February 4, 2014 7:10 pm

Microsoft chief goes back to the future

During its long years at the top of the top of the technology world, Microsoft’s veteran product developers and engineers shared a common ambition: to present their plans at formal product meetings presided over by Bill Gates.

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Mr Gates’ intense review meetings, where he would grill staffers on their ideas, became a symbol of the intellectual drive that lay at the heart of a company that has always prided itself on hiring the smartest.

New chief executive Satya Nadella wants to take Microsoft back to the future – while at the same time shaking up the company to move faster in pursuit of Apple and Google in a new technology world dominated by the cloud and mobile computing devices.

Under the new regime announced on Tuesday, Mr Gates will make a partial return to running Microsoft product meetings, while at the same giving up his chairmanship of the board. It will be a subtly diminished role, designed to leave the new boss firmly in charge.

In a video produced by the company, Mr Gates said he would be “substantially increasing the time that I’ll spend at the company.”

Six years after stepping away to head the philanthropic foundation he runs with his wife, Melinda, he declared: “I’ll have over a third of my time available to meet with product groups, and it will be fun to define this next round of products working together.”

Finding an appropriate role for Mr Gates in the company with which he is still closely associated will involve a careful balance. His shadow still looms large over both the company and its boardroom, and his involvement on the chief executive search committee antagonised some big Microsoft shareholders. They saw it as a barrier to the company being able to attract an outside chief executive who might have pushed for a more radical shake-up.

Yet insiders say that removing Mr Gates completely would have represented too big a shift for the company’s rank and file engineers as well as the company’s customers.

The resulting boardroom dance will do much to determine whether Mr Nadella has the freedom to bring the greater focus to Microsoft’s operations that he has said is needed.

Interactive timeline

Microsoft through the years

Microsoft timeline

Bill Gates has stepped down from his chairmanship at Microsoft after more than 30 years – track other key events in the company’s history

“If you’re going to have a career for as long as I’ve had mine, you hope it’s in an exciting industry that forces you to change as it evolves. That’s certainly been the case for me.”

The chairmanship role will fall instead to John Thompson, a former IBM executive who trod carefully in recent months as the company’s lead independent director in shaping the new board. Another recent hire on the board, Seagate CEO Steve Luczo, also played an important role in steering the changes, according to one person familiar with the process.

The changes announced on Tuesday look set to extend further. As Wall Street’s displeasure simmered last summer, Microsoft agreed to hand a board seat to activist investor ValueAct, which is due to take up the position early this year. Some investors have also suggested that the company needs more new blood to replace some long-time directors, such as David Marquadt, a venture capitalist who has been on the board since the beginning.

While handling a board on which Mr Gates’ presence will still be a factor, Mr Nadella will also have to deal with a second former CEO looking over his shoulder. Despite some calls on Wall Street for Steve Ballmer to step down, he will remain a director and there are no plans for him to give up his board seat, according to a person close to the company.

Mr Ballmer could also soon become Microsoft’s largest individual shareholder, increasing his sway further. Mr Gates has cut his stake steadily and it has fallen by nearly half in the last five years to 4.5 per cent, putting him on track to fall below Mr Ballmer’s 4 per cent holding within the next year.

Mr Nadella, meanwhile, paid lip service to his predecessor’s strategy on Tuesday with a nod to the “One Microsoft” that Mr Ballmer tried to create as he broke down its internal product divisions last year. Yet even in backing the current strategy, he hinted heavily that changes lie ahead.

Compared with the long, rambling email in which Ballmer announced his reorganisation in July, Mr Nadella offered a much sharper message to staffers that promised tighter focus.

Mr Ballmer’s 2,700-word missive had pointed to a loose strategy that put “devices and services” at the centre – an announcement that was followed soon after by the news that Microsoft would buy Nokia’s handset business.

Mr Nadella, on the other hand, promised to bring focus and speed to Microsoft’s product development, while also hinting heavily that hardware will assume a less central role in his plans than it had under Mr Ballmer.

Instead, the new chief executive shifted attention back to software, in particular the new cloud platform and services that he has already had a hand in building, as head of the enterprise division and, in a former role, its Bing search engine.

The shift in emphasis was repeated by Mr Gates, who said Microsoft would focus on “building a new platform, a cloud platform that connects to all sorts of different devices”.

How much of the hardware Microsoft will build itself was left unsaid, though Wall Street reacted angrily to the Nokia deal and investors are still smarting over a near-$1bn writedown of the company’s Surface tablet.

Even as he hinted at a narrowing of Microsoft’s range of products, however, Mr Nadella struggled to lay out a more focused mission for the company.

Rather than Mr Ballmer’s loose motto of “devices and services”, he said that Microsoft aspired to be “the ‘do more’ company” – helping its many users get more out of many of their digital lives. Translating that into a more refined business plan will be the hard part.

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