microsoft leadership case study

Satya Nadella employed a 'growth mindset' to overhaul Microsoft's cutthroat culture and turn it into a trillion-dollar company — here's how he did it

• Microsoft is a case study in how a growth-mindset culture can help companies succeed in the future economy.

• Microsoft is a trillion-dollar company thanks largely to a culture shift led by Satya Nadella.
• Since Nadella became CEO in 2014, he's encouraged the entire company to adopt a growth mindset, or the belief that skills are developed through hard work and challenges are opportunities to learn.
• Before Nadella took over, Microsoft was characterized by competition between teams and between individual employees.
• Now, in keeping with a growth mindset, Microsoft evaluates employees' performance based partly on how much they helped their colleagues succeed. The company also looks to learn from its former rivals in the tech industry.
• Business Insider spoke with a range of company insiders and organizational researchers to get the inside story on how to change the culture of a 150,000+ employee software giant.
• Visit Business Insider's homepage for more stories .

Sign up here to receive updates on all things Innovation Inc.

A cartoonist once drew an illustration depicting Microsoft's organizational chart as warring factions. 

Take a look and you'll see three separate gangs: one blue, one green, one yellow. The gangs are assembled in pyramid-shaped hierarchies, with one leader at the top, two or three deputies at the next level, and so on.

A hand sticks out from each pyramid, pointing a gun directly at one of the others. It's clear. This is war.

And then Satya Nadella became CEO.

Nadella described the era of warring gangs in his 2017 memoir-manifesto, " Hit Refresh :" "Innovation was being replaced by bureaucracy. Teamwork was being replaced by internal politics. We were falling behind."

That particular cartoon – drawn in 2011 by a Google employee named Manu Cornet , no less – made changing Microsoft's culture Nadella's No. 1 goal as CEO.

"As a 24-year veteran of Microsoft, a consummate insider, the caricature really bothered me. But what upset me more was that our own people just accepted it," Nadella wrote. "When I was named Microsoft's third CEO in February 2014, I told employees that renewing our company's culture would be my highest priority."

Since becoming CEO, Nadella has been credited with a grand reinvention of Microsoft, exemplified by its market value exceeding $1 trillion, one of just a handful in history to hit that mark. When Nadella first took over, its market value was around $300 billion.

One of the keys to this transformation is a psychological concept that's become a mantra at Nadella's Microsoft: growth mindset . The concept has helped Microsoft made the shift to remote work with aplomb, reaching a market cap of more than $1.6 trillion, showing that Nadella's strategy has survived the pandemic intact.

Microsoft has traded a fixed mindset for a growth mindset

Growth mindset describes the belief that skills are developed through hard work and that challenges are opportunities to learn. Fixed mindset, on the other hand, refers to the belief that talent is innate and that struggling is a sign of failure. Research on the difference between growth and fixed mindset — and how they predict success — was pioneered by Stanford's Carol Dweck.

Early on in her career as a developmental psychologist, Dweck visited children at school and presented them with a series of increasingly difficult puzzles. Her goal was to better understand how people cope with failure. Some students, she found, weren't fazed by it.

In her 2006 book, " Mindset ," she recalls one 10-year-old boy who "pulled up his chair, rubbed his hands together, smacked his lips, and cried out, 'I love a challenge!'"

Dweck would spend the next five decades trying to figure out the difference between people who relish a good challenge and those who fear failure. Scores of studies published under her name suggest that people who see intelligence and abilities as learnable are more successful, personally and professionally, than people who think they're static.

Recently, Dweck coauthored a study that drew a link between growth mindset and organizational success . Employees who think their companies have a fixed mindset, the study found, interpret the company's culture as less collaborative, less ethical, and less willing to take risks than employees who think their companies have a growth mindset.

Given the rapid pace of technological change , these research findings are hyper-relevant. Across industries, adopting a growth mindset may be the only way to survive, and certainly the only way to thrive. When neither executives nor rank-and-file employees can predict what their jobs will look like next week, they need to embrace the resulting vulnerability, and get excited about learning.

Plenty of companies, in industries from telecommunications to early education, talk about cultivating a growth mindset , and about looking for job candidates who have it . But Microsoft is perhaps the most powerful example of an organization that has used growth mindset, and the psychology behind it, to rebuild its culture. 

In many ways, fixed mindset and growth mindset can describe Microsoft before and after Nadella. 

Nadella has encouraged Microsoft employees to be 'learn-it-alls' instead of 'know-it-alls'

Since the era of Bill Gates, Microsoft's founder and first CEO, its leadership had generally rewarded the smartest person in the room. And Microsoft performed well under Gates, but that performance came at a cost.

Gates was famous for meltdowns and browbeating – so much so that Microsoft cofounder Paul Allen once described working with Gates as "being in hell." Gates would only back down if you could convince him you knew what you were talking about, Allen said.

Gates' successor, Steve Ballmer, also known for an explosive temper, later presided over the atmosphere depicted in that cartoon Nadella was determined to address. Ballmer was known for cultivating a culture in which Microsoft teams warred with each other, as previously reported by Business Insider .

Nadella, who joined Microsoft as an engineer in 1992, came up in this culture, before becoming CEO in early 2014. 

By that point, the company's bid to compete in the smartphone market through the purchase of Nokia was proving to be a burden and would lead it to write off nearly the entire $7.6 billion acquisition price. The personal computer market was shrinking, leading to declines in Microsoft's flagship Windows operating system business, and the Xbox One console's poorly received launch made it a punchline.

Microsoft's history as a tech-industry pioneer wouldn't help the company compete, Nadella wrote in an email to employees on his first day as CEO. The company needed a change in mindset.

"Our industry does not respect tradition — it only respects innovation," Nadella wrote on Feb. 4, 2014,  in a memo to employees days after taking on the CEO role. "Every one of us needs to do our best work, lead and help drive cultural change. We sometimes underestimate what we each can do to make things happen and overestimate what others need to do to move us forward. We must change this."

Nadella's leadership philosophy evolved into the adoption of a growth mindset. He asked employees to be "learn-it-alls," not "know-it-alls," and promoted collaboration inside and outside the organization. Employees are now evaluated partly on how much they've helped others on their team.

Microsoft introduced a new performance-management framework based on growth mindset

With any company culture shift, executives run the risk of promoting jargon more than action, and of HR representatives being the only ones who know there's a culture change underway.

Microsoft has tried to avoid that fate, not only by training its employees on the psychology of growth mindset, but also by embedding the concept into its daily work flow. 

Prompts to adopt a growth mindset appear on posters throughout Microsoft's campuses ( something at which employees sometimes poke fun ). At the start of a meeting, a manager might remind colleagues to approach an issue with a growth mindset.

And in one of the most significant manifestations of growth mindset, Microsoft has eliminated stack ranking .

Stack ranking was famously used by Jack Welch when he was CEO of General Electric. Ballmer used the system at Microsoft to evaluate employees, although he did start phasing it out prior to his departure. Microsoft managers had to rank their employees from one to five in equal measure. Which meant that, no matter how good the employees were, some of them had to get the lowest ranking of a five.

Performance was defined in stack ranking as the quality of individual work, and that emphasis on individual performance was linked to fierce competition among Microsoft employees. It was also a barrier to Microsoft's innovation, since it facilitated a culture that rewarded a few standout team members and even gave employees incentive to hope their colleagues failed. 

"We had a little bit of a 'not-invented-here' syndrome," Microsoft Chief People Officer Kathleen Hogan previously told Business Insider , referring to the tendency for developers and even organizations to reject acceptable solutions to problems if they hadn't developed those solutions themselves.

Dweck's research helps explain this trend, too. Her studies suggest that stack ranking's emphasis on "star" employees can leave everyone else afraid to try anything new, for fear of failing. In turn, that means companies are less innovative.

Related stories

Microsoft leadership says its new system for evaluating employees instead rewards collaboration. Managers and employees meet often to discuss performance , in keeping with the general trend of companies nixing annual reviews and having managers regularly speak with employees about their work.

"What we really value is three dimensions," said Hogan , Microsoft's chief people officer. "One is your own individual impact, the second is how you contributed to others and others' success, and the third is how you leveraged the work of others." 

To use Hogan's examples, maybe a more seasoned employee helped someone new to the team, or a software engineer built on another engineer's work instead of reinventing it. 

Microsoft recently applied growth mindset to a new framework for managers : model, coach, care. That's a combination of setting a positive example for employees, helping the team adapt and learn, and investing in people's professional growth.

To measure the impact of these initiatives in real time, Microsoft emails employees with a different question every day asking how they're feeling about the company and its culture.

The shift from competition to collaboration might seem like it would be a breath of fresh air. And on the whole, it has been. But employees say it's presented its own challenges, too.

Nadella pushes Microsoft executives to take on stretch assignments

Nadella asked Peter Lee , one of the company's top researchers, to make a big change.

