Summary. How did Microsoft revive its culture of innovation? For years, the company has been written off for playing defense on its position in the tech world. But, as signaled by its partnership with OpenAI and its challenge to Google’s search supremacy, it has gone back on the offense. The about face was, at its core, a cultural shift, driven by CEO Satya Nadella. He drove this by inviting an existential moment when he stepped into the job, reconsidering the company’s purpose. Then, he laid out strategic changes that would enable the company to think more like a startup, and made business decisions that committed the company to this new direction.
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For years now, observers of tech have written off Microsoft as a 20th-century phenomenon, fat and happy from its Windows monopoly. The tech giant hadn’t had a breakthrough innovation in decades. It was rich enough to be a fast follower, but too big and bureaucratic to lead in any market. Jeff Bezos was known to gesture east and admonish his Amazon colleagues not to become complacent like their Seattle neighbor.
Yet on February 7,there was Microsoft CEO Satya Nadella telling reporters that artificial intelligence was creating a “new day in search.” Microsoft’s much-maligned Bing was integrating Open AI’s ChatGPT technology to generate information directly for users, not just links. And in doing so, it was directly challenging Google, the undisputed champion of search, by trying to out innovate Google on its home turf.
This wasn’t supposed to happen, especially not to Google. Already burned in 2014 by Amazon’s AI-enabled Alexa voice assistant, Google announced in 2016 that it would become an “AI-first” company.
Google’s problem certainly wasn’t engineering. The company had made fundamental advances in AI. Notwithstanding Google’s costly flawed demo earlier this month, its LaMDA chatbot was arguably just as good as the ChatGPT3 release that had taken the world by storm. And it had laid the groundwork for chatbot-powered search before last week.
We’ve known for a while that high-tech success and transformation is more about the culture than the technology, and the management decisions each company made here seem to have made the difference. Some say Google’s lead position forced it to move cautiously in order to minimize hate speech and misinformation. Others praise Kevin Scott, Microsoft’s chief technology officer since 2017, who joined with the LinkedIn acquisition, partnered with OpenAI a year later, and pushed hard for technology inside Microsoft.
Those explanations have some merit, but they don’t go deep enough. How did stodgy Microsoft, stuck in slow decline, ever muster the ability to leap ahead in the first place? As any corporate veteran will tell you, no single person, no matter how talented, can transform an organization. The culture has to change.
Microsoft’s Existential Moment
My team and I recently completed a multi-year research project to better understand perpetual innovation. We wanted to know what makes companies continue to innovate even after their initial success. To answer that question, we surveyed 6,873 global executives, academics, and consumers, and narrowed a corporate database to 26 firms, grouped into high, medium, and low degrees of agility and innovation. We explored how they performed on a long list of attributes, including interviews with dozens of managers, executives, and frontline and former employees, and coded the data.
From those efforts, we came up with several companies that seemed to have cracked the code of perpetual innovation. Some were expected: Apple, Amazon, and Tesla. But the list included some surprises: Namely, that Microsoft made the list, but Google/Alphabet did not.
I’ve been working in Silicon Valley since the 1990s, and Microsoft’s appearance was somewhat surprising. But, in taking a closer look, we found that something remarkable had happened there: a cultural shift to stop playing defense and go on offense.
This process began with Nadella taking the reins in 2014, when Microsoft’s board picked him to replace retiring CEO Steve Ballmer. At the time, he was the head of the company’s fast-growing cloud computing division, and his promotion seemed unlikely to change the lumbering giant’s trajectory. But Nadella, and the board, were tired of seeing the technology world pass by the one-time leader. He announced it was time to “rediscover the soul of Microsoft, our reason for being.”
This wasn’t just another exercise in corporate purpose — Nadella treated it as an existential moment. Having long accomplished its goal of “a PC on every desk and in every home, running Microsoft software,” the company needed a new goal to attract and inspire its many coders and engineers, and sustain its profitability. With his colleagues, he reoriented the company to “empowering every person and every organization on the planet to achieve more.”
This reorientation was accompanied by a strategic shift. Instead of protecting its assets, in a defensive posture, Microsoft went on offense, ceding big investments in existing tech and looking to jump into emerging opportunities.
