Microsoft Reboots by Gladstone Studios

MICROSOFT reboots

40 years in tech biz. 20 years of tech feats. 20 years of tech repeats. windows

what can new ceo satya nadella do to mobilize microsoft? open

innovation?

is future hololens? Office

365

presented by

victoria gladstone

MICROSOFT REBOOTS

Assignment 3 FINAL Design innovation and leadership parsons the new school for design strategic design + management ms program Instructor: Dr. Suzanna Schmeelk Student: Victoria Gladstone May 13, 2015

boot - a verb, derived from bootstrap, as in “pull yourself up by the

bootstraps.” A computer boots up or loads its system software when it is turned on. REBOOT refers to restarting a computer and has yielded the Unix-world maxim: “When in doubt, reboot.”1

Hale, Constance. (Editor). Wired Style: Principles of English Usage in the Digital Age. 1996. HardWired. Publishers Group West. San Francisco. pg.

INTRODUCTION In 1975 when Bill Gates and Paul Allen founded Microsoft Corporation (Microsoft) their mission, far-fetched as it sounded at the time, was to power a personal computer (PC) on every desk and in every home. Microsoft, with its Windows and Office software products, dominated the interactions most people had with their computers for almost twenty years they were at the forefront of the digital revolution. Fast forward to 2015, and although still extremely successful, the Microsoft era ended in 2010 when Apple , surpassed Microsoft2 to become the world’s most valuable technology company. How did this happen? First

Microsoft is an incumbent as described in the Harvard Business Review article entitled, “Value Innovation: the strategic logic of high growth”.3 They were constrained by their sunk investments , existing assets and the ongoing distraction of defending their position by fighting legal battles at home and

abroad. Theirs became a zero-sum strategy, milking the business for all its worth albeit in the shrinking desktop computer market that they made possible. Microsoft focused on building incremental advantages over their competitors instead of radically innovating. It was predicted by Gordon Moore in 1965, that steadily improving microchips would exponentially increase computing power making it drastically faster, cheaper, and smaller

Helft, Miguel and Vance, Ashlee. “Apple Passes Microsoft as no. 1 in Tech”, Technology Section. The New York Times. (Online Ed.) {Internet}. 2010, May 26 [cited 2015, May 4]: Available from http://www.nytimes.com/2010/05/27/technology/27apple.html 3

Kim, W. Chan, and Renee Mauborgne. "Value innovation: the strategic logic of high growth." Harvard Business Review 75.1 (1997): 102+. Business Insights: Essentials. Web. 3 May 2015.

first every ten years, then upon reflection he revised it to every two years. This has come to be known as Moore’s Law4 - taken from an article he wrote for Electronics Magazine entitled “Cramming More Components Onto Integrated Circuits”.5 Moore essentially predicted personal computers, cellphones, self-driving cars, the iPad, Big Data and the Apple Watch. Fifty years later and the prediction remains true and foreshadowed the rise of mobile computing . This technology driven disruptive innovation “overturned the marketplace and the rules by which it was previously run”, precisely as detailed in the article by Tim Jones, entitled, “Paradigms Lost”.6 In the twenty first century, desktop computers lost ground to the swipe of a finger across a smartphone or tablet touchscreen. When bandwidth expanded making streaming audio and video possible, people wanted technology that didn’t just sit on a desk - they wanted it to fit in their pocket, or better yet their hand. Microsoft was seemingly positioned to take full advantage of this development but instead found itself in a situation similar to that of Xerox PARC, where their closed innovation paradigm hobbled their ability to commercialize some of their innovations, as detailed by Constance E. Helfat and J. Brian Quinn in their review of the Henry Chesbrough book, “Open Innovation: The New Imperative for Creating and Profiting from

Hale, Constance. (Editor). Wired Style: Principles of English Usage in the Digital Age. 1996. HardWired. Publishers Group West. San Francisco. pg. 4 5

Friedman, Thomas L. “Moore’s Law Turns 50”. The New York Times Online. Opinion Pages. {Internet} 2015, May 13. [cited 2015, May 13] Available from http://www.nytimes.com/2015/05/13/opinion/thomas-friedman-moores-law-turns-50.html?_r=0 6

Jones, Tim. “Paradigms Lost”. RSA Journal, Vol. 153, No. 5525 (October 2006), pp. 28-31. Published by: Royal Society for the Encouragement of Arts, Manufactures and Commerce Stable URL:http://www.jstor.org/stable/41379736 . Accessed: 21/02/2015 13:46

