Satya Nadella - Microsoft CEO

 Nadella is arguably one of the best business leaders in technology industry. The main reason is a widely successful turnaround of Microsoft that he pulled off since becoming its CEO. While strategically the turnaround was driven by a successful bet on cloud business, which essentially put Microsoft back into the league of leading growth tech companies, a more subtle driver of the turnaround was cultural transformation.

From an investment perspective, Nadella’s Microsoft is a great example of a “CEO upgrade” situation when a good/great business that’s been mismanaged for some time gets a right CEO with the relevant skillset and mindset who subsequently unlocks the hidden potential of the business. Under Steve Ballmer Microsoft was struggling for more than a decade with poor capital allocation and a culture drifting towards arrogance and lack of innovation. Nadella’s strategy and execution at Microsoft were so rapid and effective that less than two years since his appointment a CNN journalist wrote an article “Is Microsoft CEO Satya Nadella better than Bill Gates?”. Since February 2014 when Nadella became Microsoft CEO, its stock delivered 740% or 31% CAGR, an extraordinary result by any standard.

Interesting detail: Nadella had high conviction in Microsoft’s financial success from early days – check how his stake in the company increased over time. Based on my observation this is not a typical behaviour of a CEO of a publicly traded company, most of whom prefer to sell stock as soon as their options are exercised.

As always, while studying a business leader, I’m looking for recurring themes across time and picking the most relevant quotes and anecdotes which should help us to understand this business leader better and to learn something new. 

Nadella’s background before he was appointed a Microsoft CEO:

Satya Nadella is the only Indian and youngest candidate in the running for the next CEO at Microsoft.  He has a reputation for driving people to work hard and demands excellence.  Outside of work, he is said to be a sweet and charming individual, which has earned him the nickname Satya “Nutella” due to his chocolate brown skin color.

Born: 1969

Youngest candidate for CEO

Place of Birth: Hyderabad, India

Education:

Hyderabad Public School

Manipal Institute of Technology – BS Electronic Engineering in Electronics and Communication

University of Chicago – MBA

University of Wisconsin–Milwaukee – Masters in Computer Science

Speaks Telugu and Hindi in addition to English

Career

Started off at Sun Microsystems

Joined Microsoft in 1992

Senior vice president of R&D for the Online Services Division

Vice president of the Microsoft Business Division

President of Server and Tools Business

Was picked by Ballmer after Bob Muglia was fired

Credited with leading transition to the cloud at a rapid pace

Currently Executive Vice President of Cloud and Enterprise

Reports directly to Ballmer [1]

