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Satya Nadella: Leading Microsoft’s Growth

Author: Arpita Agnihotri, Saurabh Bhattacharya

Pub. Date: 2021

Product: SAGE Business Cases

DOI: https://dx.doi.org/10.4135/9781529764314

Disciplines: Business & Management, Leadership, Strategic Management, Leadership, Strategic

Management & Business Policy (general)

Access Date: December 24, 2022

Publishing Company: SAGE Publications: SAGE Business Cases Originals

City: London

Online ISBN: 9781529764314

https://dx.doi.org/10.4135/9781529764314

Abstract

The case discusses the initiatives undertaken by Satya Nadella, CEO of Microsoft Corporation

(Microsoft) since 2014, to improve the market-based performance of the company. Unlike his

predecessor, Steve Ballmer, Nadella followed a collaborative approach to competition. He al-

so did away with the myopic management of Windows, an approach used by Ballmer during

his tenure as CEO (2000–2013). In addition, Nadella pushed for growth in areas such as cloud

computing and Artificial Intelligence (AI). Nadella also invested in inclusive design innovation by

introducing technology products that were useful for differently-abled users. Industry experts be-

lieved that if Nadella continues with the pace of organic and inorganic growth (i.e., expanding

through developing competencies internally and acquisitions respectively), it would be difficult

for competitors to outpace him. However, Microsoft lacked inclusivity within the organization,

with poor representation of minorities and women in the workforce. In November 2019, Nadella

was trying to make Microsoft more innovative. What areas should Nadella explore for inclusive

innovation? What growth strategies can he opt for? Is infusing inclusivity at Microsoft vital to-

wards delivering inclusive innovative products and services?

Case

Learning Outcomes

By the end of the case study discussion, students should be able to:

• examine a strategy map as a performance enhancement tool;

• describe different leadership styles;

• explain the role of inclusivity in design innovation;

• describe the advantages of acquisitions over organic growth and vice versa.

Introduction

In November 2019, Satya Nadella, CEO of Microsoft Corporation, was exploring ways to make the corporation

more innovative (Lardinois, 2019). In 2014, Nadella became Microsoft’s CEO, replacing Steve Ballmer, and

by the end of 2018, the company’s stock price outperformed the S&P 500 Index by over 80% (Levine, 2019;

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Page 2 of 23 Satya Nadella: Leading Microsoft’s Growth

see Table 1). According to analysts, this was due to Nadella’s focus on emerging technologies, such as re-

lying on cloud computing rather than on Windows, the operating system manufactured by Microsoft (Novet,

2018). Cloud computing is “the on-demand delivery of IT resources over the internet with pay-as-you-go pric-

ing. Instead of buying, owning, and maintaining physical data centers and servers, you can access technology

services, such as computing power, storage, and databases, on an as-needed basis from a cloud provider”

(“What is Cloud Computing?”, n.d.). Among the different business services offered by Microsoft, cloud com-

puting had the highest market potential (“Microsoft Strategy Teardown,” 2018). Although Steve Ballmer be-

gan investing in cloud computing in 2010, Microsoft’s stock price largely remained flat during his tenure, from

2000–2013 (Jackson, 2018), despite an increase in Microsoft’s profits (“Microsoft’s Net Income,” 2019).

Table 1. Nadella’s Tenure (2014–2019 and Ongoing): Closing Share Price and Growth Rate

Date Close (USD) Growth Rate (%)

04-Feb-14 36

04-Aug-14 43 19

04-Feb-15 42 -4

04-Aug-15 48 14

04-Feb-16 52 9

04-Aug-16 57 10

03-Feb-17 64 11

04-Aug-17 73 14

05-Feb-18 88 21

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Source: Microsoft Corporation (MSFT): Historical data (accessed March 27, 2020). Yahoo Finance.

https://yhoo.it/2Ir3ziw

Nadella also infused a collaborative culture both inside and outside the workplace (Bort, 2017; “How Microsoft

Refashioned,” 2016). Consequently, when Microsoft partnered with competitors such as Amazon in 2017 and

