“Some of the biggest businesses we’ve built might not be as relevant going forward,” admitted Microsoft CEO Satya Nadella during an employee-only town hall last week. Nadella was responding to a question about the perceived change in culture inside Microsoft, but his answer revealed a lot more about his own fears over Microsoft’s future in this AI era.
“Our industry is full of case studies of companies that were great once, that just disappeared. I’m haunted by one particular one called DEC,” said Nadella. Digital Equipment Corporation once ruled the world of minicomputers with its PDP series in the early 1970s, but it quickly faced competition from IBM and others that made it irrelevant. It also made some strategic errors by betting on its own Virtual Address eXtension (VAX) architecture instead of the emerging Reduced Instruction Set Computing (RISC) architecture.
Nadella’s first computer was a VAX, and all he wanted to do when he was growing up was work at DEC. “Some of the people who contributed to Windows NT came from a DEC lab that was laid off,” said Nadella. “I think about that, and I think about what it takes for a company not to just thrive at one time, but to continue to actually have the smartest, best people who are going to only work if they’re going to have the opportunity to get both great economic rewards and great job opportunities.”
Nadella’s cautionary tale came in response to a UK employee who said the company had recently “felt markedly different, colder, more rigid, and lacking in the empathy we have come to value.”
I’ve spoken to dozens of employees over the past few months, and they all told me that morale inside Microsoft is at an all-time low. If there’s fear at the top of Microsoft, then employees will undoubtedly feel that through the constant rounds of layoffs and change. It’s why I said in July that Microsoft risks creating a culture of fear.
While Nadella didn’t fully address the perceived cultural shift inside Microsoft, he did say the company’s leadership team “can do better and we will do better.” He didn’t explain how Microsoft would actually do better, though.
“Here we are in our 51st year as a company, and if you look at a set of metrics we are thriving. But at the same time, when I think about the degree of difficulty that is ahead, for us to navigate what is a changing industry, a changing tech sector, and changing economics, we have some very hard work ahead of us,” Nadella said.
That hard work has a lot to do with “renewal” and change, according to Nadella. And renewal seems to mean stark changes and layoffs. It took Nadella a few weeks to address the 9,000 layoffs in July, with a similar missive that discussed the “difficult process of ‘unlearning’ and ‘learning’” in this AI era.
“We can keep the values we have and make sure we live up to that, while at the same time recognizing that capital markets have one simple truth: there is no permission for any company to exist forever,” Nadella said during his town hall appearance last week. “You earn the permission every day by doing socially useful things in the marketplace that is valued. That’s the hard part.”
That is definitely the hard part, as Microsoft’s 50-year history has proven. Microsoft missed the mobile shift in what cofounder Bill Gates once described as his “greatest mistake ever.” The software giant is still thriving despite getting left out, but Nadella is clearly determined not to miss the next big thing.
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