It was 2017 and Lee – now corporate vice president of Microsoft healthcare – had long worked on broader technology problems as a key leader in Microsoft Research, the company's research division. 

Nadella wanted him to take on a new challenge and lead the company's emerging health care business, using his background in artificial intelligence and cloud computing to find new ways to tune the products to the needs of healthcare companies.

"Taking on healthcare was something that really perplexed me at first," he said. "I joked Satya sent me out into the Pacific Ocean and said, 'Go find land.'"

Adopting a growth mindset can be uncomfortable, he said. 

"Growth mindset is a euphemism because it can feel pretty painful, like a jump into the abyss," he said. "You need to be able and willing to confront your own fixed mindset – the things that make you believe something can't work. It's painful to go through personally, but when you get past it, it's tremendously rewarding."

The transition has been edifying, both in terms of his personal growth – Lee was recently named to the National Academy of Medicine – and Microsoft's growth in the industry, as it establishes itself as a meaningful player in healthcare tech. 

Microsoft now sees the business case for letting go of its rivalries with other tech giants

Under Ballmer, Microsoft was notorious for prioritizing its Windows operating system and Office productivity applications businesses over the rest of the company – at one point, it even canceled the Courier tablet, which would have been an early, future-looking competitor to Apple's iPad, because it may have undermined Windows.

Likewise, Microsoft once shunned Linux, a free open-source operating system once considered the biggest threat to Windows. Ballmer once called it a "cancer." But early on in Nadella's time as CEO, Microsoft changed tack and proclaimed, " Microsoft loves Linux ."

It wasn't just Microsoft being friendly. There was a strong business case for blurring boundaries. At the time, Microsoft said it realized its customers used both Windows and Linux, and saw providing support to both as a business opportunity on-premise and in the cloud. That would have been unthinkable in the Ballmer years, but it's proven to be a savvy business move: Microsoft recently hinted that Linux is more popular on its Azure cloud platform than Windows itself.

Microsoft's relationship with Salesforce has followed a similar trajectory. Whereas Ballmer had frequent and public bouts with Salesforce CEO Marc Benioff , Microsoft under Nadella put aside its rivalry with Salesforce – which competes directly with Microsoft's customer-relationship-management Dynamics 365 product – in order to ink a big cloud deal that was good for the company overall. 

Nadella even invites leaders from companies across industries to Microsoft's CEO Summit so the executives can learn from each other. Ballmer, meanwhile, famously snatched an employee's iPhone at a company meeting and pretended to stomp on it.

Which is not to say Microsoft always plays nice in the Nadella era. The company last summer changed licensing agreements to raise prices — often significantly — when customers choose to run certain Microsoft software on rival clouds including Amazon Web Services or Google Cloud. And it's been trading public barbs with AWS over the still contested $10 billion Pentagon cloud contract.

The Trump administration awarded the contract to Microsoft over AWS, but Amazon is challenging the decision in court, alleging political interference. The Pentagon in September upheld its decision to award the contract to Microsoft but AWS is expected to file a new complaint as part of the lawsuit next week.

The culture shift at Microsoft is an ongoing process

The beginning of Microsoft's culture shift was rocky.

In "Hit Refresh," Nadella recalls a Microsoft manager who announced in the early days, "Hey, Satya, I know these five people who don't have a growth mindset." Nadella writes, "The guy was just using growth mindset to find a new way to complain about others. That is not what we had in mind."

Even today, Microsoft leaders acknowledge that the culture change isn't over . Things have improved under Nadella, but the company culture is still far from perfect.

Diversity is an opportunity for improvement at Microsoft. Much like the larger technology industry , Microsoft still employs relatively few women and people of color in leadership and technical roles.

One of Nadella's biggest gaffes as CEO happened early on in his tenure, when he suggested women should not ask for raises, but rely on "faith" and "karma." After these comments, Nadella sent out an internal memo admitting to his mistake, explaining how he planned to learn from it, and stating his belief in "equal pay for equal work." 

Nadella writes in "Hit Refresh" that in some ways he's glad to have belly-flopped in public. "It helped me confront an unconscious bias I didn't know I had," Nadella writes, "and it helped me find a new sense of empathy for the great women in my life and at my company." 

Kevin Oakes, who runs a human-resources research company that helped Microsoft with its shift toward growth mindset, sees Nadella as an exemplar of a leader during a transition. That's largely because Nadella practices the growth mindset he preaches. In a presentation at Talent Connect, an annual conference organized by LinkedIn (which is owned by Microsoft), Oakes said Nadella has been Microsoft's "culture champion." Nadella understands that organizational culture is critical to the company's performance, Oakes said.

But today's Microsoft is still far from perfect. The positive contributions of growth mindset have not yet matched up with diversity and equity for Microsoft's workforce, according to some employees. Microsoft is the subject of a gender discrimination lawsuit still pending , which was denied class-action status by a federal judge. Employees have also openly alleged sexual harassment and discrimination.

The company released its first diversity and inclusion report in 2019 to track its progress in hiring — and retaining — a more diverse workforce. Results from that report showed that minorities in Microsoft's US offices earned $1.006 for every $1 white employees earned. A closer look reveals that white men still held more high-paying leadership positions than women or underrepresented minorities.

Microsoft has since announced plans to double the number of Black leaders and employees within the company, and the number of Black suppliers with which it works.

Meanwhile, Microsoft leadership still has some philosophical differences with employees as it relates to employee activism. Employee groups have protested Microsoft and Microsoft-owned GitHub's relationship with Immigration and Customs Enforcement, and some employees have said Microsoft's relationship with oil and gas companies is at odds with the company's goal to become "carbon negative" by 2030. 

Some Microsoft employees say the company is making progress. Rich Neal, a senior director who's been with the company since 2003, recalled a recent meeting in which a male colleague all but repeated the same comment a female colleague had shared 15 minutes earlier.

At that point, Neal recalled, a third meeting participant addressed the male colleague to ask whether perhaps he hadn't understood the female colleague's point. And Neal said it wasn't a passive-aggressive attack. Senior leaders are encouraged to "be curious and ask questions, versus making statements," as a way of modeling growth mindset, he added.

Microsoft has been equally vocal about diversity and inclusion within its customer base, building products that are accessible to as many users as possible. Ben Tamblyn, a 15-year company veteran and Microsoft's director of inclusive design, mentioned Xbox as a prime example. In 2018, Microsoft released the Xbox Adaptive Controller , which makes it easier for gamers who have limited mobility or physical impairments to play. (Interviews with Neal and Tamblyn were arranged by Microsoft's public-relations firm.)

Microsoft is a case study in growth mindset

Microsoft's culture shift, and its accompanying business turnaround, is already a case study in business schools and in reports from management consultancies and research centers . That makes sense to Mary Murphy, a professor of psychological and brain sciences at Indiana University and Dweck's co-author on the paper about growth mindsets within organizations. 

Growth mindset is essential for innovation in the technology industry, Murphy said, where change rarely happens incrementally. Instead, there are big inflection points from which there's no return. Microsoft, Murphy added, needs to be on the "cutting edge" of growth mindset in order to stay relevant.

Nadella, for his part, has modeled a growth mindset from the top of the organization, not least in his response to his tone-deaf comments about gender and compensation. "I learned, and we will together use this learning to galvanize the company for positive change," Nadella wrote in the memo he sent apologizing for the comments. "We will make Microsoft an even better place to work and do great things."

Got a tip? Contact reporters Shana Lebowitz via email at [email protected] and Ashley Stewart via email at [email protected] , message her on Twitter @ashannstew, or send her a secure message through Signal at 425-344-8242 .

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CASE STUDY: How Satya Nadella overhauled Microsoft's cutthroat culture and turned it into a trillion-dollar 'growth mindset' company

Ashley stewart,shana lebowitz   .

• Microsoft is a trillion-dollar company thanks largely to a culture shift led by Satya Nadella.
• Since Nadella became CEO in 2014, he's encouraged the entire company to adopt a growth mindset, or the belief that skills are developed through hard work and challenges are opportunities to learn.
• Before Nadella took over, Microsoft was characterized by competition between teams and between individual employees.
• Now, in keeping with a growth mindset, Microsoft evaluates employees' performance based partly on how much they helped their colleagues succeed. The company also looks to learn from its former rivals in the tech industry.
• Business Insider spoke with a range of company insiders and organizational researchers to get the inside story on how to change the culture of a 150,000+ employee software giant.
• Microsoft is a case study in how a growth-mindset culture can help companies succeed in the future economy.
• Click here for more BI Prime content.

Sign up here to receive updates on all things Innovation Inc.

A cartoonist once drew an illustration depicting Microsoft's organizational chart as warring factions.

Take a look and you'll see three separate gangs: one blue, one green, one yellow. The gangs are assembled in pyramid-shaped hierarchies, with one leader at the top, two or three deputies at the next level, and so on.

