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Microsoft


1.   Introduction

Microsoft was founded in 1975 and becomes the worldwide leader in software, services and Internet technologies for personal and business computing in merely 27 years.  In fiscal year June 2001, the net revenue and net income was $25.30 billion and $7.35 billion respectively, which was increased by 8-9 times comparing with ten years ago[1].  It has almost 50,000 employees in about 60 countries currently. 

Microsoft is a miracle of success.  It is a fast growth company from a small company full of programmers to strong corporation today.  The business has been expanded from programming languages and operating systems to every kind of software from industrial strength servers to games.  It has changed the world, business, homes and schools from traditional way to the technology world.  Hence, it is an influential company and plays an important role in the global economy.

Microsoft is an innovative company and its way of management is totally different from traditional.  Its success lies behind its philosophy, structure and operations.  Its philosophy is ¡¥yeah, go do that¡¦ (Time Warner Bookmark, 2002) since 1975 shaping the management towards risk-taking in the competitive environment.  Its vision, ¡¥empower people through great software ¡V any time, any place and on any device¡¦ (Time Warner Bookmark, 2002), extends internally to its structure and operations.  This paper attempts to identify the major management theories/approaches that underpin Microsoft¡¦s philosophy, structure and operations; how its organizational design departs from the Classical Management School; and should all types of organizations adopt the Microsoft model in order to be effective.

2.   Management theories/approaches

There are many management theories/approaches that can underpin an organizational setting such as power, communication, decision-making style/process, leadership, motivation, teams, culture, structure, new management ideas, etc.  Among those five major management theories/approaches are identified as the underpinnings of Microsoft¡¦s philosophy, structure and operations: motivation, leadership, matrix structure, culture and learning organization.  These theories/approaches are interrelated because motivation and leadership leads to matrix structure, and in turn shapes the culture towards learning organization.

2.1 Motivation

Microsoft views people as its assets.  The management is influenced by McGregor Theory Y[2] and believes that people have capability to assume responsibility and potential for development to meet organizational goals.  Bovee et al (1993) emphasize that employee¡¦s performance depends on three factors: ability, environment and motivation.  Microsoft is effective in altering its environment settings to motivate its employees for optimal performance.  The discussion is therefore focused on content theories, which provide a link between individual needs and work rewards (Rosenfeld et al, 1999).   

Microsoft uses both intrinsic and extrinsic rewards to motivate its employees.  The rewards are substantially reconciled with Herzberg¡¦s Two-Factory Theory and Alderfer ERG Theory (Figure 1) but lesser limitation than Maslow[3] and McClelland¡¦s[4] theories.    

Intrinsic rewards

Unlike traditional organizations, Microsoft focuses on intrinsic more than extrinsic rewards, which are aligned with Herzberg¡¦s motivators and Alderfer¡¦s growth needs.  Growth needs are the human desire for continued psychological growth and development, while motivators can satisfy employees these needs with altered environments (Schermerhorn, 1996; Stone, 1998).  Microsoft uses effective job design (job enrichment by empowering cross-functional teams) as the major motivator satisfying the growth needs of its employees under Theory Y perception. 

Applying Hackman and Oldham¡¦s Job Characteristics Model (JCM)[5] to Microsoft¡¦s situation, the cross-functional teams are enriched in several ways.  To obtain sense of achievement and responsibility, the teams experience meaningfulness of work by following up whole project and responsible for outcomes of their work through autonomy.  To obtain feelings of recognition, the teams have knowledge of actual results of their work through post-mortem reports, quantitative metrics and benchmarks, and three monthly reviews with Bill Gates.  Finally, the company stimulates learning through experience and mistakes, and ensures technical skills have specific career paths associated with them.  This allows personal growth and opportunity for advancement for employees. 

Extrinsic rewards

Extrinsic rewards are aligned with Herzberg¡¦s hygiene factors, Alderfer¡¦s relatedness and existence needs.  Relatedness needs are desires for satisfying interpersonal relationships and existence needs are desires for physiological and material well-being, while the presence of hygiene factors for these needs can prevent employee dissatisfaction (Schermerhorn, 1996; Stone, 1998). 

The hygiene factors that Microsoft focuses are interpersonal relations and incentive compensation systems.  Interpersonal relations can be obtained through cross-functional colleagues at all levels, often of an informal kind.  The incentive compensation systems are the generous stock options.  As shareholders, employees directly benefit when the company does well, so they are motivated to improve productivity and profitability (Bovee et al, 1993).  

