Satya Nadella: Reinventing Microsoft

When Satya Nadella took the baton as Microsoft chief executive officer from Steve Ballmer in 2014, the software giant was facing serious trouble. Business from the personal computer market was shrinking; new tech stars Apple Inc. and Google Inc. were challenging the company; and spending on the search engine Bing seemed like a bottomless pit.

Investors’ confidence was shaken as the long-established tech leader lost ground. That year, Microsoft’s market cap hovered around $300 billion, nearly half its 1999 peak.

To steer Microsoft back on track, Nadella launched a series of initiatives to shift Microsoft’s strategy and reshape its corporate culture. He prioritized cloud computing while downsizing the core Windows operation, shifted revenue from software sales to user subscriptions, tapped artificial intelligence (AI) and invested in cutting-edge technologies such as augmented reality and quantum computing.

Nadella has pushed Microsoft to be more inclusive and open to both partners and rivals. Shortly after taking office, he ordered the release of the Office suite of software for Apple’s proprietary iOS mobile system. The move sparked heated debate within the company as some were concerned it would weaken Windows’ status. He also set up a partnership in voice-control services with Amazon, despite the companies’ rivalry in the cloud business.

The changes paid off. Over the past year, Microsoft’s stock has soared, pushing the company’s valuation to almost $800 billion. That is fueling expectations that the company may become the second tech giant to reach $1 trillion in market cap, following Apple.

Born in 1967 in Hyderabad in central India, Nadella was not the kind of nerd in school who might fit the stereotype of a future Microsoft engineer. His passion for cricket led to a failed entrance exam for the top Indian Institutes of Technology. In 1988, Nadella traveled to the U.S. to study for a master’s degree in computer science at the University of Wisconsin in Milwaukee. He subsequently started his career at Sun Microsystems.

In 1992, he joined Microsoft, rising to become president of the Server and Tools Division in 2011. He held that post until he was appointed CEO in 2014.

Despite his mild manner and unassuming profile, people close to Nadella say he has a strong, tough side. "Don't be confused by Nardelli's smile," said one co-worker. "He is very demanding to work with.

Nadella gave Caixin an exclusive interview earlier this month, the first in China since he took over leadership of Microsoft. Nadella discussed his vision for Microsoft and the tech industry. Excerpts follow.

Caixin: You are reinventing a company that was already very successful. What is the hardest thing about doing that?

Satya Nadella: I think most companies are successful when their core sense of purpose and mission is something that they reinforce in changing times. Of course, technologies will change; your customers and their expectations of you will change. But what does need to remain constant is that sense of purpose and mission that made you unique and successful in the first place.

For example, at Microsoft we talk about our mission as empowering every person and every organization on the planet to achieve more. That means we create technology so that others can create more technology.

The second one is culture. Are we able to really have a culture that continues to push learning, building new capability? That's, at the end of the day, really going to define the longevity of any company.

Changing culture is very hard for any company, especially for a company that has been very successful. How can you do that?

You need new ideas and you need new capabilities, but the only way you're going to get those new ideas and new capabilities is if you have a culture that allows you to grow those.

I was inspired by the work that Carol Dweck did at Stanford. And she wrote this book called Mindset. The concept is very simple. If you take two kids in school, let's say one of them has a lot of innate capability but is a know-it-all. The other person has less innate capability but is a learn-it-all. You know how that story ends. Ultimately, the learn-it-all will do better than the know-it-all. And that, I think, is true for CEOs. It's true for companies.

And so we've taken this growth mindset as a cultural meme that we at Microsoft are pushing every day. And the key here is not to say we're going to transform from the know-it-alls to the learn-it-alls. The day the learn-it-all says, "I'm done," is when you become a know-it-all. And so to understand that paradox and to be able to confront your fixed mindset each day is that continuous process of renewal.

On the first day you were the CEO of Microsoft more than four years ago, did you already have a complete plan of what you were going to do, or has there been an evolution?

It's a fascinating question because very recently when I went back and sort of reread that e-mail of the memo that I wrote when I first became CEO, and a lot of what I talk about today was all there, whether it was on the culture side or whether it was on the mission side or even at the broad-stroke strategy of what's happened.

Of course, things have evolved because the idea is about making sure you evolve with changing times, changing expectations, changing technologies.

But … having grown up at the company for 26 years, I think the one thing that I did have was a clear sense of that sense of purpose. What made us great? That was at the core of how I thought about our sense of purpose and mission. And also this need for a cultural meme that allows us to be learning all the time, pushing the comfort zone, so to speak. Those are two things that were there even then.

Clearly, a lot has changed even in the core products or the core strategies. But I always go back to mission and culture as the two things that have to be more enduring.

Microsoft CEO Satya Nadella sat for an exclusive interview with Caixin in early November in Beijing, discussion his vision for Microsoft. Photo: Caixin

Suppose this is the midterm review and on a scale of one to 10, where is Microsoft right now in this journey of transformation?

