In the fastest moving of all industry sectors, it appeared frozen in time; left standing by the iPhone and heavily reliant on its Office desktop software and Windows operating system, in a world where consumers and businesses had long since gone mobile and were using the cloud for much of their software.

At a time when Apple could do no wrong, Facebook was changing the world of communication and Amazon was blowing everyone away in cloud computing, Microsoft was the uncoolest 40-year-old imaginable.

To make matters worse, a self-destructive, cutthroat internal culture of competition between colleagues – laid bare in a landmark Vanity Fairpiece on Microsoft’s “lost decade” – was still simmering just below the surface.

Turnaround job

Fast-forward to 2017 and even the crudest method of measuring Nadella’s tenure shows he is in the process of pulling off a mighty comeback with aplomb.

Steve Ballmer SOURCE: S&P GLOBAL INTELLIGENCE Satya Nadella The CEO effect Microsoft stock price by CEO tenure ($US) Bill Gates In October 2016 the company’s stock price reached a level unseen since 1999. However, Microsoft’s market cap, now about $US460 billion, remains well off the $US600 billion peak because huge buybacks have reduced the share count. In Oct the company’s stock price reached a level unseen since 1999. However, Microsoft’s market cap, now about $US460 billion, remains well off the $US600 billion peak because huge buybacks have reduced the share count. Australian Financial Review Interactive infographic Interactive infographic by Les Hewitt

Microsoft’s stock has almost doubled and is trading at its highest level ever. Even before the turn-of-the-century tech bubble burst, Microsoft investors never had it so good.

Nadella’s Microsoft is successfully delivering and selling a new vision that has it in the vanguard of a new era of artificially intelligent cloud computing.


It has invested eye-watering amounts in infrastructure to make its Azure cloud computing infrastructure the main rival to Amazon Web Services in a hugely lucrative and fast-growing part of the market.

It is also making major strides with its cloud-based Office 365 productivity software and Dynamics 365 enterprise offering.

Satya Nadella is flanked by his two predecessors, Bill Gates and Steve Ballmer, after ascending to the CEO position in 2014.

Meanwhile, the company, which was once dragged through the courts in anti-trust trials, is openly working with big-name rivals and – perhaps most surprisingly of all – it is making genuinely cool tech products again.

Its Surface computers have received rave reviews and have been positively compared to those from Apple. It has got the market intrigued by its mixed reality headset HoloLens and also sold its Xbox One entertainment console in huge numbers.

With seasoned tech observers publicly scratching their heads about how they are suddenly more excited by Microsoft than Apple devices, the shift has been remarkable.

Nadella generously paints his era as evolution, rather than revolution, and has nothing but kind words for his predecessors.

Microsoft's Julia White introducing Office for iPad at an event that was also Satya Nadella's public bow as CEO. Reuters


Finding relevance

Meanwhile, senior executives who have ridden out the stormy times before revelling in the recent years describe him as a leader almost devoid of ego, who has unshackled some of the most talented tech minds on the planet and pointed them down a common path.

“In an industry where longevity is not even a goal, really I think it is all about relevance and impact,” Nadella says. “I feel good that we have good momentum with the current set of technologies but that is all temporal. What I am most focused on is whether we are staying true to our sense of purpose.”

Anyone who spends any time around Microsoft’s US headquarters in Redmond, Washington, or listens to Nadella address a conference knows exactly what that purpose is.

An unashamedly extravagant company mantra is referred to ad nauseam: “Our mission is to empower every person and every organisation on the planet to achieve more.”

Microsoft's general manager of global communications Tim O'Brien says Steve Ballmer had put in train some cultural changes that have accelerated under Satya Nadella.

It is grandiose for sure, but it also seems to be meant sincerely at the highest levels of the company.

The attitude that everything worthwhile must emanate from within Microsoft’s four walls has been expelled under Nadella. It has become accepted that millions of people will want to use products made by its rivals, and it is making a good fist of forging a path as a leading part of a broader tech ecosystem.


Where once the company was the very definition of a walled garden, jealously guarding its technology, it is now forming partnerships with major tech firms like Adobe, falling over itself to offer its services on Apple devices and is – staggeringly to the historically minded – embracing open source in a big way.

