Inside Microsoft’s cultural reinvention

FIX YOUR WORK 1 – Inside Microsoft’s cultural reinvention

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When the biggest company in the world slipped from its throne how did a new CEO try to rescue it using culture. What did Satya Nadella do? How did it succeed, how did it fail? What can any of us do to change our company culture? Download the PDF

This episode draws on the outstanding paper by Herminia Ibarra, Aneeta Rattan and Anna Johnston from London Business School.

Herminia Ibarra’s other recent work includes: Take a Wrecking Ball to Your Company’s Iconic Practices.

TRANSCRIPT

Bruce Daisley: Hello, this is Eat, sleep, work, repeat. I’m Bruce Daley, first episode back of a whole load of new episodes, and I can commit to that ’cause I’ve recorded all of them. Over the next few months, we’re gonna be taking a deep dive into what any of us can do to fix work, and I’m gonna be taking a look at what workplace culture really is, the actions we can take to make it better.

These occasional other episodes along the way. I’ve got one I recorded at VidCon, which is the sort of digital creators festival that doesn’t really fit into this, but it’s a really lovely chat. So I’ll just drop that along the way and I, I think that will come next week. Look for the labels marked. Fix Your Work.

You can also find all of them on the website, eat, sleep, work repeat.com/fix your work and, and they’re all gathered there. If you like this, uh, share it with your team. Maybe use it for team discussions. I’m keen to hear from people who have sort of discussions on the themes that these things bring up. Uh, I was in New York last week promoting the launch of the, the book named after this series.

It’s Sleep, work, repeat. It’s the same book. One of my colleagues bought it. Uh, it’s the same book as the UK book with some very slight changes, so I wouldn’t double up unless you’re a completist. And then if you are a completist, where you’re gonna love, uh, the range of Polish, French, French Canadian, or manner of books that are coming your way, just to give you a perspective of what’s gonna come up over the next sort of few episodes, we’re gonna be taking a look inside the culture of some of the biggest companies, what works and what doesn’t work.

We’re gonna study companies who’ve tried to change their culture, the ones who succeeded, the ones who failed, the difference between team culture and company culture. What create. Culture and what actions can any of us take to change it. We’re, we’re also gonna be looking at some of the things that companies are doing right now to adapt how they’re working.

So whole load of stuff. But today we’re kicking off with talking about Microsoft, a company that I think, you know, rightfully so, gets a lot of attention ’cause it’s, uh, it has been and, and now is again the biggest company in the us. It’s relevant because I think a lot of the factors that help shape cultures Microsoft had to deal with and tackle.

And they give us some really fascinating pointers. If you are looking to change company culture, what can you do? What works and what doesn’t work? About six years ago, Satya Nadella took over what had formally been the biggest company in the world. Microsoft as only its third chief executive, Microsoft had been founded in 19 75, 42 years into its history.

It was looking for someone new to take it on. For a job of this scale, there’s always sort of high intrigue of who will get the job, and while Satya Nadella was a Microsoft lifer, he was pretty unknown to anyone but the 120,000 Microsoft employees. You’ll know his predecessors. First up was founded Bill Gates.

Gates has had PR teams working hard on his image in the decades since he left the helm. At the time he led Microsoft, he felt monochrome. He was like the finance director of the death star, defending their right to make money from their natural monopoly that had fallen into their hands. Everything’s a reaction to everything.

President’s. A reaction to previous presidents, sports managers to previous sports managers. Gates successor Steve Balmer was a reaction to Gates,

Announcer: ladies and gentlemen, Steve Balmer.

Bruce Daisley: Steve Balmer was a cartoonish alpha male salesman who made eye popping sweat, showering stage performances. He’s stuck in trade. Who

Announcer: said, I have four words for you. I love. This company? Yes.

Bruce Daisley: First and foremost, he was a massive performer. YouTubing clips of Balmar is always entertaining.

Steve Ballmer: Developers, developers, developers, developers, developers, developers. Developers, developers, developers, developers, developers, developers, developers,

Bruce Daisley: developers. The thing is, 20 years on, it’s immensely charming to watch some of the things he got up to.

He looks like he’s got a real sense of fun. It’s just not the behavior we want from our biggest companies in the world, and especially when they’re sitting gone. What we’re becoming clear to be natural monopolies, leaders aside. The problem for the company was that while Microsoft was still immensely profitable from having the installed base of software on almost every desktop computer on Earth, they were slipping behind on all of the new stuff.

