2012

Microsoft: Competing
on Talent
CASE STUDY

SAROJANI NEUPANE
[Wigan and Leigh,Nepal]
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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 the
President 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 that
the 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” interviewer
was 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 and
control 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 bonuses
rewarded 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% in
Fortune 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 leadership

development 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 of
29 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 Plan
d. 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
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programming language. The importance of hiring the right people is also shown in Microsoft’s ‘n
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
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and the systems within the organization all serve to motivate the type of people that Microsoft
values.

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
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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.

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
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seen as a prime example of the focus on a partnership that Microsoft aims to foster with its
employees.

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
Recruitment
 Open opportunities to new talent.
 Opens door for new and creative ideas.
 Require high supervision.
 Lack of experience in satisfying
customer and solving problems.
 New and innovative ideas.
Disadvantages
 Ignores the experienced people from
the industry.
 Ignores the dependable and loyal
group of people.
 Ignores the group who need little
supervision and motivation to do the
task.
 Ignores the manpower who have years
of experience in satisfying customer
and solving problems.
 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  High cost
people.
 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.
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