2.2  Leadership

Leadership is the vital factor leading to the success of Microsoft.  Schermerhorn (1996) argues that it is not enough to possess leadership traits, know the leadership behaviors and understand leadership contingencies[6]; the leaders must also lead in an inspirational way and with a compelling personality from the foundations of transactional leadership[7].  The management of Microsoft is effective in this key aspect through transformational leadership to motivate its employees to do more than is expected and therefore achieve superior performance (Bovee et al, 1993).  Unlike traditional way of leadership styles, the management of Microsoft uses both charisma and inspiration skills in leading its employees (Naylor, 1999; Bovee et al, 1993). 

Through charisma, the management is excellent in leading the company with visions that instills pride, trust and respect from the employees.  It uses ¡¥synch and stabilize¡¦ to push teams to ¡¥imagine tomorrow today¡¦ for continuous innovation and improvement.  This has led to several innovation successes such as Windows, Office and Internet Explorer, etc.  Through inspiration, the management motivates employees through intrinsic rewards by offering opportunity to learn new skills and participate in projects that eventually lead to the important outcomes described in the vision.  Hence, this leadership style arouses employees to be more dedicated, more satisfied with their work, and more willing to put extra efforts to achieve success in challenging environment.    

2.3  Matrix structure

In different from traditional method of coordinating activities that have related units report to single manager, Microsoft adopts matrix structure that takes the functional structure of traditional organization and superimpose project teams to cut laterally across functions (Rosenfeld et al, 1999). 

The project structure is appropriate for Microsoft for several reasons (Mondy et al, 1993).  The work of the company is definable in terms of a specific objective (like product development) and target date for completion.  Furthermore, the work is complex with respect to the interdependence of activities and specialized skills necessary for accomplishment, for example coordination between technical, marketing and operations, etc.  Finally, the work is critical in terms of possible gain or loss and it is temporary with respect to the duration of need.

This structure is essential for Microsoft because it is required to be highly responsive to rapidly changing and competitive environments.  Schermerhorn (1996) argues that the goal of any team-based structure is to harness the intellectual and problem-solving potential of human resource and to allow people to share knowledge and experience to gain competitive advantage.  It also allows flexibility, greater security and control of project information, and opportunities for staff development (Mullins, 1996).    Although project teams are used, the company is structured with central coordination when several teams are working in parallel.

2.4  Culture

Culture distinguishes one organization from other organizations.  Culture is the competitive advantage of Microsoft as it influences the employees¡¦ degree of satisfaction with the job and the quality of their performance (Mondy et al, 1993), in responding to the competitive environments with flexibility and sensitivity (like short product life cycle and speed of reaction). 

Handy (1999) classifies project oriented and matrix structure as task culture.  It is the culture that most of the behavioral theories of organizational point towards with its emphasis on groups (multi-functional teams are mainly the norm in Microsoft), expert power (specifically technical), rewards for results, merging individual and group objectives. 

Microsoft is at level 1 artifact in Schein¡¦s levels of culture (Mullins, 1996).  It is because its culture is visible in physical and social environments.  This includes physical space and layout (open plan offices, single site location, common tools, etc), the technology output (product development, quantitative metrics and benchmarks for performance), written and spoken language (virtual systems of communication and feedback, often informal) and the overt behavior of group members (technical competence rather than rules, regulations and procedures, value of tacit knowledge and seeks to generalize its applicability). 

2.5  Learning organization

Microsoft is a learning organization for creativity and innovation.  It has strong belief to utilize people, value and systems to continuously change and improve its performance through risk-taking and lessons of experience (Schermerhorn, 1996).

Microsoft¡¦s way of learning organization can be explained in Senge¡¦s prerequisites of learning organization (Rosenfeld et al, 1999; Schermerhorn, 1996).  Through mental model, there is shared belief that all people can and will learn, which is in line with Theory Y that communicated downwards from the senior management.  Everyone sets aside old ways of thinking and learns through continuous self-critique and feedback such as post-mortem reports, and sharing of information.  The company also learns from both outside expertise and customers.  Through personal mastery, the management appreciates diversity among people and believes this can offer creative tensions and alternatives with open communication.  Through systems thinking and team learning, employees learn the ability to think systematically how the whole company works and to support teamwork.  Finally, everyone understands and agrees to a plan of action through shared visions from transformational leadership of senior management. 

3.   Organizational design

The organizational design of Microsoft is different from Classical Management School.

3.1 Classical Management School

The classical management views assume that people are rational and focused on economic gains in their approach to work.  The organizational design of classical management is most influenced by Taylor¡¦s Scientific Management[8] for supervising workers and Weber¡¦s ideal form of bureaucratic design[9], which are intended to be orderly, fair and highly efficient. 

According to Mullins (1996), classical school emphasizes on the planning of work, the technical requirements of the organization, principles of management, and the assumption of rational and logical behavior.  Its characteristics are centralized authority with many rules and procedures, narrow spans of control and specialized tasks, few teams and task forces, and formal and impersonal coordination. 

