Interview: How Nadella plans to upend Microsoft

REDMOND, Wash. – Satya Nadella takes a seat in a modest Microsoft conference room, eager to outline his cloud-first vision for the storied tech company.

But before he talks about his baby, he agrees to address the elephant: His Oct. 9 comments at the Grace Hopper Celebration of Women in Computing.

When Nadella, who took over as Microsoft CEO in February, was asked whether women should ask for raises, he said they shouldn't "because that's good karma."

Outrage followed, which Nadella, 47, immediately countered with apologies on Twitter and an address to employees in which he noted that Microsoft would step up its in-house diversity efforts.

"My answer to that one question, which I interpreted super narrowly, was just wrong, because I answered by my own experience of how I managed my career," he told USA TODAY. "But the mistake is to take your own personal experience and project it on half of humanity. It's just insensitive."

(For the full text of Nadella's Grace Hopper reflections with USA TODAY, go here.)

Nadella says that one of the first things he did after making the gaffe was request data from Microsoft human resources on male-female pay equity for the same title.

"It turns out we don't have disparity, it's always a tight band of 0.5%," he says. "I feel good about that, but it still doesn't answer the question of velocity of promotions, of whether there are enough women and minorities in senior ranks. Those are the things that we've got to work on."

Among many. Nadella — who today addresses the media in San Francisco about Microsoft's cloud efforts — has the reins of the company Bill Gates and Paul Allen founded at a critical inflection point in its 39-year history. The days of software as a product are being replaced by software as a service, in which companies increasingly run their IT infrastructure off cloud-based servers.

To remain competitive, Microsoft introduced its own cloud, Azure, in 2010, and has since taken bold steps to form strategic partnerships with former foes such as Oracle and SAP. Last week, Microsoft announced it would soon provide support for popular Linux-based cloud provider Docker in an upcoming iteration of Windows.

In many ways, Nadella, who was raised in Hyderabad, India, and earned advanced science and business degrees in the USA, is the perfect person to lead this push.

He left Sun Microsystems in 1992 to join Microsoft, where he rose to be vice president of the cloud and enterprise group. Now that his former division is effectively steering the company ship, Nadella is keen to bring a renewed sense of mission and an energized culture to its 100,000-strong workforce.

"As a leader, I'm interested in fighting the new battles," says Nadella, noting that although Microsoft's cloud business represents only $4.5 billion of its annual $70 billion business, "we need to get the teams inordinately focused on that $4.5 billion.

"You need new concepts with new innovation, and you have to have new capability and culture to go after those new concepts," he says. "Your existing success kind of fights those things, so you have to over-amplify the new concept and the culture required for it. And that's the journey."

CREATING A 'GO FOR IT' CULTURE

One example of Nadella's impact on Microsoft culture is the company-wide hackathons he instituted this summer to replace what had been a steady stream of corporate communications and meetings.

"It was a week long and spread out over our soccer fields and atriums, and it simply stressed that everyone in the company could and should have ideas, it was Satya's way of saying, 'Don't wait, go for it,' " says Scott Guthrie, who took over Nadella's position as head of cloud and enterprise.

Guthrie describes his boss in terms that crop up often in conversations about Nadella. He's a "lifelong learner" capable of "energizing the teams" and making "big bold bets" such as the recent partnership deals.

"He's about finding our relevance in a cloud-first world," says Guthrie. "For example, Oracle and Microsoft were never close partners and often mortal enemies. But now Oracle software runs on Azure, which gives them another opportunity for their customers on the cloud. We now offer Linux support and integration. Some of these things were fairly inconceivable. But they're not a gimmick."

Steering the Microsoft juggernaut straight at the cloud makes good business sense considering its rapid adoption by enterprise customers. A few years ago, a Bain & Company report noted that by 2020 revenue from cloud products and services would mushroom from $20 billion to $150 billion.

"Turns out that adoption rate was wrong, we'll exceed $150 billion by 2017, which will be 10% of total IT spend," says Michael Heric, a Bain partner focusing on technology, media and telecommunications. "Cloud computing is bringing sophisticated technology to large and small companies, from those working on cancer research to someone trying to predict weather patterns."

Microsoft is correct in moving away from a formerly insular culture whose negative image was at its height during a series of government antitrust suits in the late 1990s, says Gartner tech analyst Lydia Leong.

"They're pursuing a strategy of having a hybrid IT portfolio, which acknowledges that the future is a more heterogeneous Microsoft that isn't the only vendor on the landscape," says Leong. "The challenge will be in getting customers to think farther forward and envision new capabilities they can add to their businesses."

For Nadella, it's about going back to Microsoft's roots as an enabler of dreams.