They missed the explosion of the web seeding leadership to new starter Google. Then they watched Apple launch into phones and they seemed complacent and flatfooted. His ER interviewed about the iPhone at launch. In the bit immediately before this, he’s talking about the launch of the Microsoft Zune. You might wanna bing that one,

Steve Ballmer: $500 fully subsidized with a plan.

I said that is the most expensive phone in the world, and it doesn’t appeal to business customers because it doesn’t have a keyboard, which makes it not a very good email machine.

Bruce Daisley: And now Microsoft and Amazon we’re starting to transform communication, retail and cloud hosting online. Alma had his own problems he’d taken over just 17 days after a stock market crash in 2000.

The company had spent years mired in antitrust investigations and were being regulated in markets like Europe. The impact of the external regulation and limits to how aggressive the company could be with competitors was starting to focus the intellect of those at Microsoft on winning internal battles.

I went to chat to Hernia Ibarra, professor at London Business School. Professor Ibarra has written a case study with some colleagues that’s essential reading on this. You’ll find a link to it in the show notes if you are interested in this episode. She tells all of it in great detail. I asked Professor Ibarra what the culture was like during this alma era.

Hermania Ibarra: It was viewed as extremely political, extremely inwardly focused, uh, very conflictual and very cover your own butt and stab the other one in the back before they stab you and that. That’s been portrayed very, very clearly in the press across, you know, a range of different periodicals and interviews with massive amounts of people.

It was being reflected in the Glassdoor comments and ratings. You know, the, the reputation really was, they’ve turned their eyes away from the external competition. They’re now competing with each other. There was this very famous cartoon that went around that showed the organization structures at each different tech company, and at Microsoft, they had all their guns pointed at each other across the different business units.

Now what ends up happening is people start focusing inside and the. Internal contests and who’s gonna, who’s gonna get more resources and who’s gonna get the promotion and who’s in favor. And that is self-reinforcing if the organization allows and rewards it, which they did by essentially rewarding.

Those people whose ideas were completely window centric and not rewarding, those whose ideas were not when you actually rewarded, it’s a fixed equation. You’ve got limited time and energy, so the more you focus inwards, the less you focus outside. The less likely you are to see that. That’s where the real competition is.

Now, once you start losing ground, which they did as innovation after innovation fails to take, then it kind of feeds the internal posturing, positioning what you did, making sure you don’t lose further ground, and that furthers. Peds the cycle of irrelevance.

Bruce Daisley: It’s worth saying that it wasn’t all bad news under Belmar, but they’d focused on profiting from their existing business and were slipping behind in innovation.

Hermania Ibarra: Now look, let’s just now forget that under Steve Ballmer, they doubled profits and tripled revenues. You know, it was an expansionist era and it’s no accent that it was led by a salesperson because that’s what you do when you’ve got magic dust, and what you wanna do is efficiently get it out there.

That’s a very different game than innovating on something new. What they were about was really executing flawlessly on this fantastic product that they had and the whole world wanted, and that for all organizations. That’s what Clay Christiansen called the Innovator’s Dilemma. You know, you have a hungry beast that wants to be fed.

It’s profitable, it’s successful. All your systems are geared towards that, and it becomes self-reinforcing within that world. It’s really hard to deviate from it. Now, they did. They set up different units, and Satya came out of a different unit. He was asked to lead Bing. And Balmer told him, if you fail, you’re fired, so you know what you’re getting yourself into.

But he did that and then he went to the cloud, and so he was on the periphery. He was an insider, but on the periphery of that whole. Monster system that had been created to generate profit and margin and revenue, which they did successfully. So it’s always, it’s always a mixed story. It’s hard to transform when you have such great success on those grounds, but not good press.

Not getting the star engineers anymore. Failing on the innovations and you know that’s gonna get you into trouble, but it’s always hard to know when you start to really, seriously need to transform.

Bruce Daisley: One of the things that Herin IRA’s case study describes is how the ALMA culture at Microsoft was adding to internal pressures.

Like lots of firms, they used a stack ranking system, meaning that colleagues were competitively pitied against each other. Generally, these things involve bosses giving scores to their team members. Sometimes in secret, but mainly shared with the employees. It comes from the old general electric boss, Jack Welsh, who felt you should be always firing your bottom five or 10% of workers.

Now often no boss wants to say that their workers are in the bottom five or 10%. It creates tension. It’s awkward in their teams, so to force them to do it, companies often use something called forced distribution. In other words, it means that collectively teams have to agree who is in the bottom 10% of their ranks.

