: instilling a growth mindset When became CEO of Microsoft in February 2014, the company seemed in of fading into irrelevance. Now its share price is at an all-time high. How did he do it? By Herminia Ibarra and Aneeta Rattan

Report⁄Anna Johnston

n less than five years as CEO, Satya Nadella has taken to 23% above the industry average. Microsoft from a company perceived as a Windows-centric By 2014 the Microsoft that Nadella inherited was fading toward lumbering giant to a US$700 billion (£540 billion) tech irrelevance, heralded the press. The tech industry had shifted from player whose strategic bets on artificial intelligence (AI) desktop computers to – from Microsoft’s Windows to and are paying off. After a decade of flat Apple’s iPhone and ’s Android. Apple and Google had soared growth under Nadella’s predecessor, the company’s share to record market valuations and Microsoft’s stock price had stalled, price soared to an all-time high in June 2018. despite the fact that revenue had tripled and profits had doubled When Nadella took over from on 4 during Ballmer’s reign as CEO from 2000 to 2014. February 2014, Microsoft was plagued by internal knife fights, As industry analyst Jan Dawson summarised: “It was an bickering and inertia. A culture of internal competition and a enormously profitable company. They were in no danger of going ‘not-invented-here’ mentality had focused employees on a narrow out of business soon – it was just a question of whether they’d go vision of performance over customers, crippling innovation. into permanent decline.” So Nadella, an engineer, set out to change the human system at Microsoft. A new approach Microsoft’s infamous ‘stack-ranking’ performance Nadella had grown up professionally inside the firm. The management system pitted employees against each other India-born cricket enthusiast started working at Microsoft in every six months. Like a stack of LEGO bricks, employees were 1992, when products were saved on disks and the world was essentially slotted into top, good, average, below average and poor powered by Windows 3.0. A computer scientist by training, he positions. The forced distribution meant that one in 10 people moved through a range of leadership roles, ultimately becoming would always receive a poor rating, regardless of how much they Executive Vice President of the Cloud and Enterprise group. contributed. As one product manager remembered: “If you don’t Reflecting on important influences in his life, he said: “It’s the play the politics, it’s management by character assassination.” language, routines and mindset of my parents back in India and Developers feared that giving away their best ideas could my family in that helped form me and still guide me today.” damage their position. Employees prioritised what would help He traces the roots of his ideas about leadership to the birth them get the highest ratings over the quality of their work. “I was of his first child, Zain, who has cerebral palsy. “We learned that told in almost every review that the political game was always empathy is essential to deal with important for my career development,” reflected one former ‘Empathy problems everywhere, whether at Microsoft engineer. Ultimately, “staffers were rewarded not Microsoft or at home; here in the just for doing well but for making sure their colleagues failed.” is essential United States or globally. That is Then a wave of external competition crashed down on the firm. also a mindset, a culture.” By 2004, thanks to the rapid growth of upstart firms such as to deal with When he took over as CEO Google, some of Microsoft’s most talented employees were problems in 2014 he wrote a letter to all jumping ship faster than they could be replaced. employees in which he spoke of Microsoft’s product development process lagged. After the everywhere, focusing the company on its core tech bubble burst and with the stock price flat, “People realised values, but through a new lens, they weren’t going to get wealthy,” one former senior executive whether at saying: “We need to prioritise said. “They turned into people trying to move up the ladder, Microsoft or innovation that is centred on our rather than people trying to make a big contribution to the firm.” core value of empowering users

Meanwhile, companies like Google were paying employees up at home’ and organisations to ‘do more’.” » LAUREL GOLIO/REDUX/EYEVINE

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Satya Nadella: Improving upon each other’s ideas is crucial

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He devoted much of his first year to listening and learning from would lead Cloud and Enterprise. “The senior leadership team others. In his words: “Employees wanted a CEO who would make needed to become a cohesive team that shared a common world crucial changes, but one who also respected the original ideals of view,” Nadella said. Microsoft, which had always been to change the world. Engineers wanted to lead again, not follow. They wanted to up the coolness. From know-it-alls to learn-it-alls We had technology the press would fawn over in Silicon Valley, At Microsoft’s July 2015 global sales conference in Orlando such as leading-edge artificial intelligence, but we weren’t Nadella revealed a fresh company mission: “To empower every showing it off. What they really demanded was a road map to person and every organisation on the planet to achieve more.” remove paralysis.” He talked about his children and what learning each of their His to-do list for the first year included preparing Microsoft special needs had meant for him and his wife, Anu. And he talked for a mobile- and cloud-first world, building “new and surprising about living a “dynamic learning culture” based on a growth partnerships” and working to ensure that they could truly mindset. “It’s about every individual, every one of us having that empower every person on the planet, as their new mission stated. attitude – that mindset – of being able to overcome any constraint, In the spring of 2014, despite a contentious historical rivalry stand up to any challenge, making it possible for us to grow and with Apple and lack of traction with their own Windows phones, thereby for the company to grow. Microsoft made Office available on all iOS devices, including In early 2015 his wife had given him Carol Dweck’s best-selling the iPhone and iPad. The next year, the global launch of book Mindset: The New Psychology of Success, which she had Windows 10 originated in a tiny village in Kenya. found helpful in thinking about creating conditions for success “Articulating our core raison d’être and business was a good for one of their daughters who has learning difficulties. People first step. But I also needed to get the right people on the bus who operate with a fixed mindset, the theory says, are more to join me in leading these changes,” Nadella said. He wanted likely to stick to activities that utilise skills they’ve already a senior leadership team that would “lean into each other’s mastered, rather than risk embarrassment by failing at problems, promote dialogue and be effective ... I don’t mean something new. People focused on growth make it their yes-men and yes-women. Debate and argument are essential. mission to learn new things, understanding that they won’t Improving upon each other’s ideas is crucial.” succeed at all of them at first. Nadella selected Jill Tracie Nichols, Ballmer’s communications “Dweck divides the world between learners and non-learners,” lead 2009–2014, as his chief of staff. He told her: “I’ve seen you explained Nadella, “demonstrating that a fixed mindset will limit work with others and you treat them well. You show respect. you and a growth mindset can move you forward.” Microsoft’s I want my office to be about the culture we are trying to create culture change, he concluded, would centre on “the belief that and not about power.” Peggy Johnson, a seasoned Qualcomm everyone can grow and develop; potential is nurtured, not executive, became head of business development. Her job would predetermined, and anyone can change their mindset”. be to forge ties with former Silicon Valley rivals, such as . They would shift from being “know-it-alls” to “learn-it-alls”. would transition from leading Microsoft’s global At an off-site meeting with 180 executives divided into 17 consulting and support business to partnering with Nadella on teams, Nadella and Hogan started a dialogue on the kind of leading the cultural transformation as chief people officer. culture they wanted. The 17 leaders became Hogan’s “culture Kurt DelBene returned as chief strategy officer, Chris cabinet,” charged with defining growth mindset for the company. Capossela headed up marketing and , an engineer After much debate and consultation with experts like Dweck, the who had worked with Nadella in building the cloud business, group articulated three pillars:

