7,999 and Counting-

Last week, Jeff Raikes, group vice president of Productivity and Business Services (PBS) at Microsoft, landed on campus to meet with students and members of the HTNM club. A Nebraska native, Raikes joined Microsoft in 1981 as a product manager in its applications group. What followed was a meteoric rise from product manager, to chief strategist, to vice president of Office Systems. Today, Raikes is a member of both the Senior Leadership and Business Leadership teams, where he is jointly responsible for developing Microsoft’s core direction and strategic plan.

Clearly enjoying the student environment, Raikes shared his thoughts on the latest in information-collaboration technology, recent strategic developments at Microsoft, and the continued evolution of Linux in the marketplace. Raikes’ passion for technology and Microsoft was obvious – in his meeting with the Harbus he gave me the opportunity to hold his Tablet PC, a product he headed and launched last year, and proudly announced that all of his notes for the last year and a half were stored in his Tablet PC. While many of Raikes’ competitors would likely pay very good money for that particular Tablet PC, Raikes is clearly very focused on remaining a step ahead of the competition and securing Microsoft’s position at the fore-front of information technology. Time will tell how successful Microsoft will be in the future, but if the past is any indication, you can count on Microsoft to not only show up for the party, but that Raikes will be sure to enjoy the ball.

Harbus: What are your primary responsibilities and areas of focus at Microsoft?

Raikes: My role is two-fold. First, I am a member of our senior leadership team, the core of which includes four people. Steve Ballmer, Bill Gates, Jim Allchin and myself – and we also include as a part of that team our two chief technology officers and Kevin Johnson, who oversees our worldwide sales. This group’s mission is to take the overall perspective on Microsoft as well as to share in some of the cross-group issues that have to get resolved. That probably represents 20% of my time.

Secondly, the majority of my time – my day job so-to-speak – is productivity in business services. That includes overseeing a bunch of Microsoft’s business units, including our Information Worker Business, which centers on Microsoft Office. I also work with Doug Burgum who oversees Microsoft Business Solutions. I would say I spend more of my time on the world of Office.

In fact, today is my 7,999th day at Microsoft. I decided after 20 years it was more interesting to talk about it every 1,000 days – so tomorrow I am celebrating my 8k!

Harbus: Congratulations! With over 22 years at Microsoft you have certainly had a front row seat to the company’s growth and evolution. “Integrated Innovation” is a term that has fairly recently emerged as a critical part of the Microsoft strategy – can you tell us a little more about it and why it is so important?

Raikes: We are in the midst of a fairly important transformation of our company – and “integrated innovation” is a way for us to be more agile in the way that we run our businesses, and address the customers’ expectation that we are focused on combining our technologies to meet their needs. That’s where integrated innovation is so important. It’s probably the most unique value that Microsoft can bring to customers in software.

Number One – we are a software company – that is our lifeblood. But

Number Two – we are a software company that has the broadest and deepest investment in R&D. A lot of what our customers look to is how we bring those software assets together to really make a difference in their business, and that is the heart of what integrated innovation means. How does the combination of the Windows operating environment, the server operating environment, the Office applications, MSN, and the mobile devices – come together in ways that deliver new and enhanced value for the customer? That is what integrated innovation is all about.

Harbus: Microsoft has recently stated that they plan to double the size of their Office business from $10 billion in revenues/year to $20 billion – how exactly do you plan to achieve that?

Raikes: That’s a number I tossed out a year ago which may not have been the right way to make the point. The point I was trying to make was that two to three years ago, people said, “You are kind of done in the Office business, right? I mean there is not that much more to do.” And the answer is – there is a huge amount of work to do. Why? Because there is an incredible amount of productivity left to gain in information work, and there is a lot of technological opportunity underway that will help us deliver on that. What I was really trying to do was get people to take a much broader view of the world of information work and what Microsoft can do. I am not sure that I can accurately predict our revenues eight years down the road, but what I can do is share my enthusiasm for what is going to occur in terms of information work and collaboration. If I may ask, to what extent do the students here at HBS use instant messaging (IM) here at school?

Harbus: Pretty extensively – both to communicate with each other and with friends outside of HBS.