In the companies that do it, there’s often meetings which involve fierce debate as colleagues, sniper members of other teams trying to find someone to throw to the wolves. Professor Ibarra quotes one product manager saying, if you don’t play the politics, it’s management by character. Assassination.

Combined with this, there was an internal feeling that no one wanted to take crazy chances with new products. The downside of being judged a failure was just too high. As a result, Microsoft was guilty of lots of copycat innovation. The iPod led to the Microsoft Zooms. For example, the iPad saw them launch Microsoft Surface.

One of the additional consequences was that Microsoft’s reputation as an employer wasn’t strong externally with no innovation, no new blood, bad headlines, and tribal internal politics. Morale suffered in 2011, Alma’s Glass door rating was 29% approval by his own employees. So to compare Larry Pager, Google was scoring 94 at that time, and Mark Zuckerberg at Facebook was the number one in the world at 99%.

Na, Della found himself prevailing in the selection process. Ibarra explains how this came about.

Hermania Ibarra: A CEO selection contest is always a complicated thing. The board is very much involved. I’m sure Bill Gates was involved. I’m sure they had headhunters involved, and part of the selection is understanding what does the organization need for this next phase of its journey, and what are the ideas of the different candidates.

It is no accident. That he was selected because A, he’s an engineer, so he is emblematic of what Microsoft had grown out of and straight away from two, he came from the cloud, which at a strategic level they could see. That was the new next new thing. And so it made a. Sense and, and you know, and what I don’t know is to what extent his very different personal style relative to his predecessor, to what extent that played in post hoc.

It makes sense if you’re trying to move into a more innovative era. Somebody who’s more inquisitive rather than bombastic is gonna make sense. But those are always post hoc explanations.

Bruce Daisley: Professor Ibarra mentioned that Nao had been told in his last job that he was at risk of being fired. He tells the story here talking to Bloomberg tv,

Satya Nadella: and I had just been promoted to lead our business solutions team and I was loving that job and something that I’d aspired to do and Steve comes around and he says, Hey, you know what?

I have an idea for you. I think you should go run this group that’s got high attrition. And we have a very tough task I had, and I don’t know whether it’s a good career move, but I need help think wisely and choose. Did Steve say, if you do this well, we’ll be happy. If you don’t do it well, you might not get another job.

That’s correct. And that was, you know, one of the things that is amazing, uh, both Bill and Steve is, uh, they’re candor. It’s not like they sugarcoat anything. They’re very, very honest about most things in life or everything in life. And there was sort very clearly, look, if you do a good job, maybe you’ll have another job.

If not,

Bruce Daisley: you won’t. Quite often we say that elections are change elections or continuity elections, and it’s the same for jobs from the start. Nadella knew he was a change candidate. Critical thing about attempting to change a culture is that you need to signal that change often. You need to do it a lot.

Nadella set to doing that, telling the world that something had changed, letting people inside and outside the company know that things were gonna be different. I went to chapter Paul Davies. He’s the consumer marketing Director at Microsoft today, but he’s worked under the Almat and Nadella era at Microsoft.

I asked him what Nadella did to let people know that he was different to Gates and Almat.

Paul Davies: He did a lot of things, but I think the first thing that I noticed it was really visible was when he was announced. The press photography was really interesting because traditionally our executives have been in.

Blue shirts and chinos and it was kind of that, that sort of style. But he was, he was in a hoodie and a t-shirt and jeans and trainers and suddenly it felt, oh wow, okay. Things feel a bit differently around here. And that was really powerful. So that, that was the first thing that I felt was very visual.

Bruce Daisley: His professor Herin Ibarra, on that very hoodie, her point is that leaders need to try to signal far more than we realize. It takes many actions to deliver a consistent message

Hermania Ibarra: and a nod to Silicon Valley and how the tech. World has evolved in the direction of young people in hoodies. You know, there’s always symbolism involved in leadership.

That’s, you get your message across not by saying slogans, but by. A little symbol here, a little nudge there, how you appear here. You know, those are, those are the ways people start to get it and paying attention that maybe something new and different is happening.

Bruce Daisley: Achi Nadella reflected on what was wrong with Microsoft.

He wrote in his promotion email, quote, Microsoft’s culture has been rigid. Each employee has to prove to everyone that he or she was the smartest person in the room. Accountability, delivering on time and hitting numbers trumped everything. This was the know it all. Culture Nadella goes on. This is taken from his intro email when he was promoted.

Quote, meetings were formal. If a senior leader wanted to tap the energy and creativity of someone lower down in the organization, he or she needed to invite that person’s boss. So I was interested in how important the leader’s own story was in his situation. When someone comes into a leader role, we allow more changes from that person than the previous incumbent.