3.2 Microsoft

Microsoft¡¦s organizational design is more on human resources approaches.  This approach assumes that people are social and self-actualizing.  It is most influenced by Hawthorne studies, which helped shift the attention of managers and management researches away from the technical and structural concerns of the classical approach and toward social and human concerns as keys to productivity (Schermerhorn, 1996).  People¡¦s feelings, attitudes, and relationships with coworkers are viewed as important factors to organizational performance.  Later studies about motivation such as Maslow¡¦s hierarchy of needs, McGregor Theory X and Y and Herzberg¡¦s Two-Factor Theory have significant impacts on this approach.  Argyris (Schermerhorn, 1996) point out that people in the workplace are adults and may react negatively when constrained by strict management and rigid organizational structures.

Microsoft¡¦s organizational design is therefore anti-bureaucracy, but structured.  The company adopts decentralized authority with few rules and procedures, wide spans of control and shared tasks, use of multi-functional teams, and informal and personal coordination.  The work teams are viewed as organizational resources and important mechanisms of empowerment and participation in the workplace.  The work teams under this structure perform many tasks that reserved for the supervisors under the classical management structure.  Consequently, work teams can achieve high levels of both task performance and human resource maintenance when they are effective (Schermerhorn, 1996).

4.   Structural contingencies

There is no one best structure that can fit all the organizations.  Tosi et al (2000) argue that organization interacts with various environments and must develop some sort of accommodation in order to survive.  Schermerhorn (1996) and Wagner et al (1995) emphasize the extent to which an organization is effective is strongly influenced by its structure to best arrange resources to serve organizational mission and purpose.  Hence, the effectiveness of an organization depends on how it can manage its structural contingencies including the size of the company, the technology utilized by the company, the environmental context and strategy.

4.1  Size

The Aston¡¦s studies found that organizational size is a more influential factor over organizational structure in relative to technology (Rosenfeld et al, 1999).  Handy (1999) argues that size pushes the organization towards a role culture[10].  As size increases, the organization¡¦s structure is predicted to become more complicated and affects its structure by the coordination mechanisms (Wagner et al, 1995).

Rosenfeld et al (1999) state that bureaucracy for large organization may be a good thing in environments which are stable and predictable, but in rapidly changing contexts it may result in an inflexible and bureaucratic dinosaur.  Schermerhorn (1996) emphasizes that effective managements should find unique ways to overcome this disadvantage. 

Microsoft is a large size corporation, however, they are creative in allowing many multi-functional teams to operate with autonomy within the larger organizational framework.  Its loose-tight concept that combined with mechanistic (firmly structured) and organic designs (teams) is used to meet the need for efficiency and continued innovation.  In contrast, organization with small size may be in organic structure while organization with larger size may be in mechanistic structure. 

4.2  Technology

Woodward[11] is the pioneer in studying the effects of technology on organizational structure.  However, the studies are limited by its focus on manufacturing technologies, which are eventually substituted by other technologies.  Perrow argue that new and emerging technologies could be analyzed along a simple dimension in related to organizational structure as shown in Figure 2 (Rosenfeld et al, 1999; Mullins, 1996).

Applying to Microsoft situation, the work task in the company is unpredictable with many exceptions, while the problems are ill-defined and difficult to analyze for its nature of business.  Hence, Microsoft lies in the non-routine technology of Perrow¡¦s continuum of technology and organic structure is more appropriate.  For example, there is a high level of discretion and power at both the technical and supervisory levels, coordination is through feedback and there is high group interdependence.  In contrast, organizations with opposite work task and problems lie in routine technology where bureaucratic structure is more appropriate.

Problem/solution search processes

Few exceptions

Many exceptions

Well defined and analyzable problems

Routine technology

Manufacture of standard products; highly mechanized mass production

Engineering technology

Made-to-order machines such as electrical components; research consultancy

 

Problems are ill-defined and difficult to analyze

Craft technology

Making a whole product probably in the same way each time

Non-routine technology

Psychiatric care in a mental hospital; manufacture of nuclear fuel systems

 

Figure 2: Perrow¡¦s classification of technologies

4.3 Environmental context

Burns and Stalker found that organizations used two distinctly different structures to cope with their environments and that the choice of structure varied according to the degree of environmental change (Bovee et al, 1993).  An organization operating in a stable condition tends to have a mechanistic structure, while an organization operating in dynamic environment tends to have an organic structure.  Burns and Stalker point out that the relationship between the mechanistic and organic systems is not rigid and an organization can also move between two systems (Mullins, 1996).  Therefore, it is appropriate for an organization to adopt a differentiate structure to cope with the level of complexity of its operating environment (Rosenfeld et al, 1999).

