Satya Nadella’s leadership dilemmas at Microsoft begin with Nokia

August 5, 2014

Paul Hinks

Satya Nadella

Satya Nadella

Satya Nadella became Microsoft’s third ever CEO in February 2014. He faces enormous challenges of change to an economic powerhouse

Since its inception 39 years ago, Microsoft has driven change. Its products have shaped and disrupted the IT landscape. Its desktop and server operating systems have become industry standards. Yet, relentless competition demands further changes. The new CEO recognizes the situation.

‘One Microsoft’

A few months into his appointment [10th July 2014], Nadella published an ‘internal memo ‘ in the public domain entitled: ‘One Microsoft’. The document provides insight into the strategic priorities at Microsoft – as well highlighting deeper leadership dilemmas. “The day I took on my new role I said that our industry does not respect tradition – it only respects innovation.” He wrote.

Changing landscapes and Microsoft’s previous success

Cloud Computing and Mobile technologies were focal points in the memo – repeated references to “a mobile-first and cloud-first world” emphasising where he feels Microsoft’s future lies.

A key dilemma and challenge for Nadella is that Microsoft no longer appears to be dominant in shaping the direction of the IT landscape. Microsoft’s desktop and server operating systems provide examples of different franchises that became de facto industry standards. Today we talk about firms such as Apple, Google and Amazon and how their products and services have momentum – the iPad, iPhone, Kindle, Android phones – as well various cloud services.

It isn’t that Microsoft hasn’t tried to succeed in these new marketplaces – it has. It’s just that Microsoft’s success doesn’t mirror the success of its competitors. Microsoft has attempted to break into the tablet market but Apple still leads the way. Windows mobile phones competes against Android phones and iPhones, but they do not enjoy the passionate following that their competition enjoys.

Microsoft Axes 18,000 jobs

The acquisition of Nokia in 2013 provides an example of Microsoft’s efforts. Nokia was itself a market leader in the mobile telecommunications market before suffering a number of setbacks which saw its products fall out of vogue. Some analyst at the time saw merit and synergy in Microsoft’s acquisition. However on Thursday [17th July 2014] the BBC reported that Microsoft was announcing a loss of 18,000 jobs globally – the bulk of the cuts to be at Nokia:

Microsoft pledged to cut $600m (£350.8m) per year in costs within 18 months of closing the acquisition – cuts that were much more severe than the 6,000 initially expected. Is this acknowledgement that the Nokia deal was ultimately a failure? Or is it an example of how knowledge, know-how and patented technology can be bought lieu of ethical leadership and employees’ livelihoods?

The Future direction of Microsoft?

Nadella and Microsoft appear to recognize the challenges ahead. Change is necessary. Cloud Computing infrastructures are maturing; mobile online access is now ubiquitous – Nedella’s memo acknowledges Microsoft’s need to adapt and respond – repeated references to “mobile-first and cloud-first world” provide a clear indication of where he sees Microsoft’s future. Will change at Microsoft result in the progress needed for Microsoft to remain a dominant force?

Bill Gates’ 1990 vision of ‘Information at your fingertips’, and then his keynote speech at Jan 1995 Comdex of ‘information at your fingertips ‘ provide evidence of how Microsoft’s first CEO led the way and helped shape an industry.

Nadella has one of the toughest jobs in the industry, made more challenging by an expectation that Microsoft can remain creative and innovate. Not an easy task.


Bezos Buys the Washington Post: A brave new world for newspapers

October 9, 2013

by Evette Alexander

Serial innovator Jeff Bezos is known for reinventing industries around customer needs, pioneering such concepts as online retail and tablet readers. Now, his curious purchase of the Washington Post has the world wondering if, how and to what end he will transform the daily news

Extra, Extra!

On August 5th, Washington Post staff gathered to hear shocking headlines from owner Donald Graham. He had sold the paper that had been in his family for 80 years to Amazon founder Jeff Bezos for $250 million

Graham wrote that he arrived at the decision to sell after seven years of declining revenues in a troubled industry that raised “questions to which we have no answers.” According to Bercovici writing in Forbes attempts at online innovation failed to compensate for the mass diversion of advertising revenues to Internet giants, of which Amazon alone captured $610 million last year (Bercovici, 2013). With Bezos, he sees a chance for the company to succeed.

In a letter to employees, Jeff Bezos was quick to reassure that the company’s core values “do not need changing;” however, the business must and will change. He communicated a vague desire to “invent” and “experiment” in order to understand and provide what readers want – leaving everyone to guess what that could mean.

Old media savior or category killer?

Without a clear road map, some cast Bezos as an “old media savior”, a philanthropist who bought the paper as a public service to “re-invest in the infrastructure of our public intelligence” Bob Woodward, (of the infamous Post duo that broke Watergate) envisions Bezos using his “deep pockets” to “hyper invest” in investigative journalism However, Bezos – not his family trust – bought the paper.

Others fear him as the Fourth Horsemen of the Apocalypse. The “category killer” often accredited with single handedly destroying the traditional book industry now has his sights on news print. Will he retire the presses to cut costs and drive content to Kindle?