The most noticeable change was external. For decades, the company had resisted partnerships. After all, insisting back in the 1980s on owning DOS and other software platforms had yielded big profits and cash cows. But to fulfill its new existential commitment, Microsoft needed to combine its enormous assets (cash and engineering talent) with those of other companies, by opening up to other platforms and by investing in partnerships.
This took two notable forms. First, Microsoft embraced rival operating systems such as Linux and iOS, and supported other companies’ virtual reality devices. Second, recognizing the entrepreneurial agility of startups, the company began investing in a series of small firms at the forefront of tech. Nadella also had the gall to elevate talented people from a series of acquisitions, including Kevin Scott. As I pointed out in HBR in 1999, sometimes the greatest value in high-tech acquisitions are the people.
Adopting a Startup Mindset
Despite the firm’s massive size, Microsoft’s cultural transformation involved several attributes of startups. One was an obsession with customers. The company sold a great many software products, most of them connected online in various ways. Rather than go by sales, a lagging indicator in fast-moving markets, or even what customers were saying, Nadella had product developers focus on what people were actually using. They set up dashboards to see usage over the previous month, to get an up-to-date sense of the market.
The company also freed up its engineering talent to explore new possibilities. As Nadella wrote in his account of the change, “They came to Microsoft with big dreams, but it felt like all they really did was deal with upper management, execute taxing processes, and bicker in meetings.” So the firm reduced hierarchies and freed engineers from most of the institutional controls — including rules on contacting people across levels to get answers to a specific problem. The engineers “became Microsoft’s mainstream, rather than fighting daily battles as renegades.” With them on board, the company could better address sudden opportunities and threats.
Microsoft even sponsored what it called the world’s largest private hackathon, where company engineers worked together on all sorts of projects they dreamed up. The annual event regularly drew more than 10,000 people across hundreds of cities. Each one lasted only a few days, but it made connections across silos that continued for commercial projects — solving problems through fast-paced collaboration. In all these ways, Microsoft acted more like a startup, less likely a lumbering, protective giant.
Committing to the Change
Organizational transformation is messy in actual life, and Nadella and other leaders had to push it hard. Managers had become comfortable with their little fiefdoms: nice, orderly worlds with sufficient profits and technical challenges to engage all but the most ambitious talent. There was the notorious “stack ranking” system where managers graded people on a bell curve, each grade going to a fixed number of employees. The company had an arrogant culture of “us versus them” and “take no prisoners,” and this culture wasn’t serving its purpose anymore.
To regain the audacity of a younger company and commit to the new vision, Nadella announced Microsoft was doing the equivalent of burning its ships after landing on a new shore: The company would no longer update the once-central Windows operating system that had fallen out of favor. He also wrote off the $7 billion investment in Nokia’s me-too smartphone business, freeing up those engineers to work on new projects. Stack ranking also went away.
Then the company launched a series of market-opening acquisitions. Instead of the me-too deals such as Nokia’s smartphone, it bought category pioneers that it aimed to take to the next level: workplace social media platform LinkedIn for $26 billion, developer platform GitHub for $7 billion, and then the monster $68 deal for video-game developer Activision Blizzard.
These moves together made it clear the only option was moving forward. People realized they had to succeed in the new approach because they couldn’t fall back on the cash cows.
Game On
Meanwhile, Google was caught up in the opposite of boldness. Having become a tech giant in the public eye, it was leery of concerns about “sentient AI” and antitrust attacks. (Microsoft, on the other hand, has gone on the offense, pushing ahead with a deal to acquire Activision despite antitrust scrutiny.) Google’s leaders also worried about cannibalizing existing search revenues. They prioritized mobile, cloud computing, and hardware over search, which had become the company’s cash cow. Even as Google invested heavily in AI, it was risk-averse, playing defense.
All of that set the stage for Microsoft’s surprise upset earlier this month. Google could still prevail over time, but it has real competition now, and will need a cultural change similar to Microsoft’s.