But of course, across the company, a lot of people would’ve been quietly asking themselves, do I like this guy? Do I trust him? Am I inspired by him? It’s why the styling with a hoodie was an important piece of tonal messaging. Herin IRA’s paper describes one leadership retreat in 2015 when the Legacy leadership team spent most of their time together picking holes in each other’s ideas.

In contrast, people who joined from businesses that Microsoft had acquired, like Minecraft Creator Mojang, seemed engaged and asked questions, filled with curiosity. You mentioned the culture thing there and you described something quite vividly, which was. Satya Nadella talked about a team offsite where he watched the interactions between people.

That seemed to be I, I, I forget which year this was, but it seemed to be a relic of the bygone era where they were all being snippy with each other. They were all criticizing each other. What was it specifically he set about trying to change with the culture? That was a push back against that. I

Hermania Ibarra: think what you’re referring to is a really good example, and it’s a good example of how you iterate.

’cause it happened a lot later. I would say probably about two years ago, or a year and a half ago, they decided to get rid of something that was very much a relic of the past and that was the way they ran their quarterly business review meetings, and in particular the very key one, which was the mid-year.

Quarterly review, the one that happened in January. And this is primarily within the overall sales organization. You know, that’s the, the meeting where all the brass gets together to review the forecasts and the margins and, and all of that. And they were still running it, like in the old days, which was really one of them called it corporate theater.

Theater. It’s a performance. You’ve got, you know, people who have been. Preparing PowerPoint after PowerPoint. For months, they were ruining their Christmas holidays, getting this ready. You had people who were preparing the preparers. You had assistance coming. Then people who just wanted to see the whole show.

And you know, in the old era. It was an exercise in rigor, and that’s where you showed that you had gone the extra mile where you knew your business inside out. And if you were asked any detailed question, you could pull out that footnote 76 on slide 82, and you knew your stuff better than anybody else.

It was a way of showing, not just that you knew your stuff, but you knew how to play the game at Microsoft, you know, in a way. And they were still doing that. And what they’ve come to realize. Is in this shift, and the shift has really been led by being obsessed with your customer, knowing them what they need and how do we provide it, whether it’s Windows based or not.

They realize because they actually track how they spend their time and the outcomes of those. They apply a lot of their own people analytics to themselves. They realize that the more time you spent with your customers, the more they use of your product. And by the way, a big shift had been as you shift to the cloud.

Your revenues are based on consumption, on usage by the client. It’s not a a one shot per purchase, and so you’ve gotta be mo, you’ve gotta help them understand how to use it, if they’re gonna use it, and so that takes spending time with them. What was keeping people from spending more time with their customers?

A lot of the internal bureaucracy in the political games and preparing a hundred overheads that nobody was gonna look at. And so as they started to really focus on what does it take to do customer obsession and what’s keeping people from doing it, they realized it was the internal stuff that was taking up their time and that it was no longer really needed because they have all of these.

Smart dashboards so that everybody knows what the numbers are and what the forecasts are. You don’t need to make this big hullabaloo four times a year, and particularly in that key meeting. So they did away with it. They’re, well, they still have a review meeting, but it’s a much more conversational, you don’t have these mega presentations and people have been told to work on in January and certainly not spend their holidays preparing for it.

Bruce Daisley: These meetings now abolished. Well, one of the reasons that the culture was regarded as a know it all culture. I want to understand that a bit more when it’s articulated that they wanted to move from a knowit all culture to a LearniT all culture, I took know it all to be slightly pejorative. But you, you’re saying that there’s almost a, there’s almost a benign use of knowit all, which is someone who knows all their data, their stats, they’ve, is, is that right?

Or is the pejorative of the right one that they were pushing against?

Hermania Ibarra: Well, I don’t know if it’s pejorative. You know, all of these things start out with good intent. So I think it did start out with a know-it-all in terms of, you know, I’m expert. I, you know, I know my stuff in and out. And so when you’re expert, two things happen.

You know what your customer needs, and so you’re there to impart your wisdom. And when you’re expert internally. Taken to an extreme, you’ve gotta put on a good show. And so these review meetings, rather than being about joint problem solving, they’re about putting your best face forward. Here’s how great I am, as opposed to, here’s some issues I see.

Let’s discuss and see. How we can solve these issues. That was not the time. If that was performance time, it’s, you know, it’s related to the idea of growth mindset that they drew on heavily for their transition. You could have a performance mindset, which is great in many cases, but it gets in the way when you let putting on a good show, get in the way of learning what you need to learn and when it keeps people from voicing what they know, that could get you into trouble now or further on down the line.