Leading change: three takeaways

Find an idea that circle got to contribute. That include specific behaviours forced him to reflect and 1 resonates. Satya Nadella was stopping them being resulting in outcomes that grow. This is truly authentic applied the powerful competitive in an evolving support the idea and achieve leadership, where you work academic concept of growth tech landscape. concrete solutions. It’s not hard to extract lessons from mindset to solve a very real Get commitment just about saying something your own life experiences. He business problem. Microsoft’s 2 through process. Nadella different now; it’s about a truly believed in the concept stalled growth and stifled got 180 people together definable set of behaviours and that served as an anchor. innovation was due to its to work out what growth that have to change if those When he made mistakes, he dysfunctional behaviour as mindset would mean for words are true. was transparent about his an organisation. People Microsoft. Seventeen Embody the own learning. Your change were stabbing each change leaders then 3 transformation. Nadella’s efforts are likely to fail if you other in the back hammered out the ideas emerged from his aren’t living and believing and only the inner three pillars. These experiences as a father, which them yourself.

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1990 1995 2000 2005 2010 2015 Transcending barriers: Microsoft today prioritises inclusiveness Source: Macrotrends

Customer obsession. We need to obsess about our customers. top few learnings, prompting groups across Microsoft to At the core of our business must be the curiosity and desire to discuss their own learnings. Visitors to Microsoft’s head offi ce meet a customer’s unarticulated and unmet needs with great are welcomed by elevator doors decorated with the Chinese technology. This was not abstract: We all get to practice each symbol for ‘listen’. Napkin holders in the canteen remind staff day. When we talk to customers, we need to listen. We need to to be lifelong learners. be insatiable in our desire to learn from the outside and bring that learning into Microsoft. Role-modelling the change Diversity and inclusion. We are at our best when we actively Eight months into his tenure, Nadella gave the keynote speech seek diversity and inclusion. If we are going to serve the planet at an annual event for women in tech. During the Q&A he was as our mission states, we need to refl ect the planet. The diversity asked what advice he had for women seeking a pay rise who of our workforce must continue to improve and we need to include are not comfortable asking for one. He advised patience and a wide range of opinions and perspectives in our thinking and “knowing and having faith that the system will actually give decision-making. In every meeting, don’t just listen – make it you the right raises as you go along”. His comments went viral, possible for others to speak so that everyone’s ideas come through. provoking outrage. He was mocked publicly as ignorant of Inclusiveness will help us become open to learning about our own well-documented gender pay gaps and his stated commitment biases and changing our behaviors so we can tap into the to diversity was questioned. collective power of everyone in the company. As a result, our ideas Instead of waiting for the furore to settle, Nadella said, “I was will be better, our products will be better and our customers will determined to use the incident to demonstrate what a growth be better served. mindset looks like under pressure”. He emailed his employees One Microsoft. We are one company, one Microsoft – not a to tell them he had “answered that question completely wrong”. confederation of fi efdoms. Innovation and competition don’t He explored his own biases and asked his executive team to do respect our silos, so we have to learn to transcend those barriers. the same. Hogan recalled: “I became more committed to Satya, Throughout 2015 and 2016 Nadella spoke widely about the not less. He didn’t blame anybody. He owned it. He came out to importance of mindset. “The CEO sets the the entire company and he said, ‘We’re going tone for the culture,” explained Nichols. “Satya to learn and we’re going to get a lot smarter.’” models being curious, seeking to learn as HERMINIA IBARRA Expecting 125,000 people to take a people bring him new ideas and information.” is Professor of learning-oriented approach to their work is Organisational The stack-ranking performance system was Behaviour; Charles a signifi cant task. Not everyone gets it right abolished, replaced by continual feedback and Handy Chair in away. But today Microsoft is once again a coaching and a compensation process that Organisational Behaviour at London magnet for top engineering talent, rated Business School gives managers more infl uence. Nudges and as one of the fi ve best AI companies for small reminders engage all 125,000 employees ANEETA RATTAN employees, and Nadella has a Glassdoor with the new culture. For example, leaders is Assistant Professor employee approval rating of 95%. “People of Organisational close meetings by asking, “Was that a growth- Behaviour at London often ask how it’s going,” said Nadella. “My mindset or fi xed-mindset meeting? Why?” Business School response is very eastern: We’re making great

GETTY Nadella issues monthly videos reviewing his progress, but we should never be done.”

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