Technology”.7 This made a way for Microsoft’s competitors, like Apple and Google to overtake them. Under the leadership of their first CEO Bill Gates, and his successor Steve Ballmer they focused on growing and then protecting their existing business model and failed to grasp the wholesale opportunities brought about by portable digital devices. While other tech companies like Apple, Google, Facebook and Twitter openly innovated, Microsoft innovated in secret - each business unit within its own soundproof silo, refusing to work in cross functional teams, or with outside competitors. They introduced a string of “me too” products like their retail stores which have been moderately successful. Apple has its “Genius Bar” and Microsoft its “Answers Desk”. At last count there are 125 locations in the U.S. and Canada.8 Microsoft succeeded in their first mission, but having reached it, they failed to articulate and mobilize to achieve a new one. In 2014 Steve Ballmer stepped down as CEO and Satya Nadella, an insider with more than 20 years experience in leadership at Microsoft became its third CEO. With 128,076 employees,9 40+ year history, and slowing income growth, Nadella must manage one of the world’s largest businesses, and innovate for the company’s future success. He is tasked with installing a new jet engine while the aircraft is in flight. Can Satya Nadella foster a new collaboration culture, get ahead of the innovation curve, and reboot Microsoft?

Helfat, Constance E. and Quinn, J. Brian. “Open Innovation: The new Imperative for Creating and Profiting from Technology by Henry Chesbrough. Academy of Management Perspectives. Vol. 20, No. 2 (May, 2006), pp. 86-88. Published by Academy of Management. Available at URL: http://www.jstor.org/stable/4166240

8 9

http://news.microsoft.com/presskits/retailstores/ http://news.microsoft.com/facts-about-microsoft/

Microsoft Corporation Technology company Microsoft Corporation is an American multinational technology company headquartered in Redmond, Washington, that develops, manufactures, licenses, supports and sells computer software, consumer electronics and personal computers and services.

Stock price: MSFT (NASDAQ) $47.75 +1.05 (+2.25%)* CEO: Satya Nadella Employees: 128,076 Founded: April 4, 1975, Albuquerque, NM Headquarters: One Microsoft Way, Redmond, WA 98052 Website: www.microsoft.com Founders: Bill Gates, Paul Allen

Source: Wikipedia *as of May 8, 4:01 PM EDT

Figure 1.

BACKGROUND COMPANY

On April 4th, 1975, William Henry Gates and Paul Gardner Allen started a small company named Microsoft; at the time Gates was 19 years of age and Allen was 22. That was the beginning of the personal computer (PC) Revolution. The two radical innovators created and sold their first product inspired by an article in Popular Electronics magazine. Allen and Gates developed a BASIC computer language for the Altair 8800, and by 1978 year-end sales exceeded $1 million.

Title page from Microsoft’s first product BASIC - Source : Twitter post by Microsoft Cofounder Paul Allen at 11:00 AM - 4 Apr 2015. Accessed at 11:00 AM - 4 May 201510 Figure 2.

In 1983 Microsoft announces the introduction of Windows graphical user interface. It shipped in 1985. Microsoft launched an IPO (Initial Public

Wingfield, Nick. “40 Busy Years Later, Paul Allen, a Microsoft Founder, Considers His Creation”, Bits Section. The New York Times. (Online Ed.) {Internet}. 2015, May. 3 [cited 2015, May 4]: Available from http://bits.blogs.nytimes.com/2015/05/03/40-busy-years-later-a-microsoft-founder-considers-his-creation/?_r =0 Subscription may be required.

Offering) in 1986, and the stock was priced at $21.00 a share, and it was the most successful stock offering in that decade.

By December 1, 1999

when Bill Gates stepped down as CEO the stock was at its zenith, $58.38. Today, May 4, 2015 the stock is priced at $48.24. In 1989 Office for Macintosh, version 1.0 was launched. The 1990s was really the Windows Operating System (Windows OS) era and they continued innovating from Windows 3.0 to Windows NT to Windows 95.11 The Internet exploded in the late 1990s and Microsoft delivered one of its blockbuster evergreen products, Microsoft Internet Explorer 4.0. web browser which they packaged as a default browser with their popular Microsoft Office Suite of Software. Between 1994 and 1999 internet use rose from 3 million to 200 million users. For a time Gates became the wealthiest man in the world. He continued to work full time at Microsoft until 2008 when he stepped down as CEO to focus on philanthropic efforts through the Bill & Melinda Gates Foundation. Cofounder Paul Allen left Microsoft in the early 1980s to seek treatment for Hodgkin's Lymphoma. Steve Ballmer succeeded Gates and held the office of CEO from January 2000 to December 2014 when he was succeeded by Satya Nadella, Microsoft’s third chief executive officer since its founding.