And then the growth mindset, which is more around learning where you’re favoring, trying to understand the challenges and putting yourself in a position where you’re gonna learn something new, even if it’s a detriment to your immediate, uh, numbers or your immediate performance.

Bruce Daisley: And so that was able to afford them the willingness to then not be the experts in a field or to, to experiment a bit more.

Hermania Ibarra: I mean, that’s culturally, that’s what they’re trying to do, allow people. To try things that, um. Might at first blow up in their face. You know, in the case study there was the great example of Tay, the chat box that, um, was trolled and became racist and sexist in no time at all. Um, you could see an old world in which there would’ve been serious repercussions for people who put that out too early.

And Satya was very supportive. He said, we don’t have it right, but we’ve learned something new and now we can incorporate that into. Next phase. I think what’s interesting is the know-it-all to learn it all started with how they approach their customers, and I think that’s been a big part of their success, that it all was kind of customer led, but once they started to really understand it relative to their customers, they were able to see the inconsistencies internally.

We’re still being know-it-alls in how we treat each other in how we present to each other, in how we have performance conversations and how do we relax some of that so that people can also be learn it alls. Among themselves as we work across the different parts of Microsoft.

Bruce Daisley: Nadella had been a 22 year veteran of Microsoft joining in 1992, he said about changing this daily experience that team members were experiencing.

Professor Ibarra mentioned a famous cartoon shared in the show notes and in the case study, which shows that Microsoft was regarded as a company with, with guns drawn against each other. He wanted to change that. Nadella told the Australian Financial Review quote, we had to go from being know-it-alls to learn it alls, and that’s been important to me.

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. End quote. Here’s Microsoft President and Chief Legal Officer Brad Smith, saying as much to Kara Swisher on Recode’s Decode her podcast.

Brad Smith: when Steve was the CEO, bill Gates was the chairman and it was called We have to learn to get along. Mm-hmm. We have to, you know, build some bridges. We have to make peace with governments. We’re gonna have to agree to some restraints and that’s gonna require processes and controls. In some ways that set the foundation for what I think of as the cultural evolution of this decade led by Satya in a very interesting way.

I think Satya took the cultural evolution of the two thousands and said, let’s sustain this level of responsibility. Let’s be committed to trust with customers as a core. Uh, principle for the company, but let’s add to this what he describes as a growth mindset. You know, a real focus on a learn it all rather than know it all.

Culture at Microsoft, and let’s use that to unleash innovation, especially with more employees and perhaps most importantly, younger employees. And.

Bruce Daisley: You’ll note some repetition here. Simple phrases being repeated often that sort of label what people have been directed towards. Learn it all culture, growth mindset.

Same phrases over and over again. Brad Smith mentioned younger employees. It was felt that Microsoft was falling behind hiring best talent. One of the things that didn’t help here was that Microsoft seemed boring in comparison to their rivals. Companies like Google and Facebook were talking about moving fast and breaking things.

Not being evil. The bosses of Google skateboarded around vast campuses wearing t-shirts. In comparison, Microsoft seemed obsessed with money. The original Microsoft Mission had been to put a computer on every desk and in every home. They were asking their team effectively to get behind a goal of selling loads.

It was only a year into his tenure that Nadella unveiled a new mission. Again, something they would learn to repeat a lot. Here’s Paul Davies again, talking about how the team welcomed Satya as a person and how he brought the sense of mission, stroke, purpose to life. I

Paul Davies: think everyone sort of. Very much welcomed him with, with open arms.

What I love about Satya as a leader is he’s got such integrity and he always brings everything back to the purpose, which you ask any Microsoft employee and then, and they can tell you this ’cause it’s kind of, it’s stamped on the back of all of our security passes. Satya talks about it at every keynote.

It’s to empower every person and every organization on the planet to achieve more. And, and that’s what he talks about. It’s delivered with, with such depth of integrity, that level of purpose, and it, it permeates the organization. If I think about, even in our advertising, we used to talk about what our products and services did.

So, so we call it speeds and feeds, um, features and benefits, and that’s what we used to do. But we don’t do that anymore. We talk about what people do with our technology and how they achieve. So it’s not about us being cool. We, I don’t think we think we’re particularly cool, but what we do think is cool is what our customers do with our technology, and that’s the big difference.

Bruce Daisley: So that new mission was quote, to empower every person and every organization on the planet to achieve more. Nadella made sure that the Microsoft teams looking for meaning we’re given something more than speeds and feeds to think about. They were given something they could proudly tell their parents, friends and partners.