On Satya Nadella

• Amid the rumors about external candidates, some Microsoft watchers have focused on Satya Nadella, the Indian-born head of Microsoft’s cloud and enterprise division who is known to staff as one of the most articulate and intelligent people in the company. (Dec 13) [4]
• As a 22-year veteran of the firm, Bloomberg reported, he is well-regarded as an energetic, forward-thinking upper-level executive. He also has an advantage as an insider in that he fully understands Microsoft’s complex culture and layout — and therefore likely knows its weak points as well.
  In a note to investors, Daniel Ives of FBR Capital said that while Nadella would excel as CEO, “we believe filling this position with a core Microsoft insider will disappoint those hoping for a fresh strategic approach… an outside executive could have brought to the table.” (Jan 14) [5]
• And in the words of one two-time Microsoftie, Nadella is “a complete 180” from Steve Ballmer, the outgoing CEO who led Microsoft for more than a decade with an often-booming style of leadership.
  “Satya is thoughtful, articulate and well-spoken but quite low-key,” said Scott Moore, president of Seattle startup Cheezburger, the former MSN executive producer whose tenure at Microsoft gave him a window into Nadella’s leadership of Microsoft’s Bing search engine and Online Services group. “He possesses vast technical knowledge and expertise and unlike many senior execs, he understands the products he oversees at a deep level.” Despite his outward demeanor, Nadella is an “aggressive business leader” who is willing to take on difficult challenges, Moore said. (Feb 14) [8]
• Nadella is not the type of leader who would pound the table with his fist, instead taking a more thoughtful approach to problem solving. In that regard, he’s more in the mold of Nike CEO Mark Parker, said John Connors, the former Microsoft CFO who now works as a venture capitalist at Ignition Partners.
  “He’s more cerebral and has great product depth, and is very, very good at getting the right people in the right jobs,” said Connors. “Very hard working guy. Very outward focus, and very product oriented. He will be a guy that people enjoy working for, but at the same time, if you don’t deliver or don’t have the right skill set, he won’t hesitate to make changes.” (Feb 14) [8]
• Tait wrote in a Facebook post this week, “I remember the interview, his thoughtfulness around every question, the brilliance in his response, and the struggle to come up with a follow on question that would challenge him. His youthful, angular and awkward presence still growing into his own skin, and his passion, absolute passion for the power and potential that technology could hold. Lastly my thoughts of ‘who really puts cricket on their resume?!?!’.”
  Vijay Vashee, a former Microsoft executive who attended the same school in India as Nadella, also recalled the story of Nadella studying to get his MBA while working at Microsoft. “This is incredibly tough to balance,” said Vashee. He described Nadella as a balanced and humble techie who is a “great listener” and possesses a “strong business sense.”(Feb 14) [8]
• Connors, the former Microsoft chief financial officer, said Nadella is the right choice for the job. That’s in part because he has not always taken the easy path, choosing instead tougher challenges within the company, such as trying to improve Microsoft’s search position or running the Microsoft bCentral small business online service. Some of the experiments he embarked upon worked, others did not. (Feb 14) [8]
• “He earned instant respect of everyone he worked with, because it was clear at all times that he would make hard decisions to do the right thing, and base those decisions on a deep understanding of reality,” Moss [Ken Moss, a former Microsoft web search executive] explained. “There’s no room for BS with Satya in the room.” (Feb 14) [8]
• “He’s a thoughtful, quiet leader who rallies people around him,” former Microsoft Chief Financial Officer John Connors said of Nadella. “He works harder than anybody. He’ll make the tough calls but he’s very urbane and civil.” (Feb 14) [10]
• "He has proven not only that he understands the Microsoft culture, but that he can change it in very big ways," says James Staten, a vice president and principal analyst with Forrester Research who has closely followed Nadella and his Cloud and Enterprise group through interviews with many people both inside Microsoft and out, including Nadella himself. (Apr 14) [13]
• "He is very inclusive. He brings people in and gets them excited to work on stuff, and that's what I think his magic is -- his authenticity and the way he is able to inspire people and not just push them," says Hilf. "He can inspire them to do great work and get them motivated and excited. That's really about him as a person: Whether he was running a technology company or a non-profit, he would have the same demeanor." (Apr 14) [13]
• Johnson says Nadella is poised "to unlock the human capital at Microsoft" by forging a collaborative culture that, perhaps now more than ever, will be supported by upper management keenly aware of the impact of diversity and fairness. (Oct 14) [20]
• "If you know the man, you know he cares and wants people to succeed," says Kevin Johnson, retired CEO of Juniper Networks who worked with Nadella at Microsoft for 16 years. "Does he think about karma as a system that recognizes and rewards people? Yes. But does he know that doesn't always work and the system has to be improved? Yes."
  During his keynote, he said: “There are three concentric circles that need to click into gear for any organization to thrive. You have to have new concepts, and these have to be complemented by new capabilities, and you’ve got to have a culture that constantly evolves to support the first two.
  This is what any organization needs to do in order to reinvent themselves. You can’t at any point stop, because that’s when you get into trouble. (Nov 14) [22]
• [Article titled “Is Microsoft CEO Satya Nadella better than Bill Gates?”]
  "We are pretty enthusiastic about the company's prospects," said Eric Schoenstein, co-portfolio manager of the Jensen Quality Growth fund, which owns the stock. "It may be an intangible. But it feels like the company is more transparent under Nadella. His style is different and less aggressive." (Dec 15) [37]
• In fact, if there’s one thing that makes Nadella the right person to stand watch over Microsoft’s middle age, it may actually be that he’s humbler and less ambitious than his predecessors. He’s more hip to nuance and compromise. He is not hell-bent on owning the world, because the world is too complex and fluid to be owned by anyone right now. (Dec 15) [39]
• "It certainly feels like a different Microsoft," says Ben Bajarin, Analyst at Creative Strategies. "The best way I can describe it is that this is a much more open Microsoft, and I say that across the board. Open to new ideas, fresh thinking, not being bound to one platform in Windows, open to embrace other operating systems like Android and iOS with their software and services, etc." (May 16) [41]
• DelBene says Nadella's "superpower" is in "envisioning where the industry's going, envisioning products, stitching together different patterns into new products". Nadella sees patterns in the way customers are using products and responds by directing software development resources to these areas. (Nov 19) [133]

