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    Satya Nadella Builds Team at Microsoft

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    One of the first things you look for in a turnaround effort, particularly when an internal candidate is chosen, is how quickly he or she builds their own executive team. This should be, but often isn’t, an advantage for an internal candidate, who should know who is best suited to execute their strategy and be able to hit the ground running with that strategy. An external candidate generally has to figure out what is wrong, create a strategy, and then pick a team. Often, that process can take over a year and get screwed up by events like unplanned executive departures. With the recently leaked changes, it appears that new Microsoft CEO Satya Nadella is making good progress surrounding himself with folks loyal to him and that coincide with what he wants to do with Microsoft.

    Dealing with the image problem early on also suggests that he understands that what hurt Steve Ballmer was an inability to control Microsoft’s and the CEO’s external image. He is smart to deal with that problem first.

    Let’s talk about Nadella’s Microsoft.

    Ballmer’s Old Problem

    At the core of Ballmer’s problem was the fact that he wasn’t able to either build a team totally loyal to him or adequately assure Microsoft’s image. This was largely because Bill Gates locked in critical parts of the company and Ballmer was effectively running a firm that was both loyal to Gates and largely following Gates’ strategy, though Gates was no longer there to drive or assure it. In addition, Steve Jobs and Google, among others, effectively took control of how Microsoft was perceived. Ballmer wasn’t able to fully correct this during his tenure. Though, toward the end, he was clearly fighting back with some success and he had finally started to reconfigure Microsoft around his skills. It was just too little and too late to save his legacy.

    Why Image Is Important

    Any company has failures. Apple had some big ones: The ROKR phone, the Apple Server, Mobile Me, Navigation and iCloud are but a few. But Jobs fully understood that perception is reality. He owned and controlled Apple’s positive image with great focus and an unmatched set of skills. You didn’t see the failures for the successes.

    Microsoft had the exact opposite experience: Successes like Azure, Windows Server, Xbox and Office 365 were overwhelmed by failures like Zune, Windows Phone 7, Windows Vista, and the troubled ramp to market of Windows 8.

    Granted, Microsoft missed on smartphones and tablets, and PCs were weakened, but Apple missed on servers and the cloud where Microsoft hit. You could argue that Google did far more damage to Apple than it did to Microsoft, though both companies got hit hard. Yet the perception for most of the last decade has been that Apple is a firm that can do no wrong and Microsoft is a firm that can’t spell success. This showcases the power of perceptions.

    Google’s the Bigger Threat

    Between Apple and Google, Google represents the far bigger threat to Microsoft. This is because Google breaks the revenue model that sustains both Microsoft and Apple, which is based on product sales, as a result of a near-absolute monopoly on Internet advertising. This allows Google to predatorily price key products like Android and tie critical Google services to these free products, effectively locking out competition. It is very hard for government regulatory bodies to step in because these free products clearly are financially attractive to citizens, even though the process is massively anti-competitive and is turning Google into a power that hasn’t been seen in the U.S., or the world for that matter, since the old Standard Oil.

    Google’s effective lobbying efforts, massive cash stockpiles, and tight connections to the Obama Administration make the market response to the threat the firm represents relatively ineffective. However, the firm is exposed to a political attack and Nadella has placed Mark Penn, who has a political background and ran the “Scroogled” campaign, in a more pronounced role to drive it.

    Wrapping Up: If Image Is Everything….

    If image is everything, and it generally is, Nadella is immediately doing what Ballmer should have initially done: Address image control. This showcases that he is an executive who can learn from others’ mistakes. In this case, it is his predecessor, and that is a good initial sign that he was able to hit the ground running and create a fast start for Microsoft’s recovery. While this is just one part of the Microsoft turnaround, from my perspective it is the most important. He’ll need to get people to see both Microsoft and Google differently to be successful, and building his new marketing team will be critical to achieving this important goal.

    If you walk away with anything from this, remember: Whether it is personal or corporate, if you don’t own your image, your future will be controlled by whoever does. Nadella is making sure he owns Microsoft’s future and that is an excellent first step for a new CEO.

    Rob Enderle
    Rob Enderle
    As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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