Professor Ibar mentioned earlier, the innovator’s dilemma. This is a situation named after a book by Clayton Christensen, often described as the most important business book ever. The principle of it is that new technology and its application by its very nature, often disrupts existing customers, and so the incumbents in a market often don’t have a big incentive to bring these new innovations to their customers.

Meaning that big companies are often slow to bring new ideas to the market, even if they can spot the opportunities for them. In 20 17, 3 years into his tenure, Nadella released a book refresh, which his co-author said was, in many ways, seen as a way to anchor the new culture internally. The book was given to everyone in the company as ever.

It was careful not to bury the past, but it was clear that this was a new Microsoft. This is another part of the repetition I’ve mentioned earlier, to try and bring a message to the team, it needed to be repeated over and over and over, and it often in different ways. Here’s Paul Davis again.

Paul Davies: It can’t be done overnight would be my thinking on it.

What I’ve felt is that it’s about frequency of message and repetition. ’cause there’s always a danger with these things that you think, oh, that’s, that’s just, that’s just this year’s initiative and next year we’ll have something else. But this has been repeated so many times in different formats, in text, verbally, visually, multiple times throughout the years that I think that’s really helped to embed it amongst the people.

And I think when you hear a leader right at the top of an organization repeatedly come back to a purpose, that’s when it starts to really permeate through an organization. And yes, as well, the, the small things like, you know, on the back of the security badges and stuff like that that we talked about, I think really helps and that, that helps to make it stick.

But it’s, it’s about repetition and frequency and following through with action. So it’s not just words.

Bruce Daisley: Search was the power of repetition of these images, of these stories. I did have a pause for thought. Maybe we were just being spun here. Windows Word and PowerPoint used to be sold to you. You paid just over a hundred pounds for each of them.

Now you subscribe to them. They cost you more than Netflix annually in business jargon, this is moving from being a packaged good, something cellophane wrapped and sitting on a shelf taken to the till. To a subscription model, and I hesitated. I asked myself, is all of this just a spin? Are we just being sold?

Something that isn’t necessarily a cultural transformation, it’s just a business model change it. It struck me that the importance of stories and narratives in terms of understanding and interpreting things, because you could say with a mischievous interpretation, you could say. Actually, what we’re looking at here is someone that had one of the biggest installed bases of business software in the world, and they’ve switched it from a package to good product, to a subscription product, and everything else is window dressing.

But the brilliance is that that window dressing actually helps us interpret what’s going on, so, so firstly. How much do you think that mischievous interpretation is fair? And then how important are our stories in helping us in interpret this?

Hermania Ibarra: So stories are critical because stories, um, get us focused on what’s the ending gonna be and is it gonna be a happy ending and, you know, who are the good guys and who are the bad guys?

So, you know, stories. Stories are important. I think people needed a a, a kind of a redemption narrative for Microsoft. You know, we’re a good company that’s kind of becoming, become a bit irrelevant and how do we, you know, we triumph, we became great again, and they were able to be the David to Amazon’s Goliath.

You know, that’s, you know, a cherry on the cake. But if the

Bruce Daisley: story was we’ve just changed our pricing model, then you wouldn’t have got those extra engineers back. You wouldn’t have got like this empathetic CEO figure.

Hermania Ibarra: But you can’t, you can’t, um, underestimate the technological change that’s required to shift to that way of operating, even if it were just window dressing, which I don’t think it is.

Um, you know, they’ve had to hire thousands and thousands of, um, cloud engineers. You know, they’ve had to compete with the startups. And so I think technologically it’s no small feat, and this is then allowing them to start to get an edge. With artificial intelligence and they have to leverage what they, you know, the, the wonderful storehouse that they’ve had in order to use that.

The stories by far, not over. I don’t think it’s, it’s, it’s simple. It’s simple window dressing. I mean, they’ve, um. They’ve gone to open source something that was complete anathema, uh, before they, um, if you look at their, their acquisitions big and small, um, they indicate something a little bit different. Um, you know, I think we’ll have to stay, stay tuned to see which way it plays out, but it looks, it does look different to me.

Bruce Daisley: In the Dallas original email, he signaled the importance of his hunger free learning. Many who know me say I am also defined by my curiosity and thirst for learning. I buy more books than I can finish. I sign up for more online courses than I can complete. I fundamentally believe if we are not learning new things, you stop doing great and useful things.

