Forget About Windows 8, Insiders Say Microsoft's Real Money Maker Is Broken

It's not a surprise that Microsoft's new CEO, Satya Nadella, is already shaking up the company and moving key people around.

While a lot of attention is being paid to how he'll fix Windows 8, sources in Microsoft's legendary sales force tell us their division needs attention too.

One source even suggested that Nadella may need to replace the man in charge of the salesforce, COO Kevin Turner.

"The sales model at Microsoft is broken. It has been for years," a long-term member of the Microsoft sales force told Business Insider. "Ultimately, I think it will require a leadership change for Satya to even have influence on sales strategy. I like Kevin Turner quite a bit, but I'm not sure that his experience will translate to the services world."

Microsoft makes much of its money selling products and services to enterprises and the salesforce is the team that does that work.

We're hearing that Turner's policies are filled with problems: they don't lead to fair performance reviews, good rewards for selling cloud services (the direction that Microsoft needs to go), and salespeople can be fired too easily even when they perform well.

Plus, a customer is viewed as important (or not important) based on old standards like how many Windows licenses they buy, instead of new standards, like how much cloud computing services they need.

To be fair, Microsoft is hardly the only large software company struggling with this issue - how to convert a salesforce from selling software licenses and support to selling cloud computing services.

Microsoft hasn't yet felt compelled to make changes to the way its salesforce operates. High margins and the fact that enterprises don't want to rip out Microsoft's software and replace it has allowed the salesforce to keep making money.

Still, some salespeople say that the way Microsoft manages the salesforce borders on irrational. For instance, many teams are not allowed to acquire new customers. Their job is to sell more stuff to existing customers.

Microsoft does have dedicated sales teams that serve the largest customers, which means that their territory might be a single account or two. Most salespeople have between 15 and 150 accounts, depending on the size of their clients. And all salespeople are judged based on how much new business they bring in. They get paid more when they sign on new accounts, too.

However, this way of organizing the salesforce can lead to poor performance reviews even for top performers.

We've heard about a salesperson who got a bad review for not growing sales enough, even though all of her customers were already buying tons of Microsoft products. "She's up to max in everything."

We also heard that after a great 2012, Microsoft doubled the quotas for many salespeople. One of them, who had an exceptional 2012, was forced out in 2013 due to a poor performance ration against his "new" quota, even though he had the exact same customers.

On the other hand, it's fairly common for salespeople to complain about unfair quotas. And most salespeople wouldn't be forced out after one bad year, we've heard.

The reason why Microsoft's salespeople feel they can be unfairly dismissed is "the collision between the stack-rank review model and the byzantine method by which quota is distributed," according to one salesperson. "Even though we've publicly 'renounced' the stack-rank review model, no employee or manager that I've talked to expects the end result to be any different."

Microsoft's "stack rank" employee review model was a famously controversial system. It compared employees to each other, and an employee found to be a lower performer compared to the team, no matter how much that employee actually achieved, was given a poor review. Last November, Microsoft said it ended stack ranking.

There's also the chance that this is really just a perception problem among the salesforce. Employees haven't yet had a review that wasn't based on stack ranking, nor has Microsoft really explained yet what the new review system will be. Employees will be told more about it in a couple of months.

While Microsoft isn't alone with these kinds of problems, the company has good reason to change things. As we previously reported, much of Microsoft's record revenue in 2013 was because Microsoft raised prices for enterprise customers on the products they already use.

Microsoft needs to shift that into signing up massive new customers for its cloud products.

Here are some specific changes one of our salesforce sources would like to see Nadella make:

1. Retrain the salesforce to eliminate "technical specialists" that sell only one product. Sales teams need to be "generalists" who understand all of the cloud products.

2. Merge the salespeople that sell consulting services into the teams that sell products and "flatten the organization." There are too many different sales groups within Microsoft each pounding on the same enterprise customers.

3. Get rid of sales quotas assigned to "sales engineers" and "pre-sales technical support." Those are the people that help match a customer's technical needs with Microsoft's products. (For instance, they help design a corporate email/instant messaging/database system).

4. Quit valuing customers based on the number of Windows PCs they license.

5. Reward sales and support team for multi-year relationships with enterprises. Currently, Microsoft routinely reassigns customers to different salespeople in order to sell the same enterprises more stuff every year, our source says.

Nadella, who helped create Microsoft's cloud business to begin with, is surely aware that changes in the salesforce need to happen. It will be interesting to see how he proceeds.

When asked about these criticisms with the salesforce, a Microsoft spokesperson said: "We are constantly evaluating how we can evolve our sales organization to best deliver our products and services, at or ahead of what our customers need."