It seems pretty clear that Microsoft's problem isn't with their ability to innovate. It's in their complete inability to get to market quickly, take risks and work together. And that is directly related to their HR policies in particular their ranking system.
None of what you wrote is obvious to me. Partly this is because Microsoft is big enough that I find descriptions that treat Microsoft as a monolithic entity unconvincing. After all, they got Kinect to market quickly. SharePoint seemed to come out of nowhere to dominate its market, too. Thankfully, I've never had to deal with stack ranking, but I find it unlikely that it's the explanation behind Microsoft's various fa…
For example, look at how their mobile offering's .NET-based APIs and "WCF lite" GUI toolkit lasted for precisely one generation before someone got the bright idea of yanking it and replacing it with a whole new system based on a gussied-up version of COM. I have a really hard time believing that's an example of coordination. From the outside, it looks a lot more like someone from the Windows division becoming jealous of what folks from the other divisions were accomplishing, and deciding to horn in on that game while simultaneously reasserting the old Win32 technology base at the expense of newer technologies.
It's also a spectacular waste of effort, and left a lot of us developers feeling like we just became collateral damage in an internal power struggle.