by Rita McGrath
Essentially, although Microsoft realized that mobile was going to be important, the company wasn’t able to capitalize on that insight to create a compelling offering. As Derek Thompson of the Atlantic noted in 2013, “Microsoft still isn’t a place that builds things people really like. It’s a place that builds things people—and, particularly, business people—think they have to use.” Around the same time, after Ballmer announced his intention to retire, a writer for The New Yorker wrote, “Microsoft needs someone who can attract brilliant developers as well as she anticipates trends. They need someone very different from Ballmer.”
Empathy as a Galvanizing Force
The Kin story, and Microsoft’s immense failure to make much headway at all in the world of mobile phones (clearly an inflection point for tech), exemplify the lack of a key component of being able to drive through an inflection and emerge in better shape at the other end. This is when seeing the inflection coming is not enough. To mobilize the organization around the messages being sent by weak signals, it is essential to create a company-wide shared point of view about the future. In contrast, the story of Microsoft today is a textbook example of how to do this, beginning with, yes, the word “empathy.”
Satya Nadella took over as CEO in February of 2014, ending a bruising six-month search that looked at people external to the company. In his very first public commentary, the themes that Nadella had been using to mobilize the organization were evident. The first was a promise to create “people-centric” IT, centered on the user, whether at work or at home, overcoming the traditional distinction many have made between consumer-focused versus enterprise-focused business. He mentioned creating great experiences (rather than great products). He talked about partnerships and ecosystems and cooperating with others.
Most significantly, Nadella placed a huge emphasis on culture. As he later said, “There is something only a CEO uniquely can do, which is set that tone, which can then capture the soul of the collective. And its culture.” One of the biggest changes he made was to focus explicitly on leading indicators, which is entirely consistent with the theory I’ve been describing in this book. He explained, “We no longer talk about the lagging indicators of success, right, which is revenue, profit. What are the leading indicators of success? Customer love.” His challenge, as he described it, was the challenge of “getting an entire organization to fall in love with these leading indicators of success.”
That, in essence, is what this chapter is all about: how do you create the conditions in which a critical mass of people all share a common point of view of the indicators that will presage future success?
Architecting a Resilient Culture
A classic tension in any successful organization is the tension between exploiting a repeatable business model and identifying a new one. When a business model is repeatable, the emphasis is to become efficiency-oriented. After all, if things don’t change very much, you can optimize the system by breaking down all the activities into their constituent parts and maximizing the efficiency of each part. This idea has informed the practice of management since the days of Adam Smith and became part of the unquestioned fabric of how organizations should be run with the work of Frederick Winslow Taylor. Today, we are turning to algorithms that optimize workers’ behavior.
The dilemma is that when the challenges facing an organization are not about repeatable execution, but about innovation or responding to complexity, the idea of breaking things down into well-understood parts is not only unhelpful, it can also be a dangerous trap. As noted earlier, leaders need practices such as continuous reconfiguration rather than a reliance on stability. They need to be able to fluidly enter (and exit) new situations. They need to be able to allocate resources across the entire enterprise, rather than having them trapped in silos. They need to be able to obtain and respond to new information, without being concerned that they will be perceived as flip-flopping. And they need to remember that every voice might matter. Such practices are associated with a culture that is built for resilience in the face of complexity, not for execution.
Nadella recognized the urgent need for a major shift in emphasis from shipping great products to building and inspiring new capabilities. This required a structural change at Microsoft, in which business units were de-emphasized in favor of other capabilities. As he said in 2018, “I want a silicon capability. I want a cloud-computing capability. I want an AI capability. I want great product aesthetics in devices. Then we want to be able to take these capabilities and apply them to different markets at different times . . . Digital recognizes no business unit. You need to be able to bring things together.”
As he visits different stakeholders on a bruising travel schedule, Nadella articulates a broad purpose for his foreign missions. “What does a CEO get to do?” he asked in 2016. “You’ve got to pass judgment on an uncertain future and curate culture. For both, I feel, I learn a lot from these trips.”
Early on, Nadella’s emphasis was like an arrow aimed right at the heart of the classically competitive Microsoft culture. In the old culture, “smart talk” and knowing a lot of things were highly prized. Discussions were often spirited, but with the goal of being right and winning. According to Nadella’s 2017 book, Hit Refresh, he realized how much of this attitude was consistent with what Carol Dweck has come to call a “fixed mindset.” People in the grasp of a fixed mindset spend a lot of time being excellent, proving how good they are, and seeking to be right. People who approach problems with a “growth mindset,” in contrast, are focused on learning, on keeping an open mind toward new information, and are less concerned with being good than with getting better. Nadella set about figuring out how to build a growth mindset into the culture at Microsoft.
Dweck herself has consulted to the company, calling Nadella’s hunger for new knowledge and willingness to learn from mistakes “spectacular.”
