Feature

Urgency and Patience

Satya Nadella, '97, is charged with bringing change to Microsoft. The new CEO knows revitalization will take measured, but nimble thinking.

By Amy Merrick

nadella

Microsoft Corp.'s newest chief executive must reinvigorate the fabled software pioneer as it competes in a crowded industry, fends off deep-pocketed rivals, and adapts to the changing needs of customers. All this might sound like a Booth case study, but it's become a reality for Satya Nadella, '97, who was promoted to CEO on February 4. At 46, Nadella became only the third chief executive in Microsoft's history.

He arrives in the job at a time when competitors have Microsoft in their crosshairs. He has the advantage of tutelage from cofounder Bill Gates, who is increasing his focus at the company to roughly one-third of his time. Similar leadership changes have been happening at Apple Inc., Microsoft's arch nemesis, where Tim Cook is trying to live up to the legacy of the late Steve Jobs. Meanwhile, young CEOs such as Facebook Inc.'s Mark Zuckerberg have shifted the technology frontier to social media.

Nadella has deep roots at Microsoft: he started at the company 22 years ago helping to build the operating system that became known as Windows NT. Since then, he assisted in managing software products for small and medium-sized businesses. For a while he had technical oversight of Bing, Microsoft's search engine. He's been in charge of engineering for the company's advertising systems, along with the company's news portal MSN, and he's managed Microsoft's servers and cloud platform. Most recently, as executive vice president of Microsoft's cloud and enterprise businesses, Nadella capitalized on the trend toward cloud-based computing, which uses a network of remote servers on the internet to store and process data.

Along the way, he's relied on his Booth education to help his decision making. Nadella credits the school with complementing his engineering background, giving him the knowledge and confidence to tackle complex questions at the intersection of business and technology. Booth teaches that "all strategy can be boiled down to simple microeconomic analysis," Nadella said in an interview last June. "The Chicago Booth community is thrilled that Satya has been appointed CEO of Microsoft," said dean Sunil Kumar, George Pratt Shultz Professor of Operations Management, who hosted Nadella for a conversation with students at Harper Center in November. "I had the good fortune to discuss the future of technology with Satya and was delighted that he could be here to share his career insights with students. Based on our conversations, I am firmly convinced that he will prove a thoughtful yet decisive leader who will take the company to new heights."

THE MAKING OF A CEO

The skills Nadella will need to evaluate new business opportunities at Microsoft were honed in a Booth entrepreneurial finance class taught by Steven Neil Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance. In the November talk, Nadella said the class was one of the two most important courses he took at Booth, along with professor emeritus Marvin Zonis's leadership class. Nadella was a student in the first entrepreneurial finance class Kaplan taught, in the spring of 1996. The class is considered a capstone in which students use case studies to evaluate what makes a good investment for a start-up or for an established company. "You really have to put together a lot of things: strategy, qualitative analysis, and quantitative analysis," Kaplan said in an interview.

Nadella excelled at that holistic thinking, Kaplan recalled. "He can take a situation and analyze and articulate the issues involved. That is a useful skill in a CEO. He can both write well and understand the case quantitatively. In my experience, the people who have that set of skills are successful."

At Microsoft, Nadella is navigating a rapidly shifting technology landscape, where customers have been moving away from traditional desktop computers, many of which run on Microsoft's Windows and Office software, toward nimbler mobile platforms such as tablets and smartphones, often made by competitors.

"Their main platform, Windows and Office, has been declining, along with the personal computer," Kaplan said, noting that Google and Apple dominate mobile— the phones and the tablets—while Facebook also benefits from the network effect on phones, tablets, and PCs. Meanwhile, Amazon competes on the cloud side, where it enjoys the network effect of people going there to shop.

"For Microsoft, the challenge is to take the cash flow from the competitive advantage you have and translate that into the areas that are growing. That is a tough challenge," Kaplan concluded.

Nadella took a decisive first step in late March with the announcement at his first press conference that Microsoft would publish iPad versions of Word, Excel, and PowerPoint. That's a dramatic departure for the company whose software had been designed to run on its Windows operating system. Nadella outlined a platform-neutral vision that he called "a critical intersection of mobile and cloud."

