I'd love to parse out all the individual points of fail here. Stack Ranking is one. Management Business Objectives are another. Aggressive adherence to "the numbers" is another. Just being big and slow is probably the, ahem, biggest theme, though.

What's most interesting is that *many* of the fails are lauded as wins elsewhere. Valve has stack-ranking and we love it. Obsessive measurement and tweaking based on facts is (as far as I know) something we highly regard about Amazon.

So I guess my question is: when do best practices go bad? Why? How?

It's just a backwards way to do performance-based anything, right? If performance in any given group of people has a distribution (that probably varies with time, caffeine levels, esprit de corps, etc ad nauseum) then a real curve reflects that distribution. Setting a curve before you know the distribution is just dumb.

But on a higher level, the problem is that they've implemented a system that is inherently rivalrous, and then they made it the only thing that matters. This leads to gaming of the system.

People prefer transparency and predictability about goals, performance, and compensation - so is the answer just to balance that preference against a rewards scheme that isn't significant enough to incite rampant gaming behaviors?

Also, gaming of the system is desirable when the system is a game, like a competitive sport. The problem is that business isn't football.

This turned out way too long, but I'll share anyway...

I think the issues you listed, Clay, are all symptomatic of a deeper lying problem. What the Vanity Fair story tells us is that Microsoft fundamentally lacked (lacks?) Belief. All of its issues - the Stack Ranking system, the flawed business objectives, the destructive internal practices - were born out of this.

Microsoft's two most dangerous competitors both have a compelling story to tell that makes them easy to understand and to side with, and these stories are rooted in their core philosophies.

Everyone knows about Apple's impeccable design ethos; it's what defines it as a company and what made Steve Jobs famous. Similarly, everyone is familiar with Google's motto "Don't be evil" - they turned their core belief into their corporate slogan, and they use it to guide their decisions and actions.

Apple and Google are both purpose-driven organizations that want to make the world better somehow: Apple by creating amazing products, Google by making information simpler. Microsoft on the other hand quickly became a place for people who just cared about making money. That, along with poor product design and development chops, doesn't make for a very attractive story.

And, the focus on making buck is a philosophy that can only be bought into internally; there's nothing compelling or valuable about it for the customer. Amazon's and Google's beliefs on the other hand are easy to share.

Belief is crucial because it shapes Vision: it determines your perspective on what things should be like. And if you know what your ideal state looks like, you can articulate a direction for getting there. I don't know if these things were ever well defined, aligned or very compelling at Microsoft. Microsoft ended up aimlessly chasing its competitors rather than strategically working towards some ideal future.

Belief is crucial also because it guides your Values and Practices (in other words, your Culture), which evidently haven't been very healthy at Microsoft for quite some time now. If you lack a productive and inspirational core philosophy as well as focus and direction, your culture will turn out accordingly. In Microsoft's case, it led to a work place characterized by viscous internal competition and a focus on the wrongs things (reviews rather than products) and the wrong types of decisions (money over users).

And speaking about best practices specifically: they should be informed by your values, support your practices, and, most importantly, they should be guiding and not prescriptive. Otherwise, it's all too easy to get stuck in bureaucracy and devolve into a culture of micromanagement that rewards the sticklers for detail rather than the innovators and the freethinkers.

TL;DR: Microsoft lacks a productive core belief. Belief shapes Vision, provides Purpose, and guides Culture. If you don't have these things in place and aligned with each other, you're more likely to end up with crappy products and an unhealthy work environment.

I think it all comes down to leadership. Practices, policies, process, culture, products, etc. None of it can sustain being the best despite its leader. If the individual at the top "is hopelessly out of touch with reality or not listening to the tech staff around him," I would argue that nothing at the company will be the best. The best people will leave, culture will be toxic and competitive, policies, practices and process will focus on/center around the wrong objectives.

Hitler!

I disagree. Ballmer cannot be compared to Hitler.

He's really more of a Mussolini or Mugabe.