Microsoft’s Midlife Crisis
The root problem is that MBAs are taught to grow their businesses.
Shareholders expect their shares to appreciate in value.
Therefore, the top management of every company is compelled to hold to double-digit growth rate even though the company will be greater than the entire Earth in 10 more years.
Everyone is ignoring the reality of the S-curve. If your company already has 50% of the market, it cannot double its share of this market.
One solution is to diversify to other markets. Eventually all markets, which the company can efficiently serve, are saturated. The company then wastes capital on entry into other markets, which it is not competent to serve. The company also gets too big to manage itself efficiently, especially as it is not focused on performing well and efficiently those tasks, which it knows to perform well.
I would like to suggest another direction for advancement for oversized companies. Work on the value added per employee/subcontractor index. Let go of part of the capital, if you do not know how to invest it wisely. Sell off operations, which you do not excel in managing. Streamline and optimize your core operations. Become part of a network of independent companies, which may sometimes collaborate on large projects. Hire new employees only if their contribution raises the value added per employee/subcontractor.
When letting go of capital, disburse it as dividends to your shareholders (in fact, Microsoft paid huge dividend to its shareholders in the last year). In effect, this throws back to them the responsibility to wisely invest their capital investments, as your managers are not better than your shareholders in this task anymore.
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