It’s been six months since Satya Nadella’s ascent to the Microsoft throne, and the new CEO’s been busy. No one quite knew what they were getting in Nadella, a Microsoft insider whose deep technical expertise was established, but whose business mind and leadership capabilities were unproven. While Nadella hasn’t blown critics and Microsoft fanboys away so far, his tenure, both in terms of public reception and the bottom line, has been by and large quite positive.
“After 14 years with Steve Ballmer as CEO, everyone was on the edge of their seat,” said UX software provider Infragistics’ CMO Dave Mendlen, who worked at Microsoft from 1998 to 2011. “What epic changes would the next guy make? Surely the new guy would see that Bing is a lost cause. Of course, the Xbox business would be spun off. But so far, the monumental change hasn’t happened. And that’s a very good thing.”
Microsoft was more than ready for a change from the Ballmer regime by the time the lengthy CEO search ended, and Nadella came in with a fair amount of good will before he did a thing. The industry’s initial reactions to his hiring were largely of resounding praise and hope for the company’s future. For influential MSFTers and shareholders who felt Bill Gates should have returned to a more active role in the company, Nadella filled that need for a software mind with a technical vision.
“Nadella came into the job with a number of huge advantages,” said Rob Enderle, president and principal analyst of the Enderle Group. “His predecessor was seen as a problem for the company, and anyone coming in would be seen as a fix for that problem. Unlike Steve Ballmer, who was perceived as more of a sales and business guy, Nadella has a software background and was perceived as more Bill Gates-like.”
Leadership and executive decisions: B+
“[Nadella’s] first impressive move was to turn Bill Gates from a liability, which he was for Ballmer, into an asset,” said Enderle. “Bill was clearly exerting influence, intentional or not, from the outside, and Steve Ballmer was constantly compared unfavorably to him. Satya put Bill back into the company as a resource, which defined his influence and made him subordinate to Satya in the organization. Even if Bill never does anything, this move alone translates him from a liability to an asset.”
Enderle added that Nadella has moved far more swiftly than Ballmer in setting his vision for the company into motion.
“Steve Ballmer waited almost till the end of his tenure to make major changes to the company reflecting his organizational vision,” said Enderle. “Nadella moved within the first six months to change what Steve had done to better reflect his vision. CEOs need to address structural issues early on. Like a racecar and a driver, a company needs to be modified to reflect the CEO’s skill set. Steve effectively changed the car after the race was nearly over, Satya at the beginning.”
“There is an art to layoffs: You make them early, deep, and get them over with fast,” said Enderle. “Satya gets two out of three on this, and because his effort includes plant shutdowns and has to work through difficult European labor laws, he is likely prevented from making this as crisp as it should be. Doing layoffs early and right gets the pain over quickly and allows the CEO to then focus more on building the company and [getting] people back on their jobs as opposed to worrying about them.”
“When big companies like Microsoft implement large layoffs, the logical thing to do is to blame the CEO,” said Infragistics’ Mendlen. “However, in this case, Satya came late to dinner and got stuck with the bill. He didn’t advocate for the Nokia acquisition that pushed the employee ranks far beyond what the company could support. Independent of whether the acquisition was a good or bad idea, it had a cost. And that cost was a round of big layoffs. It had to happen. Having managed teams through several rounds of layoffs at Microsoft, I can tell you that there is no ‘good way’ to do it. Microsoft just needs to get through it and focus on what’s next.”
On staffing and personnel moves
Nadella has done a fair amount of shuffling of his core executive team, as several prominent figures, such as moving out ex-Skype head Tony Bates, bringing back Stephen Elop, and promoting cloud and enterprise head Scott Guthrie. The sum of all these moves is that Nadella is making the executive hierarchy into a structure he can rely on.
“In staffing, [Nadella] has aggressively surrounded himself with people he can trust,” said Enderle. “While some aren’t the most skilled, it is generally better to have a cohesive team of people who are loyal to you than a group of superstars who either feel they should be running the company or that they are above direction or cooperation. Ballmer was plagued by highly qualified people who were mini-emperors and crippled the company with silos. Nadella appears to have learned from Steve’s mistake and addressed this problem aggressively.”
In both the layoffs and personnel moves, there is a deeper strategy at work beyond Microsoft’s needs on the surface. Merv Adrian, lead Microsoft analyst at Gartner, sees Nadella’s executive decisions as part of a more subtle and concerted effort to reshape Microsoft’s core culture.
“Nadella’s aggressive restructuring of the workforce has two sides: everyone knows about the cuts, but there has already been significant investment in new positions and people to fill them, emerging organization structures that emphasize flatter management hierarchies, and internal events designed to get everyone on the same page,” said Adrian. “He’s been aggressive in driving this forward. The early indications are good, but it takes a long time to shift things like measurement, compensation models and “accountability culture.”
