Microsoft's Lost Decade and Satya Nadella's Turnaround

In the late 2000s, Microsoft was struggling to innovate under Steve Ballmer's leadership, failing to create compelling products in mobile, email, social networking, search, and hardware. This period was dubbed "Microsoft's Lost Decade."

Microsoft failed to build a competitive mobile OS, email service, social network, search engine, or music service.

Hardware efforts like the Tablet PC and Zune also flopped.

The stock price stagnated around $27 for nearly a decade.

Satya Nadella took over as CEO in 2014 and immediately began transforming Microsoft's culture and business strategy.

Changing Microsoft's Culture: Embracing a Growth Mindset

One of Satya Nadella's first priorities was to change Microsoft's culture, which had become complacent and arrogant due to the success of Windows and Office.

He encouraged a "growth mindset" of curiosity, learning, and embracing change throughout the company.

Employees were expected to be "learn-it-alls" rather than "know-it-alls."

Satya led by example, changing long-standing business practices and encouraging teams to try new things.

Prioritizing Customer Needs Over Strategy

Microsoft had previously prioritized strategy over customer needs, often resulting in user-hostile products like Windows 8. Satya Nadella shifted the focus to doing what's best for customers.

He quickly approved the release of Office for iPad, which had been blocked due to "strategy" concerns.

Microsoft embraced Linux on Azure, abandoning the philosophy of favoring Windows at all costs.

The company moved away from the concept of "strategy tax," where integration came at the expense of individual product success.

Cutting Losses and Refocusing Investments

Satya Nadella took decisive action to cut losses in areas where Microsoft was failing, while refocusing investments on more promising opportunities.

He wrote off the entire $7.2 billion acquisition of Nokia's smartphone business and laid off thousands of employees.

Unprofitable projects like the Microsoft Band fitness tracker were discontinued.

CFO Amy Hood prioritized investments based on opportunity cost, favoring high-ROI areas like Azure over consumer search.

Empowering Engineering Teams and Embracing Open Source

Recognizing that engineers are a software company's most valuable resource, Satya Nadella listened to their feedback and empowered them to work more efficiently.

He eliminated burdensome processes like having to pay for open source software audits.

Microsoft embraced open source tools and practices, such as migrating Windows source code to Git.

Initiatives like hackathons fostered innovation and higher morale among engineering teams.

Transforming Microsoft's Business Performance

Satya Nadella's changes paid off, with Microsoft's stock price outperforming the NASDAQ Composite by 3x since he took over.

The market, employees, and customers responded positively to his leadership.

Microsoft's stock price reached $410, up from $34 when Ballmer stepped down.