Microsoft’s New CEO: Insider Advantages for Strategic Fit Challenges

Congratulation to Microsoft for recognizing the value of insiders at the helm!

As I’ve said before, insiders understand the nuances of a company’s culture and competencies far better than outsiders. So, the appointment of Microsoft Insider Satya Nadella as its new CEO, with founder Bill Gates as technology advisor, bodes well for Microsoft in terms of insider advantages. Yet, big challenges remain, especially since Microsoft now faces the kinds of conditions that often prompt companies to make strategic missteps.

When their traditional business slows or declines, companies are often tempted to go in many new directions that have a poor strategic fit. So, as a result of changing technology, Microsoft may be vulnerable to this temptation. Having an insider at the top, however, can help. It eliminates the danger of a CEO recruited from outside bringing in approaches that worked elsewhere, but fit poorly in the executive’s new company.

Even with insiders at the top, however, Microsoft still faces challenges. Microsoft’s Insiders must determine how to tap their understanding of the organization in ways that can let the company’s past foundations be viable stepping stones to the future. This means evolving the business. It may mean finding ways to build on Microsoft’s strengths with Windows or Office to move into newer technologies–whether in mobile, in the cloud, or wherever future technology might go. But, it does not mean emphasizing me-too endeavors that lack immediate strategic fit and require long term investment before they pay off, an approach Microsoft has taken in the past. For example, Xbox is a line of business that required extensive nurturing since it did not closely match Microsoft’s strengths.

Wall Street Journal columnist Holman W. Jenkins, Jr. describes similar issues in his February 5, 2014 piece titled “A Non-Revolution at Microsoft” where he says “Investors can’t figure out what Xbox, Bing, Skype, and Nokia have to do with Microsoft’s money-spinning corporate software business—except as weapons to wield against Apple and Google.” Jenkins goes on to explain that Microsoft’s “survival kit” entails spending huge sums to deter competitive threats. Microsoft did this, for example, by investing in its Bing search engine to deter Google.

As I see this, however, it is not necessarily clear that all of Microsoft’s apparently defensive investments really do defend and deter. Sometimes, they may merely be distractions that do not make the best use of Microsoft’s vast resources. Yet, before considering spin offs of these kinds of distractions, companies like Microsoft should always ask whether there are any valuable assets, know-how or technologies that warrant retaining–much like Google kept valuable patents when selling its Motorola mobile phone business.

Nonetheless, Microsoft does need to pay attention to the strategic fit of the businesses it pursues. So, although the new leaders have valuable inside knowledge, they must refrain from getting swept up in Microsoft’s prior tendencies to enter seemingly attractive businesses that might not be the best fit, but put Microsoft in direct competition with key players and, thus, may not pay off for a long time. This means Microsoft’s insiders will have to resist any natural inclinations to slip back into reruns of their previous moves into areas lacking strong immediate strategic fit.

That said, Microsoft CEO Satya Nadella and his technology advisor, Microsoft founder Bill Gates, have a valuable insider advantage. But, they need to use it wisely. They must build on prior strengths, and move forward with technology into the future.

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