Salesforce in November 2019 to advance Azure (Bort, 2017), Microsoft’s cloud computing platform, it sur-

prised the industry. This was because Microsoft traditionally had a reputation of competitive culture rather than

collaboration (Novet, 2018). Although Nadella continued with Ballmer’s aggressive acquisition strategy (Stew-

art, 2016), it was largely organic growth that contributed to Microsoft’s compound annual growth rate (CAGR;

“Microsoft is Growing,” 2018). Nadella mentioned that the secret to his success was promoting empathy with-

in the organization. He said, “Most people think empathy is just something that you reserve for your life and

your family and your friends, but the reality is that it’s an existential priority of a business. I think empathy is

core to innovation and life’s experience” (Kuehner-Hebert, 2018). Nadella also believed in promoting growth

through inclusive innovation (“Technology Should Drive,” 2019). Consequently, several innovative Microsoft

products, such as Eye Gaze, feature in Windows 10, the most up-to-date Microsoft operating system, which

was launched in 2015. Eye Gaze was supposed to help people suffering from dyslexia, and it was driven by

empathy and inclusivity (Ray, 2019). Although Nadella emphasized inclusivity in innovation, at Microsoft there

was a lack of inclusivity in the workforce due to its poor representation of minorities and women (see Table

2).

03-Aug-18 108 23

04-Feb-19 106 −2

05-Aug-19 132 25

31-Dec-19 157 19

Table 2. Gender- and Race-Based Representation in the Microsoft Corporation (2017–2019)

Representation in Microsoft familya Representation in Microsoft only

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https://yhoo.it/2Ir3ziw

Source: “Microsoft: Diversity and inclusion report 2019” (2019).

aMicrosoft family comprises of Microsoft employees along with employees from LinkedIn, GitHub, Compul-

sion, Playground Games, Ninja Theory, InXile, Obsidian Entertainment, and Undead Labs.

As Nadella was exploring ways to make Microsoft more innovative, especially in the field of Artificial Intel-

ligence (AI), he faced several challenges (Lardinois, 2019). According to Encyclopedia Britannica, AI is the

“the ability of a digital computer or computer-controlled robot to perform tasks commonly associated with in-

telligent beings.” Organizations make investments in AI to achieve either of the following objectives (Marr,

2018):

• build systems that think exactly like humans do (“strong AI”);

• just get systems to work without figuring out how human reasoning works (“weak AI”);

Representation in roles

2019 2018 2017 2019 Executive Director Manager Individual

contribution

Tech

roles

Non-

tech

roles

Others

Globally

Women 29.2 28.1 27 27.6 19.3 20.5 25.4 28 21.4 39.4 38.2

Men 70.7 71.8 73 72.3 80.7 79.5 74.6 71.9 78.6 60.5 61.8

USA

only

African

American 4.4 4 3.8 4.5 2.7 2.5 2.7 4.9 3.3 7.5 18.6

Asian 33.3 32.3 31.4 33.1 23.9 27.8 28.6 33.9 40.1 16.6 10.2

Hispanic 6.2 5.9 5.7 6.3 4.4 4.7 5 6.5 4.9 9.6 25

White 52.1 54.1 55.9 53.2 67.3 63.2 61.8 51.6 49 63.1 43

Others 4 3.7 3.2 2.9 1.7 1.8 1.9 3.1 2.7 3.2 3.2

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• use human reasoning as a model but not necessarily the end goal.

What areas should Nadella explore for inclusive innovation? Should he focus on Microsoft’s growth through

organic or inorganic routes of acquisition? Is infusing inclusivity at Microsoft vital toward delivering inclusive

innovative products and services?

Background

Founded in 1975 by childhood friends Bill Gates and Paul Allen, Microsoft was largely established as a desk-

top operating system. The first operating system from Microsoft was MS-DOS. Then, in 1985, Windows 1 was

launched, followed by a suite of business apps released since 1990, such as Word, Excel, and PowerPoint

(Gibbs, 2014; James, 2016; “This Day in History,” 2019). Windows and Office became the de facto standards

for the world, and Microsoft gained a monopoly in operating systems (Naughton, 2019).