This extends to a new focus on who gets to be part of the leadership team. As Nadella has said, “I’ve optimized for people who want to work as part of a team.” For years, Microsoft “cultivated leaders who wanted to run their own show.” No longer. “To run the show you have to work as a team. That’s a very different Microsoft. That’s at a premium for me.” In his chosen leaders, Nadella prizes the abilities to bring clarity, to create energy, and to suppress the urge to whine. “I say, ‘Hey, look, you’re in a field of shit, and your job is to be able to find the rose petals,’ as opposed to saying, ‘Oh, I’m in a field of shit.’ C’mon! You’re a leader. That’s what it is. You can’t complain about constraints. We live in a constrained world.”
Hence that session about empathy at the management meeting.
Clarity of Purpose . . . Dare I Say “Strategy”?
A question I often get as someone who writes about strategy is whether the concept of strategy, and the long-range implications associated with it, are of any use at all. After all, when competitive advantages are transient and the next big thing is impossible to predict, why put all that effort into defining a point of view about the future?
That couldn’t be more wrong. In a complex situation, when you want to empower the entire organization to be able to act without direction from the top, having a shared view of what the purpose is and how each participant fits into it is absolutely critical. It is only with a basis of a shared understanding of what we’re all trying to achieve here that distributed action is possible.
In organizations that don’t have a clarity of strategy and alignment, decisions get made and unmade, resources are spent on things that are not really relevant, people end up confused, and the stage is set for the kind of infighting that contributed to the demise of the Kin. When there is clarity, broad agreement, and even enthusiasm, people can pull together in a common direction.
In 2014, Nadella said of his overall goal, “For us to be a 100-year-old company where people find deep meaning at work, there’s the quest.” In fairly short order, he completely overhauled the strategy that had been in pl
ace at Microsoft. He focused the company on the cloud, as opposed to desktop software. He wrote off the ill-fated attempt to get into smartphones with the acquisition of Nokia’s handset assets (a disengagement move that some have said cost the company over $8.6 billion). He invested heavily in data centers to realize the company’s global cloud ambitions. He spent $26 billion to buy the networking site LinkedIn. He articulated a new company mission statement: “Our mission is to empower every person and every organization on the planet to achieve more.” And, in a change of direction that was stunning to many who knew this Windows-based company, he de-emphasized Windows in a number of subtle ways.
Empowering Every Person to Spot Inflection Points and to Do Something About Them
As seen throughout this book, a key to navigating successfully through inflection points is the ability for everyone in an organization—not just the leadership—to spot inflection points and to mobilize action to take advantage of them. Nadella embraces this philosophy. As he says in his book, Hit Refresh, “We sometimes underestimate what we each can do to make things happen, and overestimate what others need to do for us. I became irritated once during an employee Q&A when someone asked me, ‘Why can’t I print a document from my mobile phone?’ I politely told him, ‘Make it happen. You have full authority.’”
Nadella has implemented mechanisms, both formal and informal, to make sure that employees’ voices are heard and their insights are taken seriously. For example, his regular senior leadership team meetings begin with a segment called “researcher of the amazing,” in which teams working on something interesting from across the company present to the entire executive team. In a Fast Company story, Harry McCracken describes how a team based in Istanbul beamed in to show off an app they’d developed that could read books for the blind. Unlike during previous regimes, Nadella makes a point of running his leadership meetings like a team sport. The free flow of information helps ideas percolate through the organization and provides pathways to decision-making.
Nadella also makes sure that he is exposed to experiences that can challenge his worldview and potentially offer fresh insights. Spurred on in part by his son Zain’s severe cerebral palsy, he takes an active interest in Microsoft’s community group for people with disabilities. He meets with them regularly—again, an opportunity for groups with experiences that are different from the norm to communicate up and down the organization.
Another experience Nadella credits with giving him something of a different perspective is his participation in the Netflix Insider program, which gave him the chance to shadow Reed Hastings, the CEO of Netflix, who at the time was a Microsoft board member. Having never been exposed to any company other than Microsoft, where proving how right you were was the characteristic behavior, Nadella found the Netflix environment eye-opening. As he pointed out to ValueAct Capital CEO G. Mason Morfit, “Netflix pivots very quickly based on new data.” Morfit recalled Nadella telling him that “he thought that was very interesting compared to the bureaucracy Microsoft had built up.”
Upon hiring Peggy Johnson as vice president of business development in 2014, Nadella told her, “I want you to be outside of Redmond [the home of Microsoft’s headquarters in Washington State] as much as you are inside of Redmond.” His instructions were clearly aimed at picking up new information from external sources and in building ties to Silicon Valley. He himself visits the Valley regularly (a new behavior for a Microsoft CEO), and his outreach to startups in the Valley has started to pay off. Some of them are building up their own businesses using Microsoft’s Azure cloud platform rather than simply defaulting to Amazon Web Services.
