MICROSOFT CANADA: SALES & PRODUCT MANAGEMENT WORKING TOGETHER

INTRODUCTION Doug Taylor, national sales manager, Home & Entertainment Division (HED), for Microsoft Canada, was considering PC Marketings move to launch a consumer education website. Barry Zeidenberg, group product manager for PC Marketing, believed that the website (his idea) was key to the long-term development of Microsofts personal computer (PC) user base. The cost for the creation and maintenance of this site, Microsoft Home Magazine, was estimated at $1 million per year, or 10 per cent of sales and marketings combined promotional budget. Taylors initial reaction was that the money would be better spent in the sales channels, boosting overall sales. Microsoft Canada Home & Entertainment Division The Home & Entertainment Division (HED) was the consumer side of Microsoft Canadas business (the other side, enterprise, dealt with the needs of corporations such as General Electric and Bell Canada). The HED division had two businesses: Xbox and PC. HEDs PC business consisted of consumer software, commercial software and hardware. Consumer software consisted of brands such as Encarta, Money and Works. Commercial software included applications such as Windows, Office and Excel. Hardware included mice and keyboards. HED had performed extremely well, and Microsoft Canada depended on it for a significant portion of its revenue and profits from consumers. Taylor and Zeidenberg had both worked in consumer packaged goods companies such as CocaCola and Unilever. Each had experience in both sales and marketing roles prior to their arrival at Microsoft. Although Taylor had been with Microsoft since 1998, Zeidenberg had more recently joined the company, in 2001. Both reported directly to Greg Barber, head of HED:

Taylor, national sales manager, Home & Entertainment Division, managed national sales for both PC marketing and Xbox. His customers included mass merchandisers, such as Wal-Mart, Zellers and Toys R Us; electronics stores, such as Best Buy and Future Shop; and focused chains, such as EB Games. Taylor had annual base and stretch sales teams targets for both PC and Xbox sales. His annual compensation was a combination of base salary and incentives linked to volume and achievement of other objectives included in Microsofts management by objectives (MBO) initiative. Although customers for both PC Marketing and Xbox were similar, there continued to be differences among customer priorities. One of Taylors goals was to leverage PCs advantage for Xbox sales and vice versa. For example, PC sales could have been higher at Wal-Mart if the retailer had been willing to focus its attention on serving the home-office space. Xboxs high-profile launch and channel support level allowed Taylor to improve his PC business at Wal-Mart. Taylor stated:

Im charged with getting the revenues for HED by selling product within the means I have, using channel budgets. To me, it does not matter whether I sell X number of Windows or Y number of optical mouse products. Topline revenue is my sole focus. Group Marketing Managers are charged with revenues on individual product lines. Im a very data-focused person and enjoy mining databases for insights. I can see that the proposed website would help us build consumer interest in our PC products. I agree that cooperation with marketing requires an element of relationship management . . . but we also have to do whats best for the business. Taylor, along with HEDs two group product managers, shared a common promotional bu dget, deciding among themselves how best to allocate the dollars between channel spend (to support customers) and consumer spend (to educate the consumer and to drive demand). HEDs annual promotional budget for the PC business was approximately $10 million. Zeidenberg, the group product manager for PC marketing, coordinated the marketing activities for the PC business. His target market was Canadian consumers who used or were intending to use PCs. To reach this audience, Zeidenberg relied on a combination of advertising media, including print, television and online programs. Zeidenbergs goals included both annual product revenues and generating consumer interest in Microsofts PC products, including Windows XP and Office. In addition to advertising to consumers, Zeidenberg explained, I am spending time with Taylor to educate our customer accounts on our marketing initiatives. And were happy to see that our retail accounts are starting to recognize the value of our marketing initiatives and content. Two major electronics retailers have been saying to us that our marketing campaigns are great, and they want to work with us to leverage them in their own consumer communications strategy. While marketing is typically concerned with the longer term view of the health of the business, we cannot ignore the shorter term impact of our marketing programs at the account level. Zeidenbergs compensation was a combination of base salary and incentives. Relative to Taylors compensation, Zeidenbergs performance incentives accounted for a smaller percentage of his overall compensation. The Microsoft Home Magazine Website The objective of the proposed website, Microsoft Home Magazine, was to educate and excite consumers in the fight against PC apathy. PC apathy was defined by Microsoft as the tendency for consumers to use their PCs for only a limited number of activities, and thus put off upgrading their current computer system because they did not perceive the need for additional features. On the website, consumers would be able to find articles on how to use their computer to organize their lives, tips on (legally) downloading and burning music to CDs, and advice columns on various computerrelated topics. Third parties would be hired to write articles and manage website updates. The site was expected to cost $1 million to develop and launch. The websites ongoing costs were also expected to be $1 million per year. For a screen shot of this proposed site, see Exhibit 1. The Issue Taylors main concern was that HEDs PC business was expected to suffer double-digit percentage decreases in shipments from the previous year. He estimated that if he were to invest the same amount supporting his retail customers (in lieu of spending $1 million on a website), he could generate an additional $10 million in revenue next year. Taylor commented: On the positive side, incubating future customers is a good idea. On the negative side, this puts next years sales goals at risk. The Home & Entertainment Division held quarterly full-day meetings between sales and marketing in order to encourage collaboration and achieve alignment of individual product and total business objectives. Although Taylor and Zeidenberg had met several times on the Microsoft Home

Magazine website initiative, both wondered if it would be valuable to solicit feedback from the other executives in HED on this proposed project. On the positive side, Zeidenbergs website initiative would allow Microsoft to establish thought leadership for PC usage in Canadians minds. It would highlight useful ways to integrate PC usage into everyday lives. On the other hand, competition at the retail level which had always been aggressive was not expected to abate. Site development and maintenance costs were a significant portion of HEDs annual promotional budget. Could the division afford to invest in this initiative? Could it afford not to? The potential for conflict between sales and product management was clear.

Exhibit 1 THE MICROSOFT HOME HOMEPAGE