If Nadella succeeds, overcoming that challenge will produce significant rewards for the engineer turned businessman. After graduating from Booth, Nadella passed up more lucrative industries to pursue his passion in technology, as he told Booth students in November. Now, as head of a $77.85 billion company, that strategy has paid off. In his first year, Nadella will receive a $1.2 million salary and is eligible for cash and stock bonuses that could bring his total compensation to $18 million, according to Microsoft's filings with the Securities and Exchange Commission.

BLUE-SKY THINKING

It's a lot of pressure, but Nadella seems to thrive on the scrutiny. "You can measure whether you're doing anything useful," he told students in November. "Do you feel a little stretched? If not, there's something wrong." As part of his transition to CEO, Nadella asked Microsoft cofounder Bill Gates to become his technology adviser and to spend more time at the company. Gates stepped down from his role as chairman and was succeeded by John W. Thompson, who led the CEO search.

"Bill is the most analytically rigorous person. He's always very well prepared, and in the first five seconds of a meeting he'll find some logical flaw in something I've shown him," Nadella told the New York Times in February. "But he's actually quite grounded. You can push back on him. He'll argue with you vigorously for a couple of minutes, and then he'll be the first person to say, 'Oh, you're right.'"

At Microsoft, Nadella is encouraging the kind of blue-sky thinking more often associated with a scrappy start-up than an established tech giant. He pointed out to Booth students that "nothing grows in $1 billion chunks," so a leader has to know when to persist with a struggling new idea and when to move on.

"The question is: How do we take the intellectual capital of 130,000 people and innovate where none of the category definitions of the past will matter?" Nadella told the Times. "Everything now is going to have to be much more compressed in terms of both cycle times and response times."

CHICAGO ON FRIDAY NIGHTS

Nadella has cultivated that necessary mix of urgency and patience throughout his life. Born in Hyderabad, in south central India, he played cricket competitively in school, and he still likes to relax by watching Test cricket, in which matches can last up to five days. "There's so many subplots in it, it's like reading a Russian novel," he said in an interview on Microsoft's website.

Nadella, who is married with three children, earned a bachelor's degree in electrical engineering from Mangalore University in Karnataka, and then came to the United States for a master's degree in computer science from the University of Wisconsin-Milwaukee. He began his career at Sun Microsystems as a member of the technology staff, where he helped build email software.

In 1992, at the same time he was accepted at Booth, he received his first job offer from Microsoft. Nadella didn't want to pass up either opportunity, so he deferred his admission and then enrolled in the Weekend MBA Program. That meant flying to Chicago on Friday nights, attending classes on Saturdays, and returning directly home for the work week, a process he repeated for two-and-a-half years over the course of earning his MBA.

Today, Nadella still occasionally makes that roundtrip flight to spend time with Booth students and faculty. At the November conversation with students, he talked about four major trends in technology that he sees evolving simultaneously—mobile, cloud, big data, and social media—with big data being the largest potential opportunity. Microsoft's Xbox video game Halo 4, Nadella said, "is the most data-driven application on the planet."

In conversations, he stresses cross-disciplinary connections. "It's a true renaissance time in terms of what it takes to create successful products," Nadella told students. "You've got to have the sensibility of both a great designer and a psychologist."

TESTING HIS RANGE

Nadella has carried that same wide-ranging curiosity to brainstorming sessions with Pradeep K. Chintagunta, Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing. Chintagunta visited Microsoft last year to talk with Nadella and other Booth alumni about how the school might apply its research prowess to issues relevant to Microsoft. "The intersection between big data and quantitative-marketing models is large," Chintagunta said in an interview. "On the consumer side, Microsoft generates a lot of data from users of Xbox online—what games they're playing, how long they're staying engaged. We might be able to use that information coming into Microsoft with analytical models we could develop to provide some insights into consumer behavior."