Raikes: See, if you go back five years, you were probably not using IM at all. If you go back ten to twelve years, someone in your role was probably doing a fairly limited amount of email, if at all. It’s a funny thing about human behavior. We tend to overestimate how much things change in the short term – especially in software we always think we are going to get it done faster than we do – but the other element of human nature is we tend to underestimate how much things change in the long term.

And that is a big part of my job – to help people see that what we are investing in now is not only how we will serve customers next year but how we will serve customers in the year 2010. Come 2010, people coming into the work force will just assume IM, Tablet PCs, pocket devices and broadband wireless access. I have to challenge my team to really think about what will information work be like in that environment and how can we be investing in the right kinds of tools and technologies to help facilitate that. What will be the new things in real-time communication and collaboration ten years from now?

As a recent example, audio, video and the network are all converging and that is going to open up new ways to communicate. A rough analogy to that is that when we introduced PowerPoint in 1987, I just thought it was a cool way to do overheads. People don’t do overheads anymore – what they do now is just walk in and connect to a new computer. I really didn’t have that vision when we first introduced the product – it’s how it developed over time. So we have to do our best to understand deeply both how people work today but also how they will work in the future and how technology will enable that work.

Harbus: Microsoft has recently been working to change their brand image of one where the general public thinks as “office as a box” to one where the general public perceives Microsoft as an “office system” incorporating client, servers, and services to support the flow of information. Do you think this is a transition your customers have embraced or do you think there is more work to do here?

Raikes: We are just at the beginning. There is no question that there is a deeply entrenched view of what Office means to customers today. Part of the fun is to take on that kind of a business challenge and set a whole new tone and expand the vision.

The people who we want to connect with here at HBS are the people who want to come to Microsoft and help us take on those types of challenges.

Our product marketing group, and our MBA talent, is helping us to make that happen but we are just at the beginning of this process. The goal is to transform Office from b
eing viewed as the core of document-centric productivity, to the view that Office as a brand represents your workspace for personal, team and organizational productivity that includes a broad set of tools for any element of information work that you are doing.

For example, we recently acquired PlaceWare which is a web-conferencing company. That is now called Office Live Meeting Service – we merged that with some of our internal work on real-time communications, IM, and that is now the Office Live Communications Server. We are using the Office brand to underscore everything that we are doing in the world of information work. It won’t happen overnight but the early customer response is very exciting.

Harbus: You have recently commented on Microsoft’s work and investment in the document workspace arena – in particular in relation to the Windows SharePoint Services – could you tell us a little bit more about what Microsoft is doing here?

Raikes: To me this is one of the most exciting areas that we have undertaken. It started more than two years with our introduction of the SharePoint services as a part of Office XP, but now we have really taken a leap forward with Windows SharePoint Services. The foundation is to enable grass-roots collaboration. The document workspace is just one example.

In the last decade we learned a lot about what worked and what didn’t work in document management. One of the most important things we learned that didn’t work is to not try and force the sharing of knowledge from the top-down. What you have to do instead is enable grass-roots knowledge management. I am very excited about what we see in our company because I think it’s the beginning of what we see broadly around the world.

We have about 25,000 SharePoint sites within Microsoft and growing larger every day. People are collaborating on documents through a meeting workspace. If people are setting up a business planning project, people are just creating a SharePoint site and they don’t have to enlist ITG to do it for then. They just do it themselves. That sort of grassroots collaboration and sharing of information is at the core of being successful.

You want to have an approach that allows you to connect people across the company to shared knowledge. The key to knowledge management and sharing of knowledge in organizations is the combination of grassroots bottoms-up approach with a structured top-down approach and that’s what the SharePoint technologies represent.

Harbus: How does Microsoft ensure that its development process is customer driven?

Raikes: This is another one of the areas that I am most excited about. I think we are on the leading edge of learning how to use the Internet to more deeply understand real customer behavior. This began a couple of years ago with Office XP – we created a technology that we called internally “Watson”. What that does is it gives us, with the customer’s permission, the ability to understand the customer software experience – like when the customer crashes. We don’t want the customer to crash – that’s a bad thing for everybody involved. In Office XP we created the document recovery capability as a result. The important thing about Watson is that we ask you if you will send us the detail – you just click the button and we get the detail of what happened. What that does is that allow us to dramatically improve the customer experience. We are now expanding that concept to everything that we do.

