Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How Satya Nadella Changed Microsofts Culture First
Transcript
- Lucas: So it's August 2026, and Microsoft just reported another quarter where Azure grew faster than all its big cloud rivals combined. But here's the thing — that growth didn't start with a new product. It started with a cultural reset back in 2014, when Satya Nadella took over. Luna: Because before Nadella, Microsoft was still printing money. So what was actually broken? Lucas: The culture. Windows and Office were cash cows, but the company had a reputation for internal warfare — teams hoarding code, not sharing. New ideas got crushed in meetings. Nadella's first big move wasn't to cut costs or reorg. He asked every employee to read a book about empathy. Luna: Marsha Linehan's book on dialectical behavior therapy — the one that's actually for treating borderline personality disorder. That was a bold choice for a CEO. Lucas: Exactly. And he said, 'if you can't empathize with your customers, you can't build products for them.' That was the seed. But he didn't stop at book club. He changed the performance review system to reward collaboration, not just individual heroics. That's a concrete move most leaders never make. Lucas: He also pushed this mantra: 'be a learn-it-all, not a know-it-all.' It sounds like a poster on a wall, but he backed it up. He killed the stacks ranking that forced managers to rank employees on a curve, which had created a cutthroat environment. That was a real structural change. Luna: So he tackled the incentives. Because you can talk about culture all day, but if the performance system still punishes sharing, people won't share. Lucas: Right. And there's a telling story from his early years at Microsoft. In 2007, when the iPhone launched, Nadella was leading the search team. He saw the keynote and thought, 'that's a great phone, but we're fine.' He later admitted that was a wake-up call — he'd underestimated a disruptive shift because he was focused on his own silo. Lucas: That personal miss probably shaped how he approached leadership. He didn't want Microsoft to be a place where people were so siloed they missed the next big thing. So he pushed for cross-team collaboration, especially between engineering and sales. Luna: But how did that cultural shift actually translate into the cloud business? Because Azure wasn't invented by Nadella — it existed before him. Lucas: True, but under Ballmer, Azure was treated as a side project. Nadella made it the centerpiece. He went to the board and said, 'we're going to be a cloud-first, mobile-first company.' And he was willing to cannibalize Windows and Office licensing revenue — which, at the time, was the heart of Microsoft's profit. Lucas: He also did something that seemed heretical for Microsoft: he brought Linux to Azure. In 2015, he said 'Microsoft loves Linux' at a conference, and the room gasped. But it made sense — half of Azure's workloads were already Linux. He was listening to customers, not protecting the Windows franchise. Luna: And that's where empathy shows up in practice. You have to be willing to drop your own sacred cows if it serves the customer. Lucas: Yes. And that mindset extended to acquisitions. The $75 billion Activision Blizzard deal in 2023 — that was about building a gaming ecosystem, but it was also about Nadella's belief that gaming would be the next frontier for cloud and AI. He wasn't just buying games; he was buying a community and a platform. Lucas: Before that, he'd already made a splash with the Minecraft acquisition in 2014, which seemed odd at the time. But it gave Microsoft a foothold in education and creativity. That pattern — buying things that expand the ecosystem, not just the core business — is very Nadella. Luna: It's interesting because he also demonstrates that you can be a culture-first leader and still make hard, money-focused decisions. He cut thousands of jobs in the phone division after the Nokia acquisition failed. So it's not all soft skills. Lucas: Absolutely. Nadella is pragmatic. He's not sentimental about failing bets. He killed Windows Phone without flinching. But the way he communicates about it — he framed it as learning, not blame. That keeps morale intact even when you're making cuts. Lucas: Now, there's a risk in over-crediting one person. Microsoft's cloud success wasn't just culture; it was also massive capital investment and a bit of luck with COVID accelerating digital transformation. But the cultural shift created the conditions for those investments to pay off. Luna: Yeah, because you could have the best data centers, but if your engineers were hoarding code, you wouldn't have the innovations like Azure Kubernetes or the OpenAI partnership. Lucas: Speaking of OpenAI — that's a perfect example of his 'learn-it-all' approach. He wasn't threatened by OpenAI's potential to disrupt Microsoft's own AI efforts. He invested billions and built a partnership instead of trying to build everything in-house. That's a very non-old-Microsoft move. Lucas: He also reshaped Microsoft's public image. Under Ballmer, Microsoft was seen as the evil empire, suing Android over patents. Under Nadella, they started joining open-source foundations, filing amicus briefs on the right side of privacy debates, and becoming a more collaborative player. Luna: So it's almost like he rebranded the company through behavior, not just ads. Lucas: Exactly. And that's a lesson for any leader: you change the narrative by changing your actions, not your messaging. He also made a point of appearing at events with a Surface and an iPhone in his pocket, literally showing that Microsoft supports competitors' platforms. Lucas: But there's a deeper layer here. Nadella's own life experience shaped his empathy. He has a son with severe disabilities, and he's said that raising his son taught him to see the world through others' eyes. That's not something you can fake. Luna: That's powerful. So his leadership isn't just a strategy — it's authentic to who he is. Lucas: And that authenticity is probably why employees bought into the culture change. They could see he was practicing what he preached. He also made a point to meet with employees regularly, listening to their concerns, rather than just sending memos. Lucas: So, what can a listener take away? If you're running a team, even a small one, you can start by doing one thing Nadella did: change the way you evaluate people. Reward them for helping each other, not just hitting their own targets. That's a concrete starting point. Luna: And you don't need to be a mega-cap CEO to apply that. Even in a startup of five people, you can say, 'we value learning over knowing.' Lucas: Right. And that's the whole thesis — culture is not a side project. It's the foundation for everything else. Nadella's Microsoft is proof that you can take a company worth hundreds of billions and still turn it around by changing the way people think and work. Lucas: One quick thing before we close — and this is something we mention because listeners sometimes ask how we keep this show going. We don't run ads, and that's deliberate. A small group of listeners already chips in monthly through buy me a coffee dot com slash fexingo, and that support is what covers the costs of making these episodes. Luna: Yeah, it genuinely helps keep us independent. And we're always grateful for that — but no pressure, we're just glad you're listening. Lucas: Now, back to Nadella. One more lesson I think is underrated: his willingness to admit mistakes publicly. He wrote a book, 'Hit Refresh,' where he talks about the iPhone miss and other failures. That vulnerability builds trust with employees and customers alike. Luna: That's rare for a CEO. Most would bury those stories. Lucas: And that's exactly why it works. When you admit you're not a know-it-all, people are more willing to bring you bad news early — and that's when you can fix problems before they become crises. Lucas: So, if there's one mental model to take from Satya Nadella, it's this: ask yourself, 'what does my team need to believe in order for our strategy to work?' Then spend your time changing those beliefs, not just the org chart. Luna: That's a good place to leave it. Thanks for listening, and we'll catch you next time.