Nadella Must Disrupt Microsoft Models to Establish Market Leadership

Archived Published: 10 February 2014 ID: G00262382

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After CEO Satya Nadella settles into his new position, Microsoft's efforts at reinvention will accelerate, creating both opportunities and risks for current Microsoft customers.

News Analysis


On 4 February 2014, Microsoft announced that its board of directors had appointed Satya Nadella as the company's CEO, effective immediately. Previously, Nadella, a 22-year veteran at Microsoft, held the position of executive vice president of the Cloud and Enterprise Group. Chairman of the Board Bill Gates will relinquish that role and spend a third of his time working with product groups.


Nadella's "insider" understanding of Microsoft's culture and his effectiveness in cross-team communication and collaboration could help him reshape Microsoft for the digital era — which will be key for the company to attain the visionary technical leadership to which it aspires. Nadella's main challenge consists of evolving Microsoft’s existing businesses (including its enterprise offerings, which represent half of its current revenue) while reinventing Microsoft to make it relevant in mobile and cloud-centric markets.

Nadella has been a force for change, driving a major strategic shift via investment in cloud services, and creating technology openness (for example, through the incorporation of Linux VM support in Azure) and cross-team collaboration. Unlike his sales-focused predecessor, Steve Ballmer, Nadella has an engineering background; thus, his selection has reinstated the model of a technically minded CEO driving the company's technical vision. But Nadella also must overcome several challenges. He lacks direct experience in the mobile market. His insider status raises the risk of his being overly respectful of existing businesses, and hanging back from tough decisions that potentially threaten them but are critical to generating innovation. And he will need to shake up what is widely viewed as a culturally dysfunctional management structure.

Nadella must quickly demonstrate that he is not backing a "business as usual" strategy, and that he recognizes that design is front and center in client computing for both consumers and enterprise users and that a mobilized environment has replaced the desktop. The next six months will show how well Nadella and Gates collaborate to determine Microsoft's technical direction. We expect Microsoft's trajectory will be clear by year-end 2014. Do not expect radical changes in the company's overall "devices and services" strategy; instead watch for organizational shifts, product design changes and updated product road maps — including Office, business intelligence and Microsoft Dynamics — to address a mobile- and cloud-dominant world. Microsoft must:

  • Establish a vision of itself as an innovative, disruptive force in IT. Concentrating on mobile technology and leveraging lessons learned from gaming can help Microsoft appeal to the next generation.

  • Emphasize design to enhance ease of use for consumers, and apply these lessons to its considerable assets in IT infrastructure to change its image of a legacy enterprise vendor competing in a consumerized market.

  • Enable entrepreneurs and developers to develop new business value atop a common Windows client environment with unified, cross-platform services. Microsoft must enable a complete, compelling set of apps that attracts developers and can compete with and within iOS and Android environments.

  • Acknowledge its customers’ heterogeneity by supporting Google and Apple client environments, the Linux/Java environment on servers, and cloud-based services in general.

  • Deliver compelling experiences and solutions to both IT and to non-IT buyers. Gartner research shows CIOs believe 25% of IT spending will occur outside of the IT organization; it is likely even higher. Microsoft must focus on outcomes, such as the value proposition and the user experience, to reach both IT and non-IT buyers.

Despite challenges and missteps in recent years, Microsoft remains an immensely profitable, cash-rich and influential company, which gives it a better chance to weather the disruption inherent in any leadership change. Gates can help promote necessary changes and push the engineers beyond their comfort zone, but he must play a supporting role. Disputes between the two would hamper Microsoft’s ability to address its challenges.


Current and prospective Microsoft customers:

  • Watch for an acceleration in the pace of introduction, replacement and change in technology offerings over the next 12 to 24 months.

  • Expect Microsoft to increase and broaden its marketing of enterprise-targeted products like Office and accelerate its support for a range of non-Windows mobile platforms.

  • With the succession now clear, expect Nadella’s former plans for the cloud, servers and tools to remain unchanged. Continue current deployments, but avoid new, long-term vendor and technology changes until potential shifts in Microsoft's plans become clearer.

  • Obtain assurance that Microsoft will support migrations and minimize the effects of any disruptions.

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