A hand sticks out from each pyramid, pointing a gun directly at one of the others. It's clear. This is war.

And then Satya Nadella became CEO.

Nadella described the era of warring gangs in his 2017 memoir-manifesto, " Hit Refresh :" "Innovation was being replaced by bureaucracy. Teamwork was being replaced by internal politics. We were falling behind."

That particular cartoon - drawn in 2011 by a Google employee named Manu Cornet , no less - made changing Microsoft's culture Nadella's No. 1 goal as CEO.

"As a 24-year veteran of Microsoft, a consummate insider, the caricature really bothered me. But what upset me more was that our own people just accepted it," Nadella wrote. "When I was named Microsoft's third CEO in February 2014, I told employees that renewing our company's culture would be my highest priority."

Since becoming CEO, Nadella has been credited with a grand reinvention of Microsoft, exemplified by its market value exceeding $1 trillion, one of just a handful in history to hit that mark. When Nadella first took over, its market value was around $300 billion. The company has shifted from a has-been to a cloud powerhouse.

One of the keys to this transformation is a psychological concept that's become a mantra at Nadella's Microsoft: growth mindset .

Microsoft has traded a fixed mindset for a growth mindset

Growth mindset describes the belief that skills are developed through hard work and that challenges are opportunities to learn. Fixed mindset, on the other hand, refers to the belief that talent is innate and that struggling is a sign of failure. Research on the difference between growth and fixed mindset - and how they predict success - was pioneered by Stanford's Carol Dweck.

Early on in her career as a developmental psychologist, Dweck visited children at school and presented them with a series of increasingly difficult puzzles. Her goal was to better understand how people cope with failure. Some students, she found, weren't fazed by it.

In her 2006 book, " Mindset ," she recalls one 10-year-old boy who "pulled up his chair, rubbed his hands together, smacked his lips, and cried out, 'I love a challenge!'"

Dweck would spend the next five decades trying to figure out the difference between people who relish a good challenge and those who fear failure. Scores of studies published under her name suggest that people who see intelligence and abilities as learnable are more successful, personally and professionally, than people who think they're static.

Recently, Dweck coauthored a study that drew a link between growth mindset and organizational success . Employees who think their companies have a fixed mindset, the study found, interpret the company's culture as less collaborative, less ethical, and less willing to take risks than employees who think their companies have a growth mindset.

Given the rapid pace of technological change , these research findings are hyper-relevant. Across industries, adopting a growth mindset may be the only way to survive, and certainly the only way to thrive. When neither executives nor rank-and-file employees can predict what their jobs will look like next week, they need to embrace the resulting vulnerability, and get excited about learning.

Plenty of companies, in industries from telecommunications to early education, talk about cultivating a growth mindset , and about looking for job candidates who have it . But Microsoft is perhaps the most powerful example of an organization that has used growth mindset, and the psychology behind it, to rebuild its culture.

In many ways, fixed mindset and growth mindset can describe Microsoft before and after Nadella.

Nadella has encouraged Microsoft employees to be 'learn-it-alls' instead of 'know-it-alls'

Bill Gates is the founder and former CEO of Microsoft. He was famous for his meltdowns.

Gates was famous for meltdowns and browbeating - so much so that Microsoft cofounder Paul Allen once described working with Gates as "being in hell." Gates would only back down if you could convince him you knew what you were talking about, Allen said.

Gates' successor, Steve Ballmer, also known for an explosive temper, later presided over the atmosphere depicted in that cartoon Nadella was determined to address. Ballmer was known for cultivating a culture in which Microsoft teams warred with each other, as previously reported by Business Insider .

Nadella, who joined Microsoft as an engineer in 1992, came up in this culture, before becoming CEO in early 2014.

By that point, the company's bid to compete in the smartphone market through the purchase of Nokia was proving to be a burden and would lead it to write off nearly the entire $7.6 billion acquisition price. The personal computer market was shrinking, leading to declines in Microsoft's flagship Windows operating system business, and the Xbox One console's poorly received launch made it a punchline.

Microsoft's history as a tech-industry pioneer wouldn't help the company compete, Nadella wrote in an email to employees on his first day as CEO. The company needed a change in mindset.

"Our industry does not respect tradition - it only respects innovation," Nadella wrote on Feb. 4, 2014, in a memo to employees days after taking on the CEO role. "Every one of us needs to do our best work, lead and help drive cultural change. We sometimes underestimate what we each can do to make things happen and overestimate what others need to do to move us forward. We must change this."

Nadella's leadership philosophy evolved into the adoption of a growth mindset. He asked employees to be "learn-it-alls," not "know-it-alls," and promoted collaboration inside and outside the organization. Employees are now evaluated partly on how much they've helped others on their team.

Microsoft introduced a new performance-management framework based on growth mindset

With any company culture shift, executives run the risk of promoting jargon more than action, and of HR representatives being the only ones who know there's a culture change underway.

Microsoft has tried to avoid that fate, not only by training its employees on the psychology of growth mindset, but also by embedding the concept into its daily work flow.

Prompts to adopt a growth mindset appear on posters throughout Microsoft's campuses ( something at which employees sometimes poke fun ). At the start of a meeting, a manager might remind colleagues to approach an issue with a growth mindset.

And in one of the most significant manifestations of growth mindset, Microsoft has eliminated stack ranking .

Stack ranking was famously used by Jack Welch when he was CEO of General Electric. Ballmer used the system at Microsoft to evaluate employees, although he did start phasing it out prior to his departure. Microsoft managers had to rank their employees from one to five in equal measure. Which meant that, no matter how good the employees were, some of them had to get the lowest ranking of a five.

Performance was defined in stack ranking as the quality of individual work, and that emphasis on individual performance was linked to fierce competition among Microsoft employees. It was also a barrier to Microsoft's innovation, since it facilitated a culture that rewarded a few standout team members and even gave employees incentive to hope their colleagues failed.

As Microsoft's chief human resources officer, Kathleen Hogan has overseen the adoption of a growth mindset.

Dweck's research helps explain this trend, too. Her studies suggest that stack ranking's emphasis on "star" employees can leave everyone else afraid to try anything new, for fear of failing. In turn, that means companies are less innovative.

Microsoft leadership says its new system for evaluating employees instead rewards collaboration. Managers and employees meet often to discuss performance , in keeping with the general trend of companies nixing annual reviews and having managers regularly speak with employees about their work.

"What we really value is three dimensions," said Hogan , Microsoft's chief people officer. "One is your own individual impact, the second is how you contributed to others and others' success, and the third is how you leveraged the work of others."

To use Hogan's examples, maybe a more seasoned employee helped someone new to the team, or a software engineer built on another engineer's work instead of reinventing it.

Microsoft recently applied growth mindset to a new framework for managers : model, coach, care. That's a combination of setting a positive example for employees, helping the team adapt and learn, and investing in people's professional growth.

To measure the impact of these initiatives in real time, Microsoft emails employees with a different question every day asking how they're feeling about the company and its culture.

The shift from competition to collaboration might seem like it would be a breath of fresh air. And on the whole, it has been. But employees say it's presented its own challenges, too.

Nadella pushes Microsoft executives to take on stretch assignments

Peter Lee said becoming corporate vice president of Microsoft healthcare was a huge challenge.

It was 2017 and Lee - now corporate vice president of Microsoft healthcare - had long worked on broader technology problems as a key leader in Microsoft Research, the company's research division.

Nadella wanted him to take on a new challenge and lead the company's emerging health care business, using his background in artificial intelligence and cloud computing to find new ways to tune the products to the needs of healthcare companies.

"Taking on healthcare was something that really perplexed me at first," he said. "I joked Satya sent me out into the Pacific Ocean and said, 'Go find land.'"

Adopting a growth mindset can be uncomfortable, he said.

"Growth mindset is a euphemism because it can feel pretty painful, like a jump into the abyss," he said. "You need to be able and willing to confront your own fixed mindset - the things that make you believe something can't work. It's painful to go through personally, but when you get past it, it's tremendously rewarding."

The transition has been edifying, both in terms of his personal growth - Lee was recently named to the National Academy of Medicine - and Microsoft's growth in the industry, as it establishes itself as a meaningful player in healthcare tech.

Microsoft now sees the business case for letting go of its rivalries with other tech giants

Under Ballmer, Microsoft was notorious for prioritizing its Windows operating system and Office productivity applications businesses over the rest of the company - at one point, it even canceled the Courier tablet, which would have been an early, future-looking competitor to Apple's iPad, because it may have undermined Windows.

Likewise, Microsoft once shunned Linux, a free open-source operating system once considered the biggest threat to Windows. Ballmer once called it a "cancer." But early on in Nadella's time as CEO, Microsoft changed tack and proclaimed, " Microsoft loves Linux ."

