Why Visionary CEOs Never Have Visionary Successors

Steve Blank, Harvard Business Review, October 20, 2016

Microsoft entered the 21st century as the dominant software provider for anyone who interacted with a computing device. Sixteen years later, that dominance is looking threadbare. The reason is failed leadership, and Apple – currently the dominant tech firm for the mobile era – is at risk of making the same mistakes.

After running Microsoft for 25 years, Bill Gates handed the reins of CEO to Steve Ballmer in January 2000. Ballmer went on to run Microsoft for the next 14 years. If you think the job of a CEO is to increase sales, then Ballmer did a spectacular job. He tripled Microsoft’s sales to $78 billion and profits more than doubled from $9 billion to $22 billion. The launch of the Xbox and Kinect, and the acquisitions of Skype and Yammer happened on his shift. If the Microsoft board was managing for quarter-to-quarter or even year-to year-revenue growth, Ballmer was as good as it gets as a CEO. But if the purpose of the company is its long-term survival, then one could make the argument that he was a failure as CEO, as he optimized short-term gains by squandering long-term opportunities.

Despite Microsoft’s remarkable financial performance, Ballmer failed to understand and execute on the five most important technology trends of the 21st century: in search – losing to Google; in smartphones – losing to Apple; in mobile operating systems – losing to Google/Apple; in media – losing to Apple/Netflix; and in the cloud – losing to Amazon. Microsoft ended the 20th century owning over 95% of the operating systems that ran on computers (almost all on desktops). Fifteen years in to the 21st century, 2 billion smartphones had shipped, and Microsoft’s mobile OS share is 1%. These misses weren’t in some tangential markets – search, mobile, and the cloud were where Microsoft users were heading. Yet a very smart CEO missed all of these. Why?

It wasn’t that Microsoft didn’t have smart engineers working on search, media, mobile, and cloud. They had lots of these projects. The problem was that Ballmer organized the company around execution of its current strengths, the Windows and Office businesses. Projects not directly related to those activities never got serious resource or management attention.

For Microsoft to have tackled the areas they missed – cloud, music, mobile, apps – would have required an organizational transformation into a services company. And services have a very different business model. They are hard to do in a company that excels at products.

Ballmer was a world-class executor (a Harvard grad and world-class salesman) of an existing business model trying to manage in a world of increasing change and disruption. Microsoft executed its 20th-century business model extremely well, but it missed the new and more important ones. The result? Great short-term gains but long-term prospects that are far less compelling.

In 2014, Microsoft finally announced that Ballmer would retire, and in early 2014, Satya Nadella took charge. Nadella got Microsoft organized around mobile and the cloud (Azure), freed the Office and Azure teams from Windows, killed the phone business, and got a major release of Windows out without the usual trauma. He is moving the company into augmented reality and conversational AI. While they’ll likely never regain the market dominance they had in the 20th century, their legacy business model has continued to be extremely profitable, and Nadella has likely saved Microsoft from irrelevance.

And that brings us to Apple, Tim Cook and the Apple board.

One of the strengths of visionary CEOs is that they build an executive staff of world-class operating executives (and that they unconsciously force out the world-class innovators among their direct reports). In a company driven by a visionary CEO, there is only one visionary.

While Steve Jobs ran Apple, he drove the vision but put strong operating execs in each domain – hardware, software, product design, supply chain, manufacturing – who translated his vision and impatience into plans, process, and procedures. Between 2001 to 2008, Jobs reinvented the company three times. Each transformation – from a new computer distribution channel in Apple Stores and disrupting the music business with the iPod and iTunes in 2001; to the iPhone in 2007; to the App Store in 2008 – drove revenues and profits to new heights.

When visionary founders depart, the operating executives who reported to them believe it’s their turn to run the company (often with the blessing of the ex-CEO). At Microsoft, Bill Gates anointed Steve Ballmer, and at Apple, Steve Jobs made it clear that Tim Cook was to be his successor.

Once in charge, one of the first things these operations/execution CEOs do is to get rid of the chaos and turbulence in the organization. Execution CEOs value stability, process, and repeatable execution. That’s great for predictability, but it often starts a creative death spiral. Creative people start to leave, and other executors are put into more senior roles, hiring more process people, which in turn forces out the remaining creative talent. This culture shift ripples down from the top and what often felt like a company on a mission to change the world now feels like another job.

As process oriented as the new CEOs are, you get the sense that one of the things they don’t love are the products (go look at the Apple Watch announcements and see who demos it).

Tim Cook has now run Apple for five years, long enough for it to be his company rather than Jobs’s. The parallel between Gates and Ballmer and Jobs and Cook is eerie. Apple under Cook has doubled its revenues to $200 billion while doubling profit and tripling the amount of cash it has in the bank (now a quarter of a trillion dollars). The iPhone continues its annual upgrades of incremental improvements. Yet in five years the only new thing Apple managed to get out the door is the Watch. Apple has 115,000 employees yet can barely get annual updates out for their laptops and desktop computers.

But the world is about to disrupt Apple in the same way that Microsoft was disrupted under Ballmer. Apple brilliantly mastered user interface and product design to power the iPhone to dominance. But Google and Amazon are betting that the next of wave of computing products will be AI-directed services – machine intelligence driving apps and hardware. Think of Amazon Alexa and Google Home and Assistant, each directed by voice recognition that’s powered by smart, conversational Artificial Intelligence.

It’s not that Apple doesn’t have exciting things in conversational AI going on in their labs. Heck, Siri actually came first. Apple has autonomous car projects and AI-based speakers in the works. The problem is a supply chain CEO who lacks a passion for products and has yet to articulate a personal vision of where Apple will go. Without that, he is ill-equipped to make the right organizational, business model, and product bets to bring those innovations to market.

The dilemma facing the boards at Microsoft, Apple, or any other board on the departure of an innovative CEO is: Do you search for another innovator, promote one of the executors, or go deeper down the organization to find an innovator?

Steve Jobs and Bill Gates – even the 20th century’s other creative icon, Walt Disney — shared the same blind spot: They suggested execution executives as their successors. They confused world-class execution with the passion for product and customers, and market insight. Yet history has shown us that these two talents are not the same. For long-term survival in markets that change rapidly, one is far more important than the other.

Correction: This post originally stated that Steve Ballmer was a graduate of Harvard Business School. He is a graduate of Harvard University, and attended the Stanford Graduate School of Business before dropping out to join Microsoft.