Cloud and mobile: A
Nadella is often credited with the success of Microsoft Azure and the company’s overall enterprise cloud presence, and in the last six months that position has only strengthened. Aligning cloud and mobile together as part of a “Mobile First, Cloud First” software strategy has taken that commitment to another level. While Windows Phone continues to see middling returns even after the absorption of Nokia, moves such as releasing Office for iPad begin to show a more open-minded approach to Microsoft’s mobile offerings.
“What I see from Satya is a collection of measured decisions,” said Mendlen. “One of his first decisions, enabling Office on iOS, is a logical decision that seems to have set the tone for this Microsoft era. The new norm from Satya is a thoughtful, measured approach to decision-making that seems to be rippling through the company and changing the culture for the better. I’m seeing a massive shift toward data-centric decision-making, especially in the engineering organizations.”
Forrester VP and principal analyst Ted Schadler saw the Mobile First, Cloud First philosophy in particular as a small step in terms of revenue, but a much larger symbol of where the company is headed.
“Satya Nadella has made major strategic strides in Microsoft’s strategy, operations and culture,” he said. “He has shaken the branches and disrupted the status quo to do it, but the success is in the numbers. Nadella’s focus on software platforms in the cloud and on mobile-first scenarios is a major shift for the software company. Microsoft’s cloud revenue growth is impressive, but still small change compared with the license revenue.”
The one knock on Nadella’s big win with Mobile First, Cloud First and Office for iPad? Some people still don’t know about it. Gartner’s Adrian thinks Microsoft will grow even more aggressive in messaging and advertising to drive its products into consumers’ daily lives.
“Nadella is consistent in his messaging about being the productivity and platform company for the mobile first and cloud first world,” Adrian said. ” Microsoft now needs to drive its vision into everyday familiarity – people need to know what this will mean to them. That will take aggressive focused messaging; at the recent worldwide partner conference for 16,000 people who have tied their livelihood to Microsoft, tweets indicated many were surprised to see Office running on iPad – a major development that had been in the market for 4 months already. They were not aware? They should be. We’ll need to see him continue to tell his story – but he can’t do it all himself, so his success in getting his troops trained to deliver it, and upping the ante on messaging via advertising and events, will tell a tale in the months ahead.”
Open source and developers: A-
In the past six months, Microsoft has made its most pronounced and concerted effort ever to contribute open-source projects and release product code. Back at the Build Developer Conference in April, Microsoft announced unified development platforms and Universal Windows Apps along with the open-source Roslyn C# compiler.
The company followed that up in May by completely open-sourcing its ASP.NET platform while releasing the open-source ASP.NET vNext framework at TechEd. For a company once looked upon as the enemy of the open-source software world, under Nadella, Microsoft has never been more open.
(Related: Microsoft open-sources ASP.NET on GitHub)
In terms of developers in general though, Microsoft’s outlook is still in need of a shift. Mendlen believes the focus should be on what developers can do for Microsoft’s platforms, rather than how much money they can make it.
“One area that is still not quite right is the developer business,” he said. “The current focus is on monetizing enterprise developers versus enabling Microsoft’s platform success. That’s one thing I’d expect Satya to look at. That is a core problem that needs fixing ASAP. The developer business is over US$1 billion annually. My sense is that revenue shouldn’t be a driver for that business.”
On the subject of Windows, we simply haven’t seen enough yet to give Nadella a real grade. What Windows 9 looks like and how it’s received will serve as the true barometer of whether he can right the desktop ship after the unmitigated disaster that was Windows 8 and 8.1. At the moment, all we have to go on is his official word confirming the longstanding rumors that Windows 9 will unify all versions under a single operating system, and a 3% Windows revenue increase in Q4.
(Related: Can Microsoft rescue Windows?)
Overall, Nadella’s first six months get a solid B+ in our book. Much has changed under his leadership, but much remains the same. Forrester’s Schadler is optimistic, but believed more must be done before the ship is truly righted. Echoing a similar point, Gartner’s Adrian has observed a shift in the message Microsoft is sending to customers and developers, a message the company now needs to deliver on.
“The early signs are hopeful that he is turning the Microsoft juggernaut in the right direction, but still a tremendous amount of employee, product, and partner development to accomplish,” Schadler said.
“Microsoft is once again talking not just about what they want to sell us, but why,” said Adrian. ” It’s a return to an “information technology will change your life” story. It has. Now what? Microsoft believes it can shape the answer , and that is a step up they will seek to make good on in the year ahead.”