The one about the new Microsoft CEO

Now that some of the dust has settled on Microsoft’s changes last week I’m going to cover three topics.  Satya Nadella the new CEO,  Bill Gates increasing his Microsoft involvement, and Scott Guthrie replacing Satya as Executive VP of Cloud and Enterprise.  I’ll take three different blog entries for this.

Satya is on one hand old-Microsoft through and through and on another he’s more of the startup guy.  If you think about what he’s worked on over the last 20 years it hasn’t been classic things like Windows and Office.

When I first met Satya in the 1990s he was working on those early days of Internet-based commerce.  The BizTalk Framework if memory serves.  A couple of years later we served on the same staff when he cobbled together some acquisitions and re-targeting of existing properties (like Hotmail) to create the bCentral small business Software as a Service offering.  This was 2000/2001.  Yes, Satya was laying the foundation for, and delivering early implementations of, the Cloud long before the term existed.

Shortly after Microsoft formed Microsoft Business Solutions, by acquiring Great Plains and Navision, Satya became head of its engineering organization.  Later he lead all of MBS before being tapped to build the engineering organization for Search and Advertising.  And when Steve Ballmer needed someone to accelerate the Server and Tools Business (STB) move into the Cloud he tapped Satya to be President (and then EVP under the One Microsoft reorg) of that organization.

Leading STB was a good test for Satya because he had to deal with two strongly competing goals.  He had to engineer a cultural and priority shift away from on-premise computing to the Cloud while at the same time maintaining the health of one of Microsoft’s largest and healthiest businesses.  That’s quite a balancing act, but he’s done it successfully.   STB has continued to grow its business at a healthy clip, Azure is well on its way to serious success, and STB (now Cloud and Enterprise) is well along in its cultural shift.

Some people may not understand just how much of a challenge Satya faced.  A few months into Satya’s term as President of STB I asked him if Steve (Ballmer) had given him any relief on Contribution Margin during the refocus on the Cloud.  The answer was NO.  We’d struggled with this problem when I was in STB as it forces you to reduce or eliminate efforts that support an existing revenue stream so you can fund efforts that won’t produce a healthy revenue stream for years into the future.

If you mess up the transition then revenue growth, or even revenue itself, will fall off from older streams (because you neglected them) before the new streams are capable of replacing them.  Alternatively you might not shift enough resources to succeed in the new efforts, miss the paradigm shift, and your entire business collapses when customers redirect their attention (and budget) to the new paradigm.  It was a lack of faith that Bob Muglia could lead STB through this transition that led Steve to replace him with Satya.

Take a look at SQL Server 2014 for a hint of how Satya and Microsoft have managed this balancing act.  On the one hand SQL Server 2014 contains the biggest advance in OLTP support (primarily the in-memory tables for OLTP and related features) since 1998’s SQL Server 7.0, while on the other hand much of the rest of the on-premise product has received minor or no change.  Meanwhile this week marked release of PowerBI, a cloud-based offering from the same Data Platform (nee, SQL Server) team.  For the last few releases on-premise BI has been an area of focus, but for this release cycle those resources were focused on the Cloud.  SQL Server 2014 is going to be a big hit, and so too is PowerBI.  Revenue stream protected, cloud focus producing results, mission accomplished.

Satya’s ability to lead this key part of Microsoft through a transition cycle while preserving the health of the business no doubt played a big part in him getting the CEO position.  Because that characterizes the nature of the entire task in front of the new CEO, taking Microsoft through a number of transitions to renewed industry leadership while preserving the health of the business.

Satya is wicked smart, inquisitive, probing,  and a real pleasure to work with.  He holds very strong opinions, but is always open to input.  I think all constituencies, from customers to investors to employees are going to feel that he is listening to and taking their input into consideration as he moves Microsoft forward.  Is the CEO job a stretch for Satya?  Yes, but it would be a stretch for anyone!

Some stakeholders wanted a new CEO who would jettison the consumer businesses and focus on the enterprise.  Other stakeholders wanted someone with consumer electronics experience precisely so they could do the opposite, find a successful path in mobile devices, Search, and other consumer offerings.  Some wanted a CEO who would rock the boat until it looked like a spacecraft.  Others wanted to make sure the baby wouldn’t be thrown out with the bath water.  Some wanted a CEO who had already led a large F50 company, others wanted someone with more entrepreneurial credentials.