Microsoft.com. “Timeline”. Accessed May 2, 2015. Available from http://www.microsoft.com/about/companyinformation/visitorcenter/timeline.htm

Satya Nadella, CEO, Microsoft. Photo credit Microsoft

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background ceo

On 4 February 2014, it was announced that its Board of Directors appointed Satya Nadella the new Chief Executive Officer (CEO) of Microsoft. Nadella had previously held the position of Executive Vice President of Microsoft’s Cloud and Enterprise Group. Founder Bill Gates telegraphed the company’s future direction when he stated in the press release that, “Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together.”

Microsoft also announced that Bill Gates would step down as Board Chairman and assume a new role on the board as Founder and Technology Advisor “supporting Nadella in shaping technology and product direction.” Satya Narayana Nadella was born August 19, 1967 in Hyderabad, India. He traveled to the U.S. to study for an M.S. in Computer Science at the University of Wisconsin-Milwaukee, receiving his degree in 1990. Nadella has both technical and business acumen. He has a B.S. in Electrical Engineering Degree from Manipal Institute of Technology from Mangalore University, and an MBA from the University of Chicago Booth School of Business. Prior to joining Microsoft in 1992 he worked at Sun Microsystems as a member of its technology staff. Nadella said he, “always wanted to build

http://news.microsoft.com/2014/02/04/microsoft-board-names-satya-nadella-as-ceo/

things”, and knew that he wanted to pursue computer science. He loves cricket and credits it with teaching him about teamwork and leadership.

Innovation + management style In a little more than one year Nadella has gone a long way in leading a change of the culture of Microsoft from an insular balkanized behemoth to a silicon valley startup. According to an article in Wired Magazine, “Microsoft in the age of Satya Nadella” by Jessi Hempel, “Nadella developed much of his management approach on the job”.13 The article goes on to say that he had a life altering personal event that clarified his vision and resulted in his “emphatic listening style”. His son Zain was born severely developmentally disabled and this shifted his perspective. As CEO, Nadella has restructured Microsoft to function more like the tech companies that have surpassed it. Nadella has unsettled the organization and has made clear that he understands what is needed to run the business and what’s needed to foster creative activity. First he knows that there are organizational roadblocks that have to be addressed, and he has undertaken the four steps as outlined in the article, “Tough-Minded Ways to Get Innovative” by Andrall E. Pearson.14 Nadella is a champion for the HoloLens augmented reality headset project. He has the sponsorship of

Hempel, Jessi. “Microsoft in the age of Satya Nadella.” Wired, Issue 23.02, 064-079.

Pearson, Andrall E. “Tough-Minded Ways to Get Innovative”. Harvard Business Review. August 2002.

Bill Gates and this ensures that he has the resources and authority to make things happen. With the opening of the innovation Garage to the public and other initiatives he has created a collaborative environment for the sharing of ideas, and lastly by flattening the hierarchy of Microsoft he has smoothed the process for moving ideas through the system quickly. Here is a snapshot of his first year. In March, 2014 Nadella introduced Office for the iPad. On April 2, 2014 he made Windows free to manufacturers of devices smaller than 9 inches. On May 29, 2014 Microsoft partnered with Salesforce a long time rival. On September 15, 2014 Microsoft purchased Minecraft maker Mojang for $2.5 billion. On October 9 he apologized for comments made as a guest speaker at a women’s technology conference where he discouraged women from asking for raises, imploring them to trust in karma. 15

On October 22, 2014 Nadella expanded Garage, Microsoft’s in-house idea

factory, to let the public chip in. November 12, 2014 Microsoft announced that .NET software framework would be open source. December 15 Skype translator in beta is released. The silos are crumbling and in their place are cross-functional teams with a mandate to innovate across any platform. Nadella abolished the product divisions for a flatter more integrated and streamlined approach. Just imagine the Skype team working with the Azure Cloud team and the Office team.

Jha, Sonora. “How Satya Nadella Sounds a Lot Like My Brother And why that is not a good thing.” Seattle News Weekly. (Online Ed.) {Internet}. 2014, Oct. 14 [cited 2015, May 2]: Available from http://www.seattleweekly.com/home/954979-129/how-satya-nadella-sounds-a-lot

Satya Nadella in his first interview as CEO of Microsoft. Interviewed February 2014 by Steve Clayton, GM, Microsoft Storytelling. https://youtu.be/T8JwNZBJ_wI

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What makes microsoft successful First there is the Windows Operating System and then there is Microsoft’s Office Suite of software. Launched in 1990, Word, Excel, Powerpoint, and now Access Database, Sharepoint etc., these applications are in use by millions of businesses, organizations and individuals every day. Over a billion people now use Office. Microsoft Word and Excel are still the most widely used software for word processing and spreadsheets. At $140 per license for the least expensive version of Office, it’s no surprise that they are still raking in the cash. They have a 90% market share according to investopedia.com.16 Microsoft’s success is built directly on the Windows platform. conclusion All indications are that Satya Nadella is the right person to lead Microsoft forward. His green light for the Project HoloLens, augmented reality goggles and Windows 10 which is a platform where developers from other platforms - iOs, Android, Linux would be welcome portends a bright future if the culture that was once closed can embrace an open innovation mindset. The inflows and outflows described by Henry Chesbrough as necessary to benefit from global collaboration are the opposite of the old Microsoft culture. At this year’s Microsoft Convergence Experience Expo in Atlanta, Georgia, Nadella made clear that Microsoft is focused on three

