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Microsoft Names Nadella CEO: What He Inherits

Microsoft's new CEO boasts an impressive track record, faces challenges on a scale that few tech execs have seen.

Microsoft announced Tuesday that Satya Nadella, the company's enterprise and cloud chief, will succeed Steve Ballmer as CEO. Microsoft chairman Bill Gates will leave his role as chairman and assume a new role advising Nadella.

Gates and Ballmer, the only other CEOs in Microsoft's history, built the company from scratch into the largest and most dominant software company in the world. Even today, following weak reception to Windows 8, nine out of 10 computers run a version of Windows. But as Microsoft's third CEO, Nadella will face challenges.

Nadella has helped Microsoft develop its Azure cloud infrastructure into a formidable industry presence, with the company not only challenging Amazon for public and hybrid cloud customers, but also advancing services such as Bing, OneDrive, Skype, Xbox Live, and Office 365.

Still, he'll inherit a company in the midst of a top-to-bottom reorg, and that's struggling to transition from the PC era to the mobile era. Nadella has never before faced challenges of such scale and complexity.

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[Want to know more about Microsoft's new CEO? Read 3 Things Satya Nadella Brings.]

"A leadership transition is a delicate balance between continuity and disruption. The most important thing for the Microsoft board right now is to make sure that Satya Nadella is fully supported without being hamstrung," said Forrester analyst Ted Schadler in an email. "Bill Gates leaving and Steve Ballmer staying on as a board member would accomplish that."

In a statement, Microsoft said Gates will support Nadella "in shaping technology and product direction." John Thompson, the Microsoft board's senior independent director, will replace Gates as chairman.

In a video announcing Nadella's promotion, Gates said, "Satya's got the right background to lead the company," alluding to the challenges the company faces in mobile computing and the opportunities it perceives in the cloud.

Gates said last month that he would dedicate the rest of his life to philanthropy, but that he would offer Microsoft "part-time help." Tuesday, Gates said that at Nadella's request, he would spend more time consulting with product teams. 

Many commentators have emphasized Nadella's impressive credentials.

"He is an incredibly smart guy who really understands the cloud business and knows how to run it effectively," IDC analyst Al Gillen told InformationWeek last week. "He is very, very impressive as an individual and a tech manager."

But Nadella, who has spent almost half his life at Microsoft, could also stoke concern among some Microsoft customers and investors who felt the company needed to appoint an outsider to shake things up. The new CEO is steeped in the technologies underlying all Microsoft products, but some fear he's also steeped in a culture that has allowed Microsoft to fall behind.

Microsoft critics frequently contend that the company's culture is fractious and overly political, and that its strategies protect cash cows, such as Windows, rather than challenging industry-wide status quos. These criticisms grew louder in the latter years of Ballmer's tenure, when Microsoft, despite having investigated tablets years before Apple, watched from the sidelines as the iPhone and iPad blazed new trails.

Nadella referred to some of these challenges and concerns in a video interview Microsoft posted to YouTube Tuesday morning.

He said his job is to make an "impact," stating he would "ruthlessly" remove obstacles to innovation and that he wanted all employees to find more meaning in their work. He said Microsoft employees work too hard and too long for their projects "not to have deep meaning."

He also referred to future strategies, declaring that "going forward, it's a mobile-first, cloud-first world" in which "everything is becoming digital and software-driven."

Still, it remains to be seen how Nadella will tackle these goals. Can the company best pursue its mobile ambitions via cross-platform software and services, or by (as the Nokia purchase would imply) doubling down on its hardware efforts?

A Bloomberg report published shortly before Microsoft's announcement alludes to such concerns, noting that the hedge fund ValueAct, which holds a large stake in Microsoft, wants the company to focus on lucrative enterprise products, and to scale back, or possibly even dismantle, its consumer-oriented projects, such as the Xbox and Surface lines. ValueAct negotiated to secure a seat on Microsoft's board for president Mason Morfit, and he and other activist investors may seek to impart their influence. Reports have over the last year have indicated that influential investors are concerned about Microsoft's direction, and wary of the continued influence of Gates and Ballmer.

Too many companies treat digital and mobile strategies as pet projects. Here are four ideas to shake up your company. Also in the Digital Disruption issue of InformationWeek: Six enduring truths about selecting enterprise software. (Free registration required.)