In 2019, Microsoft was largely operating in three segments, namely Productivity and Business Processes, In-

telligent Cloud, and More Personal Computing (“Microsoft: Annual Report 2019,” 2019). The Productivity and

Business Processes segment consisted of products and services such as Office 365 subscriptions and Of-

fice licenses on-premises, Skype for Business, LinkedIn, and a set of cloud-based applications for enterprise

resource planning and customer relationship management (“Microsoft: Annual Report 2019,” 2019). The In-

telligent Cloud segment consisted of public, private, and hybrid server products, such as a SQL (structured

query language) server, Windows server, and Azure. The More Personal Computing segment consisted of

Windows as well as devices such as Microsoft Surface, Personal Computer (PC) accessories, gaming acces-

sories such as Xbox hardware and Xbox software and services, and Bing search (“Microsoft: Annual Report

2019,” 2019). Amongst these divisions, the Productivity and Business Processes segment contributed the

most to revenue (see Table 3). In June 2019, Microsoft had approximately 144,000 employees, with 85,000

in the United States and 59,000 in the rest of the world (“Microsoft: Annual Report 2019,” 2019).

Table 3. Microsoft Financials (2015–2019)

Financials 2015 2016 2017 2018 2019

Revenue (USD billion) 93.6 91.2 96.6 110.4 125.8

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Source: “Microsoft: Annual Report 2019” (2019).

Ballmer’s Leadership Style

As an entrepreneur, Bill Gates was highly competitive, with the aim of world domination for his company

(Naughton, 2019). In 2000, Gates stepped down as CEO of Microsoft and assumed the role of Chairman,

with Steve Ballmer, a similarly competitive and driven individual, promoted to CEO. During Ballmer’s tenure,

Productivity and Business Processes 29.9 35.9 41.2

Intelligent Cloud 27.4 32.2 39.0

More Personal Computing 39.3 42.3 45.7

Gross margin (USD billion) 60.5 58.4 62.3 72.0 82.9

Operating income (USD billion) 29.0 35.1 43.0

Productivity and Business Processes 11.4 12.9 16.2

Intelligent Cloud 9.1 11.5 13.9

More Personal Computing 8.8 10.6 12.8

Corporate and Other −0.3 0.0 0.0

Net income (USD billion) 12.2 20.5 25.5 16.6 39.2

Total assets (USD billion) 174.3 202.9 250.3 258.8 286.6

Earnings per share (USD billion) 1.5 2.6 3.3 2.1 5.1

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Microsoft’s corporate personality (i.e., being competitive) remained unchanged (Naughton, 2019).

Microsoft’s innovation philosophy during Ballmer’s era was tied to product compatibility with Windows. The

corporation had a poor reputation for being highly competitive, especially in the Silicon Valley, where cama-

raderie and collaboration were hallmarks of technological innovation. Microsoft rarely partnered with outsiders

and scorned the open source community (Paderes, 2018). The competitive culture built under Ballmer’s lead-

ership viewed Linux (an open-source operating system) as a cancer (McCracken, 2018). Reputed investor

Peter Thiel referred to Microsoft as a bet “against technological innovation” (Hempel, 2017).

However, after the advent of cloud computing, the need for Windows was shackled, as computing no longer

needed to be done on a desktop. In 2007, the launch of modern smartphones enabled consumers to ac-

cess an internet-connected handheld computer with the facilities for voice calls (Naughton, 2019). Google

became better known for its operating systems on smartphones (i.e., Android), and unlike Microsoft, it did not

charge smartphone users for the services it offered. Google’s web apps, which were similar to Microsoft’s Of-

fice Suite, were also free. These platforms adversely impacted the sales of Windows and Office Suite (Ross,

2019). Ballmer admitted that Microsoft was far too focused on Windows and was designing all of its innova-

tions to fit Windows to the extent that the corporation lost the smartphone battle to its competitors in 2012

(Gralla, 2013; Hernandez, 2016). Regretting a loss of opportunity, Ballmer said, “If there’s one thing I guess

you would say I regret, I regret that there was a period in the early 2000s when we were so focused on what

we had to do around Windows that we weren’t able to redeploy talent to the new device called the phone”

(Wilhelm, 2013).

Analysts also criticized Microsoft for lagging in cloud computing services during Ballmer’s tenure (McKendrick,

2010). In response to this criticism, in 2010, Ballmer explained that Microsoft had been active in cloud com-

puting since 1996 (McKendrick, 2010). In 2013, before leaving Microsoft, when Ballmer reorganized the com-

pany, the dominance of Windows over cloud services was visible, as the operating systems division included

not only Windows, Windows Phone, and Xbox, but all of the “core” cloud services as well (Duncan, 2013).