Investopedia.com. http://www.investopedia.com/stock-analysis/032014/real-secret-microsofts-success-msft-aapl-goog-ibm.aspx# ixzz3ZEM6gI3w

things: “empowering people, organizations and industries.”17 Can they ever claim the top spot for technology innovation again? There is only one company that has ever done it, Apple, and although that seems an unlikely event, so did powering a PC on every desk and in every home, but Microsoft did it, didn’t they? ####

http://convergence.evo-td.com/library/KEY150001

Bibliography: 1. Helft, Miguel and Vance, Ashlee. “Apple Passes Microsoft as no. 1 in Tech”, Technology Section. The New York Times. (Online Ed.) {Internet}. 2010, May 26 [cited 2015, May 4]: Available from http://www.nytimes.com/2010/05/27/technology/27apple.html 2. Kim, W. Chan, and Renee Mauborgne. "Value innovation: the strategic logic of high growth." Harvard Business Review 75.1 (1997): 102+. Business Insights: Essentials. Web. 3 May 2015. 3. Hale, Constance. (Editor). Wired Style: Principles of English Usage in the Digital Age. 1996. HardWired. Publishers Group West. San Francisco. pg. 4

4. Friedman, Thomas L. “Moore’s Law Turns 50”. The New York Times Online. Opinion Pages. {Internet} 2015, May 13. [cited 2015, May 13] Available from http://www.nytimes.com/2015/05/13/opinion/thomas-friedman-moores-law -turns-50.html?_r=0 5. Jones, Tim. “Paradigms Lost”. RSA Journal, Vol. 153, No. 5525 (October 2006), pp. 28-31. Published by: Royal Society for the Encouragement of Arts, Manufactures and Commerce Stable URL:http://www.jstor.org/stable/41379736 . Accessed: 21/02/2015 13:46 6. Helfat, Constance E. and Quinn, J. Brian. “Open Innovation: The new Imperative for Creating and Profiting from Technology by Henry Chesbrough. Academy of Management Perspectives. Vol. 20, No. 2 (May, 2006), pp. 86-88. Published by Academy of Management. Available at URL: http://www.jstor.org/stable/4166240 7. http://news.microsoft.com/presskits/retailstores/ 8. http://news.microsoft.com/facts-about-microsoft/ 9. Wingfield, Nick. “40 Busy Years Later, Paul Allen, a Microsoft Founder, Considers His Creation”, Bits Section. The New York Times. (Online Ed.) {Internet}. 2015, May. 3 [cited 2015, May 4]: Available from http://bits.blogs.nytimes.com/2015/05/03/40-busy-years-later-a-microsoft-f ounder-considers-his-creation/?_r=0 Subscription may be required.

10. Microsoft.com. “Timeline”. Accessed May 2, 2015. Available from http://www.microsoft.com/about/companyinformation/visitorcenter/timeline. htm 11. http://news.microsoft.com/2014/02/04/microsoft-board-names-satya-nadell a-as-ceo/ 12. Hempel, Jessi. “Microsoft in the age of Satya Nadella.” Wired, Issue 23.02, 064-079. 13. Pearson, Andrall E. “Tough-Minded Ways to Get Innovative”. Harvard Business Review. August 2002. 14. Jha, Sonora. “How Satya Nadella Sounds a Lot Like My Brother And why that is not a good thing.” Seattle News Weekly. (Online Ed.) {Internet}. 2014, Oct. 14 [cited 2015, May 2]: Available from http://www.seattleweekly.com/home/954979-129/how-satya-nadella-sound s-a-lot 15. Investopedia.com. http://www.investopedia.com/stock-analysis/032014/real-secret-microsoftssuccess-msft-aapl-goog-ibm.aspx#ixzz3ZEM6gI3w 16. http://convergence.evo-td.com/library/KEY150001 17. Wingfield, Nick. “Microsoft (Yes, Microsoft) Has a Far-Out Vision, Technology Section. The New York Times.” (Online Ed.) {Internet}. 2015, Apr. 30 [cited 2015, May 2]: Available from http://www.nytimes.com/2015/05/03/technology/microsoft-yes-microsoft-h as-a-far-out-vision.html?ref=technology Subscription may be required.

18. Ulwick, Anthony W. “Turn Customer Input into Innovation”. Harvard Business Review. January 2002.