Ballmer to retire: Can Microsoft change?

(MoneyWatch) Microsoft (MSFT) announced that CEO Steve Ballmer will retire within the next 12 months, after the company's board picks a successor. The news came in a press release distributed by Microsoft this morning.

The timing of Ballmer's decision, coming as it does after major strategic flops, suggesting that it may not have been entirely voluntary. But whatever the cause, it's not clear what actions a new CEO can take to put the company back on course.

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Microsoft's press release quoted Ballmer as saying, "We have embarked on a new strategy with a new organization and we have an amazing Senior Leadership Team. My original thoughts on timing would have had my retirement happen in the middle of our company's transformation to a devices and services company."

It sounds as though the transition was all a well-conceived plan, but it is unusual for one CEO to overhaul the entire organization, as Ballmer recently did, immediately before stepping down. Typically, new CEOs need the ability to institute their own strategic plans. On the other hand, recent developments show the types of poor performance and strategic shortcomings that often presage a chief executive's departure.

For years, Microsoft has exhibited poor planning and execution, as well as a fundamental misunderstanding about how mobile was allowing people to move in new directions. The Zune, released in 2006, was intended to be an answer to Apple's iPod touch, but was late to the market, even as Apple was moving ahead with the iPhone. Windows Phone was a considerable improvement over Microsoft's previous phones, but was so delayed that Apple and Google were able to largely split the smartphone platform market between them.

Windows 8, which was to provide a unified interface across tablets, notebooks, laptops, and desktops, came years after the iPad and was heavily criticized by many users, particularly those who found it clumsy on the non-touch devices that dominate the traditional PC market, particularly in business use. In May, Microsoft announced that it had sold 100 million licenses, matching the first six-month sales history of Windows 7, which was the company's most popular operating system to date. But Microsoft recently told CBS MoneyWatch that the way it measured sales for Windows 7 and Windows 8 were not the same. Although the company has not yet provided details, one possibility is that for Windows 8 it counted so-called enterprise license upgrades that had been pre-purchased by large companies. That would have made Windows 8 look far more popular in comparison.

Microsoft put huge sums behind launching its Surface tablets -- both a full Windows version and one that ran a variation of Windows, RT, using the types of chips that had become popular in tablets because of their light use of power. But Surface RT was an utter bomb and resulted in nearly $1 billion in write-offs announced during Microsoft's last earnings announcement.

The company is about to release Windows 8.1, a reaction to sharp customer criticism of Windows 8, which came out in the fall of 2012. The new version has some fixes and powerful features, but the problem Microsoft faces is that its long series of stumbles opened the door for companies to consider moving away from the Windows platform. The company's success has largely been built on its control of end-user computing platforms.

Under Ballmer's long watch, Microsoft's strategy and standing have been heavily damaged. A new CEO might be able to breathe life into the company. But Microsoft's institutional and cultural dependence on the importance of Windows could make that difficult if its mistakes have allowed too many customers to move away.