) so that the eligible candidates may apply.

b. Collection of CVs, short listing: Second step is to collect the CVs that have been received from the applicants and start studying them. Once the CVs are studied and evaluated, the appropriate ones are short listed.

c. Selection of best candidate: Short listed candidates are called for interview. Interviews can be conducted in several rounds and ways. Once the interview is taken, the best candidate for the post is selected.

d. Induction program: The selected candidate for the post is taken for induction program which means making the candidate familiar about the company, its philosophies, and other principles.