Despite these issues, Microsoft’s profits increased during Ballmer’s tenure, with revenues rising from USD

5.4 billion in 2002 to USD 21.9 billion in 2013 (“Microsoft’s Net Income,” 2019). However, he failed to raise

the company’s shareholder value (Jackson, 2018).

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Nadella’s Leadership Style

Nadella believed in empathy, and explaining his rationale for this belief, he stated, “Our core business is con-

nected with the customers’ needs and we will not be able to satisfy them if we don’t have a deep sense of

empathy” (Rittenhouse, 2019). Nadella was also a long-term thinker who embraced new trends and weak sig-

nals early on to stay ahead of the competition (Mauri, 2017). He valued high-speed decision-making where

80% confidence was enough for him to act. In a VUCA (“volatile, uncertain, complex, and ambiguous”) en-

vironment, he believed that waiting for 100% certainty for decision-making would be too slow (Mauri, 2017).

Venturing into cloud services was a result of this thinking, which doubled Microsoft’s revenues between 2016

and 2017 (Mauri, 2017).

After taking over as CEO, Nadella first revised Microsoft’s mission to “empower every person and every or-

ganization on the planet to achieve more” (Frank, 2015). In his first communication with employees, Nadella

stated, “We need to prioritize innovation that is centered on our core value of empowering users and organiza-

tions to ‘do more’” (D’Orazio, 2014). He then laid out a three-point strategy to accomplish Microsoft’s mission.

The first step was to focus on cloud computing. Nadella downplayed the role of Windows and emphasized the

technology of the future (i.e., cloud computing; Naughton, 2019). In his first public address in 2014, he did not

use the word “Windows” even a single time (Novet, 2018). Nadella asserted that Microsoft was required to

become “a horizontal company, not a highly differentiated vertical one built around Windows.” It was required

to diversify into cloud computing and target its services at iPhone, Android, Linux, and Mac users, aside from

Windows (Naughton, 2019). In 2022, the market size of cloud computing was expected to grow to USD 513

billion, with Microsoft and Amazon being major competitors (“Microsoft Strategy Teardown,” 2018; see Figure

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Figure 1. Global: Cloud Computing Revenue Share by Company (2015–2019)

Source: “Distribution of Cloud Computing Market Revenues Worldwide from 2015 to June 2019, By Vendor,”

Statista, September 2019, accessed March 27, 2020, https://www.statista.com/statistics/540511/worldwide-

cloud-computing-revenue-share-by-vendor/

Nadella’s second strategy was to invest in innovative and upcoming technological growth areas, such as AI,

quantum computing, and mixed reality (Doris, 2019). A third and equally important strategy for implementing

this process was to reset Microsoft’s culture so that employees would also become growth-oriented and use

Windows to run everything rather than develop products that run on Windows (Rittenhouse, 2019). According

to tech analyst Ben Thompson, Nadella “brilliantly navigated ‘the End of Windows’ internally, freeing Microsoft

employees to build products that customers actually wanted, not that Microsoft needed” (Naughton, 2019).

Thus, according to Thompson, Nadella liberated Microsoft “by getting it out of its own way” (Rittenhouse,

2019).

Empathetic and Inclusive Innovation Efforts

Nadella believed that empathy was a key source of business innovation. He emphasized that, “Empathy

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https://www.statista.com/statistics/540511/worldwide-cloud-computing-revenue-share-by-vendor/

makes you a better innovator. If I look at the most successful products we [at Microsoft] have created, it comes

with that ability to meet the unmet, unarticulated needs of customers” (Lev-Ram, 2017). Because Nadella

believed in inclusivity, this value was reflected in the new products developed by Microsoft. The corporation

leveraged on AI technology to innovate with inclusivity. In Windows 10, Microsoft introduced the Eye Gaze

feature, which allowed anyone suffering from ALS (amyotrophic lateral sclerosis) to be able to type by just

using their gaze. Similarly, it developed learning tools within Word and OneNote that allowed individuals with

dyslexia to improve their reading skills (Goldstein, 2019). Yet another innovation was Seeing AI, a free app for

