updated 7/7/2004 11:40:43 AM ET 2004-07-07T15:40:43

Microsoft Corp. needs to avoid “big company ills” if it wants to beat competitors and boost its long-stagnant stock price, chief executive Steve Ballmer told employees in an annual memo Tuesday.

In the memo, which traditionally lays out the company’s goals for its fiscal year that began July 1, Ballmer wrote that avoiding the pitfalls of corporate size involves more than just building new, innovative products. The software titan also must make sure it isn’t losing touch with — or the faith of — its current customers.

“Nothing solves ‘big company’ ills quite like a strong focus on accountability for results with customers and shareholders,” Ballmer wrote.

(MSNBC is a Microsoft-NBC joint venture.)

In a Tuesday interview with The Associated Press, Ballmer said the world’s largest software company cannot be run like the startup it once was. But he added, “We have to avoid becoming a certain kind of big, process-bound bureaucracy.”

Such flexibility is especially important as Microsoft goes up against companies like Apple Computer Inc., whose iPod music player has become a hit while Microsoft has lagged in online music distribution.

Matt Rosoff, an analyst with independent researchers Directions on Microsoft, said Ballmer is right to be worried that his company’s size could hurt its ability to compete, noting that similar issues hurt Microsoft competitors such as IBM Corp. back when Microsoft was the young gun.

“The risk has always been that Microsoft, having vanquished IBM, is going to turn into IBM,” Rosoff said.

In his memo, Ballmer said the company “must also work to change a number of customer perceptions,” including that the security of its systems is not up to par. Microsoft has been plagued by attacks that exploit vulnerabilities in its software.

Ballmer also warned that the company must curb costs to improve profits and to lift its stock price, which has hovered between about $23 and $28 since April 2002.

Microsoft has already said it will reduce prescription drug benefits and employee stock discounts as part of plans to save about $1 billion this fiscal year.

Ballmer noted the company has avoided job and other more drastic cost cuts, to date. “We want to be prudent now so we avoid severe measures later,” he said.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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