Opening new windows

SATYA Narayana Nadella, Microsoft's CEO, is on a mission to re-energise what is undoubtedly one of the most iconic companies of the 20th century to ensure it becomes an even greater one in the new millennium. But here's the dilemma: how do you change the direction of a global company that is still a technology leader, is making tonnes of money and has more than 100,000 employees?

In a recent chat with The Business Times, Mr Nadella paraphrases German philosopher Friedrich Nietzsche, saying: "You need to have courage in the face of reality but you also need to go beyond that to have courage in the face of opportunity."

To understand the context of his observation, one needs to look at Microsoft when he took over a little over two years ago, in February 2014. "When I joined the company in 1992, we used to talk about our mission as putting a PC in every home and on every desk. By the end of the decade, we had already achieved that, at least in the developed world. Now in retrospect, I think it was not a mission, rather it was a goal," says Mr Nadella.

Paradigm shift

This has been a seminal achievement by any yardstick but the problem staring at Microsoft's face over the past few years is that technology has undergone a paradigm shift. The PC has lost its unique status and has become just another device competing for the user's attention. More often than not, it's the smartphone which is the first go-to device for information. In a mobile-first world, global computer sales have been on a continuous decline for more than 14 quarters, according to industry data. Unlike in computers, Microsoft is not a big player in the mobile phone operating system (OS) market where Google and Apple dominate.

The company's core business was built on a market dominance that it established around the turn of the millennium - almost every enterprise in the world used Windows-powered PCs and servers and on these machines Microsoft productivity tools such as Office were used. Every three to four years the machines had to be changed and licences renewed, giving the company an assured revenue flow. Over the past five to six years, this model has been changing rapidly. Enterprises now give employees tablets and smartphones for work and they prefer to use cloud computing software in what is known as software-as-a-service (SaaS) model, where payment is pay per use and not fixed licensing fees. It has become what Mr Nadella describes as a "cloud-first, mobile-first world".

Around the time when Mr Nadella's predecessor was contemplating stepping down, there was a growing perception in Silicon Valley that the company's best days were behind it, and the future belonged to companies such as Google, Facebook and Amazon - all of which were heavily invested in the cloud. Some would say that this perception was the reason behind the change in leadership.

When Mr Nadella raised his hand to lead the company, he understood exactly what he was getting into. Filling the shoes of two greats is a huge task, especially if you are talking about William Henry (Bill) Gates III and Steven Ballmer. Bill Gates, who dropped out of Harvard in 1975 to set up Microsoft, in partnership with Paul Allen, is one of the technology industry's towering visionaries. Steve Ballmer, who met Mr Gates when they were both in Harvard in the 1970s, ran the company from 2000 to 2014, tripling revenue during this period, among other major achievements.

Instead of trying to fit into their mould, Mr Nadella decided to chart his own course. One of his first acts as CEO was to send a long email to Microsoft employees. Even though it was an internal email, the content was meant for all stakeholders of the company. He shared extensively on his vision for the company.

"Our industry does not respect tradition - it only respects innovation. This is a critical time for the industry and for Microsoft. Make no mistake, we are headed for greater places - as technology evolves and we evolve with and ahead of it. Our job is to ensure that Microsoft thrives in a mobile and cloud-first world," Mr Nadella wrote.

This vision was not something that he brought from outside. Mr Nadella makes it amply clear that he's a consummate insider at Microsoft. "My entire professional career was at Microsoft, I've grown up at Microsoft," he tells BT. "(However) after becoming CEO, the one thing that I did try to do was to view things with a fresh set of eyes as objectively as one can, having grown up there."

He adds : "The thing that helped me the most was asking even the very foundational existential question: 'Why do we exist? What brought me to Microsoft in 1992, what keeps me in Microsoft in 2014?'

"And then I realised that there was actually an innate or implicit sense of purpose in our company that needed to be again unearthed, so to speak. Light needed to be shined on that sense of purpose, that sense of identity."

Microsoft talks about its mission "as an explicit thing", he notes, adding that a company with a turnover of more than US$90 billion a year has to be viewed as hugely successful.

"Sometimes in all that success you kind of lose track of that core identity. Why do we exist? Why do customers want us to do a certain thing and not have us do all things? Getting that subtle understanding is important. Most people sort of feel like wow, I'm an athlete so I should be able to switch from cricket to football. You can't. You are cricketer first and you remain a cricketer always," Mr Nadella says. "In my case," he continues, "that sort of sensibility of who we are and why we exist and then to be able say: 'Let's now have high ambition in a changing technological world but be true to ourselves', so to speak, was super important".

The other thing that was also important "was to reference our culture", he says. "After all, we wouldn't have been successful if we didn't have a great culture. There was no way a company of Microsoft's success could have been built if there weren't a lot of things that we got right.

"But as a company with 100,000 people, we needed a vernacular, a new way for us to avoid being stuck with dogma. My fundamental concept of culture is never about culture being static."

Mr Nadella feels in order to be successful, be it as an individual or as a company, one needs to have some endearing values such as honesty. "But you still have to have a culture that adapts to the times. And so we picked this mean that we talk about what we call 'growth mindset' which is about individually, each one of us, pushing ourselves to be more of 'learn it all' versus 'know it all'.

"This is because success breeds in us that 'know it all' hubris. And from ancient Greece to modern corporations, if there is one undoing it is hubris. So you have to sort of really confront that."

In short, for Mr Nadella, picking that growth mindset and the mission of empowering people and organisations to achieve more was the objective.

He adds: "If you think about how much time I spend as CEO, my learning as CEO, my job is to constantly evangelise and remind ourselves of our mission and curate our culture. That's it. I figured out that more than all these technology choices and strategy choices that one has to make, the CEO has got to find the time, the energy, of thinking about those two book-ends of success."