In truth no one person could have met all the expectations for a new Microsoft CEO, particularly since so many are in conflict.  What everyone wanted in a CEO is someone who would find the handful of things where Microsoft can establish or reestablish leadership, focus the company on those, and lift Microsoft out of the malaise that has haunted it every day since the antitrust actions began a decade and a half ago.  That’s something Satya can do, now he has to actually do it!

Of all the things I’ve seen published about Satya my favorite comment came from David Sobeski, a former co-worker of ours.  After Microsoft, David held executive positions at Yahoo and The Walt Disney Company.  In one of his comments on Satya’s appointment as Microsoft CEO David compared Satya to Disney CEO Bob Iger, someone he greatly respects.  Having a “Bob Iger” as Microsoft CEO sounds like a good thing to me.

I’m happy Satya was chosen to be Microsoft’s new CEO.  It gives me a lot of hope that the next decade is going to be a lot happier than the previous one for customers, shareholders, and employees.

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9 Responses to The one about the new Microsoft CEO

  1. webkittor says:

    Did you notice that Harry Shuman has taken over Research from Eric Rudder? And with the return of Bill Gates I wonder how much strategy influence Eric will have going forward. Perhaps he is on his way out?

    • halberenson says:

      Eric moving back into a staff role happened months ago so I see no relationship to the new CEO move. Nor do I see how Bill being a limited part-time advisor would impact Eric in any negative way.

      That said, I didn’t understand Eric’s role two weeks ago so I have no idea how it might have been impacted with the changes a week ago!

  2. Bob - Former DECie says:

    I’m not even going to pretend that I know who should have been appointed CEO, and you make a good case for Satya. I do know that I’m very glad that the Board didn’t listen to the short term Wall Street voices and bring in someone who would start dumping businesses to try and get a short term stock bump at the long term expense of the company. I’m also glad that the Board didn’t bring in someone who would concentrate on the consumer market or the business market at the expense of the other. Satya seems to understand that Microsoft needs to be in both markets. I am optimistic the Board’s choice was a good one.

  3. rolf royce says:

    Hi i am a former Microsoft employee (Developer Marketing) in Vienna, Austria, still following closely what Microsoft is doing. It seems Satya is a great choice for the new CEO, i also think it would be very hard for an outsider to fully understand Microsoft and lead it. There was a rumor that the Google Chrome lead was in discussion. I think this guy would have gone crazy when he saw the reporting infrastructure at Microsoft and how this big ship functions. But brining in an ousider may have caused asking more dificult questions, asking about the usefulness of lot of the organizational tools in place. An outsider may have asked Why MYR? does it have to be this big and lame our whole organization for 2 months? What about MGX? close it down and do something new in 2 years? What about our balanced scorecard thing? are not we lying to ourselves and making it up in the end? An outsider may have asked this questions, Satya will not. He spent 22 years in that company and trusts in those processes and tools. Bringing in some fresh blood at top level to support Satya, someone from Google (Facebook, Apple, Amazon,…) who really grow up in the web, would be very good for Microsoft in my opinion. What do you think about that?

    • halberenson says:

      I would not underestimate Satya’s willingness or interest in changing these business processes. Keep in mind that they are historical artifacts of decades of Steve running a field operation evolved by Kevin Turner’s view of the same thing. Satya has no doubt developed opinions of what works for him and what doesn’t and, over the next year, will start to change those things that don’t work for him. I would.

      I want to focus on three things that you mention.

      First, outsiders. Kevin Turner was an outsider (Walmart) yet, if anything, he increased the bureaucracy of these processes rather than reduced it. The senior leadership is actually full of outsiders. Qi Liu (Yahoo). Tony Bates (Cisco, and of course Skype). Stephen Elop (Adobe/Macromedia, and of course Nokia). And a lot of other outsiders had their hands in these processes over the years such as Bob Herbold (P&G), Rick Belluzzo (HP and SGI), Robert Youngjohns (Sun), etc. And while many of those names now seem “tired”, at the time they actually joined Microsoft those were incredible credentials to have. So bringing in outsiders is not necessarily a recipe that will lead to dramatically different business processes.

