3 Leadership Lessons From Microsoft, the Drucker Institute’s Best-Managed Company – Inc.

Values drive corporate performance. My research concludes that a specific set of values drives sustained success. As I wrote in Value Leadership, these values are embodied in seven principles such as fulfill your commitments, value human relationships, foster teamwork, win through multiple means and fight complacency.

The Drucker Institute has its own ideas of what makes for a successful organization and it has concluded that 2021’s best-managed company is Microsoft. According to the Wall Street Journal, Microsoft did well — scoring in the top six — in four of its five main components of management excellence — employee engagement and development, innovation, social responsibility and financial strength. Sadly, it was 261st out of 846 companies on customer satisfaction.

Microsoft — whose stock price has soared 681 percent since Satya Nadella took over as CEO in June, 2014 — has increased its overall score more than any other company tracked by the Drucker Institute since it began publishing this ranking in 2017.

Here are three things that contributed to Nadella’s success and how business leaders can use them to benefit their organizations.

1. Create a culture of customer value creation.

Most new leaders change the culture as a first order of business. Nadella changed Microsoft from a company that pushed its products on customers — without regard for whether they were best for the customer — to one that put customers first.

In March 2018, I met with Nir Tenzer, then CEO of cybersecurity firm, nsKnox Technologies, who worked for Microsoft from 2006 to 2017. Tenzer spent the last four years of his Microsoft career as chief operating officer of its South Africa operations.

Tenzer explained that before Nadella became CEO, customers did not trust Microsoft so they were not eager to buy. Nadella changed Microsoft’s culture in a way that made current and potential customers feel that Microsoft cared about their success.

Nadella made that change in the face of significant challenges at Microsoft. Microsoft not only had to improve the way it interacted with customers but also how it created “new products and services to existing customers. The main challenge was how to grow and to scale and how to transform while [continuing to] perform,” he said.

Nadella created a new culture which he dubbed the “growth mindset.” The new culture, encouraged “learning, trying and even failing. The new concept made employees enthusiastic about learning and [tackling] areas outside of their comfort zones. That of course boosted sales while also helping partners and customers. The new products and services also opened new opportunities with new groups of customers,” said Tenzer.

Follow Nadella’s approach to cultural change so your company can attract and motivate the best employees — and they will help you win and keep more customers.

2. Innovate by fostering employee learning.

Drucker Institute recognized Microsoft largely due to the improvement in its innovation score. I attribute that to Microsoft’s decision to promote Nadella — who created Microsoft’s prosperous cloud business — to replace its previous CEO, Steve Ballmer.

Nadella ditched his predecessor’s leadership strategies. Willy Shih, a professor of management at Harvard Business School, told the Journal, “His willingness to let go of the old and move to the new and move to cloud-first, that was a key decision.”

Nadella fostered innovation by encouraging people to adopt a new approach to product development. “We had to introduce and to promote new products and business models ([software as a service] vs. perpetual [licenses]). We had to drive our employees to interact with new corporate decision-makers – business vs. the original technical ones. We had to scale our employees to master new advanced products,” Tenzer told me.

Business leaders must alert employees to a fundamental truth — success can breed failure unless they are always fighting complacency. The way to do that is through perpetual learning with a mindset of intellectual humility.

3. Hold people accountable for results.

Finally, when you change the culture and approaches to innovation, your top executives will complain because you are forcing them to change.

In response, Nadella issues an ultimatum to his 150 top executives. According to Business Insider, he told them, “Once you become a vice president, a partner in this endeavor, the whining is over. You can’t say the coffee around here is bad, or there aren’t enough good people, or I didn’t get the bonus. To be a leader in this company, your job is to find the rose petals in a pile of shit. You are the champions of overcoming constraints.”

Doing all three of these things, will make your company better.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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