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Lessons from leaders: Satya Nadella, CEO, Microsoft

Twenty years ago, I was doing a lot of work on business transformation and business process re-engineering (BPR). Most of the firms didn’t do transformation and viewed it as too risky. Instead they went for BPR for BPI … business process improvements. Incremental benefits rather than radical results.

That was okay, but I found it dull. I wanted big results. Go big or go home, as they say.

I used two books as my key case studies of business transformation:

The latter was particularly close to home as I have worked for many technology firms that rose like a rocket and then died like a hunted animal. Technology markets are frenzied competition and for every superstar, there are a thousand dead fighters. Equally, for every superstar, there are a thousand trying to shoot it down.

We talk about GAFA, FANGS and such like, but for every Facebook there was a MySpace and for every Google there was an Altavista. Equally, if you look around today, there are a thousand blogs predicting the demise of Facebook and Google, as others seek their space.

So, there is a lot we can learn from the companies that have successfully transformed, as it is very difficult to do. You only have to read my recent blog about the battle between Wal*Mart and Amazon to see what I mean.

It then heartens me when I see a good news story of a company that had failed making a comeback. Rather than rise like a rocket, they rise like a Phoenix from the ashes of their dead predecessor.

IBM is one of those, which is what Gerstner’s book is all about. Apple is another who, as we may remember, were pronounced dead by Michael Dell and then revived by Steve Jobs.

“The cure for Apple is not cost-cutting. The cure for Apple is to innovate its way out of its current predicament.” Steve Jobs

The thing is that not everyone gets it, and most companies do focus upon cost-cutting through a crisis. Just look at Deutsche Bank as a good example in banking right now. Can we learn from the technology firms how to make change and transformation happen?

Well, I think we can with a very good current example, all-hailed in another recent Bloomberg Business Week analysis: Microsoft.

There’s a great 4-page piece about the renaissance of Microsoft led by its third CEO, Satya Nadella. The magazine calls it the Nadallaissance.

You cannot underestimate what has happened at Microsoft. Under Steve Ballmer, the firm was almost driven into the ground. Like John Sculley in Apple, the firm was focused on the wrong things. In this case, Ballmer tried to copy everything Apple did.

For every iPod, there was a Zune; for every iPad, a Surface tablet; for every iOS device, a Windows Phone.

It also was tied to the core product: Windows.

In the past, the importance of PCs had caused executives to compete bitterly for control of various Windows-related fiefdoms and every promising offshoot to get sucked into the Windows vortex. New products were relentlessly branded “Windows,” such as the Windows Phone. Even Microsoft’s fledgling cloud service was called Windows Azure.

But Nadella had grown up outside that space.

Nadella started by selling PCs to corporate buyers. He later oversaw engineering for Bing, the company’s search engine, before taking over Azure.

And he was chosen as Ballmer’s successor by Ballmer himself. This was because he had the right mix of technical and business understanding, as well as a demeanour that was the exact opposite of Ballmer’s.

If Ballmer will be forever associated with his sweat-soaked dress shirts and “Monkey Boy” antics, then Nadella’s persona is typified by his preferred hygge hoodies.

In fact, I’ve also been reading Satya’s autobiography, strongly recommended, and I think his calmness comes from his family, his wife and particularly his experience with his son Zain.

Zain was born prematurely with his umbilical cord wrapped around his neck. An emergency C-section left him with cerebral palsy after suffering asphyxia in utero.

“My son’s condition requires that I draw daily upon the very same passion for ideas and empathy that I learned from my parents.”

I can relate to him immensely, as can thousands of Microsoft employees and customers.

His self-effacing, if not bland, style is what Microsoft, a bureaucracy crippled by egos and infighting, needed. Colleagues swear they’ve never seen him get upset, raise his voice, or fire off an angry email. Shelley Bransten, a Microsoft corporate vice president, suggests that what makes Nadella unique is that he has “no swagger.” One executive even claims, not quite believably, that he’s never heard Nadella say no.

Equally, he has been adamant that the firm must move to cloud, compete head-to-head with Amazon’s AWS and ditch the Windows mentality.

Under Nadella, it cut funding to Windows and built an enormous cloud computing business—with about $34 billion in revenue over the past year—putting it ahead of Google and making progress in key areas against the dominant player, Amazon Web Services. “I don’t know of any other software company in the history of technology that fell onto hard times and has recovered so well,” says Reed Hastings, CEO of Netflix Inc.

Microsoft’s Office collection of productivity software, formerly a one-off purchase that included the famously inept virtual assistant, Clippy, is now a cloud-based service boasting more than 214 million subscribers who pay around $99 a year; it has more subscribers than Spotify and Amazon Prime combined. At the same time, Azure, Microsoft’s cloud platform, has won marquee customers such as ExxonMobil, Starbucks, and Walmart. 

The key play they make here is that they’re not Amazon and don’t want to compete with their cloud-based customers.

“We don’t want you to think of this as just building an app on our platform,” Nadella said. “We want to enable you to build your own platform.” Nadella didn’t acknowledge it, but everyone knew this was a dig at Amazon. Jeff Bezos’ company has been ruthlessly expanding, posing a potential threat to cloud customers, such as big-box retailers and entertainment companies, even as it seeks to store their data in its servers. “Microsoft does it in a tasteful manner, but they don’t leave you mistaken in your impression that Bezos could be lurking in your backyard and machine learning your data and targeting your customers,” says a former e-commerce company vice president who struck a large cloud partnership with Nadella. “In the Ballmer days, it was bluster. But Satya has gotten really good at pointing out, ‘Do you want your technology partner to be your competitor?’ ”

It is really a fascinating turn-around story and something we can all learn lessons from. Specifically, it was the way in which he dealt with the anti-Nadella troops in the early days that were key.

Scott Guthrie, an executive vice president who took over the cloud unit when Nadella became CEO … recounts a meeting where the cloud team agreed with Nadella’s strategy, but then realized that as much as 90 percent of the unit’s head count was focused on big Windows-centric businesses. “Classic innovator’s dilemma,” Guthrie says. “I had leaders under me who managed multibillion-dollar P&Ls, and it’s tough when you say, ‘You’re now going to manage a $4 million P&L.’ ”

According to a former executive, Nadella, frustrated with hand-wringing about the new cloud-vs.-Windows hierarchy, scolded a group of top executives early in his tenure. At his Microsoft, there would be only “fixers,” no “complainers.” If people didn’t buy into his vision, he’d tell them, “Don’t stay. Time to move on.”

Too darn right.

When you are looking for transformation learn lessons from leaders and, right now, Microsoft is one of the leading lights to look at in this space (says Chris who just bought a Microsoft Surface laptop and likes it).

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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