For years now, technology watchers have written Microsoft as a phenomenon of the 20th century, fat and happy from its Windows monopoly. The tech giant hasn’t had a new innovation in decades. It’s rich enough to be a fast follower, but too big and bureaucratic to dominate any market. Jeff Bezos is known move east and admonish his colleagues at Amazon not to be complacent like their neighbors in Seattle.
However on February 7, there was Microsoft CEO Satya Nadella told reporters that artificial intelligence is creating a “new day of search.” Microsoft’s maligned Bing integrates ChatGPT technology with Open AI to generate information directly for users, not just links. And in doing so, it directly challenged Google, the undisputed champion of search, by trying to out-innovate Google on its home turf.
It shouldn’t have happened, especially not with Google. Fired in 2014 by Amazon’s AI-enabled Alexa voice assistant, Google announced in 2016 that it will be an “AI-first” company.
Google’s problem is definitely not engineering. The company has made fundamental advances in AI. Even with Google expensive faulty demo Earlier this month, its LaMDA chatbot could be as good as the release of ChatGPT3 which took the world by storm. And it laid the groundwork for chatbot-powered search before last week.
We already know that high-tech success and innovation more about culture rather than technology, and the management decisions made by each company here seem to have made the difference. The others says that Google’s leading position forces it to act carefully to minimize hate speech and misinformation. The others praise Kevin Scott, Microsoft’s chief technology officer since 2017, who participated in the acquisition of LinkedIn, partnered with OpenAI a year ago, and pushed the technology hard within Microsoft.
Those explanations have some merit, but they are not deep enough. How did stodgy Microsoft, stuck in slow decline, muster the ability to leap forward in the first place? As any corporate veteran will tell you, no one person, no matter how talented, can change an organization. The culture must change.
Microsoft’s Existential Moment
My team and I recently completed a multi-year research project to better understand perpetual innovation. We want to know what makes companies continue to innovate even after their initial success. To answer that question, we surveyed 6,873 global executives, academics, and consumers, and narrowed a corporate database down to 26 companies, grouped into high, medium, and low- the of agility and innovation. We explored how they performed on a long list of attributes, including interviews with several managers, executives, and frontline and former employees, and coded the data.
From these efforts, we have created many companies that seem to have cracked the code of endless innovation. Others are expected: Apple, Amazon, and Tesla. But the list includes some surprises: Namely, that Microsoft made the list, but Google/Alphabet did not.
I’ve been working in Silicon Valley since the 1990s, and Microsoft looks a little weird. But, looking more closely, we see that something extraordinary is happening there: a cultural shift to stop playing defense and go on the offensive.
This process began with Nadella taking the reins in 2014, when he was chosen by Microsoft’s board to replace retiring CEO Steve Ballmer. At the time, he was the head of the company’s fast-growing cloud computing division, and his promotion seemed unlikely to change the course of the lumbering giant. But Nadella, and the board, are tired of watching the tech world pass its one-time leader. He announced that it was time to “rediscover the soul of Microsoft, our reason for being.”
This isn’t just an exercise in corporate purpose — Nadella is treating it as an existential moment. Having long since achieved its goal of “a PC on every desk and in every home, running Microsoft software,” the company needed a new purpose to attract and motivate more coders and engineers, and maintain its profitability. Together with his colleagues, he reoriented the company to “empower every person and every organization on the planet to achieve more.”
This reorientation is accompanied by a strategic shift. Instead of protecting its assets, in a defensive posture, Microsoft continues to break through, committing large investments in existing technology and looking to jump on new opportunities.
The most noticeable change is the exterior. For decades, the company resisted the partnership. After all, the insistence in the 1980s on owning DOS and other software platforms yielded huge profits and cash cows. But to fulfill the new existential commitment, Microsoft needs to combine its enormous assets (cash and engineering talent) with other companies, by opening other platforms and by investing in partnerships.
It has two distinct forms. First, Microsoft embraced rival operating systems such as Linux and iOS, and supported other companies’ virtual reality devices. Second, recognizing the entrepreneurial agility of startups, the company began investing in a series of small companies at the forefront of technology. Nadella also has the gall to raise talent from a series of acquisitions, including Kevin Scott. I said TAUGHT of HBR in 1999, sometimes the greatest value in high-tech acquisitions is the people.
Adopt a Startup Mindset
Despite the company’s large size, Microsoft’s culture change involves many of the characteristics of startups. One is one obsession with customers. The company sells many software products, many of which are connected online in various ways. Instead of going by sales, a distant indicator of fast-moving markets, or even what customers say, Nadella has product developers focus on what people actually use. they set up dashboards to see last month’s usage, to get an up-to-date market definition.
The company also released engineering talent to explore new possibilities. As Nadella wrote his account to change, “They came to Microsoft with big dreams, but felt that all they did was deal with upper management, implement tax processes, and fight in meetings.” So the company reduced hierarchies and freed engineers from most institutional controls — including the rules of contacting people across the board to get answers to a specific problem. Engineers “became mainstream at Microsoft, instead of fighting daily battles as renegades.” With them on board, the company can better respond to sudden opportunities and threats.
Microsoft even sponsors what it calls the world’s largest private hackathon, where the company’s engineers collaborate on all kinds of projects they dream of. The annual event regularly attracts more than 10,000 people in hundreds of cities. Each lasted only a few days, but it made connections across silos that continue for commercial projects – solving problems through rapid collaboration. In all these ways, Microsoft acted more like a startup, less likely a lumbering, protective giant.
Commitment to Change
Organizational change is messy in real life, and Nadella and other leaders need to push it hard. Managers become comfortable in their little kingdoms: beautiful, orderly worlds with enough profits and technical challenges to engage all but the most ambitious talent. There is the famous “stack ranking” system where managers grade people on a bell curve, each grade going to a certain number of employees. The company had a proud culture of “us against them” and “take no prisoners,” and this culture no longer served its purpose.
To regain the courage of a younger company and commit to a new vision, Nadella announced that Microsoft was doing the equivalent of burning its ships after landing on a new shore. : The company will no longer update the once-central Windows operating system that has fallen. in favor He also underwrote the $7 billion investment in Nokia’s me-too smartphone business, freeing up engineers to work on new projects. The stack rank is also lost.
Then the company launched a series of market openings. Instead of me-too deals like Nokia’s smartphone, it bought category pioneers aimed at taking it to the next level: workplace social media platform LinkedIn for $26 billion, developer platform GitHub for $7 billion, and then the monster $68 deal for video. -game developer Activision Blizzard.
These moves together make it clear that the only option is to move on. People realized that they had to succeed with the new method because they could not go back to cash cows.
Meanwhile, Google is caught up in the opposite of courage. Becoming a technology giant in the public eye, there is no concern about “intelligent AI” and antitrust attacks. (Microsoft, on the other hand, has is in the living roomis pushing ahead with a deal to acquire Activision despite antitrust scrutiny.) Google leaders are also concerned cannibalizing current search income. they put mobile, cloud computing, and hardware over search, which has become the company’s cash cow. Although Google is investing heavily in AI, it is risk-averse, playing on the defensive.
All that set the stage for Microsoft’s surprise upset earlier this month. Google may still dominate over time, but it has real competition now, and will require a cultural change similar to Microsoft.
Microsoft’s move is an extreme case, but any company can make the same move to break. Doing so depends on many steps, but the most important is rallying people around an existential vision, developing openness and market focus in startups, and then acting boldly on creating organizational momentum.
You don’t have to be a tech company – we’re seeing the same shift in industries like retail and manufacturing. But you must resolve to continue the offense, with an existing commitment, a starting mindset, and bold action.