Self Reference

I recently read an article in Fortune ("GM and Me", December 8, 2008) describing the gradual decline of GM. While reading it, I thought of Microsoft, and of the US as a whole. Why?

One of the themes of the article is how insular and self-referential the culture at GM is. They seem to hold themselves to their own standards rather than measuring themselves against competitors. Having captured so much of the market for so long, they apparently continued playing to that market. Meanwhile, over the years, the market gradually shifted out from under them, and they failed to either lead it (as Toyota has done) or follow it. The consequence of this has been a gradual decline over several decades. Perhaps the most telling part of the article: "Ask Rick Wagoner why GM isn't more like Toyota, and he'll tell you, 'We're playing our own game - taking advantage of our own unique heritage and strengths.' Turns out GM should have forgotten that and become more like Toyota. Toyota's market cap is now $103.6 billion; GM's is $1.8 billion."

So why did I think of Microsoft, which is still minting money on the strengths of Windows and Office? Perhaps it's because I heard a podcast (Windows Weekly) several months ago in which Paul Thurrott, a Windows expert, was asked by Microsoft PR how he liked Windows Mobile 6, which had just been released, and they were surprised when Thurrott asked them if they had even seen an iPhone, which is lightyears ahead of WM6 in just about every way. Perhaps it's because of the insistence, from Steve Ballmer on down, that Microsoft executives' kids shouldn't be allowed to have iPods. Both of these behaviors suggest the same kind of self referential, insular culture that caused GM to stall out.

Microsoft these days is a strange combination of competitiveness without inspiration, inward-looking but imitative. When Vista was released, the list of features apparently copied from OS X was striking. Apple releases the iPod, and Microsoft releases the Zune. Google has Google maps, and Microsoft has their own satellite mapping site. Google has Google Earth, and Microsoft has Virtual Earth. Adobe has Flash and AIR, and Microsoft follows with Silverlight. Even Microsoft's development environment, Visual Studio, has its roots in Apple's Hypercard and Interface Builder tools. Now, Ray Ozzie wants to lead Microsoft into the world of cloud computing and online apps, but Google and Adobe are already there. And Microsoft is trying to follow Google into the world of ad-supported search.

I think that Microsoft is at that point where GM was around 1980. At that point, GM employed about 853,000 people and dominated the largest automotive market in the world. Today, Microsoft claims about 90% of the world's desktop operating systems and provides software to most major businesses. But where GM's market moved to higher quality, more efficient Japanese cars, Microsoft's market is moving to Linux, Apple, and web apps. As GM struggled to design cars that people wanted to buy, Microsoft is struggling to gain traction online. Despite claiming to lead and innovate, GM continued to fall farther and farther behind, continually shifting strategies in the process. Same with Microsoft.

The lesson here, I think, is that the biggest mistake any organization can make is to start believing it's the best. That belief establishes the foundation for using oneself as one's own standard, which in turn leads to insularity and self-reference. At that point, you listen more to yourself than to your customers and competitors.

If I were running Microsoft, the first thing I'd do is let anyone buy and use an iPhone, iPods, Macs, Linux, Google, anything, to make sure that everyone understands the competitive environment that the company is operating in. Their customers understand that world - why shouldn't Microsoft? The next thing I'd do is ask whether the world really needs Microsoft to keep providing late, less compelling counterparts to every new big product, and whether continuing to follow the market leaders is a recipe for long term success. Finally, I'd ask the bright, creative, and entrepreneurial people in the organization to ask themselves where Microsoft could be leading instead of following, and how it can leverage the advantages it has in business platforms, Exchange, .NET, and so forth, to do something that no one else is doing yet.

I've left out one part of this story. Another thing I thought of while reading about GM is the US itself. Like me, many of you (Americans, at least) have probably been told countless times that we're the "greatest nation in the world". Americans have believed that for a long time, and the pitfalls of self-reference apply there as well. Like GM, we've become inward looking, unaware of the advantages that other nations may have. As a consequence, we're losing ground in life expectancy, education, quality of life, and productivity. I guess the old saying is true: as GM goes, so goes the country.

A Few Minutes of Calm

I have started a video blog at A Few Minutes of Calm. I've been writing music since I was a kid, and I've always been interested in the combination of music, visuals, writing, movement, and so forth. The videos are all of local scenery here in Point Roberts, Washington, which is a small piece of the US attached to the bottom of British Columbia, south of Vancouver. All scenes are taken with a still camera on a tripod, and all music is original. The intent is to capture a moment in time and a sense of place, in such a way that someone can check in any time they need a few minutes of calm, a break from a stressful day, or some time to relax or reflect. I hope you enjoy it.

Financial Innovation

In a recent Business Week article ("Get Credit Flowing, Heal Housing", November 17), the CEO of Ernst & Young is quoted as saying, "It would be a mistake to regulate so strongly as to stifle innovation." It's easy to reflexively agree with this statement if you don't think about it too much. But let's think about it for a minute.

Recent financial innovations have included junk bonds, derivatives, no-doc loans, interest-only loans, mortgage-backed securities, and credit default swaps. Recent prominent financial innovators have included Michael Milken, Enron, and Long Term Capital Management. Financial innovation seems dedicated to finding new ways to privatize profits and socialize losses, and innovations spread and generate profits until they cause a crisis, require a government bailout, and become regulated. Perhaps the field of Finance is mature enough now that innovation is more likely to cause harm than good.