Companies have to periodically make changes in their activities to survive in the market and remain competitive. Moreover, the economic crisis has convincingly confirmed that the need for changes began to arise regularly, so their impact on the company’s life cycle is no longer viewed as exceptional. The question of fundamental importance today is how a company can withstand changes in the external environment that occur unpredictably. With preliminary measures or a response, it maintains its viability and achieves its goals.
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The Fortune 500 is a list composed by Fortune Magazine, ranking the 500 largest corporations in the United States considering total revenue for their respective fiscal years. The catalog consists of public and private companies whose incomes are available to the public. The past few years have been called the new epoch for Microsoft – with the appointment of Satya Nadella as CEO, the company’s culture has changed dramatically. In 2020 “Microsoft reached its highest ranking ever on the Fortune 500, up five spots from last year, and churned out $39 billion in profits to boot” (Fortune 500). The values that Nadella managed to put into the heads of the employees of the vast corporation helped to increase the amount of Microsoft shares and show the rest of the players in the market that the company is still a strong competitor.
The paper aims to investigate the implementation of new principles in the company and analyze how they met changes and global demands. Big corporations are pursuing new goals and objectives due to differences in market environments according to innovations. Companies should stay current with trends and be competitive. The most prominent example is Microsoft, which began to lose its popularity among citizens in the past decade and the ability to continue its activity on the previous levels. For understanding the outcomes, it is necessary to analyze the new CEO’s leadership style, organizational culture, employee engagement and support, resistance to change, and communication effectiveness.
A Detailed Case Discussion
Description of the Company
Microsoft is a world leader in the information market, delivering a wide range of devices, IT services, and software. It is one of the largest corporations in the world, operating in more than 190 countries. Microsoft’s portfolio of products and services includes desktop and network operating systems, devices such as Xbox 360, Xbox One, Kinect, Surface, server applications (Chao & Kavadias, 2017). It provides desktop business and office applications for end-users, cloud solutions, interactive programs, services and games, web tools, development tools (Chao & Kavadias, 2017). Cloud and mobility are becoming top priorities for Microsoft in line with the strategy announced by Satya Nadella, the company’s new CEO (Chao & Kavadias, 2017). These days, Microsoft offers customers and partners the unique and most comprehensive range of cloud capabilities to produce private, public, or hybrid clouds.
Reason For the Strategy Change
Microsoft used to be the most valuable organization in the late 1990s through the Windows operating system, MS Office, and Bill Gates’ management model. However, the isolationist and conservative business model and its reliance on selling software licenses became a hindrance to growth. The licensing model hindered the development of cloud services and other modern technologies. Microsoft shares have hardly gained in value for more than ten years.
New company’s CEO Nadella inherited Microsoft in a deplorable state. Wall Street and Silicon Valley did not perceive the company as a strong player – the tech industry moved from desktop computers to smartphones, from Windows to iPhone and Android (McCracken, 2017). At the same time, the mobile Windows market share fell below 4% (McCracken, 2017). McCracken (2017) notes that while Apple and Google were both rallying, Microsoft’s share price remained unchanged – even as the company’s revenues tripled from 2000 to 2014, and profits doubled. After Nadella’s appointment, who has been at Microsoft since 1992 and developing the cloud business in recent years, critics described it as a step backward. Nevertheless, these days, Microsoft is valued at over $ 1 trillion, making it one of the world’s most valuable companies (Fortune 500). The rise of Microsoft is a merit of the company’s CEO, Satya Nadella, appointed in February 2014.
There were three cultural transformation goals; firstly, to make customer needs the top priority and predict what people would like. The second was to achieve overall employee engagement and, finally, end the departments’ fragmentation and turn them into a unified company. Nadella (2018) recalls that immediately after his appointment, he told the board of directors that the first issues on the agenda would be to change the corporate culture and search for a new meaning for Microsoft’s existence. He advised senior executives to know the methods of friendly communication and empathy (Nadella, 2018). Nadella changed the company’s organizational structure, creating three enlarged segments: modern workplaces and business processes, intelligent clouds, and the segment of personal products (Singh, 2020). Besides, before Satya Nadella’s reforms, the company’s primary resources were directed toward developing Windows and all areas associated with this operating system.
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Satya Nadella has redirected the company’s core resources to the development of cloud services. The entire point of his efforts was to transform the company from a boxed software provider into a global online computing service. McCracken (2017) also drew attention to the phenomenon of a new cultural policy within the company and found out how Satya Nadella managed to re-create Microsoft. Microsoft CEO believes that every entrepreneur in their work should follow the principles of ESG, that is, strive for environmental, social, and corporate responsibility.
Nadella’s leadership style is different from the previous ones. Bill Gates has built a culture of workaholism, being intense. Steve Ballmer has focused on short-term sales performance rather than long-term support. The new CEO clarified that he would run the company differently from his predecessor Steve Ballmer (Nadella, 2018). Nadella’s core leadership philosophy is to form partnerships and ensure that Microsoft programs and services are available to all customers, even those who do not use Windows (Chao & Kavadias, 2017). Through his many unprecedented moves, Nadella has demonstrated a mindset for large-scale growth.
Organizational Culture and Employee Engagement
Acquiring a growth mindset means focusing on how an employee group is improving over time and getting everyone to work towards collective goals. Replacing his predecessor Steve Ballmer, Nadella continued the ongoing process of restructuring the corporation arrangement (Chao & Kavadias, 2017. Microsoft was split into cross-functional teams, eliminating product divisions. Nadella wanted research departments to collaborate with developers more often. This removes the focus from competitors and shifts it to the company’s internal strategy for sustainable growth. Nadella (2018) remembers listening to hundreds of employees at every level from every department in his search for a new meaning of ruling Microsoft. According to Nadella (2018), this is how Microsoft’s previous vision of changing the world has evolved into creating products that empower people. Crucially, the growth mindset destigmatizes mistakes and tackles challenges – for example, managing a giant software company.