One of the things that Microsoft talks a lot about now is the lessons they learned from changing their mindset. Mindset by Carol Dweck is a book that’s become a modern classic. As an aside, I have to confess that while I strongly support the findings in it, I found it a really hard slog to read. I wouldn’t necessarily recommend that you have to read the original.

One of the things that Dweck talks about is the difference between a growth mindset open to improving and change, and a fixed mindset, which the know it all culture was certainly an example of. Nadella loved this and made sure that Dweck’s language became the language that the whole company used.

Here’s Paul.

Paul Davies: We talk a lot about having a growth mindset, and so we talk about embracing change, it being okay to make mistakes. Don’t seek perfection, don’t wait for perfection, but keep running if, if it’s good enough. And so we talk a lot about growth mindset. We’ve all been on this journey of developing a growth mindset, which is about accepting the.

Sometimes we don’t have all the information or things might not be perfect, or actually the future ahead might look, look quite scary if we don’t know where, where it’s going, but really embracing it and going for it. And I think that’s been a massive culture change. And so taking everyone on that growth mindset journey is something that, that we’ve all been on.

And I think that’s really helped to, I guess. Help people accept change and be up for it and go on that journey.

Bruce Daisley: As part of this growth mindset, Nadella used it to signal that he was open to doing new things that the old culture would never have done. One obvious place to start was to change the Microsoft walled garden approach to software development.

Until then, Microsoft’s products on Apple max weren’t anywhere near parity. For example, the decision meant the company would start collaborating with competitors like Apple, and they started supporting open source standard Linux, something Balmer once described as a cancer. Another part of the growth mindset was just being open to admitting mistakes.

Just a year into his tenure, Nadella announced a $7.6 billion write down of the purchase of Nokia. In the era of Alma, this sort of climbed down might have been associated with bluster and bombast, but because Nadella cuts such a gentle figure, the write down to some extent helped to signal that vulnerability and mistakes were possible, if not inevitable.

The thing that was clear to me as we look at Microsoft today is that they seemed slick, impressive, forward looking, but when we go back and look at the journey, there were plenty of bumps in the road, lots of things that we understand today that weren’t fully formed at the outset. The human mind doesn’t remember those things.

It means that when we’re thinking about our own culture or our own strategy, then it reminds us that sometimes the direction we head in is more important than the precise destination. Mia Ibarra explains a little bit more how Nadella iterated as he went along.

Hermania Ibarra: People always think, you know, in retrospect, it looks perfectly logical and perfectly hatched, but it’s not.

It’s, um, especially today, it’s very rare to have a kind of like a top full, top down transformation that’s all planned, envisioned, and then kind of rolled out. You have an idea and then. If you’re good, you get the right people working with you on how to flesh it out and how to iterate it as you learn.

And I think actually Satya’s idea, I mean obviously he was looking at new technology, AI. The cloud, but you know, kind of like the, the, the evolution of technology was obvious. That was kind of their next thing. But his change idea was not just about how do we position ourselves relative to Amazon Web services.

His change idea was a cultural one, and I think that’s what made him successful. And he basically said, look. There’s a huge opportunity out there in the market, and it has to do with the cloud and AI and technology, but we’re gonna miss it if we keep doing things the way we’ve done things. Our culture’s gonna keep us from really capitalizing on this because we are completely geared towards executing flawlessly in what we already know how to do, and we are not.

Good at learning how to do new things because we punish people if they’re not immediately high performing and perfect. So he had his finger on that, which is the really critical thing because anybody can execute on a strategic idea up to a point where you reach the limit of people’s capacities, people’s mindsets, people’s willingness to take risks, and it always takes risks.

To do new things. So I think that’s the brilliance of it. And it, it iterated, if you look at their annual report for, I think it was 1718, there’s, they talk about their strategy in terms of being, um. Cloud first, mobile first. If you look at their last annual report, it’s cloud first with an intelligent edge.

So it’s more about cloud and ai. And they’ve sort of dropped the mobility because may, because that’s a given now, and also because they have separated from the whole mobile phone sector. So it’s, it’s, it’s an evolving thing and as they learn. They iterate and they, they move on

Bruce Daisley: along the way. There, professor Ibarra nails the detail, which I think is really crucial.

She says that his change idea was a cultural one. ’cause we’re geared to executing what we know. It often stops us from trying new things we’re not good at. If we’re gonna do new things, we need to change the culture. And this is the massive impact of this. To some extent, Nadella didn’t have a new product to win with.

There was no iPhone rapidly growing, dominating the market. He didn’t have new answers. His strategy was to reinvent the culture as Paul Davis, what the culture feels like in the company today.