On his leadership style

• “What is that quote? I forget now who said this,” he says. “You always overestimate what you can get done in a year and underestimate what you can get done in 10 years.” Later, I look up the quote. He got the gist of it right. And the person who said it was Bill Gates. (Jan 15) [23]
• Nadella says he’s reluctant to communicate with employees in financially oriented terms, and prefers to emphasize stories about the company’s software and devices making a difference in the real world, which also avoids echoing the Ballmer-era habit of tallying Microsoft’s billion-dollar businesses. His hope is that employees focus on making products better, not where those products sit within the maze of Microsoft or the broader technology industry. “I want everyone inside of Microsoft to take that responsibility,” Nadella said. “This is not about top-line growth. This is not about bottom-line growth. This is about us individually having a growth mindset.” (Jun 15) [30]
• "The notion of having work-life harmony in a highly competitive economy is a first-class topic," says Nadella. "I think the key is to make sure you're engaging in a dialog with your employees. There also needs to be flexibility in all the (workplace) policies that someone like me sets and propagates. You cannot have people burn out. It's bad for your company, and it's bad for society." (Sep 15) [32]
• “It’s so critical for leaders not to freak people out, but to give them air cover to solve the real problem,” Nadella says in an interview with USA TODAY. “If people are doing things out of fear, it’s hard or impossible to actually drive any innovation.” (Feb 17) [60]
• “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.” (Feb 17) [60]
• “It’s fascinating how we [always] think that burning ambition early on is what drives you,” Nadella said. “I think what I had, though, was some curiosity, and that’s what sustained me in the long run.” He also modestly described his younger self as someone who liked to “tinker.” (Feb 18) [89]
• Mr Nadella’s use of language has been key, says Ms Heffernan. For people outside the tech industry, his use of jargon can seem stilted. But for those inside the company, simple messages, frequently repeated, have helped to cement the new behaviors.
  Peggy Johnson, an early hire to Mr Nadella’s top management group, credits him with an unusual “consistency of message”. That has turned what might have been merely lip-service in another company into an engine for real cultural change. After spending an entire senior management meeting discussing diversity and inclusion, she says, Mr Nadella went on to repeat the same themes exhaustively: “We never stopped talking about it. It wasn’t just a box-check.” (Jan 19) [117]
• Nadella believes that it’s terribly dangerous to fixate on financial measures such as market cap as an indicator of success. And he speaks from the experience of having lived through the first period when Microsoft became the world’s most valuable company, a few years after he joined in 1992. (Aug 19) [130]
•  “When I talk about what we espouse across the company,” Nadella says, “we have to ask how much of it is represented among the leadership team, starting with me. We have some amazing women on the team, for example. Are we making sure we really listen to them?” (Nov 19) [134]
• Nadella closed with advice offered to him by Ballmer as outgoing CEO: “Be bold and be right. If you’re not bold, you’re not going to do much of anything. If you’re not right, you’re not going to be here.” (Nov 19) [134]
• Nadella has a unique approach: He prefers to think of work-life “harmony” rather than “balance,” he told NowThis in May, because passion is what drives people to pursue work, he said.  “I think the key is to be able to not overdo the connection to the thing that’s burning you out, but to somehow keep that flame, which is the core passion you have persist,” Nadella told NowThis. “That’s the art form.” (Dec 19) [135]