It's at one, always. It's a tricky question. You should never answer that question and say you're at nine or 10, because then there's nothing more to do.

And anytime you say you're in the middle, that means it's neither good nor bad. It's best to say we're at the start of something new and at the beginning, always.

What has happened in the past has happened. The way I'm going to be measured going forward and the way I should measure myself going forward is, What exactly am I going to do tomorrow and the day after? In the tech businesses, it's probably even harsher. And so the posture that I think at least we want to have is we're proud of what we have done, but leave that aside. And now focus on what are all the new things that we will have to do and learn from the past.

What kind of vision do you have of the future? What crucial things still need to be done?

First of all, I think that as a tech company and especially a platform tech company, one of the most important things for us to get right, besides sort of the sense of purpose and culture, is our world view of where is computing going.

Computing is not something that is separate from the world. Computing is getting embedded in the world. Every place, every thing, and every industry is being transformed by digital technology.

And the question is: How are we enabling that? It's not only just the technology side, it's even the trust side. So, as technology becomes much more core to all industries and all walks of life in all parts of the world, I think that we as technology providers even need to deal with the core challenges around privacy or cybersecurity or ethics around AI. These are all top-of-mind issues, and so therefore, are we staying on top of not just the innovation, but even dealing with the unintended consequences of the innovation.

You have a vision for Microsoft's future which is cloud first. And can we say that it's also enterprise first? If that's true, then where is the consumer business in this picture?

We sort of talk about our business being about intelligent cloud and intelligent edge, which is really the true form of distributed computing that, in some sense, we're leading. So not only are we now one of the major players in cloud, but we're leading when it comes to the exciting work that's happening of taking the cloud to the edge. And that is going to be core to a lot of the experiences and AI-driven processes going forward.

In that context, we actually are doing things that span the consumer world and the commercial world. For example, we're very focused on Xbox and gaming. To us, gaming has been a passion, whether it's PC gaming or console gaming, and now including mobile. We have a Game Pass subscription service. People describe us as building the Netflix for games in the West, and so that's something that we absolutely are very focused on.

We are also focused on our Microsoft 365, which is a communication and a productivity solution. The key is it's not an ad-driven business, it's a subscription-driven business.

And then we're also focused on Dynamics 365, which is about business applications. And then, lastly, it's Azure and our cloud and AI infrastructure. So, as you can see, the first two, gaming as well as you could say one half of Microsoft 365 are consumer businesses, and the other are commercial businesses. But that blend of businesses is what makes Microsoft much broader in our perspective.

We cannot talk about Microsoft without talking about Windows. You split up the Windows group into two halves. Does it mean Microsoft has moved on from Windows?

Windows always had two parts to it. I think that was not as well understood outside. There was always a Windows server and there was always a Windows client. What we've done is put the two parts into different groups.

When we think about abstracting the hardware and creating an application model, that's what we're doing with Azure and Azure Edge. Windows is one of the core Edge devices.

And then we're also coming at it from the other side, which is in a cloud-first way, we're building out Microsoft 365 as a set of cloud representations of your people, your relationships, your projects, your schedules projected onto devices, including Windows. So, Windows is going to be very much important to us, both for Microsoft 365 and Azure. But it's a means to an end, not an end unto itself.

For a leader trying to revitalize a mature company, what ability do you think is more important, consensus building or pushing ahead despite disagreements?

I would say what is required is intellectual honesty. It's not about consensus building for consensus building's sake. It is about being able to confront, as a leader, as a senior leadership team, as a company, the harsh truth of where you are and to confront that with the opportunity ahead. Because, in some sense, there's no point confronting the truth if you don't know what it is that we need to go seek out in order to work ourselves out of the situation we're in. 

Since you have become the CEO, you have been reorganizing Microsoft almost once a year. Why do you have to shuffle the structure so many times?

Structure is just in support. You can't ever depend on shuffling and structural changes. If anything, one of the core principles of Microsoft is nobody, no customer, respects or cares about our organizational boundaries. What they care about is the solutions that we create.

So, what we are trying to do is to build expertise that then can come together in support of changing customer expectations. So the structural changes will always be there because we will always be shuffling. If we're not able to change structure to support the unmet, unarticulated needs, no business can be successful.

Azure is the first international cloud that came to China, but now it's behind AWS and local cloud providers. So, how do you catch up?

I think we took the route of having the local presence. We didn't take any shortcuts in terms of trying to get to China. We conform to Chinese law and Chinese regulations... and that may have slowed us down in some cases. So therefore, I think we're playing the long game. The question is: How do you make sure that you earn the hearts and minds of the developers in China while being true to the rules and regulations of this country? And if that requires us to sometimes take the long route, we take it because we don't want to measure ourselves with just scaling in the short term for our own advantage. We need to be able to sort of really look at building trust long term.

Contact reporter Han Wei (weihan@caixin.com)