Another example is historically when the user went to get help, they went to the hard disk. We don’t do that with Office 2003, unless you are not connected. If you are connected, the first thing we do we is direct you to Office online – our website – and we give you the most complete, most up-to-date help information and learning tools to assist you. And then we ask you to give us the feedback on whether we helped you or not. If we consistently see that this part of our help system is not really helping people solve a problem, then we can take their feedback and understand and respond to it.

The historical problem for software companies like Microsoft is that you could listen to the IT professionals in an organization, who are a very important part of the ecosystem, but they are only a small representative of the real world use of usage. What you really want to deeply understand is the broad user experience – by having literally hundreds of millions of people connected to the Internet and the ability to more deeply understand their experience, we will be on the leading edge of how you can use Internet connectiveness to better understand the user experience and what we can do to help. In the future I believe that will be the foundation of usage communities where people will help each other to get more out of the product for certain disciplines.

Harbus: So this is why when I am in PowerPoint and I can’t find the clip art that I need, I get sent to the Internet?

Raikes: Exactly. We get over twenty million unique users to Tools on the Web each month – which is going to be renamed “Office Online”. That’s where people go for clip art, templates, and online learning tools. In the future I really want that to be the foundation for personal solutions. If a user comes to Office online and, with their permission, we know they are a journalist, or an HR professional, or a financial professional, I want us to be able to share with the user what we know of as the best practices that people in each of those disciplines use to get their job done. I want to use our broad connectedness to users to do a better job to enhance everybody’s experience.

Harbus: In the past Microsoft has not been willing to embrace a cross-platform strategy – is this something that you foresee Microsoft considering in the future?

Raikes: It’s always an interesting challenge for us. People probably don’t realize that we were one of the first companies to establish a cross-platform strategy for applications. My first job was to be the product manager on our Office applications and our first product was Multi-Plan. One of the things that we took pride in is that Multi-Plan ran on more than 70 different micro-computer architectures – we ran on all of them.

On January 20th, 1983, I realized it didn’t matter. That was the day that Lotus 1-2-3 shipped. Lotus 1-2-3 ran on exactly one micro-computer platform – the IBM PC. This is the lesson I learned – when customers are choosing software, do they choose the software because it runs on a bunch of different platforms, or do they want to choose the best software on their platform? It became clear that it was the latter.

So in the late 80’s, I had some very interesting business and product decisions to make. I was very much in the midst of our word processing challenges. One of our key competitors was WordPerfect. Great company, very good people, absolutely had the #1 market position, and they ran on mini-computers, mainframes and so on. So what was our strategy? In my mind it was absolutely clear. We were going to focus on the graphical user interface, MAC and Windows and that was it. We weren’t going to be able to match WordPerfect in terms of all of their platforms, but we would strive to be the best on the graphical user interface. And that was the key to how we won in word processing.

So let’s fast forward to today. Absolutely it’s important for us to support inter-operability because customers have different platforms. But in the end of the day when the customer comes to Microsoft, do they expect us to have the best software on Windows or the best software across a wide range of platforms? For the most part, they want us to have the best software on Windows and that’s where we think we do our best work.

Harbus: Today in our Managing Service Operations class we had a discussion regarding Microsoft’s remarkable ability to engage their customers in the service of finding and reporting security bugs in Microsoft software, and act
ually having the customer excited and motivated to be a part of the process. How did Microsoft create this initiative and how do you think it is going?

Raikes: Well, I am not exactly 100% sure what the class discussion was referring to, but with Watson for example, we care a lot about knowing what is the customer experience because the more that we can improve the out-of-the-box experience for software, there is just tremendous economic scale with that. Imagine if you were running a company – with most companies you need to have product support and some level of product service. Do you want to focus in on how many people you will hire to help customers fix their problems and get the most out of your product, or would you rather build more of that right into the product itself?