Microsoft¡¦s design is emergent from the company¡¦s historical development, problems it faced and the disasters and solutions it stumbled into.  It is in an uncertain environment that is dynamic and unpredictable with changes frequently.  As a result, the company must be flexible and responsive over short time horizons.  This requires more adaptive and organic designs.  In contrary, organizations in a certain environment are relatively stable and predictable with few changes, and hence mechanistic designs are adequate. 

4.4  Strategy

Chandler¡¦s study found that structural adaptation always seemed to follow the pursuit of a chosen strategy, and thus structure follows strategy over time (Rosenfeld et al, 1999).  It implies that different organizations have different structures because no companies use exactly the same strategy.

Microsoft¡¦s strategy has always to make its own products the market standard and then make them obsolescent before their competitors do so.  Consequently, the company is essentially based on managing creativity in a dynamic environment.  The operating objectives are innovation and speed response so adaptive and more organic design is appropriate.  In contrast, bureaucratic organizations using more mechanistic design is better where strategy is stability oriented. 

5.   Conclusion

Microsoft is a successful company who is effective in integrating its philosophy, structure and operations.  Cross-functional teams are used as the major intrinsic rewards, complementing with interpersonal relations and incentive compensation systems as extrinsic rewards to motivate its employees.  Transformational leadership is adopted to enhance the motivation through charisma and inspiration skills.  These have built the matrix structure that is responsive in the dynamic and competitive environments.  The task culture facilitates the company towards learning organization for creativity and innovation continuously.

Consequently, Microsoft¡¦s organizational design is different from the Classical Management School.  Instead of bureaucracy, the company¡¦s organizational design is more on human resources approaches with support from motivation, leadership, matrix structure, culture and learning organization.    

The success of Microsoft does not mean that all types of organizations should adopt the Microsoft model in order to be effective.  There is no one best structure that can fit all the organizations.  The effectiveness of an organization depends on how it can manage its structural contingencies to fit with its business types including the size of the company, the technology utilized by the company, the environmental context and strategy.


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[1] 1992 fiscal year: net revenue and net income was $2.78 billion and $708 million respectively.  Details can be referred to Microsoft Corporation (2002), http://www.microsoft.com

[2] According to McGregor (Schermerhorn, 1996), Theory Y assumes people are willing to work, are capable of self-control, are willing to accept responsibility, are imaginative and creative, and are capable of self-direction.

[3] Maslow¡¦s Hierarchy of Needs Theory assumes that people are motivated to satisfy five basic types of needs (self-actualization, esteem, social, safety, physiological) in a predisposed and logical order and are only driven by needs that remain unattained (Rosenfeld et al, 1999).  The theory is criticized by Hersey et al (1996) and McCarthy et al (1997) that in reality, most people tend to be partially satisfied and partially unsatisfied at each level, and try to fulfill a set of needs rather than just one need or another in sequence.

[4] McClelland¡¦s Acquired Needs Theory assumes that each person has needs for achievement, affiliation and power to some extent that vary over time and as a result of life history, though only one of these needs dominant and tends to motivate an individual at any given time (Rosenfeld et al, 1999).  Naylor (1999) argues that McClelland¡¦s work looks more towards senior managers¡¦ development.

[5] Hackman and Oldham¡¦s JCM (Schermerhorn, 1996) views job satisfaction and performance as influenced by three critical psychological states of the individual and in turn they are affected by the presence or absence of the five core job characteristics: experienced meaningfulness of the work (skill variety * task identity * task significance), experienced responsibility for outcomes of the work (autonomy), and knowledge of actual results of the work (feedback).

[6] For details of these leadership theories, see Schermerhorn Jr, John R (1996), Management, 5th Edition, John Wiley & Sons, Canada, p 323-331

[7] Schermerhorn (1996) has defined transactional leadership as the ¡¥leadership that directs the efforts of others through tasks, rewards, and structures¡¦

[8] Practical lessons from Scientific Management (Schermerhorn, 1996): make results-based compensation a performance incentive, design jobs with efficient work methods, select workers with abilities, train workers and supervisors to perform jobs to the best of their abilities.

[9] The special characteristics of a Weberian bureaucracy are: clear division of labor, clear hierarchy of authority, formal rules and procedures, impersonality, and careers based on merit (Schermerhorn, 1996).

[10] According to Handy (1999), role culture is often stereotyped as bureaucracy.  Organization under this culture rests its strength in its pillars, its functions or specialists.  The work of the pillars, and the interaction between the pillars, is controlled by procedures for roles and communications with rules for settlement of disputes.

[11] Woodward (Rosenfeld et al, 1999) argues that the complexity of the production process determine the structural characteristics of the firm.  She has identified three categories of production process: 1) unit or small batch production (customized products), 2) mass or large batch production (volume output), and 3) process production (continuous basis).  She found that the best unit batch and process production had more flexible structure, while the best mass production had more rigidly structured.


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