It wasn't just Microsoft being friendly. There was a strong business case for blurring boundaries. At the time, Microsoft said it realized its customers used both Windows and Linux, and saw providing support to both as a business opportunity on-premise and in the cloud. That would have been unthinkable in the Ballmer years, but it's proven to be a savvy business move: Microsoft recently hinted that Linux is more popular on its Azure cloud platform than Windows itself.

Microsoft's relationship with Salesforce has followed a similar trajectory. Whereas Ballmer had frequent and public bouts with Salesforce CEO Marc Benioff , Microsoft under Nadella put aside its rivalry with Salesforce - which competes directly with Microsoft's customer-relationship-management Dynamics 365 product - in order to ink a big cloud deal that was good for the company overall.

Nadella even invites leaders from companies across industries to Microsoft's CEO Summit so the executives can learn from each other. Ballmer, meanwhile, famously snatched an employee's iPhone at a company meeting and pretended to stomp on it.

Which is not to say Microsoft always plays nice in the Nadella era. The company last summer changed licensing agreements to raise prices - often significantly - when customers choose to run certain Microsoft software on rival clouds including Amazon Web Services or Google Cloud. And it's been trading public barbs with AWS over the still contested $10 billion Pentagon cloud contract.

The Trump administration awarded the contract to Microsoft over AWS, but Amazon is challenging the decision in court, alleging political interference. In February, a judge ruled that Microsoft must stop working on the contract.

The culture shift at Microsoft is an ongoing process

The beginning of Microsoft's culture shift was rocky.

In "Hit Refresh," Nadella recalls a Microsoft manager who announced in the early days, "Hey, Satya, I know these five people who don't have a growth mindset." Nadella writes, "The guy was just using growth mindset to find a new way to complain about others. That is not what we had in mind."

Even today, Microsoft leaders acknowledge that the culture change isn't over . Things have improved under Nadella, but the company culture is still far from perfect.

Diversity is an opportunity for improvement at Microsoft. Much like the larger technology industry , Microsoft still employs relatively few women and people of color in leadership and technical roles.

One of Nadella's biggest gaffes as CEO happened early on in his tenure, when he suggested women should not ask for raises, but rely on "faith" and "karma." After these comments, Nadella sent out an internal memo admitting to his mistake, explaining how he planned to learn from it, and stating his belief in "equal pay for equal work."

Nadella writes in "Hit Refresh" that in some ways he's glad to have belly-flopped in public. "It helped me confront an unconscious bias I didn't know I had," Nadella writes, "and it helped me find a new sense of empathy for the great women in my life and at my company."

Kevin Oakes, who runs a human-resources research company that helped Microsoft with its shift toward growth mindset, sees Nadella as an exemplar of a leader during a transition. That's largely because Nadella practices the growth mindset he preaches. In a presentation at Talent Connect, an annual conference organized by LinkedIn (which is owned by Microsoft), Oakes said Nadella has been Microsoft's "culture champion." Nadella understands that organizational culture is critical to the company's performance, Oakes said.

But today's Microsoft is still far from perfect. The positive contributions of growth mindset have not yet matched up with diversity and equity for Microsoft's workforce, according to some employees. Microsoft is the subject of a gender discrimination lawsuit still pending , which was denied class-action status by a federal judge. Employees have also openly alleged sexual harassment and discrimination.

The company released its first diversity and inclusion report in 2019 to track its progress in hiring - and retaining - a more diverse workforce. Results from that report showed that minorities in Microsoft's US offices earned $1.006 for every $1 white employees earned. A closer look reveals that white men still held more high-paying leadership positions than women or underrepresented minorities.

Meanwhile, Microsoft leadership still has some philosophical differences with employees as it relates to employee activism. Employee groups have protested Microsoft and Microsoft-owned GitHub's relationship with Immigration and Customs Enforcement, and more recently, some employees have said Microsoft's relationship with oil and gas companies is at odds with the company's goal to become "carbon negative" by 2030.

The Xbox Adaptive Controller is designed to be used by people with limited mobility. It was advertised during the 2019 Super Bowl.

At that point, Neal recalled, a third meeting participant addressed the male colleague to ask whether perhaps he hadn't understood the female colleague's point. And Neal said it wasn't a passive-aggressive attack. Senior leaders are encouraged to "be curious and ask questions, versus making statements," as a way of modeling growth mindset, he added.

Microsoft has been equally vocal about diversity and inclusion within its customer base, building products that are accessible to as many users as possible. Ben Tamblyn, a 15-year company veteran and Microsoft's director of inclusive design, mentioned Xbox as a prime example. In 2018, Tamblyn helped oversee the release of the Xbox Adaptive Controller , which makes it easier for gamers who have limited mobility or physical impairments to play. (Interviews with Neal and Tamblyn were arranged by Microsoft's public-relations firm.)

Microsoft is a case study in growth mindset

Microsoft's culture shift, and its accompanying business turnaround, is already a case study in business schools and in reports from management consultancies and research centers . That makes sense to Mary Murphy, a professor of psychological and brain sciences at Indiana University and Dweck's co-author on the paper about growth mindsets within organizations.

Growth mindset is essential for innovation in the technology industry, Murphy said, where change rarely happens incrementally. Instead, there are big inflection points from which there's no return. Microsoft, Murphy added, needs to be on the "cutting edge" of growth mindset in order to stay relevant.

Nadella, for his part, has modeled a growth mindset from the top of the organization, not least in his response to his tone-deaf comments about gender and compensation. "I learned, and we will together use this learning to galvanize the company for positive change," Nadella wrote in the memo he sent apologizing for the comments. "We will make Microsoft an even better place to work and do great things."

Got a tip? Contact reporters Shana Lebowitz via email at [email protected] and Ashley Stewart via email at [email protected] , message her on Twitter @ashannstew, or send her a secure message through Signal at 425-344-8242 .

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Microsoft Change Management Case Study

Microsoft is one of the most successful and influential technology companies in the world, having transformed the way people live, work and communicate with its innovative products and services. 

But behind this success story lies a series of significant transformations and changes, which have enabled the company to stay relevant and competitive in a rapidly evolving market. 

In this blog post, we will examine the change management strategies and techniques that Microsoft has employed over the years, and how these have helped the company to successfully navigate through various transformations and emerge as a global leader in the tech industry. 

We will also look at some key lessons that other organizations can learn from Microsoft’s approach to change management, and how they can apply these to their own transformation efforts.

Overview of transformations and changes implemented by Microsoft 

Microsoft has undergone numerous transformations and changes since its establishment in 1975. Here are five significant transformations or changes that have occurred:

• Transition to software development: Initially, Microsoft focused on hardware development and created BASIC language software for Altair 8800, a popular computer in the 1970s. However, after Bill Gates realized the potential of software development, the company shifted its focus to software, which led to the creation of MS-DOS, Windows operating system, and other popular software products.
• Move to the internet: With the emergence of the internet in the 1990s, Microsoft recognized the potential of this new technology and invested heavily in it. This led to the development of Internet Explorer, MSN (Microsoft Network), and various web-based applications.
• Diversification: Microsoft was initially known for its operating system and software products. However, in recent years, the company has diversified its offerings to include hardware such as Xbox gaming consoles, Surface tablets, and other products.
• Cloud computing: In the early 2000s, Microsoft recognized the potential of cloud computing and began investing in this area. The company launched its Azure cloud platform in 2010, which has become one of the leading cloud platforms in the world.
• Open source: In the past, Microsoft was known for its proprietary software and closed ecosystem. However, in recent years, the company has embraced open source technology and has made significant contributions to the open-source community. For example, Microsoft has made its .NET framework open source, and it has released various tools and platforms for open-source developers.

What are those factors that drove changes at Microsoft?

Here are some factors that led to the transformations in Microsoft:

• Market changes and competition: As the market for computer technology evolved, Microsoft needed to adapt to changing customer needs and preferences. In addition, competition from other technology companies also pushed Microsoft to make changes to stay relevant and competitive.
• Technological advancements: The emergence of new technologies such as the internet, cloud computing, and mobile devices created new opportunities for Microsoft to expand its offerings and reach new markets.
• Leadership changes: Over the years, Microsoft has had different leaders at the helm, and each leader brought their own vision and priorities for the company. For example, when Satya Nadella took over as CEO in 2014, he emphasized the importance of cloud computing and digital transformation, which led to significant changes in the company’s focus.
• Customer feedback : Microsoft has always had a strong focus on customer feedback, which has played a significant role in shaping the company’s products and services. Customer feedback can also drive innovation and change in the company’s offerings.
• Cultural changes: Microsoft has undergone cultural changes over the years, such as the adoption of open-source technology and a more collaborative and inclusive work environment. These cultural changes can help drive innovation and lead to new ideas and products.

How strong leadership caused transformation in Microsoft ?

