A New Era for Microsoft: Overcoming the Innovator’s Dilemma

2/27/14

I don’t know if Microsoft will be a $300 billion company 50 years from now, but I do know one thing: selecting Satya Nadella as CEO gives it a better chance than some of the names that were discussed in the news since Steve Ballmer announced he would be stepping down.

The reason is simple: Microsoft, like many Fortune 100 companies, is at the critical juncture when the most rational, medium-term decision for maximizing profitability involves harvesting profits by cutting research and development and curtailing risky investments into new markets. Unfortunately, the challenge that arises for big technology companies at this stage is what Harvard’s Clay Christensen has described as the “Innovator’s Dilemma.”

The best way to maintain dominance as markets evolve is to confront the Innovator’s Dilemma head-on—by investing heavily on bets as to what will become the next multi-billion dollar opportunity, even at the expense of short-term gains. I believe that Nadella is well-suited to make these bets as Microsoft’s new CEO.

Even though Ballmer was a product-focused CEO who understood that innovation is key to remaining on top, his record, as it has been well-documented, does not necessarily read like Apple’s win column in terms of new product introductions over the past 15 years. Ballmer pushed into the smartphone market with modest success, but the Windows phone can be deemed a complete flop.

It might be appealing for a company to opt for a “safer” route and hire an outside leader who knows how to work a balance sheet in favor of short-term gain. However, making this choice doesn’t guarantee innovation or a future beyond the next 10 years.

HP under Meg Whitman is an example of a company that has fully succumbed to the “Innovator’s Dilemma.” Whitman arrived at HP in 2011, and since she’s been at the helm HP has moved into harvest mode. A company well known for its market dominance in printers, HP has been noticeably absent from discussions about one of the most revolutionary product concepts in the printer market—3-D printing. After years of innovation by other companies, only recently has Whitman claimed that HP will start selling 3-D printers by mid-2014.

Now, reports have surfaced that HP will slash 7,100 jobs in Europe in the coming months, as part of its plans to eliminate 29,000 jobs globally. There’s no telling if HP’s 3-D printer will be successful in 2014, but it appears that Whitman is well aware that HP will need to make some cuts to continue to get by on its current income.

While only time will tell if Nadella is the right fit for Microsoft, the future looks bright. His background in cloud computing systems—perhaps the Internet’s biggest growth area—can only help Microsoft keep up with other game changers.

In the past, Nadella helped deploy Windows Azure and its cloud development tools. It’s this type of experience that may help him enhance existing products such as Office Web and SkyDrive.

Nadella is not an outsider coming into Microsoft, which is worth noting. He is a product-driven innovator. A new era is beginning at Microsoft, and it appears that the software giant isn’t ready to slip below its tier without a fight. It’s the only path forward that gives Microsoft a chance at remaining a $300 billion company 50 years from now.

There’s a good chance that Microsoft will make a noticeable rebound in the computer market as well as the mobile world now that Nadella is leading the charge. Don’t be surprised if you see Microsoft become the new go-to company for sleek, modern devices that make you feel more futuristic than Apple ever has in the past.

Doug Winter is co-founder and CEO of Seismic, a leader in enterprise mobile content management. Doug previously co-founded Objectiva Software Solutions, which was acquired by EMC Document Sciences in 2004. He holds a MSEE and an MBA from the Massachusetts Institute of Technology and a BSEE from Virginia Tech. Follow @

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