Let's apply this to Microsoft. When you release a disastrous product such as the Zune, Kin, Windows Vista or the Surface RT tablet, you fire some of the people involved and move on to the next disaster. The organization never improves, as a good chunk of it was either intentionally hired to fail or is being encouraged to fail. Potential hit products — such as the Courier Tablet, Chrome Effects or the smartphone that should have been released instead of Zune — are killed off when the risk that the person behind the project would outshine his peers becomes too high.
Forced rankings also pit departments against each other. Look at Office and Windows. From Windows 95 to Windows XP, Office was the killer app driving Windows adoption. With Windows Vista and Windows 8, though, the app worked better on the prior OS, making it far more likely that Windows would fail but Office would hit its numbers. In the world of forced ranking, a strategy that both moves more of your product and less of a peers' is truly golden.
Bad Data Leads to Bad Decisions, Bad Products
What's funny about this problem being so prevalent in technology companies is that one of the first sayings taught in programming is "garbage in, garbage out." Put bad information into an application and you'll get bad results. So many CEOs fail, though, because their source of information has been intentionally compromised.
This is especially true in blame-based cultures, as there's a tendency to shoot the messenger. Years ago, I created a report highly critical of the vice president of sales. He turned around and gave the report to a competitor, who cancelled a big deal and pointed to my report as the reason. Fortunately, I tracked the leaked report back to the VP — I owned security for the division and am naturally sneaky. The VP was the messenger who got shot, not me, but it was a very close call.
Ballmer, as noted above, is incredibly bright and was hand-selected by Bill Gates, who isn't a dim bulb either. Yet Ballmer is known not for his bold moves but his bad ones. (How the heck did Yahoo ever look good?) When you give executives reports showing them that what they want to do is brilliant, you get better promotions and raises, but the company makes more catastrophic mistakes.
I performed the postmortem on John Fellows Akers, the only CEO ever fired from IBM. You know the cause? He was being fed bad information — so much so that he maintained until the very end that IBM was still in great shape. IBM spends more time grooming and selecting CEOs than any other company, but even the best can't succeed if they're separated from reality.
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