Strong leadership has played a critical role in all of the transformations made by Microsoft over the years. Here are some ways in which strong leadership has contributed to these transformations:

• Clear vision and direction: Strong leaders at Microsoft have always had a clear vision and direction for the company, which has helped to guide its transformation efforts. For example, Bill Gates and Steve Ballmer led the company through its early years, and their vision of putting a computer on every desk and in every home helped to drive the company’s success in the 1980s and 1990s. Similarly, Satya Nadella’s vision of empowering people and organizations to achieve more has driven the company’s recent focus on cloud computing and digital transformation.
• Strategic decision-making: Strong leaders at Microsoft have made strategic decisions that have helped to position the company for success in a rapidly evolving market. For example, the decision to shift the company’s focus from hardware to software development in the 1980s was a strategic decision that helped to pave the way for the company’s success in the following decades.
• Agile approach: Strong leaders at Microsoft have embraced an agile approach to change management, which has enabled the company to quickly respond to changes in customer needs and market trends. For example, under Satya Nadella’s leadership, Microsoft has shifted its focus to cloud computing and digital transformation, which has helped the company to remain relevant and competitive in a rapidly evolving market.
• Employee engagement and empowerment: Strong leaders at Microsoft have recognized the importance of employee engagement and empowerment in driving change management. For example, under Satya Nadella’s leadership, the company has created a culture of innovation and collaboration, and has encouraged its employees to take risks and experiment with new ideas.

The biggest outcome of the successful changes at Microsoft 

The biggest outcome of the successful changes at Microsoft is the company’s continued growth and success in a rapidly evolving market. By successfully navigating through various transformations, such as the shift from hardware to software development, the move to cloud computing, and the focus on digital transformation, Microsoft has been able to remain relevant and competitive in the tech industry.

The company’s continued success has been reflected in its financial performance, with Microsoft consistently posting strong earnings and revenue growth in recent years. In addition, the company’s products and services, such as Windows, Office, and Azure, are widely used and trusted by customers around the world. Overall, the biggest outcome of the successful changes at Microsoft has been the company’s ability to stay ahead of the curve and remain a leader in the tech industry.

Final Words 

Microsoft’s successful implementation of changes provides valuable lessons for organizations looking to navigate through periods of transformation and change. By adopting a customer-focused approach, embracing an agile methodology, empowering employees, and having strong leadership with a clear vision and purpose, Microsoft has been able to successfully navigate through various transformations and remain a leader in the tech industry.

Additionally, the company’s willingness to experiment with new ideas and take risks has enabled it to stay ahead of the curve and remain relevant to its customers. As a result, Microsoft’s continued growth and success serve as a testament to the importance of effective change management in driving organizational success. Overall, Microsoft’s successful implementation of changes provides a valuable case study for other organizations to learn from and apply to their own transformation efforts.

About The Author

Tahir Abbas

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How Microsoft Uses a Growth Mindset to Develop Leaders

• Carol Dweck
• Kathleen Hogan

It’s emphasizing learning and creativity.

Research shows that managers see far more leadership potential in their employees when their companies adopt a growth mindset — the belief that talent should be developed in everyone, not viewed as a fixed, innate gift that some have and others don’t. But what are those organizations doing to nurture their talent?

• CD Carol Dweck is the Lewis & Virginia Eaton Professor of Psychology at Stanford University and the author of Mindset: The New Psychology of Success .
• Kathleen Hogan is Chief People Officer and executive vice president of Human Resources at Microsoft.  

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Satya Nadella at Microsoft: Instilling a Growth Mindset

By herminia ibarra , aneeta rattan.

• Organisational Behaviour

When Satya Nadella took over as CEO of Microsoft in 2014, he inherited a firm fading toward irrelevance, plagued by internal fights and inertia. Earlier that year his wife, Anu, had given him a best-selling book by Stanford psychologist Carol Dweck entitled Mindset: The New Psychology of Success, suspecting it might give Nadella some ideas for Microsoft. He adapted the idea to encourage employees to shift from Microsoft’s historical “know-it-all” culture to embrace a “learn-it-all” curiosity. The case study provides background on Nadella’s challenges and context, as well as how he and his leadership team executed their culture change effort.

Learning objectives

• Show a leader’s thought process on the need for culture change, with particular focus on the vision for change as a reflection of the life experiences of the leader.
• Detail the execution levers that Nadella and his team identified and used during the change process.
• Introduce the concept of organisational culture, focusing on the process of culture change and the role of leaders and their teams in reinforcing or transforming culture.
• Introduce the idea of “mindsets,” focusing on how they affect behaviour and reflect organisational culture, and what leaders can do to inculcate a growth mindset as a means of making cultural change and enhancing organisational performance.

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Microsoft’s next act

In 2014, Satya Nadella was appointed CEO of Microsoft, making him only the third leader in the software company’s 40-year history, following Bill Gates and Steve Ballmer. Since taking the top job, Nadella has doubled down on cloud computing, artificial intelligence (AI), and social networking while also pushing Microsoft to become more innovative, collaborative, and customer focused. In 2017, he published Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone , a book reflecting on his journey from a cricket-obsessed childhood in India to leadership of one of the world’s largest companies.

In this episode of the McKinsey Podcast , Nadella speaks to McKinsey Publishing’s Simon London about organizational change, the role of culture, the danger of silos, and how companies can confront digital disruption by reframing the business they are in.

Culture and innovation

Simon London: Well, Satya, thank you for doing this.

Satya Nadella: Thank you so much for having me.

Simon London: Let’s start with culture change , which is a big theme in the book. Clearly, you decided to make it a big theme for this first part of your tenure as CEO. Why culture change compared with other things you could have focused on?

Satya Nadella: One of the things that I’ve come to realize is that in companies that have been successful, one of the things that happens is the original idea or the concept that became a hit, the capability you built around it, and the culture that implicitly grew as you were growing the business all get into this beautiful, virtuous cycle. But there’s no such thing as a perpetual-motion machine. At some point, the concept or the idea that made you successful is going to run out of gas. So, you need new capability to go after new concepts. The only thing that’s going to enable you to keep building new capabilities and trying out new concepts long before they are conventional wisdom is culture.

I would argue that for a successful company, you will have to overemphasize [creating] the right culture so that you can continue to cultivate new capabilities and new concepts. When I became CEO, we were already a 40-year-old company, and I felt that it was very important for us to make culture a first-class, explicit conversation so that we could then reinvent ourselves and invent new things.

Business units versus capabilities

Simon London: You’ve got this wonderful trifecta of concept, capability, and culture. But can I introduce a fourth “c”—configuration? This is how a company is organized—the lines and boxes—and the business processes that underpin it. Have you made any process or organizational changes to support what you’re trying to do?

Satya Nadella: That’s actually a very good point. Configuration or structure is superimportant. One of the things that I’ve come to realize is structure can help and, in some sense, reinforce the first three c’s, but it should not get in the way of reinvention or coming up with new concepts. That’s the fundamental challenge.

For example, when the business is doing well, in the name of accountability, in the name of efficiency, in the name of lower transactional costs, you get organized by business unit or what have you. This reinforces the next level of productivity gains, efficiencies, and accountability. The issue is that then it becomes hard to reconflate [recombine] some of the capabilities across these divisions to build new products. This is always a challenge. In tech, it’s even worse because we don’t have long periods of stability. If anything, the periods of stability are short and getting shorter. So, you can use structure sometimes in order to reduce transaction costs and improve efficiency, but in the long run, we [in the technology sector] are much more capability driven. 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. Without this strategic flexibility, it’s very, very hard.

And I would argue that in a world where every business now is a digital business, this is probably one of the bigger challenges. I see this when I talk to many customers who we partner with who have come from, say, an industrial conglomerate or an energy company. It’s very, very hard, because culturally they’re all about business units. But digital recognizes no digital business unit. You need to be able to bring things together. This is probably one of the more transformative changes that many CEOs will have to confront.

Simon London: The move toward functional capabilities at Microsoft was already in the train before you took over as CEO, wasn’t it? Is there anything you’ve done to accelerate that?

Satya Nadella: Yes, I think this was one of the biggest changes that Steve Ballmer made. It has been superbeneficial. Without it, I don’t think we would have been able to change as much as we have done, because it’s a necessary condition. This [functional] configuration allowed us to reconflate. Otherwise, we would have had a lot more institutional resistance to that just because of what people’s incentives and measurements were. So, it has helped us tremendously.

Of course, products and product truth ultimately matters. But to me, what matters is: What are we being hired for? Or customer-in ways of thinking about markets and categories. For example: How are we enabling the modern workplace? It’s not just about Office or Office 365 or Windows or EMS [Enterprise Mobility + Security]. These are all brands and tools and applications we love. But ultimately, we have to deliver to companies the ability to empower their employees so that modern work can happen, they can collaborate, they can communicate in new ways, and companies can get more out of their people. This is very important. We have really changed how we think about customer orientation because of this.

