Would you mind expanding on this a bit? How exactly does it contribute to Microsoft's performance in new fields? This is a completely genuine question. I'm not an apologist just trying to defend MS in a roundabout way.
People become obsessed with their scores and their peers' scores. They're wrapped up in internal competition and compete poorly with external players or when assessed honestly with most reality-based metrics.
I worked with MS (for a consulting company, first few years of my career) back in "the day", and I got to witness first-hand the craziness of this system. But rather than blab about my own experiences, here's a recent article that sums things up pretty well: http://www.vanityfair.com/online/daily/2012/07/microsoft-dow...
Functioning planned culture: guild culture. Master crafts(wo)men and apprentices are clearly defined, but the managerial relationship is advisory and focused on mentorship. The major downside of guild culture (the rarest of the 4) is that it relies on employee loyalty to capture the value it generates.
Pathological planned culture: rank culture. (This is the most common corporate culture.) People rise or fall based on subordinacy, rather than the quality of their ideas or their level of effort. You end up with a lot of people who don't work hard because they realize that effort doesn't matter, and a lot of bad ideas getting into implementation. Rank cultures often can't compete on an open market or address new challenges.
Functioning market culture: self-executive culture. Here you have a flat hierarchy and employees have a lot of autonomy. However, they're usually expected to take responsibility for their own advancement. This is the Valve-style open allocation culture.
Pathological market culture: tough culture. High-stakes performance reviews, low trust of employees but similarly low guidance. This is the sink-or-swim culture.
Rank culture tends to turn into tough culture as it generates underperformers, and eventually the higher-ups get upset about the whole thing and have a crackdown. However, tough culture turns back into rank culture as the people who control the performance assessment become the new rank-holders and, in exchange for loyalty, offer safety and advantage in the evaluation process. So tough and rank cultures tend to fall into a degenerate, enervating pattern of oscillation from one extreme to the other. This back-and-forth eventually exhausts the company, leading to constant reorganization and turmoil.
When a company institutes permanent tough culture (stack ranking as an inflexible pillar, rather than a temporary measure) the political corrosion associated with rank culture still occurs, but there's a selection dynamic (similar to antibiotic resistance) where the forms of rank culture that survive are the least detectable. So you end up with a culture that's politicized and gamey like a tough culture, but inefficient and extortive like a rank culture, and ultimately you have a workplace where people put in lots of hours and apparent sacrifice, but there's little getting done and there's no vision.