Microsoft’s revival is an extreme case, but any company can carry out a similar shift to offense. Doing so depends on several steps, but the most important are to rally people around an existential vision, promote the openness and market focus of startups, and then move boldly to create organizational momentum.
You don’t need to be a tech company — we’ve seen similar shifts in industries such as retail and manufacturing. But you have to resolve to go on offense, with an existential commitment, a startup mindset, and bold action.
FAQs
How has Microsoft been innovative? ›
Democratizing Innovation
The company created the Microsoft Garage, a hub designed to catalyze grassroots innovation. The concept was that if you give employees spaces, support, assistance, and some guided programs, then anybody who has an idea could do something with it.
Microsoft's operating system is vulnerable to cybercrime. Thus, many customers do not prefer it for security reasons. The company relies mainly on software products. Therefore, it cannot compete with businesses that sell both software and hardware.
Is Microsoft still successful? ›Microsoft earned $72.7 billion of net income in 2022. It generated $89 billion of operating cash flow, up 16%, and increased payments to investors by 16% to $50.8 billion. The company's operating margin was 42%, while its balance sheet jumped by 9% to $365 billion.
What are Microsoft's inventions? ›Microsoft Corporation
What makes Microsoft unique? ›No other company in the world provides such comprehensive business solutions as Microsoft does. Building up business technology ecosystem from hardware and operating system to software and cloud service, Microsoft can empower business from startups to global enterprises.
What are 3 recent innovations? ›- Paper Shoot Camera.
- Samsung Galaxy Z Flip3.
- Framework Laptop.
- Syng Cell Alpha.
- Infinite Objects NFT Video Print.
- Nuratrue.
- Espresso Display.
- Vecnos IQUI.
Weakness of Microsoft Company
Microsoft's biggest weakness is the lack of product innovation. This affects Microsoft's ability to sell new versions of Windows and compete with more advanced Apple products. Some of Microsoft's acquisitions have been successful, generating more than just revenue and products.
Weaknesses – Internal Strategic Factors
Lacking innovation – Microsoft has been failing to grow its hardware products sales such as surface pro computers and phones. It has been lagging in innovation and advanced technology, whereas, Apple, Google, and Amazon are quickly blazing trails.
Microsoft 7Ps of marketing focuses on the product element of the marketing mix to a greater extent compared to other elements. Accordingly, the multinational technology company has accepted high level of user convenience of its products and services as unique selling proposition associated with the brand.
What makes Microsoft so successful? ›This leads to some very key factors that point to Microsoft's continued success. These include innovation, strong leadership, a vision, trust in every employee, and resiliency.
Is Microsoft more innovative than Google? ›
Google Cloud Overtakes Microsoft as Innovation Leader in the Cloud. CybersecurityThe practice of defending computers, servers, mobile devices, electronic systems, networks, and data from malicious attacks.
Why Microsoft is better than other companies? ›The network effect, economies of scale, and strong branding all work in Microsoft's favor, but it operates in highly competitive markets that are changing at accelerating rates. Morningstar assigns Microsoft a wide economic moat based on the competitive success of Office and cloud products.
How did Microsoft change the world technologically? ›By launching Xbox Live, the company familiarized the world with the idea of online gaming; a concept later followed by Sony PlayStation. Microsoft introduced the Pocket Personal Computer (PC) and Windows Mobile the direct precursor to tablets and smartphones.
What are Microsoft's top 5 skills? ›- Excel. Analyze Tables. Charts & Sparklines. ...
- Word. Compare and Merge documents. ...
- Outlook. Auto Reply. ...
- PowerPoint. Broadcast and Share a Slideshow. ...
- Access. Create & Design Databases.
- Microsoft Was Originally Known by a Slightly Different Name. ...
- The Original Microsoft Logo Was Created in Less Than a Day. ...
- Windows OS Once Had a Very Different Name. ...
- Microsoft Office Actually Debuted on the Mac.
Here, like Google and Amazon, Microsoft ranks very highly compared to other brands. Companies need to typically be both Meaningful and Different to develop Salience, and with Microsoft the connection is clear. They deliver superior cloud, software and hardware products which makes them stand out.