Metrics and compensation

Simon London: I’m guessing that you’ve made some changes related to performance management , for example, or compensation to reinforce this more cross-functional, cross-business unit customer orientation. Is there anything that you can or want to talk about there?

Satya Nadella: One of the big things that we have done at the leadership level is to focus on shared metrics. We make a distinction between what we call “performance metrics” and “power metrics.” Performance metrics are in-year revenue and profit and things of that nature. Power metrics are about future-year performance. They are leading indicators of future success and are more about usage and customer love or satisfaction. We have a blend of metrics that are few but shared. A large part of the compensation for me and my leadership team is fundamentally based on that.

Simon London: So, that scorecard has been reconfigured during your tenure?

Satya Nadella: Correct. In fact, a lot of our own tools have become instruments of changing culture. We track metrics such as monthly actives, monthly active versus daily active ratios, consumption, consumption growth. These are all the things that we measure as much as we measure any end-quarter revenue or profit by segment. And these are tied to compensation. Also, it’s not just the leadership team. In the field, our sales culture has changed a lot because we have put a lot of the sales-compensation levers to also go from just the one-time license or bookings to actual consumption, which means it aligns us much better with our customers and their success in using the products and getting benefits out of them.

I do believe that if you just talk about culture change and customer obsession without tying it to some of these core levers of how you measure performance, the entire program can come to a knot. In our case, we have been able to take action on all of those levers.

Empathy and purpose

Simon London: You’ve talked a lot about the need for a culture of greater empathy because it’s only through empathy that you can really understand the unmet needs of customers. Some of these forward-looking metrics feel almost like “empathy metrics.” Are products getting traction? Do customers love them? Are they using them?

Satya Nadella: That’s correct. All of us are human. However, when you think about culture as all about business and metrics and scorecards, you can get a lot but it just doesn’t invoke that real, innate capability that we all have. Work is a large part of what we do in life. If it was only about achieving some scorecard metrics, I don’t think that would be enough of a deep meaning.

The reason I talk about empathy is that I believe this is the leading indicator of success. Innovation comes only when you are able to meet unmet, unarticulated needs—and this comes from a deep sense of empathy we all have. But you can’t go to work and, say, “turn on the empathy button.” Your life’s experience will give you that passion and understanding for a particular customer, a particular use case. How you can connect [your life experience] to your work is what we want to invoke in the 100,000 people who work at Microsoft. All these metrics, which are real compensation drivers, do relate to this. But I don’t think we make decisions thinking that these two things are connected.

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We as humans all have bounded rationalities, Herbert Simon would say. Therefore, it might, in theory, be correct, but in practice, none of us make decisions thinking of this as connected.

Simon London: Presumably, part of this is related to attracting and retaining talent as well. If you want to attract the very best people in highly competitive fields, they want to go to work feeling and knowing that they’re doing something for a purpose. It can’t just be about the extrinsic motivation of the paycheck because talented people could pick that up in any number of different places.

Satya Nadella: One of the key things, I feel, is that just like individuals, companies have an identity. I talk about it even as a soul. It’s that collective purpose that a company represents. In Microsoft, we talk about our mission as being empowering every person and every organization on the planet to achieve more. Every one of those words, for me, telegraphs that soul.

We think about people and the institutions people build that are going to outlast them as a first-class software construct. We think about this globally—in fact, I’m a product of that, if you will. We think not about the technology we create but about the technology others create using what we create—whether it’s a student writing a term paper, a small business becoming more productive, or a developer writing the next world-changing application.

We think about creating tools for other technologists. That’s why you join Microsoft. In fact, college kids might say, “Hey, I have a couple of different offers; why should I join Microsoft?” I say, “Look, simple. If you want to be cool, go join somebody else. If you want to make others cool, come join Microsoft.” That’s the test. What’s your self-image? What is it that you want to do?

And I’ll go one step further. Business models should be constructed so that they reinforce your core identity. Somebody once said that you can only trust people who think, say, and do the same thing. By the same token, I think you can only trust companies that are thinking, saying, and doing the same thing. That’s the consistency that you need.

Turning artificial intelligence into value

Simon London: Can we pivot and talk a little about AI? What advice do you give to executives that you talk to about how to leverage AI in their businesses?

Satya Nadella: I believe AI is one of the more defining technologies of our time. One of the things I am most excited about is AI technology helping with inclusivity. For example, in the latest release of Windows, we have something called Eye Gaze, which allows anybody who is suffering from ALS [amyotrophic lateral sclerosis] to be able to type just with their gaze. We have learning tools inside of Word and OneNote that allow anyone with dyslexia to improve their reading. It’s powerful stuff, and it’s a very practical way for executives to deploy some of these tools so that more people in their workforces can fully participate, which is important.

But there is no question that automation and the efficiencies of automation are tremendously important. For example, if you go to support.microsoft.com, it’s a bot. It uses some of the latest techniques of reinforcement learning to answer questions that customers may have. And of course, if it runs out of gas, it turns over to the customer-service representative, who is also using the bot to help answer the question.

So, we have the full gamut of technology that is getting deployed. We now really have human-level speech recognition. In January, there was a contest at Stanford University for machine reading and comprehension. Microsoft was number one. This means a machine can read a piece of text and start answering questions, like a reading-comprehension test, without necessarily being fed the answers that are indexed in the text.

The advances are enormous, and they will lead to productivity gains broadly. Therefore, every CEO—every executive—should be thinking about how to get more analytical power or predictive power inside his or her business process or organization. That’s ultimately what’s needed to translate AI capability into productivity.

Simon London: What types of IT configuration and IT capabilities do companies need to do this?

Satya Nadella: I would say there are two big considerations. One of the fundamental things is that there’s no way to create AI if you don’t have data. If the data inside your organization is siloed, it’s going to be a challenge to create AI. This goes back to your point around company configuration.

Take customer connection as an example. In order to be much better at omnichannel customer connection—and it doesn’t matter whether you’re a retailer, a CPG [consumer-packaged-goods] company, or a bank—everything from the log data from your website, to your mobile analytics, to your CRM [customer-relationship-management] system, to all the other data streams, it all has to come together in order to create the next best touchpoint action with the customer. This is both an AI problem and a data problem. One of the things that we like to stress is: how can we help our customers first get their data estate in many cases into the cloud? Then they can reason on top of it and create these transformative outcomes, whether it is connecting with customers, or operational efficiencies, or even changing the nature of their products. This is a super important thing.

Culture for a digital age

I would also add that trust is going to be of paramount importance. Not just the security side of trust but also the trust of the business model. You need to pick partners who are going to help you with your capability building, whose interests are aligned with your interests in the long term.

Simon London: If you’re a senior executive at a big industrial company, for example, there are a lot of different potential use cases for AI . Do you have any generalizable advice about how to look across those use cases and what to go for first?

Satya Nadella: When I pattern match and look at some of the best and easy-to-get-started use cases, it would be anything related to customer experience. This is a good use case. Let’s say there’s omnichannel customer data. The ability to do the next best action, whether it be a sales force, or inside sales, or your website personalization, can come in a variety of different ways.

Connecting with your customers more deeply—using your data and your ability to reason over data—using the latest AI techniques is one use case. The second use case is supply-chain or operational efficiencies. The IoT [the Internet of Things] is a fascinating thing. If you think about it, most of these projects are where you have a good or a service, you’re collecting operational data from it, you’re doing preventive maintenance, and then you’re going to connect it to field service, because once you can predict something, you want to connect it to somebody coming and fixing it before it’s broken. That’s a thing that can drive both top-line and bottom-line efficiencies. That’s a great use case, and we see a lot of it, especially in industrial companies. We also see a lot of deployment of technology to empower people inside the organization. I’m fascinated to see how HoloLens is being used for doing oil-field inspections or training. So, AI can be deployed not just against traditional knowledge work but also in what I will call frontline work.

Sometimes organizations have this “cobbler’s children” problem. They talk about all these great things they’ll do for customers, for [business] partners. Except you also need to do fantastic things for your employees so that they can do all these great things for customers and partners.

Resolving the innovator’s dilemma

Simon London: Something I think you’ve done fantastically well is to bring Microsoft along in its embrace of cloud. In many ways, this was a classic innovator’s dilemma situation—a Clayton Christensen textbook case of a new technology coming along with, let’s be honest, probably a lower margin structure than older technology around servers. Do you have any advice for other executives in this situation? So many companies are facing this now as they are attacked by new digital players with new business models, probably at lower margins.

Satya Nadella: The only generalizable piece of advice is to reconceptualize your business to be non–zero sum. These shifts are tough if they are zero sum—in other words, if all I’m doing is jumping into this new paradigm to essentially regain the business I already have. Especially if [the new paradigm] comes with a lower net margin, then it’s sort of an impossible task. But just imagine a railroad company in the 1930s. If it had conceptualized itself as, “we’re in the transportation business” versus “we’re in the railroad business,” then it probably would have seen the ability to line extend or jump into new businesses.

