Microsoft CEO Steve Ballmer Says Company Needs to Refocus

by Alex Woodie

Microsoft risks stagnation and "big company ills" if employees and managers don't take steps to reset the company's course. That's according to CEO Steve Ballmer, who laid out his vision for the next 12 months in an e-mail memo sent to employees earlier this week, the first full week of the new the fiscal year. Among the changes Ballmer hopes will give the software giant new life are $1 billion in cuts, a focus on delivering "Longhorn," and paying more attention to security.

Ballmer's e-mail has become an annual missive, and with Microsoft due to announce its fourth-quarter and year-end financial results on July 22, this seems as good a time as any to reconnect with employees and to get them thinking about the future of the company (not to mention shareholder value).

That's not to say that Microsoft is in dire straits, financial or otherwise. The software juggernaut is in an enviable position in the IT sector, and with nearly $57 billion in cash the company could weather practically any financial storm. In addition to keeping Microsoft's position as a leading driver of innovation, what Ballmer is concerned about, according to his e-mail, is the slower growth of revenue and profit today and Microsoft's flagging stock price (which is now trading around $25, about where it traded in 1998, but is down considerably from its peak of almost $60 near the height of the technology bubble in 1999).

To boost profit and stock value, Ballmer said, the company will attempt to reduce expenses by $1 billion. The company had operating expenses of about $19 billion for fiscal 2003 (the last year for which figures are available, until next week's announcements), or about $2.5 billion more than the year before. Ballmer noted that expenses have been growing faster than revenues for the last three years.

Of course, merely cutting expenses won't ensure long-term viability, and cost-cutting at the wealthy company carries the potential of a serious backfire. The Seattle Times reports that, as part of Ballmer's cost-cutting, there will be no more free soft drinks available, which Microsoft employees, who enjoy some the best benefits of any American company, are reportedly not happy about.

To ensure the long-term profitability, Ballmer stressed the importance of delivering the next release of Windows, codenamed "Longhorn," and the next release of its Office suite. "We must also work to change a number of customer perceptions, including the views that older versions of Office and Windows are good enough and that Microsoft is not sufficiently focused on security," Ballmer wrote. "Nothing solves 'big company' ills quite like a strong focus on accountability for results with customers and shareholders."

Security has been a hot-button topic for Microsoft. Two-and-a-half years ago, it launched its Trusted Computing initiative, a program that has failed to convince some that Microsoft takes security seriously. However, the pending delivery of Windows XP Service Pack 2--a major new release of the operating system that should give Windows a big boost in the security department--shows that Microsoft is taking action here. Microsoft also confirmed last week at its partner conference in Toronto, Ontario, that Windows XP SP2 will be sent to manufacturing in early August.

Ballmer also asked each Microsoft employee to take measurable steps to help the company and to improve themselves both personally and professionally. "If each of us has just 5 to 7 clear, measurable commitments, and we all deliver on those commitments every year, not only would each of us be more satisfied on a personal and professional level, but the company overall would benefit," Ballmer wrote. "It would be clearer what we can do and we could plan accordingly. Be bold, not timid, but prioritize."