What makes Microsoft better than Apple? ›Apple and Microsoft are both great companies to own. However, just like how you may choose a Mac over a PC (or vice versa), which is a 'better' company boils down to your personal preference. Apple is a leader in consumer tech and hardware, while Microsoft is a frontrunner in software and cloud.
What strategy does Microsoft use? ›Microsoft's Generic Strategy (Porter's Model)
Microsoft Corporation uses broad differentiation as its generic strategy for competitive advantage. Broad differentiation involves unique products sold to a wide variety of customers.
| Invention | Inventor | |
|---|---|---|
| 1 | Printing Press | Johannes Gutenberg |
| 2 | Electric Light | Thomas Edison |
| 3 | Automobile | Karl Benz |
| 4 | Telephone | Alexander Graham Bell |
The innovations include technological inventions such as wind turbines, photovoltaic cells, concentrated solar power, geothermal energy, ocean wave power and many other emerging innovations.
What is the best innovation in 2022? ›
- Scaling sustainable aviation fuel (SAF) production. ...
- Advancements in managing emissions. ...
- Tools enabling data center optimization. ...
- Expanded access to contactless payment. ...
- Technology increasing safety for pilots and drivers. ...
- Sustainable solutions for building operators and owners.
Microsoft is facing challenges as interest rates rise, inflation rates remain high and economic growth dampens globally. During the first half of 2022, the company faced obstacles as Russia invaded Ukraine, employees sought more transparency on salaries as the labor market remains favorable for employees.
What is Microsoft's biggest challenge? ›One of the primary difficulties that Microsoft faces is the absence of development. Albeit the organization was a leader in technology products, Microsoft has not been able to launch new products that are competent in the mobile market.
What threats does Microsoft face? ›Cybersecurity threats
As a company that stores a large amount of data and operates in the technology industry, Microsoft is a target for cyber attacks. The company has to constantly invest in security measures to protect its systems and customers' data from cyber threats.
Our cultural attributes
We start with becoming learners in all things—having a growth mindset. Then we apply that mindset to learning about our customers, being diverse and inclusive, working together as one, and—ultimately—making a difference in the world.
The judge ruled that Microsoft violated parts of the Sherman Antitrust Act and ordered the company to break up into two entities. Microsoft appealed the decision, which was overturned.
Who are Microsoft competitors? ›Microsoft Corporation
Why is Microsoft so admired? ›Founded in 1975, they are a young company by many standards, which may be a contributing factor to their success, but part of their success has been their resilience and ability to respond to changing technologies, market demands, and business opportunities.
What is Microsoft's main focus? ›Microsoft was founded in 1975. Our mission is to enable people and businesses throughout the world to realize their full potential by creating technology that transforms the way people work, play, and communicate.
What was Microsoft's most successful product? ›1. Windows 95. Our number one in our Top 10 Microsoft Products of all time is without a doubt Windows 95.
Why is Microsoft more successful than Apple? ›
Keeping the technology apart, the Microsoft has diverse revenue lines and comparatively the company with higher net profit is Microsoft. All these factors say that Microsoft is more successful than Apple, owing to its market presence.
How did Microsoft improve the society? ›Tech Donation & Technical Empowerment
It has to date donated more than 420 million HKD in cash and products to assist more than 1,800 local non-profit organizations to use cloud services. Microsoft also organizes digital workshops and meetings for non-profit organizations, public and private organizations.
Microsoft revenue for the twelve months ending December 31, 2022 was $204.094B, a 10.38% increase year-over-year. Microsoft annual revenue for 2022 was $198.27B, a 17.96% increase from 2021. Microsoft annual revenue for 2021 was $168.088B, a 17.53% increase from 2020.
Why are companies switching to Microsoft from Google? ›Easier Collaboration (Internally and Externally)
Microsoft Office has the majority share when it comes to productivity software, and it is also preferred by the biggest (and brightest!) companies. In fact, it is estimated that 70% of Fortune 500 companies use Microsoft products.
Ethisphere has released its annual edition of the most ethical companies from a variety of industries. The 2022 edition of most ethical companies list saw some heavy hitters in the tech industry named as honorees as selected by the Ethisphere Institute.