On empathy

• "In the long run, EQ (emotional quotient) trumps IQ (intelligence quotient). Without being a source of energy for others very little can be accomplished." (Sep 14) [17]
• Regarding that Chicago-style thinking, is there a Booth class that was particularly memorable?
  It was a class that I took with [now-retired] professor Marvin Zonis on leadership. He stressed that EQ trumps IQ in the long run—the E is for empathy. (Oct 15) [36]
• "I think empathy is everything. If you think about even in the business context for us, our job is to meet the unmet, unarticulated needs of customers. That's where innovation comes from. There's no way we could innovate without having the deeper sense of empathy," he said. (Sep 17) [70]
• “I can’t just go to work and switch on this button called ‘the empathy button’ and then I’m going to be empathetic and all of my innovation is going to come because I switch this button on.…That’s where it led me to believe that the best way to innovate is to have empathy and the best way to develop this empathy is to essentially listen and learn from your own life experience.… If we integrate what we learn in our life and bring that to work, then your ability to meet the unmet, unarticulated needs of customers is going to be that much more tuned.” (Dec 17) [79]
• We’re in the business of meeting unmet, unarticulated needs of customers. That’s it. There’s no way we’re going to meet our unmet needs of customers if you don’t have a deep sense of empathy. (May 18) [98]

On learning

• I fundamentally believe that if you are not self-aware, you’re not learning. And if you’re not learning, you’re not going to do useful things in the future. (Feb 14) [12]
• Guthrie describes his boss in terms that crop up often in conversations about Nadella. He's a "lifelong learner" capable of "energizing the teams" and making "big bold bets" such as the recent partnership deals. (Oct 14) [20]
• Satya Nadella’s corner office, on the fifth floor of Building 34 at Microsoft’s Redmond, Washington, headquarters, features a can’t-miss 84-inch Surface touch-screen computer that dominates one wall. But what demands even more attention are the vast quantities of books in the room. They fill rows of shelves and are piled by the dozen on a long table next to Nadella’s desk.
  The place looks more like a neighborhood bookshop than the command center for the third-most-valuable company on the planet. “I read a few pages here or a few pages there,” Nadella says, in his typically understated manner. “There are a few books, of course, that you read end-to-end. But without books I can’t live.” (Sep 17) [65]