The Linux operating system, once described as a cancer by Ballmer, is now supported in its Azure cloud and last year Microsoft surpassed the likes of Facebook and Google to become the largest contributor to open-source code online exchange GitHub.

Following Ballmer

Having joined Microsoft in 1992 and worked his way up the ranks to lead the cloud and enterprise group before becoming CEO, Nadella was not the tough outsider many expected to come in and fix things up post-Ballmer.

While clearly a chalk-and-cheese character change from his gregarious predecessor, he flatly rejects the idea that Ballmer’s personality was responsible for holding back Microsoft in the modern era. He says he owes both Bill Gates and Steve Ballmer a huge amount for the additional responsibility they gave him and used his knowledge of their organisation to run it in a different fashion.

“I’m a consummate insider. I’ve grown up in Microsoft. All my adult life is Microsoft,” Nadella says. “I’m a product of Steve Ballmer and Bill Gates’ Microsoft, and I’m proud of it. It’s not like I came in wanting to be different; when I became CEO I wanted to be able to shape the company based on who I am.”

Referring to the first email he sent to staff upon becoming CEO, Nadella says his direction for the company has been clear from the start and has remained consistent.

Outgoing Microsoft Australia managing director Pip Marlow says Satya Nadella is very accessible and follows through on his commitments. Louie Douvis


In it he warned his employees that they were operating in an industry that does not respect tradition and only respects innovation. He wrote that their job was to ensure Microsoft thrived in a mobile and cloud-first world.

This threw down the gauntlet for the organisation to step away from its comfort zone and measure itself by its achievements in areas it was losing to the likes of Apple and Amazon. In a symbolic move that drew a clear line in the sand between old and new Microsoft, Nadella’s first public appearance as CEO was the long-awaited launch of its Office applications to run on Apple’s iPad.

While Ballmer had given the go-ahead to launch the apps, externally it was seen as a break from a company that was previously cutting off its nose to spite its face by snubbing Apple.

Sharing the spotlight

The manner of the launch was also notable by its difference to previous CEO-led announcements. Despite it being his first public outing, Nadella was at pains to ensure it was not the Satya show. He took a back seat, allowing the spotlight to fall largely on one of the company’s rising stars, general manager of product marketing for Office Julia White, who gained rave reviews for her presentation.

White had been with the company for 13 years at the time and has since progressed to become corporate vice-president for the company’s crucial Azure cloud and security division.

“I had imagined doing the Office for iPad launch with Steve, what that would have been like. But there, with Satya in his very first public moment, I was, like, ‘This is a whole new place now’,” White tells BOSS.

“It was a very different experience than I’d ever had in terms of what we presented, how we presented, the tone of the event, everything was different.”


White says Nadella’s leadership has significantly shifted the internal culture at Microsoft. She says he regularly quotes management expert Peter Drucker, speaks constantly about having a growth mindset and that his rhetoric about creating a positive culture to inspire innovation is genuine.

“It is very real and the fact that people externally perceive a change in the company is only because it is actually really happening,” White says.

“He is such a values-based leader and that is a very different approach than previously. As a leadership team we spent so much time figuring out in the very first months of Satya being CEO, what our mission is and defining what our ambitions were and now it is being followed through.”

Nadella says this growth mindset represents a desire to encourage staff members to take risks when thinking about new ideas.

Rather than worrying about how to respond to popular products released by rival firms, he says he wants his staff to be thinking what the company can be doing to forge new paths.

Changing competitive culture

A competitive culture that thrived under Gates and Ballmer needed to be replaced by one in which people sought to work better together, rather than being seen as king of the hill.

“We had to go from being know-it-alls to learn-it-alls, that has been important to me,” Nadella says. “This is not about new dogma, it is about being able to give team members breathing space to be able to bring their A-game, to be able to be vulnerable and not have to put on an act of knowing everything, but to be curious and learn.”


Central to the competitive culture within Microsoft had been the performance management system, by which all staff members were judged.

It worked like a high school grading curve and was applied to teams across the company. Some in the team were ranked as the top performers and promoted or remunerated accordingly, whereas others – regardless of how good they were – were labelled as disasters in comparison, and often fired.

Long-time Microsoft executive Tim O’Brien, who is general manager of global communications, tells BOSS that the damning Vanity Fairarticle ripping into the dog-eat-dog culture within Microsoft had articulated what many within the company felt.

