SURE, THE BUREAUCRACY IS BAD...:

Sometimes, though, the problems from bureaucracy came down to a simple reality: The young hotshots from the 1980s, techies who had joined the company in their 20s and 30s, had become middle-aged managers in their 40s and 50s. And, some younger engineers said, a good number of the bosses just didn't understand the burgeoning class of computer users who had been children--or hadn't even been born--when Microsoft opened its doors. When younger employees tried to point out emerging trends among their friends, supervisors sometimes just waved them away.

"Most senior people were out of touch with the ways the home users were starting to use computers, especially the younger generation," one software developer said.

An example--in 1997, AOL introduced its instant-messenger program, called AIM, a precursor to the texting functions on cell phones. Two years later, Microsoft followed with a similar program, called MSN Messenger.

In 2003, a young developer noticed that friends in college signed up for AIM exclusively and left it running most of the time. The reason? They wanted to use the program's status message, which allowed them to type a short note telling their online buddies what they were doing, even when they weren't at the computer. Messages like "gone shopping" and "studying for my exams" became commonplace.

"That was the beginning of the trend toward Facebook, people having somewhere to put their thoughts, a continuous stream of consciousness," said the developer, who worked in the MSN Messenger unit. "The main purpose of AIM wasn't to chat, but to give you the chance to log in at any time and check out what your friends were doing."

The developer concluded that no young person would switch from AIM to MSN Messenger, which did not have the short-message feature. He spoke about the problem to his boss, a middle-aged man. The supervisor dismissed the developer's concerns as silly. Why would young people care about putting up a few words? Anyone who wanted to tell friends what they were doing could write it on their profile page, he said. Meaning users would have to open the profile pages, one friend at a time, and search for a status message, if it was there at all.

"He didn't get it," the developer said. "And because he didn't know or didn't believe how young people were using messenger programs, we didn't do anything."

"The Bell Curve"

By 2002 the by-product of bureaucracy--brutal corporate politics--had reared its head at Microsoft. And, current and former executives said, each year the intensity and destructiveness of the game playing grew worse as employees struggled to beat out their co-workers for promotions, bonuses, or just survival.

Microsoft's managers, intentionally or not, pumped up the volume on the viciousness. What emerged--when combined with the bitterness about financial disparities among employees, the slow pace of development, and the power of the Windows and Office divisions to kill innovation--was a toxic stew of internal antagonism and warfare.

"If you don't play the politics, it's management by character assassination," said Turkel.

At the center of the cultural problems was a management system called "stack ranking." Every current and former Microsoft employee I interviewed--every one--cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. The system--also referred to as "the performance model," "the bell curve," or just "the employee review"--has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.

"If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review," said a former software developer. "It leads to employees focusing on competing with each other rather than competing with other companies."

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