Bezos once indicated a key “problem” for newspapers was offering print and digital at the same time, suggesting print would be obsolete within 20 years . Bezos may also see his “duty to readers” differently than journalists). What if the all-powerful reader prefers celebrity boob job stories over political coverage? How far change could extend when faced with a tradeoff between market share and the values he pledged to uphold?

A friend in Washington (DC)

Bezos is quick to remind us of his “day job,” lest we forget his primary interest is Amazon. Would he use the paper’s influence to protect his brainchild in a political battle? The Washington Post still has a powerful voice in the capital where politicians are starting to turn a sheriff’s eye to online quasi-monopolies like Google, Apple iTunes and Facebook. Although Bezos lobbies for Amazon’s regulatory interests in Washington, the Post is not to serve owner interests But, as one of its former editors points out, “mixing commerce and journalism is always fraught with its own perils on the ethics side” [Hagey, K. and G. Bensinger (2013) “For Bezos: A new puzzle,” The Wall Street Journal. 7 August 2013]

Experienced trailblazer meets new frontier

The Post paints a rosy future for itself under Bezos, expecting he will “marry quality journalism with commercial success in the digital era.” Bezos’ track record is impressive to be sure. He started Amazon.com in his garage in 1995, which now includes devices, cloud computing, and is emerging as an online media platform. He successfully replicated the online retail model across Europe, Asia and South America. If the Post’s new model proves successful, we may see him do the same abroad.

Clues into Bezos’ strategic philosophies lie in his annual letter to Amazon shareholders. He remains focused on creating long-term value over short term returns, so we should see him making significant upfront investments and enduring low revenue streams for future payoffs He will seek actively to delight customers by over-delivering, lowering prices and anticipating their needs before competition demands it (Amazon.com, 2013). He sees failure as necessary for invention, yet is demanding and attentive to detail. He pushes for innovation, with a regular reminder that “it’s still Day 1” for the Internet.

Perhaps now, it’s Day 1 for the newspaper.

The author

Evette Treewater Alexander is Manager of Strategy & Market Intelligence at ADT, the leading provider of home security and automation services in North America. She is pursuing a Global MBA at the Manchester Business School and looks forward to her next workshop in Sao Paulo, Brazil, where she previously lived and worked as a strategic marketing consultant. The blog post was developed from an assignment she carried out for the Global Events & Leadership course.


SAP takes Oracle Battle into the Cloud

February 8, 2012

Competitive rivalry between IT services giants SAP and Oracle continues with efforts to develop Cloud Computing projects

SAP and Oracle are by-words for project-driven innovation. Their rivalry is shown in the account of their interest in Cloud computing.

According to a review article in Bloombergs [4th Dec 2011], SAP has agreed to buy California-based SuccessFactors Inc. for $3.4 billion in cash to catch up with Oracle in the cloud-computing market.

Internal growth was favoured by former SAP chief

According to Bloombergs:

SAP AG’s then-chief Leo Apotheker told investors in 2009 that the German company’s homegrown technology was “significantly better” than that of Oracle Corp. (ORCL), which had “not done a good job with acquisitions.”

The shift to an acquisitions strategy

However, Apotheker was forced to leave three months later and his successors, co-CEOs Bill McDermott and Jim Hagemann Snabe, moved to an acquisitions strategy. The SuccessFactors bid is their second major purchase.

Make or buy

Business School students will recognise one of the most-widely faced innovation dilemma, ‘make or buy’. The fastest growing hi-tech pioneers tend to be concentrated first on ‘making’. For Microsoft, Google, Facebook, buying is a signal of a creative growth company. Buying market share for such companies tends to be been espoused later as a means of changing and adjusting to market conditions they themselves helped to create.

SAP ‘learning through customers’

One of the consequences of pioneering though innovating is that the learning takes place often painfully as customers get to work with newer versions of the product. This has become part of the history of IT product innovations and systems from the time Microsoft was no more than an infant.

A not atypical example is one I came across some years ago in a small but innovative food manufacturing business. In switching to a SAP-type system for managing its finances, it came within hours of complete meltdown after a systems failure. The concept of working with the customer in this way is described in far more positive terms in the video clip here

“What took you so long?”

McDermott and Snabe have changed tack at the largest maker of business-management software to do a better job meeting demand for new technologies, such as cloud computing, real-time analytics and mobile applications.

The SuccessFactors deal shows SAP’s previous go-it-alone approach to the cloud was lacking, said Thomas Otter, a vice president at Gartner Inc.
“My first reaction was: what took you so long?” Otter said in a phone interview from Heidelberg, Germany, less than 50 miles away from SAP’s headquarters in Walldorf. “This means a fundamental shift in terms of their cloud strategy, which has been rather slow to get off the ground. This is a tacit admission that their cloud strategy was a failure.”

The search for quality acquisitions

In Business Schools, the issue of searching for strategic partnerships gets extensive treatments. A touching faith in the models of Michael Porter sometimes overlooks the more intuitive side of the process.

According to Bloombergs again:

McDermott and SuccessFactors CEO Lars Dalgaard first met on Sept. 27 at SuccessFactors’s suburban office in San Mateo, the executives said. McDermott said he “personally” evaluated a number of cloud computing competitors — including having dinners with their executives — before deciding to buy SuccessFactors. Competing with Oracle wasn’t a driving factor in the deal, he said. One asset SAP gains is Dalgaard himself.


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