Understanding the range of perspectives within Microsoft will be key to Nadella's success, and that's a skill Booth cultivates in its students, Chintagunta added. "One of my colleagues, Ann McGill [Sears Roebuck Professor of General Management, Marketing, and Behavioral Science], put it as, 'Chicago is a place where ideas compete but people collaborate,'" he said. "We need to have good empirical data before we make decisions, but we also need to incorporate diverse viewpoints into what we're trying to accomplish. That's exactly the kind of person that he struck me as being."

In November, Kaplan reconnected with Nadella at the Polsky Center for Entrepreneurship and Innovation. They met with several Booth students who have participated in the Edward L. Kaplan, '71, New Venture Challenge, of which Microsoft is a sponsor. Nadella was especially interested in a product called Base, created by Uzi Shmilovici, '11, which provides simple software for small businesses, such as CRM and sales tracking applications, Kaplan recalled. The idea placed second in the 2010 New Venture Challenge, and Shmilovici's company, Future Simple Inc., has received $8 million in investments.

"Uzi explained where he was in the space, and Satya said, 'How are you compared to these two or three different competitors?'" Kaplan recalled. "He completely understood what Uzi was trying to do and where he was positioned. It was very impressive."

Nadella also was instrumental in getting Microsoft to sponsor Booth's fall 2012 Management Laboratory, a 10-week course in which students tackle a consulting project for a real-world client and present their recommendations at the end of the term. For the project, students examined how Microsoft customers are thinking about data problems such as mining social media for consumer sentiment about their products. The students explained how customers are navigating gaps in Microsoft's and competitors' products, pointing out growth opportunities, Nadella said in an interview last year about the Management Lab.

With his natural enthusiasm and willingness to learn from others, the new CEO demonstrates a mind constantly at work. He jokes about buying more books than he can read and signing up for more online courses than he can finish. Though fluent in technical jargon, he also is devoted to poetry. In his email to Microsoft employees on his first day as CEO, he paraphrased advice from an unlikely source: Oscar Wilde. Nadella wrote, "We need to believe in the impossible and remove the improbable." ■

Photo courtesy of Microsoft Corp.

 

Supplements

A Rising Star

1992
Program manager, Windows Developer Relations Group

2001
Head, Microsoft Business Solutions

» Developed software for small and medium-sized businesses

2007
Senior vice president, R&D, Online Services Division

» Oversaw the Bing search engine, which launched in 2009
» ManagedMSN

2011
President, Server and Tools Division

» Ran the Cloud OS platform, a major growth area

2013
Executive vice president, Cloud and Enterprise Group

» Led the development of back-end technologies such as datacenter and database

2014
Chief Executive Officer

» Became the third CEO of Microsoft

 

Microsoft at a Glance

» Founded: 1975

» Fiscal 2013 revenue: $77.85 billion

» Net income: $21.9 billion

» Market cap: $313.6 billion (March 3, 201)

» Peak market cap: $642 billion (September 2000)

» Employees: 100,932 (as of Dec. 31, 2013)

» Office users worldwide: 1 billion+

 

Career Advice from Satya Nadella

At the November chat at Harper Center, Nadella told students:

» Find your "superpower." As a Booth student, Nadella initially thought he might want to be an investment banker, but it wasn't a match for his passions. He told students to ask themselves where they can apply their strengths to produce the greatest impact. "Play the long game," he said, and worry less about securing the highest possible salary right out of business school.

» Embrace hard work. As a young Microsoft engineer, Nadella found himself complaining to a boss about having to be in the office on a Saturday. The boss replied, "That's why we pay you the big bucks." Though a cliché, the response reminded Nadella that he was no longer a student, but an employee accountable to his team. "At some level, it changed my attitude," he said.

» Focus on tasks that only you can accomplish. For the rest, empower someone else to do it. "Time management, it turns out, is probably the greatest art you need to learn to be successful at anything," Nadella said.

» Be accountable for setbacks. In the mid-1990s, Nadella helped develop Microsoft's technology for interactive television. It was the hardest he ever worked, yet the project was a failure. After he recovered from the disappointment, Nadella reflected on what he learned from the experience and what he might do differently in the future.

» Don't compare yourself to others."The way I measure my life is, 'Am I better than I was last year?'" Nadella said. "In the long run, it actually works out."

Last Updated 4/23/14