Satya Nadella Hit Refresh With A Bold Vision For Microsoft’s Future

By: Scott Smith

Satya Nadella was a surprise choice as the CEO of Microsoft (MSFT) in February 2014, only the third in its 40 years, after the legendary Bill Gates and Steve Ballmer.

He’d been the quiet and effective leader in charge of starting to move Microsoft’s focus from permanent licensing software to cloud-based recurring subscription services, which pool computing resources to manage the tidal wave of data that overwhelmed traditional client-server networks.

Though Microsoft remained the largest desktop software maker, morale was low because PC sales were declining, none of its recent products had been hits, and it had largely missed out on the market shift to search, mobile devices, and social networking. Apple (AAPL) had surpassed it as the world’s most valuable company four years earlier. But Nadella provided a bold vision of the company as the preferred platform for futuristic technology for his 100,000 colleagues in 190 countries.

“The Fourth Industrial Revolution lies ahead, one in which machine intelligence will rival that of humans,” wrote Nadella, 51, in “Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone.” “The combination of cloud computing, sensors, Big Data, machine learning, and Artificial Intelligence, mixed reality and robotics foreshadows a socioeconomic change ripped from the pages of science fiction.”

Microsoft’s stock has risen from 37 when he took the helm to a high of 115 in October 2018. (It recently traded near 104.) And with its market capitalization currently around $800 billion, it’s battling (AMZN) to be the world’s largest company by that metric.)

Deep Listener

Born in 1967 in Hyderabad, India, Nadella aspired to be a banker — leaving him plenty of time to play cricket. That passion gradually transferred to the personal computer he received at 15. But after failing the entrance exam to the Indian Institutes of Technology, Nadella settled for a degree in electrical engineering.

He decided to join a friend at the University of Wisconsin at Milwaukee, where he earned a degree in computer science in 1990. He then moved to Silicon Valley to take a job at Sun Microsystems.

Microsoft recruited Nadella two years later to work on its Windows NT operating system at the start of the company’s rise to domination of the global PC software market. He proved a quick learner and great collaborator because he was that rare combination: an innovator thinker and eager listener to the ideas of others.

Nadella flew to Chicago on weekends to earn an MBA and went back to India briefly to marry his childhood sweetheart, Anu. They would have three children, one with cerebral palsy and another with learning challenges, who helped him develop more empathy — and a passion for using technology to help those disabled or impaired.

A Chance To Run A Business

By 2008, PC sales had leveled off, smartphones and tablets from Apple and Google (GOOGL) were rising, while had established itself as the leader in cloud-based services connecting the Internet of Things. Then-CEO Steve Ballmer invested billions to upgrade the response and tasked Nadella to revive its failed search engine, which would later be renamed Bing.

“For the first time, I was getting the chance to run a business end to end and I had spent five years preparing,” wrote Nadella. “But I’d never worked in a consumer-facing business.”

He quickly realized his team would need to: completely rethink how a network of servers would respond to the massive volume of queries; become expert at on-the-fly consumer product design to provide continuously great experiences; understand how to match the needs of consumers and advertisers; and be able to create machines that would instantly learn from their interactions. Relaunched in June 2009, Bing now handles a quarter of all U.S. searches.

Turning Frenemies Into True Partners

In 2011, Ballmer put Nadella in charge of Microsoft’s server and tools business, where the cloud infrastructure experiment was located, eventually named Microsoft Azure. There was great resistance to draining resources from the big moneymaking enterprises in order to fundamentally transform its technology to reinvent productivity for its corporate customers.

“Though we would be cloud-first, our server strength would enable us to differentiate ourselves as the company that delivered a hybrid solution to customers who wanted both private, on-premise servers and access to the public cloud,” Nadella argued. “One of the first decisions I made was to differentiate Azure with our data and AI capabilities. I wanted to make this available to third-party developers. … It became clear that we needed to support the Linux operating system. This posed a profound cultural challenge. Dogma at Microsoft had long held that open-source software was the enemy. … Microsoft needed to regain its soul as the company that makes powerful technology accessible to everyone and every organization.”

“We had forgotten how our talent for partnerships was a key to what made us great,” wrote Nadella, who directed the effort to improve relationships with rivals.

Microsoft began building applications for competing platforms, like Google’s Android operating system. He says the keys to this successful strategy have been:

  • Being straightforward and transparent.
  • Truly listening with respect.
  • Being open to unexpected synergies.
  • Focusing on long-term goals in relationships, which may sometimes require a pause or lead to acquisitions (such as of LinkedIn in 2016 for $26.2 billion).

“Microsoft was leading from the safe zone of the caboose when Nadella became its super-change leader,” Berny Dohrmann, chairman of the entrepreneur network CEO Space International, told IBD. “Everyone focuses on the technology transformation he engineered, but I think his most profound impact was to retool the culture from being the most fiercely competitive to one of the most cooperative and collaborative, uncorking its genius on the company’s campuses worldwide.”

Tech’s Future Is Now Arriving

To Nadella, the C in CEO means he’s in charge of curating the organization’s culture.

“Our culture had been rigid,” he wrote. “Each employee had to prove to everyone that he or she knew it all and was the smartest person in the room. … Meetings were formal. Everything had to be planned in perfect detail. … Hierarchy had taken control and creativity had suffered.”

His goal was to have a “growth mindset culture” that was all about listening, learning, and harnessing individual passions and talents. “At the core of our business must be the curiosity to meet a customer’s unarticulated and unmet needs with great technology. We need to be willing to lean into uncertainty, to take risks, and to move quickly when we make mistakes, recognizing failure happens along the way to mastery.”

The company has been investing in cutting-edge tech beyond the cloud. “Mixed reality” merges the digital and physical worlds, so that all resources, like virtual-reality glasses and videoconferencing, work seamlessly with distant colleagues and those in the same room. Nadella cites the research firm Gartner in saying that VR is five to 10 years from mainstream adoption. Lowe’s (LOW) stores, however, are already using Microsoft’s HoloLens to allow customers to compare customized room designs.

Artificial intelligence augments human capability with insights and greater options. Microsoft’s Cortana virtual assistant learns from the 18 billion questions it’s been asked.

Quantum computing seeks to break the bounds of classical physics by leveraging the properties of atoms or nuclei to work together. An encryption that would now take 1 billion years to break could be cracked in less than two minutes, says Nadella.

“As we encounter more artificial intelligence, real intelligence, real empathy, and real common sense will be scarce,” he wrote. “The new jobs will be predicated on knowing how to work with machines, but also on these uniquely human attributes.”

“When he took the helm, Nadella realized that effective leaders get things done by giving their people a sense of community and social status, along with a paycheck, and organizations that forget this ossify and are soon outstripped by rivals that are more nimble and responsive,” said Jenny Darroch, dean of the Drucker School of Management at Claremont Graduate University. “One of the essential mantras of our school’s founder, Peter Drucker, was that the purpose of a company is to serve its customers, and Nadella understood that Microsoft needed to adapt to its customers changing needs, making him a perfect example of this philosophy in practice.”

Satya Nadella: Keys

CEO of Microsoft since 2014, he has emphasized products and services based on cloud computing and mobile devices.

Overcame: Decline in Microsoft’s value by taking a fresh approach to innovation.

“Leaders need to inspire optimism, creativity, shared commitment, and growth through good times and bad.”