Satya Nadella, Microsoft's current CEO, is seeking to restore the company's reputation for innovation and creativity that characterized its early years under a new strategy of product differentiation. This represents a shift from the strategy pursued by previous CEO Steve Ballmer, which focused more on maintaining Microsoft's devices and services through low costs. Two new strategic initiatives Nadella is pursuing include making Office software available across all platforms like iOS and Android, and developing the HoloLens augmented reality product. To successfully implement these initiatives, Nadella needs to change Microsoft's culture away from seeing other platforms as enemies, restructure the organization away from powerful product silos, and establish new metrics to measure market acceptance and productivity. While Microsoft has strengths

1. Capstone Project
Strategy Formulation & Implementation
Microsoft strategy under Nadella’s
Leadership

2. Capstone Project – Strategy Formulation & Implementation
Microsoft Strategy
2
Introduction
At foundation, Microsoft’s mission was to bring a personal computer in each home. This mission
seemed too radical at those times and highly criticized by several people. In spite of adversities and
criticism to an edgy proposal, Microsoft accomplished its mission: personal computers became a
reality, so well accepted that many after Microsoft followed it. The company has been a leader focused
on improving and enhancing the concept of personal computer and laptop devices as well as its
Window platform.
However, from more than a decade ago, Microsoft has faced competition from others that became
bolder in terms of products and platforms, while Microsoft became limited to “devices and services”.
Nowadays, under a new CEO leadership, Nadella, Microsoft is trying to resume its edgy and boldness
style focusing on new products as radical as personal computers were in the company’s earlier days.
As an example we have the project HoloLens, which aims at bringing virtual and interactive reality at
the hand of its users. Just like an excel user had a brand new experience by using it with a mouse
decades ago, Nadella’s project aims at allowing users to experience goggles as a computer tool to
access all sort of information and more.
Business Strategy is, conceptually, tools for defining business action and direction to ensure that a
company can create market competitive advantages and sustain a leadership position through time.
Porter suggests several tools for that analysis; one of them is the SWOT, which helps leaders and
strategists to identify weaknesses, threats, opportunities and strengths, and act upon them. Also,
business differentiation is another relevant concept that Porter brings to the analysis of the Microsoft
case whereby either product cost or differentiation would matter to keep the company as a leader it was
born to be.
Compare Microsoft strategies under Ballmer and Nadella
The first question of the Capstone Project is to compare the strategies under Steve Ballmer, Microsoft
CEO from Jan 2000 to February 2014, and Satya Nadella, the current CEO following Steve Ballmer.
As mentioned in the introduction, Microsoft was born as a radical technology corporation known for
innovation and creativeness. Steve Ballmer seemed to be more a person who was carrying on
Microsoft’s devices and services, seeing its competitors as enemies and not fostering radical
innovation. That made Microsoft to differentiate itself from the competition as a low cost producer rather
than by product differentiation and innovation.
Microsoft’s new CEO, Satya Nadella, is looking to restore the company’s long-dormant reputation for
innovation and creativity. As testified by Microsoft employees, he brings a fresh leadership style
allowing ideas to bloom. People are not proposing products or changes to be liked (as they did under
Ballmer’s management) but they are not afraid of being challenged. New ideas seem to have a space