It’s actually an interesting juxtaposition of the IBM strategy versus the Microsoft strategy. IBM in the professional services industry actually prefers to have a complicated environment, because then they go to the customer and say, “Well if you pay us for all of these people, we can figure it all out for you.” We want to have professional services help us understand what customers are trying to do so we make better software so it requires less professional services. In the end that is the win for customers and that is the benefit of scale economics of software.

Harbus: Microsoft has historically been known as technical power-house. Recently Microsoft has made a significant investment in stepping up the resources on the marketing end of the company – why did the company decide to make this investment and how has this shift in company culture been evolving?

Raikes: In order to scale our business into the future we need to build a foundation of business management and leadership to help us do that.
Steve Ballmer and I absolutely believe that we have to have a strong product marketing function, and frankly, with a lot of MBA talent, which is why I am here, in order to build that kind of business leadership framework in the future.

During the 80’s I was the lead person at Microsoft doing for doing the MBA recruiting. Of the 70 to 80 people I hired during that time, about 15 of them went on to be Corporate Vice Presidents. So certainly Bill and Steve and I view that as an important way to source talent for future business leadership.

Harbus: What makes Microsoft an exciting place to work?

Raikes: I would focus in on two things. Number One is the magic of software. Software is an incredible medium because it is very malleable.

In some respects you are only limited by your good ideas – your IQ for ideas. That’s an incredible opportunity and that is what originally attracted me to software versus hardware. You know hardware is really important, but it’s more what software does for people that gets me excited. Number One is our passion for software at Microsoft. I think we can make a very legitimate case that the whole world of software has been one of the most impactful on, not just the economy, but on personal life in the last twenty years. And I will bet you that it will continue to be for the next twenty years, simply because there is still so much to do.

The second thing that I think should be very appealing to your colleagues is that you will find at Microsoft people who are very smart, very high energy and have a strong interest and aptitude for business and taking on business problems and business challenges and making things happen.

One of the reasons Ballmer and I put so much emphasis on MBA recruiting during the 80’s, is because if you find those kinds of people, it’s energizing to the environment and it kind of feeds on itself. High energy, high IQ people tend to attract other high energy, high IQ folks which creates more great products which allows you to recruit more great people.

Harbus: More and more we see customers adopting and embracing the Linux operating system, Open Office, and Star Office – how does Microsoft, and especially the Office group, plan to respond to this?

Raikes: Certainly one of the characteristics of our industry is that it has always been a strongly competitive environment with new types of competitors continuously emerging. This (Linux) is a particularly interesting area where it’s a very different type of competition in that the business model is so different. Historically, with most competitors you try to outrun the other guy, and typically in software you try to outrun them from an R&D standpoint. If you can be smarter in how you invest your R&D and use that to create more value for the customer, you win more customers, which affords you the opportunity to invest more, which affords you to win more customers, and so you get into that cycle.

This is a very different environment – what is their R&D budget? Well, we really don’t know. It’s a different type of business challenge than what we have seen before. But frankly, that’s part of the interest in the job and part of the reason to come to work every day – to be able to think about new types of business challenges, problems and approaches. I believe Microsoft’s success will come from showing that our deep investment in R&D can provide a lower total cost of ownership, and more importantly, a higher total value of ownership for the customer. Linux appears to be free, but of course you have all the elements of really making the software work. So our deeper investment in R&D should afford us the opportunity to effectively compete and deliver more total value of ownership, and in many cases, lower total cost of ownership. In addition, I think that our approach of integrated innovation means that we are more likely to effectively integrate across a wide range of software assets for the customer’s benefit.

I can tell you it is hard enough to manage that when it’s in your own company – I can’t imagine how you can easily do that across a loosely connected community. Plus, the asset of having an incredibly broad user community can help us to be more connected to the customer. There are about 400 million people using Microsoft applications everyday – that in itself is an incredible asset. If we can use that as a way to better understand and enhance how the customer does information work, which puts us in a stronger value proposition. Using our depth of R&D to produce a higher total value of ownership and a lower total cost of ownership, using our breadth of R&D to provide integrated innovation, and using our connectedness to a broad range of users – those will be the three elements that will allow us to succeed. It’s going to be a fun, competitive battle.