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Microsoft CEO Satya Nadella: Ready to Think Outside the "Devices and Services" Box

By Anders Bylund - Jul 12, 2014 at 10:00AM

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Former Microsoft leader Steve Ballmer wanted to focus his company on a "devices and services" strategy. New CEO Satya Nadella takes the next logical step.

Just before stepping out of Microsoft 's ( MSFT -1.79% ) CEO office, Steve Ballmer set the company to focus on a devices and services strategy. It's a carbon copy of the strategy that made Apple ( AAPL 3.16% ) the most valuable company in the world, and Redmond has been making steady headway toward this goal. The traditional old software sales core is giving way to Microsoft-branded tablets and set-top boxes, with Nokia's mobile expertise thrown in for good measure.

But Satya Nadella, who took the reins from Ballmer in February, is ready to move beyond the simple "devices and services" thinking.

Microsoft CEO Satya Nadella is looking to make some big changes to his company. Source: Microsoft.

In an open letter to Microsoft employees today, Nadella started to narrow down his long-term focus. "While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy," Nadella wrote.

Working in this "cloud-first and mobile-first world," it's not good enough to simply sell a few products into the cloud and mobile markets. Instead, Nadella wants to rebuild the entire company so that every effort feeds into these two core opportunities.

Microsoft is launching this approach from a strong platform. "We help people get stuff done," Nadella wrote. Redmond's tools are already involved in everything from writing term papers and composing poetry to managing entire cities or fighting HIV infections. Put it all together: "This is an incredible foundation from which to grow."

Nadella promises to always put the customer first, and to equip them with whatever it takes to make a difference in the world. Lofty goals for sure, especially coming from a late starter and fringe player in the mobile space. When it comes to smartphones and tablets, Microsoft's market share is disappearingly tiny next to Apple and Android.

To get this done, Nadella's "customer-obsessed" culture will be paired with a leaner management structure and faster, more data-driven decision processes. It seems appropriate to build big data analysis into the very structure of a modernized business model.

"We will streamline the engineering process and reduce the amount of time and energy it takes to get things done," Nadella wrote. "You can expect to have fewer processes but more focused and measurable outcomes. You will see fewer people get involved in decisions and more emphasis on accountability." And in the end, "every team across Microsoft must find ways to simplify and move faster, more efficiently."

He didn't explicitly say that the buck stops at the top, but that's the vibe I'm getting out of this letter. If this cultural transformation is successful, Microsoft should end up with shorter and straighter decision routes from top to bottom. Nadella talked about large-scale retraining efforts, and a newfound appetite for experimentation.

At some point, the flatter organization he's investing in should also result in heads rolling among middle management. Again, no direct promises or threats to this effect, but headcount reductions must follow from this strategy. And Nadella did spend some ink on accountability, which should help him make the most of the coming cuts.

We'll know more concrete details on Nadella's emerging vision over the next few weeks. He plans to expand on this letter in two weeks, when Microsoft reports fourth-quarter results. Expect a steady stream of reorganization announcements for the rest of July, and then buckle in for the final details at the Microsoft Global Exchange conference near the end of the month.

I like Satya Nadella's open attitude toward trying new ideas, and I hope he can execute on the promises he made in this letter. Again, we'll know much more during the next few weeks. I, for one, can't wait to see Microsoft repainting its bigger picture.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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