On culture

• I am committed to making Microsoft the best place for smart, curious, ambitious people to do their best work. (Apr 14) [13]
• Perhaps the most important driver of success is culture. Over the past year, we’ve challenged ourselves to think about our core mission, our soul — what would be lost if we disappeared. That work resulted in the mission, strategy and ambitions articulated above. However, we also asked ourselves, what culture do we want to foster that will enable us to achieve these goals?
  We fundamentally believe that we need a culture founded in a growth mindset. It starts with a belief that everyone can grow and develop; that potential is nurtured, not predetermined; and that anyone can change their mindset. Leadership is about bringing out the best in people, where everyone is bringing their A game and finding deep meaning in their work. We need to be always learning and insatiably curious. We need to be willing to lean in to uncertainty, take risks and move quickly when we make mistakes, recognizing failure happens along the way to mastery. And we need to be open to the ideas of others, where the success of others does not diminish our own. (Jun 15) [31]
• Nadella, who spoke with USA TODAY in anticipation of his keynote address Tuesday at Salesforce's annual Dreamforce customer event, says "ultimately what any company does when it is successful is merely a lagging indicator of its existing culture.
  "At Microsoft, we're aspiring to have a living, learning culture with a growth mindset that allows us to learn from ourselves and our customers," he says. "These are the key attributes of the new culture at Microsoft, and I feel great about how it seems to be resonating and how it's seen as empowering." (Sep 15) [32]
• "One of Satya Nadella's favourite quotes is 'culture eats strategy for breakfast'," says O'Brien. "[At Microsoft, under the new leadership there has been a change from a very fixed mindset, know-it-all culture to a more of a growth mindset, learn-it-all culture. Where there's an openness to learning, the pursuit of acquiring knowledge, rather than imparting your knowledge on others." (May 16) [41]
• We are a learn-it culture, not a know-it-all culture. (Oct 16) [48]
• "What I realize more than ever now is that my job is curation of our culture," says Nadella, who will explore this topic and others in a book due out this fall called Hit Refresh. "If you don't focus on creating a culture that allows people to do their best work, then you’ve created nothing.” (Feb 17) [60]
• Nadella: One of the things I’ve come to realize, and I think all of us at Microsoft have come to realize, is that there are two most important things determining long-term success. The first is the sense of purpose and mission that is enduring. Technologies will come and go, so you need to be able to both ask and answer the question: What do you do as a company, why do you exist? That’s exactly what is captured in our mission.
  The other one is culture. These are the two bookends to me. In fact, I went on a lookout for what’s the right metaphor for the cultural dialog. Putting up a poster in a conference room with some attributes of a new culture never works. You read it once and never remember it again. My inspiration came from the book I had read couple years before becoming a CEO — “Mindset” by Stanford professor Carol Dweck.
  I was reading it not in the context of business or work culture, but in the context of my children’s education. The author describes the simple metaphor of kids at school. One of them is a "know-it-all" and other is a "learn-it-all", and the "learn-it-all" always will do better than the other one even if the "know-it-all" kid starts with much more innate capability. (Apr 17) [62]
• BI: How do you approach failure in this context?
  Nadella: You embrace it. If you are going to have a risk-taking culture, you can’t really look at every failure as a failure, you’ve got to be able to look at the failure as a learning opportunity.
  Some people can call it rapid experimentation, but more importantly, we call it "hypothesis testing." Instead of saying "I have an idea," what if you said "I have a new hypothesis, let’s go test it, see if it’s valid, ask how quickly can we validate it." And if it’s not valid, move on to the next one.
  There’s no harm in claiming failure, if the hypothesis doesn’t work. To me being able to come up with the new ways of doing things, new ways of framing what is a failure and what is a success, how does one achieve success — it’s through a series of failures, a series of hypothesis testing. That’s in some sense the real pursuit. (Apr 17) [62]
• C in CEO stands for culture. (May 18) [96]
• I fundamentally believe, like any human being, companies have an identity, have a soul. (Oct 18) [109]

On humility and hubris

• He has spent time meeting with startup founders like Ryan Smith, who runs Utah-based survey software company Qualtrics and who presented to Nadella at the invitation of venture firm Accel. Nadella asked Smith a half-dozen questions, quickly picking up on where Smith placed his strongest engineering talent. Smith was impressed. It was his first time meeting with anyone in Redmond. “Historically, companies have struggled a little bit on how to work with Microsoft,” Smith says. “I mean, where do you start?” The meeting shifted his impression of the company. “This guy's different,” he says of Nadella. “He's humble.” (Jan 15) [23]
• "We clearly missed the mobile phone, there's no question," Nadella said. "Our goal now is to make sure we grow new categories." Nadella said he is always trying stay "in the hunt for the next high volume category," which is where he sees potential for virtual reality and augmented reality. Hololens, he said, could be the beginning of an "ultimate computer" based on mixed reality. (Oct 16) [49]
• The line between confidence and hubris is thin, so be careful not to cross it. (Feb 17) [58]
• “It was not like we were sitting around, thinking that Steve [Ballmer] is going to retire. So it was a shock. And the board did the right thing, which is they looked far and wide,” Nadella said. “When they came and talked to me and they said, ‘Do you wanna be CEO,’ I was honest. I said, ‘Only if you want me to be CEO.’” (Oct 17) [74]
• From ancient Greece to modern Silicon Valley, the one thing that has brought down empires is hubris. So I approach it as confidence, but understand confidence with humility. (Feb 18) [88]
• My biggest strength is my ability everyday to recognize my weaknesses. (May 18) [98]
• “One of the things I try to practice or build more muscle around is having the confidence that I’m capable of confronting my own demons while also avoiding hubris.” (May 18) [98]