Innovation Strategy at Microsoft: Clouds on the Horizon

Abstract

Microsoft employs 90,000 people and its products affect millions of users around the world every day. Developing the next version of Windows or Office is easy for Microsoft, but the company has struggled when it comes to more radical innovation. Intense competition from Google, Apple, and others threatens a business model that has delivered tremendous success over 25 years. This case highlights the strategic challenges facing Microsoft and provides insights into the organizational, leadership, and operational issues that must be addressed in order to define a successful innovation strategy at one of the world's most well-known companies.

Excerpt

UVA-OM-1387

Jun. 16, 2011

Innovation Strategy at Microsoft: Clouds on the Horizon

Michael Steep, chief of operations for the Microsoft Innovation Team, arrived at the Executive Briefing Center (EBC) at Microsoft's Redmond, Washington, headquarters. After glancing at his watch, Steep realized he was a few minutes early for his meeting with executives from the Applied Carbon Corporation (ACC), and he had enough time to grab a quick cup of coffee. ACC was a large environmental technology conglomerate, and Steep was scheduled to meet with the chief innovation officer, the chief technology officer, and other senior executives from ACC who were out for a two-day visit to Microsoft. This was the tenth executive briefing Steep had delivered over the past few months. The goal of these briefings was to give key global accounts an overview of how Microsoft engaged in innovation, what type of initiatives Microsoft was working on, and the value that these initiatives could deliver to clients. These executive briefings had become routine because innovation seemed to be the topic of interest for most of Microsoft's global accounts—they wanted to know how Microsoft could help them leverage technology to deliver new sources of growth.

As he waited for the executives from ACC, Steep reflected on his experiences over the past year—including the first day he had joined the Innovation Team and his first encounter with founder Bill Gates and Ray Ozzie, chief software architect. Steep had been invited to sit in on an operations review with Gates, Ozzie, and several other senior executives (see Exhibit 1 for executive biographies)—one of many such reviews conducted over the course of a year. The subject of this review was Microsoft's new approach to Internet search technology. The review started with product managers and engineers detailing the core technology. Gates remained silent for the first 90 minutes of discussions. Then, out of the blue, he turned to one of the software engineers and asked about the algorithm that was to be used for the new search technology. As the engineer tried to answer his questions, Gates became more and more engaged in the conversation. He got up from his seat and started to sketch algorithms and formulas on the board alongside the young engineer. No one in the room seemed to understand where Gates was taking the discussion. Finally, Gates talked about a search algorithm that would increase the speed of the search. The simple model proposed by Gates reduced the time used on the massive server banks, which were tremendous energy sinks. Eventually, he tied the innovation to a monetization model that would save corporations millions of dollars in energy costs. Steep knew the young engineer would take the message back to his product group and there would be immediate change

Keywords: disruptive technology, radical vs. incremental innovation, grassroots innovation, tolerance for failure, incentives