Two years down the line, Mr Nadella's bold move to change direction seems to be paying off for Microsoft. Its latest fiscal fourth quarter results, announced earlier this week, show that its Azure cloud computing service more than doubled, offsetting a decline in the segment that included the Windows OS and the struggling mobile phone business. Microsoft's move away from its software licensing model and towards a cloud- and mobile-first strategy has sent the stock up 30 per cent over the past two years.

Mr Nadella has been very clear that the company's foray in the mobile phone manufacturing business - set up towards the end of Mr Ballmer's tenure - with the acquisition of Finnish phone maker Nokia - hasn't worked. The company has written off most of the US$7.9 billion that it paid for the acquisition and has retrenched thousands of employees who joined from Nokia.

On the other hand, Microsoft announced earlier this month a US$26.2 billion acquisition of professional social network site LinkedIn. This purchase gives Microsoft access to a business-focused social networking service that it can add to its Office-based applications such as contacts and calendars, all in the cloud. This opens the door for Microsoft to offer cloud-based, mobile-first integrated tools to the social business community.

This is important because, as Mr Nadella says, we live in a time where digital technology is part of our lives, and increasingly, a part of every industry in every country. When people talk about the fourth industrial revolution and what it entails for economic development and for society and for people around the world, one of the top questions would be - what will be the shape of the surplus created, how will this surplus be created and how will it be distributed, he says.

Secular arc of technology

"At this point it is irrefutable that digital technology is going to be increasingly relevant in our lives and work and the question is how do the benefits of digital technology get more evenly spread?

"To me, that's a pretty central question for Microsoft because for us, our mission is to empower every person and every organisation on the planet to achieve more. We think deeply about how digital technology not only empowers the individual but also how it empowers individuals to build institutions that outlast them," he adds.

Indeed, the Microsoft CEO ventures, going forward, despite a slowdown in PC sales, there will be more, not less, computing.

"What is the secular arc of technology? I described that as 'mobile first, cloud first'. I think in Kenya, India, Indonesia, Thailand and all emerging markets, five to 10 years from now there is going to be more computing, not less computing.

"If any lesson is to be learnt even from our own past, it is that never be so obsessed about one device as the hub for all things for all time to come. So, therefore, we should hunt for what are the new computers that are going to democratise (the world), so that everybody, six-seven billion people, will be using them?"

Mr Nadella adds: "I'm seeing right here in this region that Internet of Things (IoT) is already happening, while the phone market is actually now a slow growth market in comparison. It's amazing that we got to a billion user market so fast (in mobile phones) but the next growth markets are already being created and our job is to be now in the hunt for democratising the next billion, two billion, three billion devices market, versus being fixated on what the market is today."

Microsoft has "a lot of value to add to users" regardless of the device they use, he declares. "I was in a classroom in Jakarta recently and it was so good to see the kids on low-cost tablets using the same set of tools that my daughter uses in Seattle."

It is also good to know that whatever their phone is, users will have the same set of applications and the cloud enables them to have mobility of data and experience, he adds.

"Our innovation agenda is to invent new things and to accept realities (of different operating systems) and make sure that the devices that are being used by people have the very best of Microsoft's innovation today and into the future. This is the approach, so it is sort of both real pragmatism and real ability to innovate and we've got to have both of them."

And what does this mean for Indonesia, Thailand, Vietnam, India, Kenya, Nigeria and other developing markets?

"They all need to become digital and knowledge economies. That means their competitiveness has to come from their ability to drive digital technologies. You got to go from celebrating consumption of digital technology to production of digital technology. That, I think, is the recognition that needs to be deeply understood. You can't just say 'I have all my users on somebody else's social network and that is greatness'.

"It is not. It is your ability to actually have a local digital ecosystem that is thriving, jobs getting created, and people getting skilled in these new kinds of jobs. That is the true sign of progress," the Microsoft CEO says.

In Mr Nadella's view, one key focus for every country should be its spending on education, as a percentage of Gross Domestic Product (GDP).

"Not just a percentage of GDP; what is the quality of the teaching, what is the quality of curriculum, what is the way that you really (reach) students?"

He notes that it's not technology that will solve problems; it will be inspired students, engaged teachers, families who are deeply engaged in their children's education, and supportive communities. It's that ecosystem that will really change educational outcomes, he says, saying that technology, of course, can be helpful.

What kind of company does he want Microsoft to become during his tenure?

Mr Nadella notes that the company's mission has been to empower every person in every organisation. "Think about me. How did I become the CEO of Microsoft? It was because Microsoft empowered me as a student growing up in India to fall in love with computers.

"That, to me, is really what is our identity, that will remain with us forever. Because technologies will come and go. They will be temporal goals; today I talk about how to reach US$20 billion in annualised revenue run rate for our cloud business in fiscal 2018 as our goal. Or a billion users of Windows 10 as a goal.

"But what is behind those goals? It is this fundamental notion that we want to empower people in organisations all over the world to achieve more. That is the uniqueness; if we believe that the world will not just consume technology but create technology, we as a platform company enabling that is what's going to be enduring.

"I hope we are known for that forever."

SATYA NADELLA

Microsoft CEO

1967 Born in Hyderabad, India

1988 Bachelor's Degree in Electrical Engineering from Mangalore University

1988 Moved to the US for further studies

1990 Master's Degree in Computer Science from the University of Wisconsin, Milwaukee

1990-1992 Worked as a member of technology staff at Sun Microsystems

1992 Joined Microsoft

1996 Master's Degree in Business Administration from the University of Chicago

2011 Promoted to President, Server and Tools Business at Microsoft

2013 Appointed Executive Vice-President when the Server and Tools Business was changed to Cloud and Enterprise Group

2014 Became CEO of Microsoft