He says Ballmer listened to the feedback and was committed to a new One Microsoft vision, where previously competing divisions worked towards a common goal.

This included adopting a new performance review system based around teamwork rather than individual success.

Nadella’s ascension saw the One Microsoft push accelerated significantly, with O’Brien saying Ballmer has since conceded a change in leader was needed to give the employees permission to really take changes forward.

“The previous system was a little bit like if you are in a group of people being chased by a lion, you don’t need to be fastest, you just need to be faster than the slowest person,” O’Brien says.

Demonstrating change


He says Nadella and his leadership team needed to demonstrate through their actions that the kind of behaviour that had gone before was no longer what was required within the company. Subsequently, he says, the perceived impossible task of redirecting a super tanker had been possible in a relatively smooth fashion.

“I started to see it disappear, a dissipation of the dysfunction, the fighting, the pettiness and some of the craziness you see in a lot of corporate environments,” O’Brien says.

“Then there was collaboration, co-operation and trust that people could share their new ideas with other teams without it being bad for their performance review and bonus.”

It has not all been roses, though, and Nadella has needed to take some big and controversial decisions.

In 2015 he undid Ballmer’s last big act as CEO by taking a $US7.6 billion writedown on the Nokia handset business acquired before Ballmer stepped down.

He had decided that being a distant competitor to the iPhone with well-regarded but unprofitable devices was not worthwhile and has since promised to re-enter the phone business only once it has something notably new to offer.

“In anything that we do, we go back to our mission and ask, ‘Can we do something that is unique, differentiated and, most importantly, valuable to our customers?’” Nadella says.

“I think that is a great filter to have and not to ever be driven by just competition.”


Delivering results

He concedes that more tough calls will need to be made in the near future, but is happy that he has earned the goodwill of employees, customers and the markets to make them.

San Francisco-based UBS analyst Brent Thill says Nadella’s pivot early in his tenure to reposition for a cloud world regardless of device was a crucial decision. Not least because he had managed to instil a sense of urgency to his changes, which had attracted some of the best and brightest talent to view Microsoft as an employer of choice.

The typical risks for any company in the tech industry remain, of course. A rival can always spring out of nowhere with a sudden advance, teams can take an expensive wrong turn and Nadella must vigilantly ensure that the current momentum is not lost. But for now the positive sentiment is tangible.

“Microsoft’s stock flatlined under the Ballmer CEO era and we believe this change was a needed jolt to unlock the value hidden in the company,” Thill says.

“Nadella has made some tough calls and has doubled down on the commercial cloud which is helping cement relationships with larger enterprises. Amazon is the leader, but Microsoft is now considered the close number two with few others showing the scale or product quality to compete.”

In Australia, Microsoft is poised to enter a new era of its own with the surprise news in December that longstanding local managing director Pip Marlow will join financial services firm Suncorp in March.

New Australian managing director Steven Worrall will need to develop his own relationship with Nadella, but Marlow says he will find it an easy connection to make.


“The great thing about Satya is accessibility. When he says you can call him about something, or he is happy to help, he really means it,” she says.

“He is uniquely positioned as a CEO to work through any friction in the system and takes that responsibility really seriously. So whenever I send him a note on something he always responds himself, and then follows through to make a difference.”

Sustaining growth

Nadella, meanwhile, is keen to stress that the goodwill and positive headlines the company is receiving is only of temporary importance. The main responsibility is ensuring Microsoft remains on the right path in the long-term.

If Microsoft is to cash in on its resurgence in the face of inevitable rivalry from hugely wealthy competitors like Apple, Amazon Web Services and Google, it will need to keep its army of workers pulling in the same direction and focused on its mission.

Despite an unbelievably hectic schedule and a need to keep on top of a dizzying array of tech developments, Nadella says the desire to keep learning and to make a difference gives him plenty of energy to see the job through.

“I’ve always thought about what computing can do in people’s lives and then Microsoft taught me that, oh wow, this can have a profound impact in societies and economies,” Nadella says. “The best source of energy for me is getting out in the field, meeting customers and seeing new ways that they are using the technology, and feeling the relevance of the work that we’re doing. Those meetings get the wheels turning so there’s more than enough energy to go around.”

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