CEO says Microsoft must always display ‘enduring values’
REDMOND, WASH. Microsoft CEO Satya Nadella says he understands the concept of America First, President Trump’s stated nationalist vision.
That’s because in his global travels, Nadella meets many leaders who ask him how his company is helping their own interests.
But the Indian-native turned American chief executive, who spoke with USA TODAY on his third anniversary as CEO, also said his company must display “enduring values” anchored to the Constitution.
“In this case, being an American company, our values are integrally tied to what I think are American values,” he says. “And these enduring values are something that we’ll always stand for. Then we will evaluate any policy in any country through those values. And that’s kind of where we come from.”
Microsoft recently was a signatory to an amicus brief that supported a judge’s lifting of President Trump’s immigration ban aimed at citizens of
kind of growth they had a decade ago,” he says. “There’s so much legacy business with Microsoft, which is both a strength and millstone. Any new stuff seems to just offset the long-term decline on other fronts.”
Scott Kessler of CFRA Research lauds the stock bump under Nadella, a 70% jump since he took over as compared to 30% growth from the S&P 500. But he suggests the honeymoon may soon be over as investors look for restructuring moves to hit the bottom line.
“Nadella has done a good job and the stock reflects the positive perceptions, but its too early to suggest he has been wholly successful,” says Kessler, who rates the stock as a hold.
“FY18 (fiscal year 2018) will be the year where Nadella has to transition from someone who is new and learning and making these significant changes, to one who is about execution, about demonstrating improvement and traction with products and financials,” he says.
HACKATHONS, TOWN HALLS
Those significant changes are centered largely on making Microsoft a more attractive place to work.
Since taking over in 2014 from former CEO Steve Ballmer, Nadella has encouraged campus hackathons to drive bottom-up ideas, started a monthly town hall meeting accessible to all 120,000 global employees, and asked top executives to travel more in order to better understand client needs.
He also has begun inviting, controversially so according to some reports, CEOs of newly acquired companies to annual retreats that had been reserved exclusively for veteran company leaders.
“The goal isn’t just to bring in new code, but to bring in new DNA,” says Scott Guthrie, who heads the company’s cloud and enterprise division. “These days, we acknowledge others may have better ways of doing things, as opposed to us saying, ‘Here’s how we do it at Microsoft.’”
Nadella hasn’t been shy about buying his way into the digital future. Microsoft has acquired nearly 40 tech companies large and small in the past three years, with the biggest by far being a $26 billion purchase of professional networking site LinkedIn.
That shopping spree has turned heads in Silicon Valley.
Chuck Dietrich, a Salesforce veteran whose Mobile Data Labs AI company was bought by Microsoft in 2015, says Nadella is helping erase a reputation for being “stodgy, closed and insular. We’re being asked for our opinions, and even leading best practices meetings.”
So far, Nadella’s various strategic gambles appear to be paying off.
Microsoft stock hit an all-time high late last year and currently is trading at $64. The company’s cloud business is second only to Amazon Web Services and, at a $13 billion current annual run rate, is tracking to hit its 2018 goal of $20 billion a year.
An $11 billion spend on R&D could well yield a foothold on the next big computing platform with its mixed reality headset, HoloLens. And just last week, the company announced a new initiative called Healthcare NExT, that will leverage advanced technology to improve patient care and provide new tools to doctors.
But the headwinds facing Nadella and his gradually turning ocean liner of a company are strong.
A slowing global PC market continues to be a drag on revenue, which on average Microsoft adjusts up 10% based on deferred earnings from Windows 10, which at present remains a free upgrade. Nadella also is unwinding a $7 billion Nokia acquisition made under his predecessor.
What’s more, a growing number of cloud players such as Google, IBM and late-entry Oracle means increasing competition for enterprise customers. Meanwhile, LinkedIn’s financial contribution has yet to be realized and HoloLens remains in the hands of developers.
And although Nadella has signaled that employee diversity issues are important to the company — he has tied bonuses to diversity goals, and made sure Microsoft was one of the signatories to an amicus brief that supported the lifting of President Trump’s immigration ban — there have been as yet no huge gains in the numbers of women and minorities on staff. GATES IS ON BOARD At least one Nadella supporter is bullish. Microsoft co-founder Bill Gates, who remains on the company board, says “ambitious product plans,” which range from coming enterprise AI offerings to a doubling down on HoloLens, are key to future success.
“I enjoy working with Satya, and the R&D stuff he is pushing is really building up a lot of strength for the company,” says Gates.
“But it’s still a very competitive business we’re in,” he says. “Goo- gle is the strongest by many metrics, though mainly on the consumer side. Apple continues to do well. Facebook is amazing. And Amazon is in our same town.”
Nadella and his senior leadership team are adamant that the company’s ultimate success depends on how well every employee embraces what they have dubbed a “learning mindset,” one that demands more listening than talking.
“There was more a fixed mindset here before, a need to know it all and look smart,” says Kathleen Hogan, head of human resources and a 14-year veteran of the company. “Before, the competition was internal, but it needed to be with the world outside.”
The first two senior leadership retreats under his stewardship shifted away from navel gazing, she says.
“He didn’t want to just go in the woods and talk,” says Hogan of the 180-person event. “So in the first retreat, we formed 17 groups and came up with our new focus on customers, diversity and inclusion, and on being One Microsoft. In the next one, we went out and visited with our retailers. We want to make sure our culture isn’t just words on a poster.”
That this change should come from a man who has spent a quarter-century at Microsoft is ironic.
“I’m not an outsider, in fact, I’m the consummate insider, but I also have a worldview, a sense of purpose for this company,” he says, noting that as a young boy growing up in Hyderabad, India, he became transfixed by computer science while working with Microsoft’s products.
“When I joined the company in 1992, we used to talk about our mission as putting a PC in every home, and by the end of the decade we have done that, at least in the developed world,” he says. “It always bothered me that we confused an enduring mission with a temporal goal.”
Nadella comes across as a man who feels pleased if not shocked at where his life journey has taken him — from an Indian kid working with Microsoft tools to an American citizen running Microsoft.
And with that shock has come a deep sense of responsibility, one that is focused intensely not just on the next Microsoft quarterly report, but also on the legacy he will leave behind.
“Organizations should not be measured so much during a CEO’s tenure, but after,” says Nadella. “Because if it all falls apart after you’re gone, then you haven’t created an organization that is enduring.”