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Creative Destruction: High-Profile Departures Are Good for Apple, Microsoft

There have been a few big shake-ups in tech executive offices lately.

The president of the flagship Windows division at Microsoft (NASDAQ:MSFT) resigned late Monday. This was quite a development, since he managed the recent launch of Windows 8 as well as the Surface tablet.

And about two weeks earlier, a Steve Jobs protégé at Apple (NASDAQ:AAPL) who was in charge of all iPhone software also resigned. Around the same time Apple fired its retail boss after a mere nine months on the job.

The casual observer might think this is a sign to panic. But a more sober look at the flaws of these executives — and the big challenges these tech titans face right now — indicates that these moves are a good thing.

The fact that these leading tech stocks are willing to shake up the corporate structure rather than let it get stale or entrenched in failed strategies is encouraging. And investors should take note.

Generally, Shake-Ups Are Good for Tech

Disruption” is a buzzword in the tech space — and broadly speaking, “creative destruction” is a basic tenet of capitalism and economic innovation. In short, if you’re not shaking things up voluntarily then you risk being shaken up involuntarily by competitors.

And in the fast-paced world of tech, this is especially true.

The alternative is to get lazy and complacent — or worse, to get locked into the hubris of thinking that your way will always be the best way … even when it’s not.

Think of Cisco (NASDAQ:CSCO), which had to lay off 10,000 employees after reaching a level of bloat and inefficiency that crippled the company. CEO John Chambers admitted that the company was “slow to make decisions,” among other problems, and as a result had to burn the company down to the water line to get back on a path to growth.

Or take Dell (NASDAQ:DELL), which still allows its founder to control the company despite a free fall from $40 in 2005 to under $10 currently — with almost no signs of life in between. Why let that kind of leader continue to lead?

Specifically, These Dudes Had to Go

And even if you disagree with shaking things up all the time, it’s hard to argue that these specific departures weren’t called for.

In the case of Microsoft’s Steven Sinofsky, a 23-year veteran of the company, most reports indicate that he was a difficult manager who was shielded by Bill Gates for a long time but recently had run out of allies. In the words of one insider, “He had no one left to fight for him.” His unwillingness to work with the Xbox team to integrate the flagship Windows OS was just one obvious shortcoming — especially considering that the Xbox has been the top-selling video game console for 22 months running and is widely accepted as the pre-eminent TV-based gaming gadget.

In the case of Scott Forstall, the “deposed iOS leader,” Gigaom reports that his firing was met with “quiet jubilation.” The biggest reason was his divisive management tactics — and though The New York Times reported that he refused to apologize for the recent Apple maps debacle, making a mistake on software alone shouldn’t hang anyone. The hubris and self-importance that Forstall allegedly showed is a heck of a lot more damning than any one program mistake, and Apple rightly decided that kind of mindset is counterproductive.

Then there’s Josh Browett, who cut Apple retail store employees’ hours just to juice profits … and then had to backpedal due to bad press. Ron Johnson had left to go to JCPenney (NYSE:JCP), and there was admittedly a leadership vacuum, but this heavy-handed strategy showed Browett didn’t have the right kind of leadership for Apple’s retail arm.

So you see, the elimination of all these execs was not knee-jerk — and more important, was not a sign that rats were fleeing a sinking ship. The powers that be decided that the long-term corporate vision wasn’t being served, and they made a decision to shake things up sooner rather than later.

Real Challenges Demand Real Leadership

Apple and Microsoft clearly have a boatload of challenges right now. These changes help them keep focused.

Apple is in bear-market territory after its recent earnings showed the “Apple mystique” is gone. AAPL stock is down more than 20% from its peak of over $700 a share just weeks ago. There are fears that momentum is slowing and the Apple brand’s dominance is at risk.

Microsoft is in a deeper hole, being “dead money” for roughly a decade and struggling more recently to adapt to a post-PC age. It is gambling big-time on its Windows 8 OS and Surface, and can’t afford to be stuck in an old way of thinking if it’s going to adapt to a mobile landscape in consumer and enterprise technology.

Obviously there are big issues investors should watch for at both Microsoft and Apple — including the product pipeline and the fundamentals for the stock. But if you’re looking for a reason to be bearish, don’t put these executive departures in the negative category.

Because in the long run, corporate leaders are a lot like overpriced free agents in the NFL: It’s better to let them go a year or two early than allow them to stay a year or two too long.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but none of the other stocks named here.

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