What Satya Nadella should do as CEO

Everyone else is telling him what to do, so I'll add my own thoughts to today's development.

Microsoft ended its long, tortured CEO search yesterday by choosing an insider after looking at a half dozen or more outsiders. Satya Nadella, the 20-year veteran who came to Microsoft from Sun Microsystems back when Sun was an enterprise player and Microsoft was not (at least on the back end), got the nod.

No doubt this will be the source of much pride among Indian-Americans to see one of their own taking the helm of the biggest software firm in the world, and they should be proud. He's done well as head of the server division and now faces the biggest challenge: doing for the whole company what he did for cloud and servers.

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The whole insider/outsider argument is a double-sided coin for both types. As an insider, Nadella is positioned to know what is wrong with Microsoft. And as an insider, he is also prone to myopia or having friends around the company who might try to impact his priorities. My hope is he takes an outsider's approach with insider knowledge. You have to think that Nadella has watched Ballmer's missteps and thought, "If only…"

Microsoft is a company that many consider to be besieged, under assault from multiple enemies and facing existential threat. Yet its most recent quarterly numbers do not reflect that. Well, like a lot of cancers, the symptoms don't always manifest until it's too late. So here's what I think he needs to do.

Stop the Nokia purchase. Microsoft does not need this distraction nor its $7 billion price tag. Take the hit for ending the deal but put a stop to it. Sadly, he won't. In the memo he sent to the staff as part of the news, Nadella says he is committed to this deal, which I think is a mistake. Please, Satya, look at the history of Motorola Mobility over the last four years and ask yourself how this won't be any different.

Cut the fat. Microsoft has 100,000 employees. That will come when you have dead products that need to go. You cannot tell me Microsoft doesn't have dead wood, but from everything we've learned, the only people who get fired from Microsoft are the ones who can't play office politics.

Settle the Bing and Xbox issues. There have been pro and con arguments for the two, with one saying dump them because they are bleeding billions, while another side says keep them because they are part of the strategy. If they don't have definitive plans for profitability in a reasonable amount of time, it's time to lose them. If they are going to make money, then make it clear on an analyst call that profitability is expected by a certain date, so you will stick with them. But make something definitive.

Undo the last reorg. The last reorg, done before Ballmer gave his notice, turned Microsoft into what is known as a functional organization. Functional organizations silo each function, and products cut across functions. So Windows will show up in multiple functional groups, Office will be in multiple functional groups, and so on.

This puts the leadership burden on the CEO and his team, but also, there is no ownership for a product’s profit and loss (P&L) statement. That was the knock on this. It would hide how much money Online and Xbox were losing. Most functional organizations are single-product companies. Only Apple still operates like this, and it's easy to say Apple is an exception to the rule.

Microsoft needs to go back to a divisional organization like it once was. All a functional organization will do is hide losses and let people deflect responsibility.

Stop the massive acquisitions. I've already documented this. Microsoft spent a lot of stupid money lately, especially under Ballmer, and almost wasted $44 billion on Yahoo. Nadella needs to put a stop to all of this and go back to the old strategy of small, strategic acquisitions that augment existing Microsoft products. No more wasting billions on trying to buy into a market in which it doesn’t already compete.

Flatten the organization. Forbes noted that Amazon has seven layers of staffing, from college newbies to Jeff Bezos. Microsoft probably has that many layers of management just for Windows. That's endemic of the bloat of the firm.

Decide what Microsoft wants to be. Because being all things to all people isn't working.

End the acrimony. The despised stack ranking is going away, but will the enmity go along with it? Microsoft has a notorious reputation for being a company at war with itself, rather than unified against the external threat. As a division head, one would think he knows this all too well. Now let's see if he can end the battle between the many groups there.

Start looking for talent. I suspect a few Microsoft people whose names were batted around will not stick around. It happens after every big CEO transition. The people who didn't get picked start looking elsewhere, and Microsoft will need to be prepared to replace them.

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