Is Microsoft more ethical than Google? ›Microsoft makes World's Most Ethical Companies list, Apple, Google, Facebook don't - Business & Human Rights Resource Centre.
What are some advantages of Microsoft? ›- Access to Microsoft's extensive toolkit. ...
- Improved collaboration tools. ...
- Leading security and compliance. ...
- Access everything, everywhere, anytime. ...
- Easy budgeting. ...
- Automatic updates. ...
- Increased productivity. ...
- Better collaboration.
Collaborative Work. Today's business environment demands the sharing of data, mobile technology and speedy communication. Microsoft provides tools enabling businesses to be productive and communicate effectively regardless of location. Outlook serves as the portal for e-mail, tasks, calendar and contacts.
Why is Microsoft so valuable? ›Microsoft's main revenue drivers come from its cloud computing business and Office productivity software subscriptions. That's not exciting, it's boring. It's also very profitable and reliable as a source of revenue, two things that are very important to investors.
How did Microsoft grow so fast? ›Microsoft before 1990 was predominantly a supplier to the hardware manufacturers. That was their target market. As technology advanced and personal computers become so popular, the bulk of Microsoft's revenue was generated from sales to consumers. It was the first software company to reach $1 Billion in revenues.
What are three major Microsoft contributions? ›
Microsoft Corporation, leading developer of personal-computer software systems and applications. The company also publishes books and multimedia titles, produces its own line of hybrid tablet computers, offers e-mail services, and sells electronic game systems and computer peripherals (input/output devices).
What has Microsoft done for sustainability? ›Investment in carbon removal
We have invested in acquiring 2.5 million tons of carbon removal from various sources and recycling it into marketable products.
Brand name (18%) - Who doesn't want to work with a brand name? Working at Microsoft is a big deal for software engineers and this is the dream job destination for many, in the world. Work-Life Balance (18%) - Even if it provides challenging projects, the company takes care of the work-life balance of its employees.
What do you think the top 3 qualities needed to work at Microsoft are? ›- Analytical thinking. ...
- Adaptability and continuous learning. ...
- Digital skills.
In conclusion, key leadership skills such as empathy, humility, thinking big, caring for people, prompt execution, courage, and a growth mindset have been instrumental to Nadella as Microsoft's CEO.
What is Microsoft in simple words? ›Microsoft is the largest vendor of computer software in the world. It is also a leading provider of cloud computing services, video games, computer and gaming hardware, search and other online services. Microsoft's corporate headquarters is located in Redmond, Wash., and it has offices in more than 60 countries.
Why is Microsoft Word the most used? ›Conclusion. Microsoft Word allows you to create simple word processing documents like letters and reports effortlessly, allowing you to add color and clip art. Writing in various fonts and sizes and using tables, borders & bullet formatting reduces tediousness and increases productivity.
What are the 3 greatest innovations of All Time? ›| Invention | Inventor | |
|---|---|---|
| 1 | Printing Press | Johannes Gutenberg |
| 2 | Electric Light | Thomas Edison |
| 3 | Automobile | Karl Benz |
| 4 | Telephone | Alexander Graham Bell |
This leads to some very key factors that point to Microsoft's continued success. These include innovation, strong leadership, a vision, trust in every employee, and resiliency.
What made Microsoft so successful? ›Microsoft's big break was in 1980 when a partnership was formed with IBM which resulted in Microsoft providing a crucial operating system, DOS, for IBM PCs. This meant that for every IBM Computer sold a royalty was paid to Microsoft.
How did Microsoft transform itself? ›
Upon taking the helm, Satya rapidly transformed Microsoft's strategy and culture, exiting its failed acquisition of Nokia mobile phones, moving into social media with the acquisition of LinkedIn, broadening into games with Minecraft and Activision Blizzard, and expanding its cloud business Azure.
What is Microsoft's competitive advantage? ›Microsoft has what Warren Buffett calls a strong moat: competitive advantages that protect it from rivals and enable its large profits. Microsoft's intellectual property—specifically, its patents and proprietary software code—contribute to the depth of its moat.