Microsoft is primarily interested in finding employees focused on intelligent and non-standard ways of solving emerging problems. Nadella is guided by team play and cooperation in work, instead of constant competition and pursuit of fame. According to Chao and Kavadias (2017), Microsoft values its people; in recent years, its culture has shifted from individual competition to mutual assistance and teamwork, which has reduced stress levels at work. Concerning negative points, Microsoft employs over 110,000 people worldwide (Singh, 2020). Managing a large number of people leads to bureaucratic processes (Singh, 2020). This is the most common employee complaint and the lack of communication and integration between different business units.
Resistance to Change and Communication Effectiveness
Nadella also tried to change Microsoft’s culture; the company began to publicly state its position on controversial issues, calling for the regulation of facial recognition technology and the responsible use of artificial intelligence. Meanwhile, to achieve long-term results, unpopular measures were taken. For instance, from July 2014 to June 2016, almost 14,000 people were dismissed; the Nokia company purchase was recognized as an unsuccessful decision, writing off the related costs of $ 9.4 billion (Singh, 2020). The CEO manages to combine a soft management style with a rather aggressive personnel policy.
Following his strategy, he disbanded the largest division responsible for the entire Windows line. However, since taking over as head of Microsoft, Nadella has put empathy at the heart of a new corporate culture. The most complicated aspect was to ensure that it was not perceived as dogma or corporate propaganda. Another element has become key – the growth mindset as opposed to the fixed mindset. Nadella (2018) believes that a company must first define its purpose and culture and then compete. Furthermore, in meetings, it is necessary to adhere to three rules: listen more, talk less, and be decisive when the time is right (Singh, 2020). These principles allow employees to create an atmosphere of psychological safety, mutual understanding, and trust in the team (Singh, 2020). The idea is to speak fewer words but to the point and allow everyone in the meeting to express their constructive opinions.
As a result, in the 2018 fiscal year ended June 30, the business cloud division brought the company $ 23 billion, which is 20% of revenue; from 2013 to 2018 fiscal year, the company’s revenue grew by 40% to $ 110.4 billion (Microsoft, 2018). Microsoft’s cloud business generated $ 11.6 billion in revenue in 2019 in its quarterly earnings report, up 36% from a year earlier (Microsoft, 2019). Microsoft’s other two key business segments are personal computing and business and productivity solutions, generating $ 11.1 billion a year for the company (Microsoft, 2019). According to Nadella (2018), the computer business’s main thing is to stimulate innovation being new, not yet expressed concepts. It also has brought benefits in COVID-19 pandemic; “so far in 2020, a surge in remote working as a result of the coronavirus pandemic has led to even greater demand for the company’s Azure cloud service and its Office 365 workplace apps” (Fortune 500). According to Fortune 500 (2020), “Microsoft’s shares hit an all-time high in February at nearly $189, underscoring Wall Street’s enthusiasm for the company’s evolution under CEO Satya Nadella”. For two consecutive years, the cloud-based business has been at the top in terms of revenue.
The new CEO analyzed and used the factors for increasing teams’ effectiveness, such as setting goals, distributing formal and informal roles, organizing processes of intra-team interaction, and interpersonal relationships in the group. He also paid attention to the team’s relationship with the environment and other units. Microsoft’s example shows that when the company starts to lose the market to more vigorous competitors, the managers must have the courage to abandon the development path that brought the usual profit and decide on the reforms that the market requires. I believe that due to the change in the company’s development strategy and the establishment of new corporate values, Microsoft could solve the severe crisis and managed to change the situation in it significantly.
A progressive approach to management has proven to be effective. Since Nadella came to the company’s power, the value of the company’s shares has doubled, reaching the highest level. Consumers are once again, referring to Microsoft as an innovative company with a high reputation. Nadella took a revolutionary step that Microsoft had resisted for years and released a version of Office optimized for Apple’s iOS mobile operating system. Microsoft is a productivity company in a world of mobility and the cloud. Microsoft’s long-term mission is to empower every person and organization on the planet to do more. The company has ambitious goals – to create new opportunities for improving business processes, simplify human-computer interaction, make it even more individual, and build a smart cloud platform.
With Microsoft’s example as the company that has returned as a significant participant to the IT market, several conclusions can be drawn on meeting the pressure brought on by the rapid changes in the business and global environment. The first is that the internal structure needs to be reorganized. The second is to build a corporate culture; the new CEO admitted one of his primary goals to change the corporate culture and create a durable organization fundamentally. Nadella formulated clear plans for the company, and the corporate culture helped to achieve them. As CEO, Nadella began to communicate more with employees. He shares his ideas through emails, tweets, public events, and monthly Q&A meetings. Finally, it is essential to build the company’s brand, instead of focusing on one product; a crucial innovation for Nadella is the shift from Windows to Microsoft.
Chao, R. O., & Kavadias, S. S. (2017). Innovation Strategy at Microsoft: Clouds on the Horizon. Darden Business Publishing Cases.
Fortune 500 (2020).
McCracken, H. (2017). Satya Nadella rewrites Microsoft’s code. Fast Company.
Microsoft. (2018). Annual Report.
Microsoft. (2019). Annual Report.
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Nadella, S. (2018). Hit Refresh. Bentang Pustaka.
Singh, R. (2020). Role of Human and Technical Aspects in Organizational Change. AAYAM: AKGIM Journal of Management, 10(1), 43-46.