iOS users, which used phone cameras to recognize objects (including printed text and handwriting) and elab-

orate on them for visually impaired users (“Microsoft CEO Satya Nadella,” 2018). Commenting on Microsoft’s

inclusive innovation efforts, Saqib Shaikh, a software engineer leading Microsoft’s Seeing AI research project,

stated, “People with disabilities are the ultimate early adopters and in many ways are ahead of the curve in

terms of tech” (Ray, 2019). He added, “Disability is a driver for innovation, not a charity case. It’s a field worth

watching for what comes next.” Agile values such as empathy and “respect for people” were absent from Mi-

crosoft’s list of priorities during its early years (Goldstein, 2019). In 2025, the market size of AI was expected

to be of USD 125 billion (“Microsoft Strategy Teardown,” 2018).

In 2016, Microsoft also reworked the road directions given by Bing Maps. Most wayfinding apps gave direc-

tions according to cardinal direction, distance, and street names, such as “Go north for 1.5 miles [2.41 km],

then turn left on Elm St.” However, academic research consistently showed that women navigated according

to landmarks and visual cues. Considering this, Microsoft developed a nuanced version of Bing Maps that

rendered directions with visual cues, such as “Go north for 1.5 miles, then turn left at the McDonald’s. Now

you’re on Elm St” (Kuang, 2016).

Rene Brandel, an employee at Microsoft, mentioned, “There’s this feeling of empathy among teams now to try

to make each other successful, instead of so much internal competition.” Brandel further added, “I’ve never

talked with Satya in person. But he fosters this culture of learning and of respectfully questioning each other,

to try to understand the other perspectives” (Ray, 2019). Nadella also pushed employees to be more creative

through the company’s annual hackathon. This sparked a revival of spirits, in which employees felt energetic

toward innovation throughout the year, with managers supporting their ideas even if these ideas were not

related to the core jobs that the employees performed (Kuang, 2016). As a part of this hackathon, employ-

ees teamed together in early 2019 to revive Skype by combining it with Visual Studio. This helped recruiters

conduct coding job interviews over Skype, eliminating the need to download different programs separately to

check the coding of job applicants. The Microsoft team was able to launch the new version of Skype within

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a month, as Nadella swiftly connected them to other teams that could run quality checks and remove bugs

within a matter of hours (Kuang, 2016).

Not only did Microsoft value artificial intelligence, but it also realized that customers needed to be educated

about the potential of AI for business growth. Thus, in an alliance with INSEAD business school, in 2019,

Microsoft launched the Microsoft AI Business School, which was a free online master’s course aimed at em-

powering business leaders with AI knowledge (Roach, 2019). Similarly, Nadella also crowdsourced its product

development in order to collaborate with external stakeholders. Soon after assuming the position of CEO at

Microsoft, Nadella’s team announced that Windows 10 was being developed for a subsequent launch in 2015

(“Microsoft Unveils the Future,” 2014). Through the Windows Insider Program, users were invited to test Win-

dows 10 (beta version) and report not only bugs but their experiences with the operating system as the corpo-

ration progressed toward developing the operating system in conjunction with its partners and customers. In

2014, the Windows Insider Program was considered Microsoft’s largest-ever open collaborative development

effort for developing Windows (“Microsoft Unveils the Future,” 2014).

Efforts to Develop a Collaborative Culture

Nadella also realized that to discover and address customers’ unmet needs, he needed to promote risk-taking

among employees. Exemplifying this learning and risk-taking culture, when Microsoft’s Tay chatbot, which

was designed to mimic and converse with users in real time, was hacked in 2016, Microsoft employees had to

shut down the project (McCracken, 2018). Nadella encouraged employees to keep learning and keep push-

ing. He stated, “Keep pushing, and know that I am with you … [The] key is to keep learning and improving”

(Bariso, 2019). Employees did the same, and they soon released a more troll-resistant version of the Tay

chatbot on other social media platforms, such as Facebook messenger. Commenting on the changing col-

laborative culture at Microsoft, Chris Capossela, Microsoft’s Chief Marketing Officer, stated, “We went from a

culture of know-it-alls to a culture of learn-it-alls … Everything we do now is rooted in a growth mindset” (Stol-

zoff, 2019). Microsoft’s customer acquisition strategy also became less competitive, with a more humanizing

approach toward marketing the Microsoft brand. As part of the competitive culture, a marketing campaign

known as “Scroogled!” was launched in 2012 to indicate that some Google users had switched to Microsoft’s

Bing search engine (Dudovskiy, 2019). However, Nadella stopped this advertisement and similar campaigns

as the culture became more collaborative (Hildenbrand, 2014).

