Satya Nadella, Microsoft CEO – Stockholders want Safety, Not Innovation

So Satya Nadella will be the next CEO of Microsoft. By all accounts he’s a smart guy, good techie, collaborative, someone the board should be able to control. But I am sure not even his friends think he’s a Steve Jobs. Maybe he’s been in Microsoft too long at 22 years? What does his promotion tell us about Microsoft and, more importantly, the corporate world we all live in?

I don’t want to bore you any more than this post already is, but let’s talk for a moment about innovation. It’s on everyone’s lips. You can’t open a magazine, parse a newsreader, watch YouTube or just live life quietly and naturally without someone assaulting your senses with a pitch on the need for innovation. Innovation is the Beatles of the 2010s, the Twiggy of tech fashion. It’s the Ted topic de l'annee. Everyone wants it, or says they want it. But is that true?

Clearly Microsoft had a choice when it selected Nadella. They didn’t have to go for him. No doubt they know of a couple of innovators around the West Coast (like Jeff Bezos, see my post on him as Microsoft CEO) or even further. But they didn’t reach out to them. Instead they went deep into the bowels of the Microsoft organization, already infamous for its lack of innovation, to choose someone who represents the values they most desire.

What values might these be? How about safety for a start? And, secondly, safety just in case that fails? To anyone who feels that Microsoft is not going where it should, the board made an unambiguous, crystal-clear response. We are choosing safety over innovation.

How often does that occur? How about Ginni Rometty at IBM, Marissa Mayer at Yahoo, May Barra at General Motors, Jeff Inmelt, just to get started? Even the recently re-appointed AG Lafley at Procter and Gamble represents safety, despite his sterling credentials.

We could go on with countless examples. I expect that in the vast majority of cases, boards choose CEOs and top executives who represent the safety side of the equation. So, based on their actions, the majority of boards don’t choose innovators. So what does that mean about the current fashion of innovation-first?

Well let’s be honest. First there is a shortage of real innovators around, as distinct from the wannabees; it’s just part of the human condition. Second, most companies don’t want to eat their own offspring, a la Innovators Dilemma (Clayton Christennsen). Third, innovation is incredibly risky and mostly fails. Which up-and-coming executive wants to hang their hat on something that has an overwhelming chance of failure?

That’s not to say that safety doesn’t have its problems either. Yahoo isn’t going anywhere with its new CEO, Marissa Mayer (as I predicted some time ago). IBM’s CEO, Ginni Rometty has just decreed that its executives have to forgo their bonuses because of subpar performance. Inmelt’s GE is self-explanatory (see here for my solution).

Daniel Akerson, the previous CEO at General Motors, and his successor Mary Barra have safety stamped on their foreheads, but even GM has just announced a disappointing year on the profits front (jibe-ing with yet another of this blog’s fearless predictions). Bob McDonald, the previous CEO of Proctor and Gamble, a 33 year veteran selected for CEO on a safety platform was pushed out unceremoniously because things weren’t working out. Even though his storied predecessor, AG Lafley, had a great reputation, it’s being sorely tested in his second coming. And so it goes on.

In other words, even when you select a CEO or management team for their safety characteristics, there’s no guarantee that they will deliver it. Safety and performance, after all, are different animals. Safety is sometimes actually really unsafe.

I notice that Bill Gates is to become an “adviser” to Satya Nadella. So where does that position him – safety or innovation? Could it be that a great innovator can go to the dark side of safety?

For most boards it’s pretty clear that bet-your-company innovation or even some innovation dabbling is a very poor choice. All this costs money, management time, and a lot of risk, which also costs money even if you don’t see it on the balance sheet.

Boards are mainly representing shareholders who want their stock dividends and stock appreciation here and now, not in some highly uncertain future. Their every move is being scrutinized by analysts, hedge and pension funds and the media. So no wonder they don’t want to slip up. The main people who really want innovation are the media and the glitterati who don’t stand to lose anything if the innovation goes south.

And there’s another point that’s even deeper. A stable society depends on a very delicate balance between safety and innovation. Too much stability and the society craters or gets wiped out by more daring competitors. Too much innovation and it spins out of control. The right balance seems to be 90% safety and 10% innovation.

Shareholders and boards know that. It’s just the media types and academics that don’t. That’s because innovation is sexy to read, write, teach about and behold and safety is oh so boring. But it puts the meat on the table.

Right now it seems to me that the scale has tipped too much towards the innovation and risk side. So I don’t think it’s necessarily a failure on Microsoft’s part that they hired Nadella as a safety-first CEO. The problem for Microsoft now is that, far from not getting innovation, it might not even get safety.

That’s not to say that companies don’t need to innovate and that they shouldn’t initiate innovation programs. The problem is that most innovation programs fail and boards and shareholders are acutely aware of that uncomfortable fact.

The reason they fail is that the vast majority are based on several wrong assumptions including that creativity and innovation are the same things (they aren’t, see here) and that anyone can be an innovator (also not, see this piece). If you can introduce an innovation program that confronts these problems, then you have a fighting chance. If not, then you are probably going to have to choose the “safety” route, with all its attendant issues.