Microsoft's Nadella Making Changes

Mar. 3.14 | About: Microsoft Corporation (MSFT)

Michael Hickins, writing in the Wall Street Journal's CIO Journal, is calling attention to some high level executive changes that Microsoft Corp. (NASDAQ:MSFT) new Chief Executive Satya Nadella is making.

This is good news in that he is making changes. A new CEO has only a short time to bring in his own team and so the new boss needs to move quickly.

Of course, we will have to wait to really see what this new management team is going to be able to do.

The interesting thing is that in trying to "reshape the team helping him lead his company," Mr. Nadella has begun things by bringing on a new chief strategy officer. The person moving into this position, Mark Penn, did not grow up as a technology specialist … he earned his spurs being a political polling consultant … to President Bill Clinton, no less.

This seems, to me, to be a bold move in that Penn, before in charge of advertising and strategy, is now moving into the spot that will define the markets that Microsoft will play in and what investments are needed to be made to engage in those markets.

The effort may be, according to Merv Adrian, a Gartner, Inc. analyst who covers Microsoft, an attempt for Microsoft to cease "navel-gazing," which he feels that the company has been doing for a long time. Because of this inward looking there has been no real development of a cohesive vision for what it is that Microsoft does.

The objective seems to be that Mr. Penn will be able to use his polling talents to help Microsoft better understand its markets and where things are moving in the future. The downside on this is that Penn became, according to insiders, a trusted adviser to Mr. Ballmer before this high profile move to work for Mr. Nadella. You decide whether this is a positive thing … or not.

Mr. Hickins cites the belief on the part of some that Mr. Nadella brings in a new perspective on the future of the company because he has "worked for some (Microsoft) groups that faced strong competition" and were not in areas that Microsoft dominated. Thus, he is much more accustomed to listening to customers than perhaps the previous management.

Again, we will only be able to judge these things over time. But, there is movement … and that is good.

Two other appointments were announced. Eric Rudder, who had been the head of advanced strategy is becoming more functional taking over the post of executive vice president for business development from Tony Bates, an internal choice for CEO who was passed over and is leaving.

Furthermore, Chris Capossela, who was formerly the chief marketing officer is now becoming the executive vice president for marketing, a position formerly held by Tami Reller, who also is leaving. Capossela will also take over advertising, which had been under Penn before. The fact that Penn had advertising under him and Reller was the EVP for marketing is reported to have resulted in frictions under former chief Steve Ballmer.

Other top officials who are apparently staying are the executive vice president for human resources, Lisa Brummel, and Chief Financial Officer Amy Hood. These two, along with Reller, were three of the top women executives at Microsoft.

One of my major criticisms of Microsoft's leadership in recent years has been that it has not used its retained earnings well. Microsoft created its software platform and with it, dominated the market. Like a lot of companies that produced "information goods" it generated lots and lots of cash. The problem was, what to do with the cash?

And, this is a problem that is not uncommon to successful companies. The management of Microsoft decided to diversify. It thought it had the skills it needed. And, it had the Microsoft "brand".

Here is where the "navel-gazing" comes in. Microsoft management was so confident in itself that it believed that almost anything it decided to do would be a success. But, diversification out of your primary product space is not an easy thing to do. In this respect, I believe that Microsoft will become a "case study." It didn't have the foresight or the skills to do it.

Now, it is Mr. Nadella's turn. The changes in management are a good start, but with the exception of Penn, all the changes are being given to Microsoft people. Nadella needs to create a different culture. It is hard to create a different culture with people that come from the previous culture.

So, a lot of question marks are still hanging around. But, there is some movement taking place. A new CEO doesn't have a lot of time to bring about a lot of changes. His/her "grace" period is not long. That movement is taking place, therefore, is positive … and we will accept that … for the time being.

Disclosure: I am long MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.