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During the Ballmer era, because Microsoft had a competitive culture, the employees’ performance manage-

ment system also followed a forced rating system. In this system, even if all team members were stellar em-

ployees, some would get lower ratings. As one engineering manager mentioned, “Even if you had an all-star

team, you still had to put someone in the five bucket. The number became a permanent scar on [the employ-

ee’s] record that would impact things like their ability to change teams” (Stolzoff, 2019). With Nadella’s phi-

losophy of collaborative culture, even the performance management mechanism changed. The forced rating

system was discarded and a 360 review (where employees nominated their peers to review them) was incor-

porated to reflect the collaborative team culture (“How Microsoft Refashioned,” 2016). Meetings at Microsoft

during Nadella’s era were also more focused on discussing unarticulated and unmet needs of customers with

an empathetic attitude rather than a cut-throat competitive culture (Ark, 2018).

Although employees were appreciative of the changing culture at Microsoft under Nadella’s leadership, diver-

sity was still an issue. Similar to other tech giants, such as Google and Apple, Microsoft largely consisted of

white and male employees (Carson, 2019). Additionally, a limited number of women were hired for technical

roles, and underrepresented minority groups were hired at an even lower rate (“Microsoft: Diversity and Inclu-

sion Report,” 2019; see Table 2). Rae McIntyre, Chief Diversity Officer of Microsoft, stated, “We wanted to be

able to show our work and progress in both [diversity and inclusion], knowing that we are not where we want

to be and we will worker (sic) harder to continue to be even better” (Ark, 2018).

Coopetition Efforts

Nadella enforced a collaborative culture at Microsoft and enabled employees to continuously learn through a

growth mindset (Bariso, 2019). As part of its collaborative efforts, Microsoft also partnered with its competi-

tors (in “coopetition”) to add value to customers and create a win-win situation. In 2019, Nadella partnered

with Oracle for the integration of Azure with Oracle Cloud Infrastructure for interoperability. In 2019, Sales-

force also announced its Sales and Service Cloud integration with Azure (Greenberg, 2019). As part of its

collaborative culture and growth-based mindset, Microsoft hosted Azure on Linux instead of on Windows. The

corporation also released several apps on iOS, Apple’s mobile operating system (McCracken, 2018). Another

example of its collaborative culture was the Azure Site Recovery, a backup and disaster recovery tool, which

also included support for VMware and Amazon Web Service workloads (Jones, 2015). Microsoft also gave its

salespeople large financial rewards for sharing leads with its partners. As a consequence of this collabora-

tive effort, in 2017, Microsoft earned 95% of its total revenue through partners, amounting to USD 100 billion

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(Evans, 2018).

To improve the quality assurance of collaborative work tools such as Microsoft Teams, the corporation col-

laborated not only with IT companies such as Wipro, but also with crowdsourcing companies such as Top-

coder. These collaborations enhanced Microsoft’s testing velocity, where a worldwide community of testers

continuously rendered feedback and documented defects, while helping Microsoft achieve wider test cover-

age across several devices and operating systems (Bonner, 2019).

Nadella’s Acquisition Strategy

Although Microsoft was always aggressive in acquiring other firms, Nadella and Ballmer had different philoso-

phies behind their acquisition methods. While Nadella averaged 12 acquisitions per year on an average dur-

ing his tenure, Ballmer made 10 deals per year during his (Stewart, 2016). Explaining the difference in ra-

tionale for acquisitions between the two leaders, Sid Parekh, an analyst with Becker Capital, said, “The key

difference is when Ballmer was CEO, Microsoft was in many ways playing catch-up. The larger acquisition

strategy was more reflective of being reactive than proactive, which is what Nadella has been” (Bonner, 2019).