3. Capstone Project – Strategy Formulation & Implementation
Microsoft Strategy
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for consideration. By fostering such an innovative environment, Nadella’s seeks to implement a strategy
of product differentiation and to bring Microsoft to the same leadership position that made it being
followed (rather than follow others) in its earlier days.
Is Microsoft direction correct?
The second question of the project is if the Microsoft strategy under Nadella’s leadership is correct. My
personal view is that this direction was correct and this view continues being reinforced by the direction
other players are also taking.
A decision of whether a leader differentiates its company only by the price of its products is critical on
times like nowadays when people are eager for connectivity and productivity. Nadella seems to note
that Microsoft weakness lies on lacking creativity and the only way to maintain its product on the
shelves were through price. For Nadella, it seemed an opportunity to shift the entire company.
On times when technology customers look for innovation that makes their lives easier, faster,
connected and more productive, personal computers are no longer a milestone. Connectivity became a
significant threat within this environment and Microsoft was operating and isolated Windows platform.
That was the first SWOT type analysis done by Nadella’s team, which indicated a need for partnerships
that would make Windows compatible within other iOS and Android platforms in addition to higher
investments in R&D for new products. In Nadella’s age, Microsoft is connectable to any system
platform, which enables it to provide customers any type of service.
These are just the initial steps toward innovation. The cornerstone is actually the launching of the
HoloLens Project. During the development, Nasella noted another aspect of Microsoft’s SWOT: A
weakness related to its capacity for creativity. As the team was very used to propose solutions that was
mostly driven to the maintenance of the personal computers status quo rather than changing and
proposing something that would drive a change. A threat related to entrance of new players proposing
aggressive and very different solutions that can connect customers anywhere and anytime to virtually
anything. Those were the main drivers behind Nadella’s direction to Microsoft, which seemed to be very
correct.

4. Capstone Project – Strategy Formulation & Implementation
Microsoft Strategy
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Pick 2 to 3 of the new strategic initiatives that MS is pursuing and
suggest an implementation plan for them. The plan should
elaborate on at least 3 specific areas of implementation (i.e. culture,
structure, metrics, ...)
One initiative that Nadella started implementing when he took office was to make the Office Softwares
available for iOS and Android users, as well as in smartphones and small devices, other than personal
computers. This initiative is part of Nadella’s goal to make Microsoft a connectivity technology company
delivering its customers solutions to make their lives more productive.
To implement this strategy, Nadella should operate in two fronts:
1. Culturally, he should eliminate the idea that iOS, Android and other platforms are “enemies”. To
accomplish this, he should re-brand the challenge, mission and vision of Microsoft. Spread this
culture across the company. Employers should be motivated to bring in new ideas, not ideas
that will be liked.
2. As to the structure, the siloes of “powerful product divisions” should be eliminated and
executives empowered to work cross functions. A full organization re-structuring should be done
aligning the company not by product but by function.
3. Metrics should be considered to measure the placement of products into the market and
measure its acceptance. Also, productivity measures should be defined to ensure the new
organization is working as expected.
Project HoloLens
To ensure project HoloLens succeeds, the implementation steps cited for the Office Software apply.
However, some other implementation steps can be added specifically to this project considering its
radical nature.
1. On the organization side, he should revise the approach to Research & Development,
augmenting the investment in this area and linking researches to engineers, which allowed
ideas to become a product faster.
2. Culturally speaking, a positive attitude and resilience to continue motivating the teams to move
with this idea, in spite of potential arguments against it. HR could come as a supporter.
3. Regarding metrics, a measure of how fast steps of the project are developed, meetings across
different areas and divisions as well as testers acceptance, could be used as base for analysis
of the product and internal interaction.

5. Capstone Project – Strategy Formulation & Implementation
Microsoft Strategy
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Where are Microsoft's strengths when it comes to executing these
initiatives? Which ones are more likely to be a challenge for
Microsoft, and how should they adjust to account for that?
Microsoft’s key strength is its reputation and known name in the market, which can be used to resume
its intention of becoming the market innovative leader. Also, the technical knowledge of its employees,
engineers and researchers is very important to ensure the ideas flow from the research to production.
The challenge though lies in the culture where people are mostly inclined to present ideas that in fact
maintain the status quo of Microsoft as a producer of personal computers and Office Softwares. People
tent to present ideas that are likely to be accepted rather than ideas that can be challenged and
improved and eventually, become a milestone toward another technology generation.
To adjust for this culture, the CEOs and its direct reports attitude should be used as an example of
resilience and optimism. Also, Microsoft should redefine its brand, mission and value and ensure this is
widely communicated and accepted across all divisions of the organization.