Fixing Microsoft: The Three Things Satya Nadella Must Get Right

Rob Enderle
Slide Show

Eleven Key Challenges for CEOs in 2014

Now that we know that Satya Nadella will be the CEO at Microsoft, he must get three things right. Not a single one has to do, at least not directly, with an iPhone, iPad or AWS killer. Ironically, he starts in far better shape, thanks to Steve Ballmer, than Steve Ballmer did, but that was largely due to the fact that Ballmer actually figured out many of the things that were broken and fixed them. The arrogant battles with governments were eliminated, forced ranking was eliminated, the overly complex company structure was eliminated, and a number of the top Microsoft executives that weren’t team players were eliminated. Even though Microsoft’s valuation is less, it is actually in far better shape operationally than it was when Ballmer took it over.

In addition, Nadella starts with a trained mentor in John Thompson, a benefit that Ballmer didn’t enjoy, and with Bill Gates’ role defined as an asset as opposed to an ex-CEO kibitzing from the top. Those two things alone should make a huge difference.

But the job is far from done.                

Nadella will need to do three things (and a little more): Not break what isn’t broken, foster collaboration and fix execution. Let’s take each in turn.

Not Breaking the Unbroken

This is far harder than it sounds. There is a huge temptation to create common elements everyplace. Reporting levels, team sizes, consistent processes, etc. can make any executive’s job seem far easier, however, when you are running a company as broad as Microsoft, you are competing with companies like Google, IBM, Amazon, Apple, Oracle and Sony. The teams that run against these companies have to be able to compete for talent, be optimized for the unique market opportunities represented, and uniquely skilled. Someone who is great at gaming probably won’t be great at creating the next enterprise application, and the tools, approach, and skills used in each area will be vastly different.

This doesn’t mean you can’t occasionally move people between groups, but it does mean that each focused group has to be more designed to win in its chosen market than designed to look like every other Microsoft group. The organizations that are successful in Microsoft are successful for a reason. The design of a successful company starts with the customer and flows into the product. It doesn’t start with the CEO and flow down to the customer. Knowing when not to interfere will be one of the most important parts of Nadella’s job strategy.

Foster Collaboration

Steve Ballmer got this ball rolling by eliminating forced ranking, but Microsoft employees have operated for decades under a policy that fostered back stabbing and sabotage. That kind of a skill set favored certain types of people who will now need to be managed out of the company and behaviors that will need to be actively discouraged. You can’t just remove the cause of a bad behavior and expect behaviors to change quickly because humans are creatures of habit. You have to actively promote team playing and actively punish those that exhibit anti-collaborative/anti-team practices. You have to alter hiring practices to bring in people who are known team players to help aggressively spread that behavior and you have to actively promote risk taking and discourage blame-focused behaviors.

If Nadella can’t get Microsoft employees to stop acting against the firm’s best interests, he won’t be successful. He does seem to get this, talking about soccer, which requires massive cross-team playing, during his first media talk. This one change at Microsoft alone should make a massive difference.

Innovation vs. Execution

The argument that Microsoft didn’t innovate is poorly founded. It out-innovated Apple with the Zune, which was connected, video capable, and far sturdier. Apple out-executed Microsoft and turned those advantages against Microsoft. It created a better tablet with the Courier tablet, but that never came to market. It bought Danger, which had a phone, the Hiptop/Sidekick, that was more popular than the iPhone with kids, and then drove the top people to join Google and create Android which, with Samsung which had first been a Microsoft partner, beat the iPhone. I could go on with the Windows Home Server, Media Center, even tablets and smartphones that Microsoft had first; it was just repetitively out-executed.

Microsoft didn’t have an innovation problem. It didn’t adequately fund, staff or stick with efforts long enough so that they would succeed. It was as if Microsoft planned to fail. That isn’t an innovation problem, it is an execution problem. Most of this was due to really bad information on the resources needed to succeed, bad market intelligence, and a distinct lack of perseverance. For instance, with the Windows Home Server, it was worried it would cannibalize business server sales, so Microsoft crippled it. This caused the server to corrupt files and that killed the product. With Media Center, it was placed on top of a full version of Windows, which was horrible on a TV. Microsoft eventually created an embedded Windows version, but by that time, it had lost interest.

Microsoft had plenty of ideas, good ones, too. It just couldn’t get the job done and that’s execution not innovation.

Wrapping Up: Analytics/Image

Fortunately for Nadella, there have been massive improvements with applied analytics on markets, competitors, customers and employees that can be used to tune Microsoft. These just didn’t exist for much of either Gates’ or Ballmer’s time in the CEO role. IBM has made massive strides in developing, selling and implanting these tools and if IBM can do it, a vastly younger company like Microsoft should be able to do it even more quickly.

One final thing: Ballmer’s biggest mistake was in cutting corporate marketing and analyst relations. This caused him to lose control of both his and Microsoft’s image and that means he’ll be remembered for his failures, not his successes. If people don’t see Microsoft differently, Nadella’s battle will be far more difficult than it needs to be. Analytics can help here, as well as an understanding of the critical role marketing and PR/AR play in the success of any company.

With those tools in place and with the help of both John Thompson and Bill Gates, Nadella should turn Microsoft back into an amazing company. It won’t happen overnight, but with these impressive resources, failure shouldn’t even be possible.

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