I had been asked to write my impressions on Satya Nadella’s new role as the third CEO in history. Something up until now I have not been all too excited to do.  To be honest even nearing six months I will say up front, it is still way to early, it takes time to make your mark on a company. Especially an industry legend such as Microsoft. However I have seen some good things that may give us in site into where Satya is going with the company.  It has been a crash course for Satya, but at least publicly he has done very well and he looks comfortable in hos new role.  He has signaled his mantra for Microsoft, “Cloud First, Mobile First”.  Nearing six months we are starting to get an idea of where Satya wants to take the company.  I will say it has gone form “blurry” to “less blurry”.

In appointing Satya a couple of things have worked in his favor.  Despite all my issues with Steve Ballmer he did some things right.  In his obsession to create an enterprise first and technology company second, he did create a revenue engine.  Microsoft  continues to drive billions in quarterly net profits and meet or exceed Wall Street’s expectation.  I can’t predict how long this will be the case in a fiercely competitive environment, however it does provide Satya time to implement the changes he wants without too much external scrutiny.  The second thing that Satya brings to the table that Steve did not  is technical chops.  This is valuable in the Microsoft  engineering groups.  Steve was always viewed as a sales guy and more interested in the business side than having a discussion about the long term vision for the company, especially if that vision did not include Office and Windows.  Satya so far has demonstrated an ability to accept what the industry is doing and where it is headed and to attempt to adapt to it.

A couple of things of late that have impressed is the appointment of former VoiceStream CEO John Stanton to the Board and the hiring of Qualcomm exec Peggy Johnson to be Sr VP (replacing Tony Bates).  The former I am not sure how much Satya was involved, but I can only assume he encouraged and approved.  The second was all Satya.  If Microsoft has one colossal failure under SteveB it was mobile.  It seemed during his tenure it was a concerted effort to deny failure  These appointments are an admission that the company needs help and needs help fast.  Microsoft got a couple of rock stars, now it is just a question of is it too late and will it be enough

Satya has also endorsed and accepted reality.  At the Microsoft Worldwide Partner Conference in July, Microsoft COO Kevin Turner admitted that when you include mobile devices, Microsoft’s OS share was 14%.  It was the stat everyone in the industry knew, except Microsoft.  It was refreshing to finally hear Microsoft admit it.  Under Steve that did not happen.  At time sit was hard for Steve to let go of eth PC, because he loved it so much.  This admission happened and it happened with Satya’s approval.  In tech where things move so fast I believe it is important to be honest about the position you occupy.  Satya is right about “Mobile First”, it is where we are at in the world and it has provided us with freedom to work and play at the same time while not being connected, not having a keyboard.  Now Microsoft can stop being so defensive and perhaps be more aggressive in tackling new market opportunities.

Microsoft really announced a huge round of layoffs.  The brunt being absorbed by Microsoft’s acquisition, Nokia.  When Microsoft was pursuing this acquisition it was rumored that Satya was not on board with the idea, but Steve convinced him it was the right decision and Satya capitulated.  This is where I can only guess, but though Satya followed Steve’s lead, I don’t think in his heart he was ever on board with the idea.  I am sure he would have preferred a Google Android model compared with an Apple model.  The Google model was more in line with the Microsoft culture of partnering. When Satya wakes up in the morning and he sees a division bleeding cash and market share on a good day hovering around 4% he has to envision a scenario where they become competitive, but Microsoft has been trying to come up with that game changing strategy for seven years and is no closer now than they were seven years ago.  Now Satya has to clean up this mess while saving face.

In Satya’s company wide memo he talked a lot about streamlining the company, reducing layers to get things resolved and solved.  Changing the culture at the company.  These are tough tasks.  I remember personally dealing with a CIO at T-Mobile who said, “Technology change is easy, cultural change takes along time”.   The first can be read a couple of ways, the simple being we must reduce the amount of organizational layers.  Basically undo a lot of the stuff Steve was so focused on building.  The second and the one I subscribe to is it means shedding some businesses.  That is something that will be interesting to follow.

Shedding more light on this it seems knowing a bit about Satya’s background.  HE had three exec jobs at Microsoft I remember.  He was in online services (Live than Bing), Microsoft Business Solution (Dynamics) and Azure.  Bing has struggled since it inception.  It still lags far behind Google. despite a big budget and many years to overcome.  Microsoft Business Solutions has struggled against SalesForce.com and SAP.  Azure still lags behind Amazon, with other big entrants into the market, like Google.  I think Azure is very safe as it is core to Satya’s One Cloud mantra.  The challenge with MBS is the nature of the business is heavily reliant on consulting engagements as no matter what CRM or ERP system you choose, heavy customization is required, particularly in the enterprise space.  This is not something the Microsoft has shown a great desire to do directly in the past, so it would rely in partnerships to do it.  the question is will the Accenture’s and Cap Gemini’s of the world promote Microsoft MBS solutions?  There has always been a view that Microsoft should dump Bing, I am not for that vie was Microsoft has gleaned a lot of valuable learning in building data centers and developing strong search algorithms.   I do think however something will need to be off loaded, it might even be XBOX, this will be a test of Satya’s leadership moving forward.

A very bright spot for Satya, that I stated the blog with is that he is an engineer, he is a technical guy.  Able to understand and contribute to technical discussions.  This is in addition to cash flow will buy Satya the time he needs to transform the company.  it always seemed to me in the past is the product groups followed Steve’s lead, they just didn’t buy into it.  Satya seems willing to provide guidance but also to listen, the latter being something that was mysteriously misplaced over the past decade.  Satya is very much still in the “honeymoon” phase of his leadership, and Microsoft’s revenue growth will likely help extend that marriage.

Finally I think what has been most impressive in Satya’s first six months is he seems at relative ease with role.  He has benefited from the fact that he is not an outsider.  He is steeped in the Microsoft culture.  He has been more or less raised in the Microsoft culture. Early on he seems to recognize Microsoft’s mistakes and where the industry is headed.  Something that has been sorely lacking at the company, and now that the company has a CEO willing to think forward, it is like leading a horse to water.  Satya was right in his memo this industry doe snot respect history, only innovation.

Good Night and Good Luck

Hans Henrik Hoffmann August 7, 2014