With Nadella, Microsoft Avoids Drastic Change at CEO

2/4/14Follow @curtwoodward

The announcement of longtime Microsoftie Satya Nadella as the company’s new CEO was no surprise when it finally, officially came Tuesday. Last week’s early reports of the choice ensured that the Microsoft board’s plans were fully floated before the cameras and conference calls were set into motion.

So there was no big reaction from Wall Street—after a morning bump, shares finished the day down slightly at $36.35—to cast doubt on the choice (NASDAQ: MSFT). We got a pleasant tableau of co-founder Bill Gates, outgoing CEO Steve Ballmer and new chief Nadella smiling side-by-side at a company meeting. Even the second major switch—Gates stepping down as chairman to help Nadella in a part-time advisory role—was telegraphed to minimize any shock to the system.

But it’s also hard not to see this as another big step in the slowly unfolding blood transfusion at the software pioneer. Microsoft’s founding-era leaders have now been edged out of their most powerful positions, replaced by an outsider in new chairman John Thompson and a young, relatively inexperienced CEO.

Gates’ role is perhaps the most puzzling here. He’s still the company’s largest individual shareholder, and says he is going to devote about a third of his time to assist Nadella. For his part, Nadella writes that he “asked Bill to devote additional time to the company, focused on technology and products.”

It’s hard to see how connected Gates is to the most cutting-edge technology trends at this point, unless you’re talking about his world-changing work on medical and poverty issues at his family’s charitable foundation. The fact that Microsoft’s press release insisted on framing this as Gates taking a “step up” tells you a lot about the obvious impression it was trying to avoid.

But he’s still Bill Frigging Gates, and even if he’s there mostly to serve as a bit of training wheels for a first-time CEO, that’s not a bad resource to have. It’s also impossible to ignore the emotional pull and appeal of a larger-than-life founder for many of the frontline employees, (although I imagine some of the executives running the product groups might have a few more grumbles about the old guy looking over their work).

Former Microsoftie Hal Berenson, who writes one of the most penetrating blogs about the company, actually predicted in mid-December that Gates wouldn’t last long as chairman once a new CEO was in place.

“A new CEO can’t have Bill undermining him as he seeks to change the company,” he wrote. “In fact an outsider will almost certainly insist that Bill phase out of any role at Microsoft before he takes the job. An insider might have a different take if he had a long time connection to Bill. Only Satya Nadella probably fits that situation, and even Satya would be better off without Bill as chairman.”

Michael Cusumano, a professor at MIT’s Sloan School of Management who has studied Microsoft for many years, said Nadella clearly feels like he’s got some room to maneuver even with Gates standing close by. He called the appointment “an excellent choice.”

“No doubt, he’s John Thompson’s guy because Thompson led the search … so I think this is sort of a compromise to get Bill in his corner, on his side, try to get him engaged in the transition period,” Cusumano said. “But I think what you’ll see in a few years after the transition is Bill will become more of a regular director.”

Nadella himself seems widely regarded as a smart guy, hard worker, and a good choice for the company. His expertise in leading enterprise projects for the company—the parts that make all of Microsoft’s money—as well as his apparent grasp of emerging technology have been frequently mentioned as positives.

He’s also got a compelling personal story. Nadella, 46, is an immigrant from India who earned a master’s degree in computer science from the University of Wisconsin-Milwaukee and an MBA from the University of Chicago. Married with three kids, he’s worked in cloud computing, online services, and business software divisions at Microsoft.

“Satya is a very passionate executive and is an external-facing executive, so picking somebody inside Microsoft who is so engaged with the customers and the technology trends out in the marketplace I think will serve them well,” Matt McIlwain of Seattle-based venture capital firm Madrona Venture Group told CNBC. “I’ve seen Satya interacting with very early-stage companies. He’s come and spoke at our CEO summit, we’ve had a number of dinner discussions over the years about major technology trends.”

Frank Artale, a partner at Bellevue, WA-based VC firm Ignition Partners, said Nadella is “the right guy right now.”

“He will be able to motivate the teams and people by speaking their language and understanding what they are up against,” Artale said in an e-mail. “He is much more an innovator and coach than administrator … willing to make hard and sometimes unpopular decisions based on customer and industry trends and demands.”

It’s worth noting who Microsoft didn’t go with here.

Ford CEO Alan Mulally, considered a leading candidate for some time, would have been an experienced outsider but not a technology-industry guy, perhaps signaling an era focused on pleasing Wall Street with orderly big-company results.

Stephen Elop, the former Microsoft and Nokia executive, might have signaled that the mobile computing revolution was at the forefront of Microsoft’s thinking. And Tony Bates, the experienced tech executive who joined Microsoft with its acquisition of cloud calling company Skype, was thought to be a favorite of Silicon Valley.

The change certainly isn’t over yet. Will Nadella stick with Ballmer’s recent reorganization of the company, which he only mentioned in passing in his company memo? Will consumer-focused parts of the company be spun off, as some investors have called for? We’ll have to stay tuned for more.

If there’s one theme Nadella returned to in his opening-day communications, it was the idea that Microsoft needs to take what it does best and apply it anew in “a mobile and cloud-first world.”

“I actually think the secret to Microsoft’s future is not really to disrupt the golden goose, but to figure out how to make it work better and ease it into the future,” Cusumano said. “I don’t think you want to break these traditions. You want to adapt them to what’s happening today.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

By posting a comment, you agree to our terms and conditions.