By Stuart R. Levine

Published in Forbes

Management guru Peter Drucker reportedly claimed: “Culture eats strategy for breakfast.” Satya Nadella, Microsoft’s CEO, notably updates Drucker with: “ The C in CEO is for curator of culture .” Like Drucker, Nadella recognizes that although strategy is important, a healthy empowering culture is on the critical path to organizational success and the CEO must lead the way. When Nadella took over as CEO, he saw that Microsoft’s culture was rigid and hierarchical. Employee evaluation systems were noted for forced attrition that often had resulted in destructive competition instead of collaboration and cooperation. Employees had to prove they were among top-performers when compared to their colleagues. This resulted in unwanted outcomes, like people avoiding working on teams with the highest performers for fear of falling to the bottom. Managers of high-performing teams were not incentivized to help manage out low performers on other teams. Meetings were formal, scripted and did not provide much opportunity for creativity, risk-taking and innovation.

Culture becomes a sharper focus during periods requiring organizational change, such as what Nadella faced as a new CEO in 2014. His new book, “Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone” describes that when he became CEO, morale was low. PC sales were declining in favor of tablets and phones. Microsoft’s then recent products had not seen major success, and its Bing search engine was not competing effectively with Google. Addressing this reality, Nadella articulated a bold strategic vision for Microsoft to be the chosen platform for technologies of the future, including machine learning, artificial intelligence, cloud computing, robotics, sensors, big data, and the internet of things through its Azure platform.

Nadella saw that the existing culture would hinder rather than support advancement of any strategy. The technology transformation that Nadella envisioned required a profound change in the culture. Microsoft went from being an extremely internally competitive culture to one focused on cooperation, collaboration, listening, learning, and harnessing individual passions and talents. Building on the work of Stanford psychologist, Dr. Carol Dweck, Nadella worked to shift thinking from a “fixed mindset” culture to a “growth mindset”. A fixed mindset culture is based on a belief that personal traits as fixed and native ability cannot be changed. A growth mindset is based on a belief that we are able to increase talent, ability and even intelligence through curiosity, learning, and discipline. According to Dweck’s research, managers see far more leadership potential in their employees when their companies adopt a growth mindset and that talent should be developed in everyone. By contrast, in companies having a fixed mindset management highly values a handful of “stars.”

In a growth mindset people enjoy a challenge; they strive to learn; they see potential in themselves and in others; and they know they can develop new skills. Dweck found that employees in growth mindset organizations, when compared to those with fixed mindset, are 47% likelier to see their colleagues as trustworthy; 34% likelier to feel a strong sense of ownership and commitment to the company; 65% likelier to say that the company supports risk taking; and 49% likelier to say that the company fosters innovation. Indicators of employee engagement such as these are correlated with higher financial returns, and the culture itself serves as a recruiting tool.

Nadella was clear that the culture must foster an inquisitiveness and desire to discover and address a customer’s unarticulated and unmet needs. This required employees to take risks and for management to understand that failure happens along the way. Practical steps to engage and develop employees served to shift the culture. The talent program was redefined to align with a growth mindset. When most everyone is considered a focus for talent development, the talent pool expands dramatically. People not previously on the radar were identified to move into leadership roles, and leaders could rise to levels they would not expect before the cultural shift.

Programs reinforced and cultivated identification of leadership and they encouraged risk-taking to advance the organization. Potential was unleashed as smart risk-taking was rewarded, and many more people had a chance for leadership. For example, the HoloLens project, explicitly rewarded risk-taking. Focused on holographic computing, it inherently had a small chance of breakthrough success. Microsoft supported rapid learning through fast failure, and the project ultimately paid off. Another example, annual “hackathons” offered employees the chance to entrepreneurially develop leadership skills outside of their regular assignments. Employees collaborated across disciplines and advocated for ideas with business or societal merit, which the company could fund when developed.

Face time through in-person meetings encounters builds collaboration and trust . This important tool to shift the culture also expands management time and leadership capacity when done well. Indeed, Microsoft incorporates numerous logistical tools for meetings into its software suites, yet, human behaviors govern meetings. Best practices for effective and efficient meetings must be learned and become habit. Best practices include: establishing ground rules, like starting and ending on time; making sure all voices are heard; yielding the floor and assuring equality of people’s participation. Participants should be free to say “got it” when they got the speaker’s point, which avoids repetition and over-explanation that suppresses creativity. For each meeting, leaders should create an agenda with a desired outcome, know when to meet, who should meet, include only those needed, and conclude meetings with an action plan. Our clients find that as these simple meeting behaviors become part of the organizational culture, dramatic productive shifts occur.

Strategy and vision married to a robust healthy culture appear to be the secret sauce. With Nadella situated as the curator of culture, Microsoft’s stock price provides quantifiable proof. It outperformed the S&P 500 index by over 80% during his tenure.