"Of course I want (Microsoft) to be loved, but not in a vacuum," he says. "In our case it has to be, 'OK, they are the ones giving me the tools to build my business, to help me shine in my profession, to help me create great success.' "

Nadella grows animated when talking about Windows 10, which he describes not as just another iteration of the venerable operating system "but the start of a complete generation of Windows that's as much a service as it is an OS that runs across many devices."

Similarly, he says Office 365 can no longer "just be about Word and PowerPoint and Excel," but rather must reflect "how we are thinking about new innovation around a worker in a world of mobile devices and large screens in conference rooms."

And, finally, Azure is about Microsoft "building a server that is always connected to the cloud, which has disaster recovery in the cloud … so to me thinking about these new concepts of Azure, Office 365 and Windows in radically different ways is one of the most important things."

He adds that "each of our layers of technology needs to first and foremost be a platform so others can participate. Because quite frankly, that's what we did in the past with some of the great successes that we've had."

SUCCEEDING IN A 'FLATTENING WORLD'

Nadella's desire to play nice with others in the tech world reflects the ongoing devolution of the industry. Where once stood monoliths such as Hewlett-Packard, IBM, Apple and Microsoft — each warring for faithful consumers — today's startup-fueled tech world places technology itself in a secondary role to innovative ideas and disruptive business models typified by the likes of Facebook and Uber.

The CEO was simply reminded of that truism on a recent trip to South Korea, China, Japan and India.

"The human capital of all these countries is working on a lot of the new applications, tools, platforms and games, and their ambitions aren't local, they're global," he says. "What's more, they're bypassing the entire generation of server infrastructure and going straight to the cloud.

"So if I had to characterize the difference between even five years ago and now, it's the true flattening of the world where things migrate much faster," says Nadella. "The next hit, in any vertical and any consumer segment, can come from anywhere."

The tech world never turns off, but Nadella confesses he tries to do just that whenever he can, especially when it comes time to focusing on his wife, Anupama, and their three elementary school-age kids.

"I would say it's a constant struggle, but I prefer not to think of work-life balance as a balancing equation, but just something where you find harmony," he says. "When I am with my kids at home, I am really there."

He can't resist a plug for mobile-assistant Cortana, Microsoft's counterpart to Siri, which he says keeps him alerted to "what's super important vs. me having to constantly be checking. This entire habit of pulling vs. pushing will have to change, because you have to have the ability to be focused on things at work and at home without this constant information anxiety."

Nadella unplugs in a variety of ways. He loves to cook. He adores watching cricket matches, particular test matches that play out over five days.

"Each are great dramas that you watch play out in different acts with its own plot and subplot," he says, smiling. "I mark my entire life, from the time I was 6 until now at 47, by having watched these various games."

The dramatic structure to the sport meshes with his love of literature. He's partial these days to Marie-Henri Beyle's The Charterhouse of Parma ("It has beautiful descriptions of Napoleonic France") and Atul Gawande's Being Mortal ("Any time you look at something that sort of seems tangential, it gives you more meaning").

During the interview, Nadella eagerly quotes from T.S. Eliot's Four Quartets poem, whose stanzas he says serve as a guiding personal and corporate principle: "We shall not cease from exploration/And the end of all our exploring/Will be to arrive where we started/And know the place for the first time."

BOTH CHASTENED AND DRIVEN

After spending an hour with Nadella, the Grace Hopper comment seems both out of place and obvious. The former because he doesn't come across as a man rigidly wed to old-school constructs, and obvious in that there is an unfettered honesty about him that is both disarming and at times optimistically naïve.

"If you know the man, you know he cares and wants people to succeed," says Kevin Johnson, retired CEO of Juniper Networks who worked with Nadella at Microsoft for 16 years. "Does he think about karma as a system that recognizes and rewards people? Yes. But does he know that doesn't always work and the system has to be improved? Yes."

Johnson says Nadella is poised "to unlock the human capital at Microsoft" by forging a collaborative culture that, perhaps now more than ever, will be supported by upper management keenly aware of the impact of diversity and fairness.

For his part, Nadella seems chastened by his Grace Hopper misstep: "Should you passively accept if faced with bias? I would say absolutely no."

But in a nod to another favorite Nadella author, Roman emperor Marcus Aurelius, as the leader of a company bent on recapturing its glory days he knows inclusion and openness, whether in software or people, is the only road to success.

"This isn't about, 'Let's do this because it's something we want to do in addition to innovation,' " says Nadella. "No, this is necessary if you want to build successful products that sell across all economic strata, ethnic groups and gender. Having a diverse workforce is a necessity to do innovation that's going to be relevant in the world."