Few C-suite executives are held in the same high regard as Satya Nadella. His leadership of Microsoft since he took the helm in 2014 has been transformative. While that word has become rather cliched in recent years, few words seem more apt to describe the turnaround he’s enacted.
While much has been made of the meteoric rise of the company’s share price between the time he took over in February 2014 to today - $37 to $296 at Friday’s closing bell – business analysts recognize that is a lagging indicator of two crucial elements.
Nadella’s deft ability to actually deliver on the strategies he’s set out every year and the accompanying trust, faith, belief and goodwill that Microsoft can keep on delivering.
Regular readers of this blog know my belief in the inextricable link between Strategy and Culture.
More directly that few strategies succeed without the explicit and full-on enthusiasm and commitment of the organizational culture.
Fortunately, Satya Nadella seems to be the reigning poster child for this Strategy+Culture thinking.
He’s stated on numerous occasions that redefining Microsoft’s culture would be – and has been – a core focus of his attention and the attention of the impressive set of business leaders he’s accumulated around him. Where the (in)famous cartoon below may once have caused lowered heads from Microsoft executives and deep sighs from partners and shareholders, that fierce internal conflict and siloed mentality is now as much part of Redmond’s organizational history as the second-hand embarrassment of watching former executives dancing on-stage to the Rolling Stones
Few statements of intent highlighted how insightful Nadella was about how Microsoft was perceived externally, and how much they’d need to evolve, than this culture summation;
We’re going to move from being a “know-it-all” culture to a “learn-it-all” culture.”
From cultural hubris to cultural curiosity in one remarkably deft communication.
As impressive as Nadella’s transformation of the Microsoft leadership, culture and business performance has been, “The Beast of Redmond” – and it is a beast – has an insatiable appetite for growth too.
As this week’s superb article from The Economist highlights, Microsoft and the other Tech Titans that it rubs shoulders with – Amazon, Apple, Facebook, Google – face enormous headwinds as they attempt to grow in an environment of increased regulatory scrutiny, heightened concerns of monopolistic behaviour and a growing global consumer apprehension that these five companies control a worrying amount of how we connect, shop, conduct business and live our lives.
Image curtesy of The Economist.
In their biggest bet to-date Microsoft just slid $69 billion dollars across the table to acquire gaming giant Activision this week. The strategic rationale – and it always starts with strategy – is obvious. Gaming is an area where Microsoft has credentials, a decent stable of titles (including fan favourite HALO), a vibrant community and a decent platform under the X-Box umbrella. With its growing Cloud credentials and its understanding of nurturing a community to move from free to paid participation (Microsoft owns the “favoured” community for business with their LinkedIn purchase in 2016) there are a number of obvious check boxes for this move. Even if the $69billion price tag might cause many money managers to choke on their favourite caffeinated beverage from Seattle’s other business giant Starbucks.
But, as they say, the devil is in the details.
In this case the devil, one the media has been quick to point out, is that the Activision culture, and perceptions of the current Executive, is a red-hot mess.
Operating under the leadership of CEO Bobby Kotick for the past 30 years, Activision appears to be a heady brew for the type of male “bro culture” that seems to haunt both the technology sector and the gaming industry. A litany of scandals, allegations of harassment and abuse, recent high-level firings, a very vocal employee advocacy group and several walk-outs are all signs of a culture that needs to hit reset or make a hard reboot.
Not surprisingly, in his trademark calm manner, Nadella has not shied away from acknowledging that the Activision culture needs real work. And that will be, again, a focus of Microsoft Executive attention if the deal makes it through regulatory review. Many pundits suggest that Bob Kotick will take the $400 million he’s expected to make from the deal and exit stage left. As will many others in the Activision leadership team. To paraphrase David Lee Roth “Money can’t buy you happiness but $400 million can buy you an enormous yacht to sail the seas of misery”
The bigger issue, and the one that business history shows time after time, is that Culture is often the rock on which 80% of mergers and acquisitions falter or break.
Synergies and spreadsheets can provide all the logic the market demands but it’s the emotions, enthusiasm and energies of the Culture that is the ultimate determinant of M&A success.
Culture, as we all know, is not a quick-fix and an overnight change. And, while Microsoft might be a market darling, the market operates on a 90-day clock speed.
While we place tremendous importance on the calibre and style of the leadership – from “know-it-all” to “learn-it-all” – all cultures are a mix of millions of micro-acts, behaviours and decisions made every day inside an organization from the newest intern to the most tenured leader. Taking a broom to the Executive floor won’t clean up all of that.
Culture is the outcome of the processes, systems, policies and prevailing attitudes that surround, reward and reinforce what happens inside Activision every day. Outcomes that will come under even more scrutiny in the months ahead.
Culture, and this is the one to pay real attention to, is the overt, explicit and positive reinforcement that comes from corporate success. Today Activision, and its 10,000 employees, have $69billion reasons to consider themselves successful and, while there may be genuine discontent (even outright mutiny in some corners) there are certainly enough signs they were doing something right over there.
Mergers and Acquisitions – and let’s be clear, this is an acquisition – are always a delicate dance.
The artfully-handled ones recognize that both parties have deeply embedded cultures supported by a complex labyrinth of written policies and invisible emotions. Of actions and attributes that need to be fully protected and beliefs and behaviours that need to be speedily exorcised.
And that both acquirer and acquired need to have the temerity – and the patience – to determine where the fit is snug and where disintegration, not integration, is more likely.
With so much momentum in the organization that Nadella has reinvigorated and reinvented, it would be criminal for this critical acquisition to fail as famously as the TimeWarner/AOL, Google/Motorola or even the Microsoft/Nokia deals. Thankfully Nadella and his team seem too sage and too experienced to hit the numerous pitfalls and cul-de-sacs that lie ahead.
This is sizing up to be the most interesting M&A story of the year.
With Culture at the very core of its success or its failure.
Are you ready Player One?