Paul Davies: I think if I reflect on the day-to-day and how things have changed, I think, I think there are, there are a few things, so.

When I meet people and they talk to me about, oh, you know what? What’s it like to work at Microsoft? Well, the first thing is more people are interested, so I get asked a lot more than I ever used to. I think secondly, when I interview people. That they feel that Microsoft is a different organization and they’re attracted to it.

And they’re interested in it because of the purpose and the culture. They’ve read about Satch and what he does and they want to talk about it. So that’s really interesting. And thirdly, I get a lot of questions ’cause the, the business is, we’re in a growth cycle, which is fantastically exciting. We also get asked a lot about, oh, so, so what’s happening within Microsoft?

How, how, how is it changing? What, what have you done? What, what have been the ingredients? So I noticed a lot more. A lot more interest from the outside world in what we’re doing, so that that feels different from the outside in and then from the inside out. It feels, I think people feel more proud than they used to to work at Microsoft.

So I really get that, that sense of pride that really comes through because they feel that there is a higher order to the work that they’re doing. We are helping people. It’s a company that does good on the planet. I think that does permeate a culture and people feel differently about it. Yeah, so we have, we have an annual survey that every employee around the world completes the key phrases that always comes out, or, or the key words.

It’s always pride. It’s the one that always comes out year after year. So it’s really interesting. So that, that is a, I guess, a key sentiment that runs through the veins of the organization.

Bruce Daisley: In boxing, there’s an old adage that to be a champion, you need to think like a challenger. And there seems to be something in that for Microsoft to be the biggest, again, they needed to lose the hubris of success.

I asked Paul whether he agreed with

Paul Davies: that. Yeah, I, there’s a huge amount of humility in the organization. Yes, we have come from behind and we’re, we’re in a growth phase, which is fantastic, but I don’t think that’s ever taken for granted. I, I think there’s deep humility in the organization now, which again makes it a really great place to work because we we’re deeply.

Respectful of each other and the staff, but also our customers, you know, very grateful for our customers. Even the way we think about our competitors, actually, you know, we have deep respect for all our competitors and, and what they stand for because, you know, they make us better. And yes, there should be a choice.

So I think humility really runs deeply through the organization. Now,

Bruce Daisley: with leaders, often one of the ways they hammer home culture is their own visibility. But with such a vast organization spread across the whole planet, can Satya make his presence felt? Across such a big organization.

Paul Davies: We’re, we’re an international business, so, so we’re global.

So there isn’t a physical presence, but no, you absolutely feel it. And we use our own technology a lot. So he will, um, stand up and do company meetings very regularly, um, that around the world we will all tune into. There are q and a sessions, um, he’ll send or company emails. So, no, I, I. Very much feel his, his sort of, his fingerprints on the organization in, in a very positive way.

So there definitely is a presence and yeah, he, he’s around

Bruce Daisley: as we finish, how are things looking now? Nadal’s employee approval score on Glassdoor is 95% in a league chart. They run, he’s jumped from being number 20 CEO in the world to number six. In contrast, former chart topper, mark Zuckerberg dropped from 16 in 2018 to 55 last year.

Microsoft has spent much of the last 12 months back as the most valuable company in the world. The lessons of Nadella has changed for me at Microsoft are that you can change a culture, but you need to vocally call out the elements that need to change. In Microsoft’s case, they’ve become the market leaders who behave with a know it all market leader mentality.

They needed to channel humility into the organization. In an era with relentless new innovation around them, they were confronted with the elevator’s dilemma, and it was only by acting to explode some parts of their old culture that they moved to the new place. The final critical part was the point that Professor Ibar made Microsoft’s new strategy was this culture bringing a culture of openness and quote growth mindset unquote, allowed them to reinvent the organization.

If you’re interested in the lessons of today’s podcast, you can go to eat, sleep, work, repeat slash fix your work. There’s a PDF there and you can download it with the main points. There’s links to the case studies and more. Much of the, the credit for today’s episode comes from the paper that was an inspiration by Hernia Ibarra, Anita Ratan and Anna Johnston at the London Business School.

Thanks to Hernia for talking to me. Thanks also to Paul Davies from Microsoft for sharing his thoughts. Next up, we’ve got a couple of episodes about the ways that some companies are trying to change specific parts of the way that they work. Also, next week, I’m hoping to put out that episode from VidCon.

Thanks for listening as ever. I love you getting in touch. If you wanna sign up for our email, you can do that at the website. I’ve been Bruce Daley. See you next time.