When Cutler was hired in 1988, both OS/2 and Windows were failing in the marketplace. The problems arose after Windows 3 sales started to take off in 1990.
Microsoft tried to get IBM to accept "OS/2 NT" as a replacement for the 16-bit OS/2, which was dead in the water. It refused, IBM and Microsoft divorced, and NT got rejigged for Windows compatibility instead of OS/2 compatibility.
Remember that Microsoft got its power from IBM: it would have been nowhere if IBM hadn't used its DOS and Basic in the IBM PC. IBM then resented Microsoft for "stealing" a small part of IBM's rightful monopoly.
Microsoft would go to any lengths to hang on to the IBM connection, which Ballmer called "riding the bear". The in-house Microsoft strategy for IBM meetings was BOGU (for Bend Over, Grease Up). Hence OS/2.
You may recall that, at once time, Microsoft saw Unix as the potential replacement for DOS. It did Xenix, which was the most popular Unix of its day. However, way back then, IBM had an implacable hatred for Unix and for AT&T, and owning OS/2 EE (not available from Microsoft) was the cornerstone of its plan to bring the PC industry under IBM's control (OS/2 EE, PS/2, MCA, SAA etc).