That’s, I think, what companies have to do. They have to understand more broadly what category they are in, as opposed to defining themselves very narrowly by the technology they’re using today. That’s why I like to talk about a perpetual or a perennial category we are in: the modern workplace. My bet is that the workplace will always remain, and you will always need to be modern. We’re not trying to talk about one tool or one service. Our job is to build new technology for the modern workplace. That’s a better way to think about the future.

Simon London: That reminds me of the John Chambers phrase about having no “technology religion” and also maybe adding no “business-model religion.”

Satya Nadella: That’s right. No technology religion, no business model religion, and the ability to frame things with a broader lens versus a very narrow product definition or category definition based on what has happened in the past.

Simon London: Well, Satya Nadella, thanks so much for talking with us.

Satya Nadella: It’s my pleasure. Thank you so much.

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Satya Nadella is the CEO of Microsoft. Simon London is a member of McKinsey Publishing and is based in the Silicon Valley office.

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Change management case study

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An organization was implementing a replacement of an old legacy system. This system supported a call center where about 400 order takers entered orders that they received from customers over the phone.

During the planning for the project, no major changes were defined for the call center. The organization decided not to include the order takers in the implementation project directly. Instead, it worked with a group of business analysts who were anchored in the IT department. Earlier system changes had negatively affected order taker performance measures and, as a result, individual cash commissions. Because of those earlier experiences, everyone expected the order takers to offer lots of resistance to any kind of system or process change. Therefore, project management thought that it would be easier to wait until late in the project to include that group of users.

When the project was barely into the build phase, rumors about the new system started to spread from other departments to the order taker teams. The Sales department VP brought a couple of order takers into an improvised demo. The demo went poorly, partly because the demo data was unrelatable and partly because the department VP performed the demo after little or no preparation or practice. The unintended outcome was affirmation of the order takers' impression that the order taking process in the new system would be slower and involve more effort than in the legacy system.

The concerns and rumors almost turned into a revolt. Several key senior supervisors and team leads openly talked about going to a nearby competitor. This competitor was actively using these rumors to approach team members.

At this point, the project sponsor brought in a change manager. The change manager suggested two workstreams. The first stream consisted of the traditional assessments and planning across the organization. Then, given the late stage and the damage that had already been done, a second stream was immediately started to address the call center problem head-on.

The change manager immediately arranged sessions where the company president addressed the whole company, including the call center. They explained why it was critically important for the company to implement a new system and how this system would ensure a significant competitive advantage in the market. The president outlined a bright future for the company, with many other changes than just the system, including new product lines and modern workplace options. During these sessions, individuals in the call center also had a chance to voice their concerns that were related to the earlier changes.

A work group that represented all levels in the call center was set up, and a senior supervisor who was highly regarded and respected by their peers was reassigned as a liaison between the business analysts and the call center. Measures were defined for efficiency, and a plan was made for ensuring that commissions were calculated fairly during the transitional phase. The order takers were able to define some pain points in the legacy system, primarily related to alternative products. All these activities were communicated clearly and repeatedly.

There were still individuals who resisted, especially in the call center supervisor team. Although some general excitement was generated, it seemed as if this small group could turn individuals back against the changes.

The change manager asked a consultant from the implementing partner to arrange for a voluntary round of practice sessions and a contest for the order takers. They wanted to see who could take the most simulated orders in the new system. This time, a test setup that had real data was used. The president supported the contest, and donated not only a weekend at the corporate lodge for the winner and their family but also a symbolic cash prize for the winner and the two runners-up.

The outcome was stunning. More than 50 order takers signed up. After only a few hours of practice, the order takers who took part were largely able to match the legacy system in effectiveness, thanks especially to order copying functionality that didn't exist in the old system. During the practice sessions, the order takers noticed that they could search for products by using both internal and external stock keeping units (SKUs) and product names. They also noticed that the system could prompt them with suggestions for alternative products, whereas the old system required that they look up products in a binder.

In the face of these results, the small group of supervisors who had been resisting lost their argument. A few did eventually leave the company, but an increase in efficiency quickly balanced that loss. The connection between the call center and the IT department continued and eventually brought on more momentous changes, now driven by suggestions from the call center.

The traditional change management workstream also provided results. Sessions to define outcomes and measures found large differences in expectations, a high level of complexity and risk, and a low level of transformation maturity.

Directly after the assessments and discussions, department VPs and senior managers replaced the business representatives who were originally assigned to the project team, to ensure proper representation and decision-making efficiency.

The project sponsor realized the complexity and risk, and also the company's poor readiness. Therefore, they brought in a management consultant who specialized in the areas of warehouse management and supply chain management to help the project team.

Overall, the project was a remarkable success.

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Azure Active Directory (Azure AD), now known as Microsoft Entra ID, is an identity and access management solution from Microsoft that helps organizations secure and manage identities for hybrid and multicloud environments.

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Azure AD, now known as Microsoft Entra ID, has a free edition that provides user and group management, on-premises directory synchronization, basic reports, self-service password change for cloud users, and single sign-on across Azure, Microsoft 365, and many popular SaaS apps. The free edition is included with a subscription of a commercial online service such as Azure, Microsoft 365, Dynamics 365, Intune, or Power Platform.

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• [2] Gartner, Magic Quadrant for Access Management, Henrique Teixeira, Abhyuday Data, Nathan Harris, Robertson Pimentel. 16 November 2023.
• [3] KuppingerCole, Leadership Compass: Access Management 2022, Richard Hill, April 26, 2022.
• [4] Frost and Sullivan, Microsoft 2022 Company of the Year, Global Identity and Access Management Industry, 2022.
• [5] Forrester Consulting, The Total Economic Impact™ Of Microsoft Entra: Cost Savings And Business Benefits Enabled By Microsoft Entra, commissioned by Microsoft, March 2023. Results are for a composite organization based on eight organizations as stated in the linked study.

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With high-intent channels and a multi-faceted approach, we've achieved exceptional results. The conversion boost, CPA reduction, and RoAS is a testament to the remarkable growth powered by our collaboration with Microsoft Advertising and InMobi.

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Microsoft Copilot Studio: Building copilots with agent capabilities

Omar Aftab , Vice President, Conversational AI , Tuesday, May 21, 2024

At Microsoft Build 2024 , we’re excited to announce a host of new powerful capabilities in   Microsoft Copilot Studio —t he single conversational AI tool you can use to create your very own custom copilots or extend Microsoft C opilot experiences with your own enterprise data and scenarios.

The first of these are c opilots that can now act as independent agents— ones that can be triggered by events— not just conversation— and can automa te and orchestrate complex, long-running business processes with more autonomy and less human intervention.

For instance, consider the potential of a copilot that can react when an email arrives, look up the sender’s details, see their previous communications, and use generative AI to trigger the appropriate chain of actions in their response. From understanding the intent of the email, to look ing up the sender’s details and account , see ing their previous communications, checking inventory,   responding to the sender asking for their preferences, and then taking the appropriate actions to close a ticket — orchestrating and shepherding an entire process over days.  

With such capabilities, copilots are evolving from those that work with you to those that work for you. They can be designed to handle specific roles or functions, such as IT, marketing, sales, customer success, and finance across various industries, including travel, retail, and financial services.  

With these new capabilities, here are some examples of the kinds of copilots our customers can build:  

• IT help desk .  IT support is complex, involving tickets, order numbers, approvals, and stock levels . O pening and closing a ticket can be a long-running task that spans days. A copilot can now handle this process, interfacing with IT service management applications, resolving IT tickets with context and memory, creating purchase orders for device refresh, and reaching out and getting managers approvals — all independently .
• Employee onboarding . Onboarding new employees is often expensive and slow. Now, imagine you’re a new hire. A copilot greets you, reasons over HR data, and answers your questions. It introduces you to your buddy, provides training and deadlines, assists with forms, and sets up your first week of meetings. Throughout all of this, the copilot is in touch, guiding you through the weeks -long onboarding and account set up processes.  
• Personal concierge for sales and service . Balancing exceptional customer experience while meeting ambitious revenue goals can be challenging. When a copilot serves guests, i t can use the memory of previous conversations with guests to remember their preferences, make reservations, handle complaints, and answer questions related to the products and services on offer. The copilot learns from its interactions and proposes new ways of handling customer scenarios. By doing so, copilots can increase upsell and attachment rates, driving revenue for the resort while simultaneously enhancing guest experience, satisfaction rates, and repeat business.