      The second thing is a clear difference between Microsoft and the companies you mention. Google, Facebook, Apple, and Amazon are primarily consumer-focused companies with extremely limited (if any) direct enterprise sales and service organizations. Yet the processes you are focused on are the ones Microsoft has in place primarily for managing its huge field organization and its focus on enterprise customers. I realize you are making multiple points, that outsiders bring new ideas in general mixed with specific example of field processes you found more of a burden than a benefit. So I want to be clear that while continuing to recruit outside talent into the leadership ranks is a great idea, and that includes people from the companies you mention, those particular organizations are unlikely to produce anyone who would help change field processes. That would take someone from Oracle or IBM, and then I’m not sure how much their processes differ.

      Which brings me to the third point, field governance is a thing that is hard for those from the product world to get their heads around. And that is probably why Satya will be cautious about changing field processes for a while. A public company CEO (and no, not one of a company I worked for) once told me that you manage sales people completely differently than any other discipline. They are motivated differently and rewarded differently. And measured differently. And that is my observation as well. On a month to month, quarter to quarter, basis there is only one thing that is always out of a company’s direct control and that is deal flow. Sure product engineering can be late and manufacturing or supply chain crisis can develop, but nothing is as random as customers placing orders. So companies place an incredible amount of effort on making sure sales people are pursuing the right deals, that the state of those deals is well understood up through the CEO, that the overall business strategy is correct, and that the deal flow will produce the expected quarterly financial results. Many a company has reported a disastrous quarter for no reason other than a change in field organization, compensation schemes, or processes lead to a hiccup in deal flow. The scorecard, MYR, MGB, etc. all follow from the need exert tight control of the uncontrollable.

      And I do want to point out that while the processes were somewhat different, DEC had a similar set of processes. In fact the DEC ones were sometimes more burdensome. One of my friends still, decades later, talks about how he had to do a conference call every day to review deal flow. So while I don’t recall something as burdensome as MYR, and DEC replaced its equivalent of MGB with a set of regional sales meetings to keep costs down, I don’t know that any large company with a direct sales force is going to manage things materially differently from what Microsoft does.

      • rolf royce says:

        Thanks for this answer, helps me to change my thinking.

        One thing i would like to see from you is a blogpost about the browser platform stuff. After leaving Microsoft i switched to Firefox, later Chrome, and i am now in an environment (which is for sure not representative for the enterprise market) where really no one is sticking to IE. Its all about web apps (extension, plugins etc.) and absolutely see no response on that trend from Microsoft (IE dev is goging too slow). I have the feeling that Microsoft is missing that trend. I know plugins have been around a while, but what Google is doing now with chrome and web apps, also with chromebooks, gives me the impression that Microsoft is falling behind (or is already from a web-app standpoint) on the next platform battle.
        Would be great to get your opinion on that in a blog from you. I blogged about that in german, maybe the translation is not too bad

        regards- rolf

        • halberenson says:

          I’ll think about that topic, though I don’t know if I have enough of an opinion to justify a blog entry. Microsoft has been following Apple down the no “no extensions” path, but I don’t know how that is playing in the enterprise. From the Microsoft perspective the problem with extensions is that they tremendously reduce the reliability and security of the browser (though that is at least in part a result of IE’s continued reliance on ActiveX Controls as its extension mechanism). That most Internet websites must now be developed to accommodate the iPad gave Microsoft the ammunition to do an extension-free browser. But they may revisit this given that Android/Chrome/ChromeOS now represents the more critical competition than IOS.

          Of course if you want a decent market for browser extensions for IE the first order of business is to have a better extension model.

  4. What experience does Satya have in growing revenue for the company? I suppose in the traditional way of bringing products to market and selling them. But on the consumer side of the business isn’t the direct revenue from sales model kind of falling as a percent of total revenue? Sales of windows to the home user is not expected to grow, correct? MSFT has to make money like Google does, like Apple does. It has to track what the user is doing on their PC and sell that info to advertisers. And it has to entice the user to buy online content thru it apps. Does the Microsoft board see Satya as a technical guy who will be in charge of products. And then have business people who are tasked with making money from those products?

    • halberenson says:

      As with any CEO they are responsible for strategy, approving plans, and putting the appropriate leaders into place for businesses and functions. It is always the others who really own their area.

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