Why Microsoft is Making Bad Decisions

By Rob Enderle November 22, 2011

It isn’t hard to go back into history and see that the Vietnam War was lost largely due to massive underfunding. How else can you explain how a Superpower could get beaten by a third world country?   Microsoft is currently under massive pressure to be successful with smartphones and the iPad class of tablets and Apple, with better than 80 percent share of this new category, is well along the way of doing to this category what they did to MP3 players.   There we saw Microsoft underfund their Zune effort and get forced out of the market by Apple who was, at the time, far smaller.   In a way, the Zune/iPad battle was Microsoft’s Vietnam and institutionally you wonder if they learned the lesson. 

Today we appear to be watching a repeat of this with the Windows Phone platform as this otherwise excellent product bounces off a market dominated by Apple and Google. Ironically, Google is also underfunding their effort but the carriers appear to be making up the difference to avoid working for Apple.  

But given they have a $50B+ war chest and that they should be easily able, if spent wisely, to win, why don’t they use it?    If they took what they were going to spend on buying Yahoo and put it against this problem, even if they executed poorly, they should be able to return to a position of dominance.   Google is doing it by subsidizing their platform with their existing advertising search revenue.   So why is Microsoft’s leadership being so stupid? The answer may be tied to how we are wired to be wrong a good deal of the time and why smart companies often do very stupid things. 

Argument Theory

There is an interesting paper which appears to explain why people, in the face of massive amounts of facts to the contrary, do incredibly stupid things.   For instance, one of the smartest guys in Microsoft is their CEO, Steve Ballmer; the reason he is one of the smartest is that he graduated magna cum laude from Harvard.    However, his major was mathematics and economics, and that puts him at a disadvantage in a firm made up of folks who are experts at coding.   This puts a huge pressure on him to lead by dominating the other employees because he can’t lead by being seen, as Bill was, as a leader in software.  

There is relatively new theory called the “Argumentative Theory of Reasoning” which suggests that people argue for status and it has nothing to do with being right and everything to do with winning the argument.     We argue kind of like rams butt heads, to see who will get the best mates or have the highest status in the herd.   In short, unlike the belief, which goes back to Descartes, that we argue to critically examine a position, this paper suggests that we argue for position.   This could explain why Ballmer is wrong so often but doesn’t seem to realize it. 

Hugo Mecier, one of the authors of the related report, appears to argue that because winning an argument advances our status, we then pick arguments that are easier to justify even if they aren’t right.   The simpler the argument the more likely we select it because it is easier to argue successfully.    Then, once we select the argument, confirmation bias comes in and we tune out anything that disagrees with our position and aggregate arguments that support the position already taken.  

It is interesting to note that the authors maintain that a group decision can be more right because the group, if balanced, will drive to the right choice. However, individual decisions, or if a group isn’t balanced, will make easy to defend wrong decisions instead.


Looking underneath Zune -- and I’m working from what I was told about the meeting that created this product -- the team had recommended that Microsoft build an iPhone like device.   Steve Ballmer backed the MP3 player which was the simpler though clearly, given the success of the iPhone and the lack of success of the Zune, the wrong choice.   In fact, Microsoft probably should have done what Google did Android did and just bring out a platform, which is what they eventually went back to with Windows Phone.    

So too in naming the Windows Phone, Windows.   Reusing an existing name is easier even though it should be intuitively obvious that Windows had too much bad equity to transition to a new class of device and Apple’s success could be partially tied to their not calling their iPhone and iPad Macs.    But arguing consistency is vastly easier to argue than coming up with a new name which has the additional risk of an unknown name.   It is vastly easier to argue consistency and that was the argument that won. 

In short, the reason that Microsoft is failing is that, while it is made up of smart people, that intelligence is being overcome by the confirmation bias of its leadership and bad decisions are the result.  

Wrapping Up: Applying What Was Learned

The science behind this is fascinating and may explain why the US political system is broken at the moment as both sides have polarized and are so surrounded by confirmation bias that they can’t reach consensus. 

The behavior being highlighted is something that applies to all of us and likely most often surfaces in individual arguments between co-workers (the need to take a contrary position and challenge status), between siblings and in relationships to establish an authority hierarchy.    Indications are when you find yourself trying to find support for a position you have already taken and can’t, or when you are moved to anger when someone takes a contrary position.   Either could indicate you have been overcome by confirmation bias and you are on the wrong, as incorrect, side of the issue.  

In the end, the survival of your company, of our country, in fact our vary race may depend on our ability to reason to the right answer to a question.   Since we all appear to be hardwired to fight this outcome, the researchers recommended rather than avoiding people that disagree with us, we use the opportunity to challenge our, and their, confirmation bias and thus increase the likelihood we’ll both be right. 

In the end, our survival doesn’t depend on our bullying someone with our argument, it depends on us actually being right.   An interesting background article titled the “5 Logical Fallacies That Make You Wrong More Than You Think” started me down this path and it is good reading. 

Rob Enderle is President and Principal Analyst for the Enderle Group. To read more of his articles on TechZone360, please visit his columnist page.

Edited by Rich Steeves

President and Principal Analyst, Enderle Group

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