While Ballmer acquired Nokia to catch up in the smartphone department, Nadella acquired LinkedIn in 2016

for over USD 25 billion to “make Microsoft a single source for information about professionals, a powerful

sales tool” (Bonner, 2019). This empowered Microsoft to compete against cloud computing and customer

relationship management tools rivals, such as Amazon Web Service and Salesforce, respectively. Microsoft

integrated LinkedIn into Outlook, Microsoft Dynamics 365, and Azure (Erlichman, 2019). LinkedIn’s acqui-

sition had the potential to add value for more than 300 million Windows users and 1.2 billion office users

(Trefis Team, 2016). Similarly, to further strengthen its position in cloud computing, Microsoft acquired GitHub

(Brown, 2019) in 2018, which enhanced Microsoft’s ability to develop open source apps on its cloud com-

puting Azure platform (Wheatley, 2018). Overall, Microsoft made nine acquisitions in AI and 26 acquisitions

in cloud computing between 2014 and 2019 (see Tables 4 and 5). However, between 2009 and 2018, Mi-

crosoft’s acquisitions contributed between 1% to 4% of the company’s CAGR, which according to analysts

was not a material amount. As per estimates, Microsoft’s historical organic revenue CAGR was 4.5%, 6.0%,

and 5.1%, respectively, for the 3-year, 5-year, and 10-year periods (“Microsoft is Growing,” 2018).

Table 4. AI Companies Acquired by Microsoft (2013–2019)

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Source: “Microsoft strategy teardown” (2018); Sawers (2019).

Year Acquisition (acquired company’s main line of business)

2015 Equivio (provider of machine learning)

2016 Genee (AI-powered scheduling service), Swiftkey (mobile productivity services)

2017 Maluuba (deep learning)

2018 Bonsai (reinforcement learning), Semantic Machines (conversational ai), XOXCO (conversational AI and bot development)

2019 JClarity (java virtual machine optimizations), PromoteIQ (vendor marketing technology)

Table 5. AI Companies Acquired by Microsoft (2013–2019)

Year Acquisitions

2014

GreenButton

Capptain

InMage

Aorato

2015

Revolution Analytics

Datazen Software

BlueStripe

FieldOne Systems

Adallom

Adxstudio Inc

Secure Islands

Metanautix

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Source: Microsoft investor relations: Acquisition history (accessed May 3, 2019). Microsoft. https://www.mi-

crosoft.com/en-us/Investor/acquisition-history.aspx

The Road Ahead

By the end of November 2019, the total return generated by Nadella for Microsoft crossed USD 1 trillion. Ac-

cording to media reports, Nadella brought the company back from the brink of technological irrelevance (Wa-

ters, 2019). There was a general belief that Microsoft was heading in the right direction (Novet, 2018). Given

his achievements, a survey conducted by Fortune magazine in 2019 found that Nadella was perceived by the

survey’s participants as the most underrated CEO of a major company (“These Are the Most Over,” 2019).

Analysts believed that if Microsoft could maintain its level of growth, there was little that competitors could do

to challenge one of the world’s most valuable companies (Poletti, 2019). However, Nadella believed that the

2016

Xamarin

Solair

2017

Deis

Cloudyn

Cycle Computing

2018

Avere Systems

PlayFab

GitHub

2019

Citus Data

DataSense

Express Logic

BlueTalon

Mover

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https://www.microsoft.com/en-us/Investor/acquisition-history.aspx

biggest threat to Microsoft was complacency. He said, “Any feeling of ‘mission accomplished’ can knock us

off” (Visram, 2019).

Emphasizing the role of empathy, he mentioned that most important trait for a CEO was the ability to walk in

the shoes of others (Rittenhouse, 2019). How should Nadella enhance the culture of empathy and innovation

at Microsoft? As Microsoft continues to grow, should he focus more on acquisitions or organic growth?

Discussion Questions

Using a strategy map, explain how Nadella enhanced the financial performance of Microsoft.

Compare the leadership styles of Nadella and Ballmer. Elaborate on the leadership style of Nadella

in a Volatile, Uncertain, Complex, and Ambiguous (VUCA) world.

How did Nadella embrace principles of design thinking for innovation? Going forward, what else can

he improve about Microsoft’s innovation efforts?

Describe the growth routes adopted by Microsoft for exploring and exploiting its capabilities. Does

Nadella need to revisit these growth routes?