Under CEO Satya Nadella, Microsoft has doubled down on a shift to Web-based programs and business services.
Satya Nadella is reluctant to claim credit for the upbeat mood around Microsoft these days.
“What I have done this year, its real impact has to be reviewed three years from now, four years from now, five years from now,” Nadella said 16 months after taking the helm of the Redmond software giant.
Still, observers say his early efforts bode well for Microsoft as the company enters its fifth decade.
Microsoft, a company with a reputation for insularity and sharp elbows, has under Nadella built bridges to Silicon Valley, expanded the footprint of its software on Google and Apple devices, and doubled down on a shift to Web-based programs and business services.
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Those moves, along with cost cuts and large payouts to investors, have assuaged some of Wall Street’s worries about the company’s small footprint on mobile devices and the declining profitability of the Windows juggernaut.
Strong financial performance helped propel Microsoft to the top of The Seattle Times’ 24th annual Best of the Northwest rankings of publicly traded companies for the first time since 1992.
Nadella recently sat down for an interview with The Seattle Times and laid out his priorities for reshaping the company. Making Microsoft a faster, hungrier organization — a project that was started by his predecessor — isn’t done, he says.
Newer model’s benefits
No one person can prevent a sprawling global workforce of 118,000 people from producing a few duds. But Nadella’s trying to instill a culture that encourages employees, from executives to front-line software developers, to not let the fear of failure paralyze them.
“In our business, things look like a failure until they’re not,” Nadella said. “It’s pretty binary transitions. So you have to be thick skinned enough, externally [and] internally, to know that you can nurture something.”
Striking that nurturing balance isn’t something Microsoft is known for.
Microsoft was unable to capitalize on many of the personal-computing trends of the 2000s. The company in some cases correctly forecast what was coming — think smartphones and tablet computers, among other things — only to see more-nimble rivals dominate those fields.
Observers and alumni spread the blame widely. Executives of entrenched corporate fiefdoms clashed. Leaders were reluctant to take risks that could jeopardize the Windows and Office cash cows. Innovation was stifled by a caustic culture and an ambiguous set of goals that couldn’t match the clarity of the company’s early “put a PC on every desktop” mantra.
Steve Ballmer was blamed for incubating some of those habits. But he also started the shift designed to reverse them.
In August 2013, a few months before announcing that he would step down from the CEO’s chair, Ballmer began a reorganization that would align much of Microsoft’s staff by job function — sales, marketing, finance, engineering and so on — rather than in silos organized by specific product.
Under the old model, groups such as Windows had their own marketing and financial staff. Leaders could fall into the trap of evaluating projects based on their potential benefit for the group, rather than whether they made sense for the entire company.
“Steve got us on that journey, which I really think has paid its dividends,” Nadella said.
Among them? In Nadella’s view, the development of HoloLens, the holographic headset the company revealed in January and envisions as a device with applications in gaming, office work and at home.
“We wouldn’t have been able to create it if it were [under] the old divisional boundaries,” Nadella said. “Here is silicon [microchip] innovation, here is hardware innovation, operating systems, Skype, all coming together to create a new category” of product.
The Indian-born Nadella joined Microsoft in 1992 as a program manager in the group trying to speed the adoption of Windows.
His subsequent rise as an executive included stops at a range of Microsoft’s business units that garner less public attention than Windows or Office. Some of his roles, including at Microsoft Business Services and the company’s Online Services Group, were leading teams fighting to gain market share against larger foes.
In a conversation during his years with Microsoft’s online business, Nadella told one potential hire within the company that the natural mindset in groups with small market share is to see the world in terms of risk and opportunity — finding ways to play offense, rather than defense.
Nadella says he’s reluctant to communicate with employees in financially oriented terms, and prefers to emphasize stories about the company’s software and devices making a difference in the real world, which also avoids echoing the Ballmer-era habit of tallying Microsoft’s billion-dollar businesses. His hope is that employees focus on making products better, not where those products sit within the maze of Microsoft or the broader technology industry.
“I want everyone inside of Microsoft to take that responsibility,” Nadella said. “This is not about top-line growth. This is not about bottom-line growth. This is about us individually having a growth mindset.”
Microsoft for decades has spoken its own language. Under Nadella, the company is still full of mission statements articulated in terms that may mean little to outsiders. Ask any Microsoft employee what they’re up to, and a dutiful recitation of serving a “cloud-first, mobile-first” world won’t be long in coming.
Also among Nadella’s favorites is the alliterative trio he deploys to describe his view of why technology companies succeed or fail: concepts, or the goals and aspirations for new technology; capabilities, the technical prowess to get there; and culture.
That model helps explain some of Microsoft’s misses after it conquered the PC market. No matter what innovations Microsoft’s massive research organization dreamed up, the company’s tendency to view the world through the lens of its existing businesses could make it difficult to bring new ideas to life.
“I’ve learned over the years [that] as soon as you have that magic, that means you’ve been successful,” Nadella said. Then, “the next new concept that comes along, your old culture will fight it, or your old capability will not let you go about it.”
Nadella’s vision of a more nimble company had its early implementation last year in Microsoft’s largest-ever layoff. The cuts fell most heavily on the then newly acquired Nokia mobile-phone unit, but were also aimed at reducing tiers of management to enable business groups to take action with fewer layers of executive approval.
He’s tried to bring a unified voice to the company’s products. Testing and marketing teams — groups that were formerly looped into a software project in its later stages — now sit in on planning sessions with software engineers.
Nadella’s also preached speed. In May 2014 during one of his first public appearances as CEO, Nadella committed to releasing a version of the company’s Skype translator feature by the end of the year. That was the first time the developers and researchers plugging away on the product had heard of the aggressive deadline.
The system isn’t there yet. Nadella says he has vetoed new devices and products. The message he says he intended to send wasn’t that every decision had to funnel through his desk, however.
“I want people on the front line to be proud of what they’re doing, and give themselves permission to finish things in ways that they can be proud of,” he says. “That’s what I think is what we’ve started, but the question is sustaining. This is not about a one-time change.”
Nadella on other issues
Microsoft’s role in Seattle
We’re a Seattle, Redmond company. There’s no question of it, our center of gravity. I mean, our size is such that I want us to have global ambition, because one of the other things that I’m bringing back as a first class part of our mission is we serve the planet.
And so I sort of look at it and say, how do we make sure that that happens? But we are centered here. Our [research and development] is concentrated here. We want to be great members of the community.
The growth of Amazon and Seattle’s tech sector
Anytime any place becomes more of an ecosystem of companies that are all having success or people [are] moving between these places, I think that’s all good. It’s good for the labor market, it’s good for the companies.
It’s not a one-company town like it was maybe with Boeing once or with Microsoft once. I think it’s fantastic. I think the world needs more than Silicon Valley. And I believe that is happening. I think Seattle is a great example of it.
The pressures of Wall Street
We’re after all a company that generates, what, $25, $26 billion of net operating income [a year]. There’s not a thing in the world that we can’t do if we choose to.
But yet we have to make sure we’re doing it with our long-term shareholders in mind.
I can’t shrink away from my responsibility to face that, and each quarter shows progress. At the same time I have to give myself permission to be able to go bold where the market may not see things.
Microsoft’s paid time-off mandate for contractors
We want to be able to make sure that the people here do their best work. The fact that we have vendor staff here, I want to extend that same philosophy to those folks who are making a difference.
Of course, that means we’re going to have to bear the costs of it. It does have some competitive ramifications. Those are all good. We unleashed a market force in there I think that is a good market force which helps everybody.