Steve Ballmer (1)

More than three years after taking the helm at one of the world's most valuable companies, Microsoft CEO Steve Ballmer is doing it his way.

The 46-year-old, who shed more than 50 pounds over the past year, is leaner and meaner in his physique. Yet, the CEO is shaping the Microsoft organization in polar opposite fashion, expanding its size and trying to change its image from that of a ruthless monopolist to a kinder, gentler benefactor.

In his groundbreaking June 2002 memo dubbed "Realizing Potential," Ballmer dictated a new corporate charter based on honesty, integrity, responsible leadership and more accountability to customers, partners and shareholders.

But for an executive whose marching orders include crushing rivals and who was once quoted as saying, "To heck with U.S. Attorney General [Janet Reno]," Ballmer's memo is akin to the idealistic mission statement that unraveled the career of fictional sports agent Jerry Maguire in the namesake 1997 movie.

"Many of us feel a disconnect in the way we see ourselves and our mission and motives and the way we are portrayed, and only we can change that," Ballmer wrote in that memo to company employees. "There is a lot of responsibility,to our customers, shareholders, employees and the communities in which we live and serve,that comes with success and the mission we have undertaken."

While Microsoft is often depicted as arrogant and unrelenting, the memo more closely mirrors Ballmer's personal attitude, says one channel executive who has known the Microsoft CEO since he was first hired as Microsoft's assistant to the president in 1980. "Steve is such an energetic, likable kind of guy you can say anything to," says Judy Odom, CEO of Software Spectrum, Garland, Texas.

"I appreciate his frankness, upfrontness and his integrity. We've had a good relationship over the years, and it's one I value."

Unlike Jerry Maguire, Ballmer is in no danger of being fired. In the aftermath of former president Rick Belluzzo's departure, Ballmer has once again regained total control of business operations and is so far managing the load nicely. In the midst of a serious industry slowdown, Microsoft exceeded Wall Street expectations for its 2002 fiscal year ended June 30, yielding a $7.8 billion profit on sales of $28.4 billion. It exceeded expectations again for the first quarter of fiscal 2003.

The Ballmer memo not only signals the maturing of Microsoft as a member of America's corporate establishment, but of himself as a leader. After years of working under a culture created and nurtured by his ever-present and legendary predecessor, boss and friend, Bill Gates, whom he served as a right-hand man and business adviser, Ballmer has now amassed enough power and confidence to exert his will on the software giant and cement his legacy.

Unlike Maguire's mission statement, Ballmer's "Realizing Potential" memo is not a spontaneous, impetuous, soul-cleansing purge, but a business vision that has been brewing at the top for some time. At last year's executive retreat, following a difficult and humbling year in which Microsoft was found guilty of antitrust violations and was declared a monopolist, executives across the company,including the chairman of the board,were open to the winds of change. Ballmer found his moment to change the course of the company.

"Bill was very engaged throughout the retreat discussions, and he totally bought into the thinking from the outset," says Ballmer, who first met Gates during undergraduate days at Harvard and remains his closest ally and friend. "Our mission is not just about building great technology. It's also about who we are as a company and as individuals, how we manage our business internally, and how we think about and work with our partners and customers. We all make mistakes, but we must all try to consistently do the right thing for our customers, partners and shareholders."

Jeff Raikes, group vice president of productivity and business services for Microsoft, says Ballmer's will is taking root. "Since taking over the CEO reins, he has been driving to literally reinvent the company," Raikes says. "He's challenging all of us to make products that enable people and businesses to realize their full potential. Some might think that's an unattainable goal, but I don't think so, and certainly not for Steve."

In his three-year tenure as CEO, Ballmer has freely experimented with different business models, and stumbled and fumbled with some of them, including a services buildup that worried channel partners, a plan to host Internet services that worried corporate customers and the appointment of an outsider, Belluzzo, as president, which didn't pan out. In spite of vociferous customer protest over the company's controversial Licensing 6.0 policy, deemed by many as an unfair tax, Ballmer forced it through.

Insiders say one of Ballmer's strengths is that he is not afraid to test the waters, make mistakes and back off when appropriate. While he stuck to his guns on Licensing 6.0, Ballmer has over the past year shifted course on many unpopular fronts.

Ballmer nixed the company's plan to be the sole hoster of its Internet services offering, .Net My Services, and told Internet services crews to give customers control over their data. To end its four-year antitrust ordeal, Microsoft made changes to the Windows XP user interface and opened up 385 previously secret Windows application programming interfaces and proprietary communications protocols. And he charged executives to come up with an answer to the open-source movement instead of bashing and resisting it. While expressing disdain for open source, Microsoft nevertheless reached an internal compromise over a "shared source" initiative that opens access to some source code.

Ballmer also slowed down the services buildup that brewed in 2001. After dabbling in various services efforts, Ballmer has settled on a hybrid services model that reaffirms Microsoft's successful partner-centric model yet also makes Microsoft accountable to enterprise accounts. The former IBM Global Services executive hired to lead the charge, Mike Sinneck, says the model is brilliant, challenging and the first of its kind. To please solution providers, Ballmer ordered up new rules of engagement and an executive compensation policy that rewards staff based on two new metrics,partner and customer satisfaction,and not just sales quotas. Channel partners report increased satisfaction in recent months.

In the last year, the CEO also reorganized the company's sales operations and Microsoft Consulting Services to align those groups with the new goals. One sales executive says Ballmer's directives are beginning to take hold. "It definitely causes different behavior on our part and creates more satisfied customers, employees and partners," says Erik Renaud, vice president of sales and service for Microsoft's U.S. Central region.

Ballmer,colorful, easygoing and passionate,is among the most charismatic chief executives of his time. As a family man with a wife and three children, he tries to get home every night at a reasonable hour, he told CRN once. Yet observers wonder how he can continue to shoulder the burden of managing Microsoft single-handedly.

"The company won't stop working just because Ballmer has a cramp in his signing hand," says Rob Helm, director of research at Directions on Microsoft, a newsletter in Kirkland, Wash. "Microsoft's product groups are very autonomous and will go forward with their marketing and development strategies independently. The risk is that they will all go off in different, incompatible directions."

"He knows the channel," says Michael Healey, president of Ten Corp., a Needham, Mass.-based IBM solution provider. "It makes it easier as a business partner when you have someone like that at the top. . . . I think he brings a lot to the table."

Todd Barrett, networking sales manager for CPU Sales & Service, Waltham, Mass., says Palmisano's strong grasp of the benefits of working with the channel separates him from the rest of the pack of top industry executives.

"Palmisano understands the value and the intangibles that the channel brings to the table, whereas someone not accustomed to working with the channel sees it as . . . 'how low can I squeeze my margins to compete against the cheaper guy?' " Barrett says.