Nadella also makes sure that his teams know that if he thinks their efforts are promising, that he will be an enthusiastic backer. Upon first being shown the company’s then secret mixed reality system, HoloLens (before becoming CEO), he was blown away. Alex Kipman, who drives that technology at Microsoft, said that “the mean time from ‘I don’t understand this’ to ‘this is the future of computing’ was the fastest I’ve ever seen . . . and he’s been a strong supporter ever since.”
Microsoft’s $26 billion acquisition of LinkedIn has also been hailed as a way to gather data from its 500 million users—with far less risk of the bad behavior that we see on more personal platforms such as Facebook and Twitter, because LinkedIn is a professional network. Combined with the more than a billion users worldwide who use some version of an Office product, that’s a lot of users to help the company train its artificial intelligence software and to promote machine learning. Having access to LinkedIn’s treasure trove of data also helps Microsoft “see” trends and discussions that travel across that platform.
Part of seeing around corners is making the determination of what is not going to be relevant in the future. Nadella has disengaged from projects with limited promise—for instance, the Microsoft Band, a Fitbit-style fitness tracker. He made the difficult decision to write off $7 billion and to shutter the phone business the company had acquired from Nokia, laying off over 20,000 people and acknowledging that the inflection in mobile phones had passed Microsoft by. At the same time, he has encouraged the company to build software that can be used across technologies, even joining the Linux Foundation—which Steve Ballmer once called “a cancer”—to participate in the development of software. Ballmer, however, later warmed to the value of the Linux ecosystem, maintaining in 2016 that “now I love it.”
It’s easy for leaders to preach that people learn from their disappointments. It’s much harder to live by that philosophy when something goes really wrong. In March of 2016, Microsoft revealed an AI chatbot named Tay on Twitter. Coming from its Future Social Experiences (FUSE) Labs, the idea was to learn how such technologies could interact with real people.
Unfortunately for Microsoft, Twitter proved to be an extraordinarily inhospitable environment for the bot. Trolls quickly learned that if they sent racist, sexist, or other negative messages, Tay would spew some of them back. In just one day, the bot was basically brainwashed, sending messages that were more and more offensive as the day went on. Critics had a field day, and the experiment became a massive humiliation. The bot was taken down.
Nadella’s response? He sent a note to the team: “Keep pushing, and know that I am with you.” As he often says, sometimes his role is to provide “air cover” when things go wrong. This further encourages employees up and down the organization to take risks.
Nadella has replaced the annual all-hands meeting with an event called One Week, which now includes 18,000 participants in the United States, China, India, Israel, and other countries. Participants can choose “passion projects” to work on. Many of them end up as new offerings in what Microsoft calls its “garage,” a place for people to experiment with new ideas. Dozens of apps are on offer there in the “workbench,” featuring a huge variety of tasks—from drawing in 3-D to translating presentation subtitles. Some are whimsical, but all are the results of encouraging experimentation at the edges of the organization.
Adapting Incentives
So we now know that culture and strategy are important. So far so good. But too often, earnest efforts to create a more resilient organization hinge on the need to overhaul the incentives and rewards that act to drive behavior. It is all too common for a shiny new strategy to be rolled out without anything being done to make sure that the work people are being rewarded for—which, after all, does have a role to play in steering hearts and minds—is in alignment with the rest of the organization.
At Microsoft, a seismic shift in incentives has involved going from a system in which rewards depended on selling so many units of something to one in which compensation is based on how much users consume of it. The company has moved to shared metrics for its leadership (to reinforce collaboration) and to making a distinction between what he calls performance metrics versus power metrics. Performance metrics assess how well people have done in a particular year on things like revenues and profits. Power metrics are about fu
ture year performance. Leading indicators include customer satisfaction and measures of “customer love.”
As Nadella has said, “We track metrics such as monthly actives, monthly active versus daily active ratios, consumption and consumption growth. These are all the things that we measure as much as we measure any end-quarter revenue or profit by segment.”
Final Thoughts
This chapter has focused on the importance of galvanizing cooperation among a large group of people, as illustrated by the dramatic example of Microsoft’s turn toward the cloud, AI, and a different business model. A similar story could be told about any organization that is moving through an inflection point. Command and control, Taylorist thinking, and individuals maximizing their own goals are all potentially lethal in an environment of complexity.
For now, be thinking of the power of having dozens, hundreds, or even thousands of your employees acting as ambassadors for a shared sense of purpose. That’s a key component of seeing around corners.
Key Takeaways
It isn’t enough to see an inflection point coming. Many people in the organization need to align around a common point of view in order to respond effectively.
Internal friction and competition can undermine even a correct response to changing times. Managing politics is a key task for any would-be change agent.
Big changes are often signaled by seemingly small and incremental shifts that nonetheless release a constraint in an existing model, opening it up to an inflection point.
Sometimes companies are their own worst enemy when it comes to the big changes an inflection point brings.