Let’s dig deeper into a few of the underlying capabilities that make all this possible:

• Asynchronous orchestration of complex tasks . The first is the ability to use generative AI- powered   planning and reasoning to manage complex, multi step, long-running tasks. For example, reacting to a new order means determining the need to verify inventory, trigger ing the right payment processes, pinging a supervisor for approval if the amount is above a certain threshold, and replying with a confirmation. Many of these events can take hours—or even days— to complete, but the copilot will run through them , maintaining the necessary state and context to do so.
• Memory and context . One of the frustrating things about support has traditionally been having to repeat information: who you are, what your policy number is, what your address is. There is no continuity of conversation. Copilots will now learn from previous conversations from the users and utilize this knowledge to continually personalize interactions . A copilot may not need to ask you for your laptop model or your address when you call again for the same issue. Conversations will thus become long-running, contextual, and deeply personalized.
• Monitor, learn, and improve . Copilots can now learn and adapt, offering monitoring and teaching capabilities to make their interactions better. Each copilot records a comprehensive history of its activities, providing transparency into its performance, including user interactions, actions taken, and feedback received, and you can see what decisions it made — and correct and teach them — with just a few clicks.

• Delegation with confidence and guardrails . When developing copilots with agent capabilities, establishing clear boundaries is paramount. Copilots operate strictly within the confines of the maker-defined instructions, knowledge, and actions. The data sources linked to the copilot adhere to stringent security measures and controls, managed through the unified admin center of Copilot Studio. This includes data loss prevention, robust authentication protocols, and more.

The se advanced new capabilities in Copilot Studio are currently accessible to customers participating in a limited private preview  where organizations such as Centro de la Familia are excited to explore agent capabilities that support teachers and case workers, allowing them to spend less time on administrative tasks and more time working with children, ultimately leading to better child outcomes . Based on feedback from program participants, we will continue to iterate and refine these capabilities for broader access in a preview planned for later this year .  

Additional innovations with Copilot Studio

There’s a lot more to share at Microsoft Build with Copilot Studio, and we’ll touch on just a few of our new capabilities here. To learn more — just sign up and try it out for yourself here .

It’s easier than ever to create c opilots .  With Copilot Studio, creating and testing copilots is now incredibly simple. You can create your copilot with our brand new conversationally driven experience — simply describe what you want it to do, and what knowledge you want it to have, and Copilot Studio will create your very own c opilot. You can then immediately test it out, add additional capabilities, such as your own actions, APIs, and enterprise knowledge — and then publish it live with a few clicks.

Connect all your enterprise data with Copilot c onnectors .   Customers want copilots connected with data from their own enterprises business systems and apps. Copilot connectors enable anyone to ground their copilot in business and collaboration data. This makes it possible for copilots to use various data sources, including public websites, SharePoint, OneDrive, Microsoft Dataverse tables, Microsoft Fabric OneLake (coming this calendar year), Microsoft Graph, as well as leading third-party apps. You can even create your own custom generative prompts to configure how a copilot handles a response from an API or connector.

Here are a few examples of how Copilot connectors can transform copilot experiences for specific personas or functions:

• Legal and Compliance . Navigate complex legal landscapes with a Copilot extension that queries specific legal datasets, ensuring controlled and compliant responses without overwhelming users with extraneous information.
• HR Helper . Assist employees with accessing essential resources for benefits and PTO policies, and even book time off directly through Copilot.
• Incident Report Coordinator . Workers can locate the right documentation, report incidents, and track them efficiently, all within the context of the chat.

Starting in June 2024, developers can access the preview for Copilot connectors and stay informed on updates here .

Conversational analytics (private preview) : One of the most common asks from customers has been the need for deeper insight into what their copilot is doing, how generative AI is responding, when it was unable to give the right answers and why — and recommendations on what to do to improve it.

Templates : If simply describing your copilot to build it wasn’t easy enough, Copilot Studio will now also include a variety of pre-built copilot samples for departments and industries. Some templates — such as Safe Travels for comprehensive travel support, Organization Navigator for organizational clarity, Kudos Copilot for fostering recognition, Wellness for employee health insights — are available now, with many more releasing in the coming months.

Enhanced security and controls (public preview ) : Administrators can now configure advanced settings beyond the default security measures and controls. With Microsoft Purview , Copilot Studio administrators gain access to more detailed governance tools, including audit logs, inventory capabilities, and sensitivity labels. They will be able to review comprehensive audit logs that cover tenant-wide usage, inventory (with API support), and tenant hygiene (such as data loss prevention violations and inactive copilots), enabling them to effectively monitor business impact. Both creators and end-users will be able to view sensitivity labels when responses are generated using AI-powered answers based on SharePoint documents.

With all the amazing innovations, numerous organizations are using Copilot Studio to build transformative generative AI-powered solutions. Check out this story from Nsure on how they are using Copilot Studio:

Get started today with Copilot Studio

This is just a glimpse of all the exciting innovation around copilots and Copilot Studio — we have a host of exciting new capabilities to share in our sessions at Build. So, join us in watching the sessions below, and try out Copilot Studio yourself and build and share your very own copilot in minutes.

Watch the sessions at Microsoft Build:

• “ Microsoft Build opening keynote ”
• “ Next generation AI for developers with the Microsoft Cloud ”
• “ Shaping next-gen development: the future of Copilot in Power Platform ”

Deeper dives:

• Breakout: “ What’s new with Microsoft Copilot Studio ”
• Breakout with demos: “ Build your own copilot with Microsoft Copilot Studio ”
• Breakout with demos: “ Build Microsoft Copilot extensions with Copilot Studio ”
• Demo (live only): “ Build your own Copilot extension with Microsoft Copilot Studio ”

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Home / Case Studies / Avanade

Microsoft Viva Topics simplifies knowledge sharing at Avanade

Published on November 3, 2021

Avanade is a leading provider of innovative digital and cloud-enabled services, business solutions, and design-led experiences, and it relies heavily on the power of people. Avanade believes in taking advantage of the knowledge and experiences held by each individual to build and provide the best offerings and services for its customers. Because of this, sharing expertise, project or deliverable examples, templates, and other knowledge among one another is key to the company’s success and the success of the businesses it serves. Looking for a solution that would enable Avanade employees to quickly find the exact expert, example or template required to provide businesses with the right digital offerings, Avanade deployed Microsoft Viva Topics.

As an organization whose services are built on and around Microsoft technologies, Avanade’s workforce of 50,000 professionals are experienced, heavy users of collaboration solutions like Yammer and Microsoft Teams. But even with top-notch approaches to collaboration, finding the right people, the best examples of deliverables, or the best templates often required some digging and building what some employees refer to as a “chain of experts.” Many knowledge experts are familiar with this concept, in which an employee starts a conversation with one expert and is then handed off down a chain of people until the correct team member is identified.

As requests for innovative digital workplace solutions surged, Avanade employees wanted a solution that eliminated the need for extensive email threads or cumbersome searches and aligned with their “Teams as the experience platform” approach. They wanted a solution to quickly provide businesses with the right digital offerings and remove the need to sift through emails, Yammer communities, or Teams sites and chats to find the exact expert, example, or template they required.

Microsoft launched a preview program in January 2020, which was limited to approximately 60 customers around the globe, to test out and provide feedback on powerful new AI-driven knowledge solutions prior to their release. As program participants, Avanade team members were able to attend product demonstrations, get exclusive updates to the roadmap, test products as they were developed and provide feedback, and give key insights on how they felt the solutions would be best utilized.

In testing the capabilities of Microsoft Viva Topics, which uses AI to automatically reason over an organization’s data and then identify, process, and organize it to make knowledge easier to discover and use, Avanade found the tool it needed to help reduce its discovery challenges. “The value of Viva Topics is really about placing information that people need in the places they’re hanging out,” says Marci Jenkins, Workplace IT Executive at Avanade.

Unlike most organizations where new technologies are gradually rolled out from one department to another, Avanade chose to offer Viva Topics to the entire company, enabling all employees to contribute to the curation around topics. “The power of Viva Topics is in bringing together AI and the smartness and experience of our people,” says Jenkins. Crawling the documents in SharePoint, Viva Topics has begun identifying thousands of topics across the company’s Microsoft tenant, including Avanade offerings, Microsoft solutions, industries, customers, and even strategic initiatives.

The value of Viva Topics is really about placing information that people need in the places they’re hanging out…. It’s a way for the user to learn and start to explore in the moment—the moment that matters.

Rather than broadcasting pleas for help on a Yammer site or initiating a chain of experts through Outlook, employees can search in SharePoint or see topics they’re interested in highlighted on the SharePoint page they’re already viewing. And they can quickly find experts or assets for their projects or subject areas without being bombarded with pages of search results.

“I’ve started going to SharePoint and searching on some of the questions that I have or the type of asset that I’m looking for across the organization, and it’s really cool to see what pops up in my search results,” says Hannemann. “Not only is the topic page suggested to me if there’s a match, but it will also present different documents and highlight the presence of the keyword that I’m searching for.”

Over the next few years, Avanade looks forward to the generation of topics for the more than 600 customers it’s worked with. Each will highlight the key account team members as experts and document successful proofs of concept as tagged content, which will further help the company provide the best offerings and services to its customers.

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