Microsoft CEO Satya Nadella speaks at the 2022 Yahoo Finance All Markets Summit on latest changes and growth in the tech industry.

Video Transcript

DAN HOWLEY: Satya Nadella has been Microsoft's CEO since February, 2014 and chairman of the board since 2021. Nadella transformed Microsoft from a stodgy tech giant to a new force in software and cloud computing. He isn't just a tech savant. Nadella also led a cultural revolution at Microsoft, putting people and ideas first. That leadership and vision put Microsoft back on top in the tech world and gave it a rare $2 trillion market cap to boot.

Satya Nadella, Microsoft CEO, thank you so much for joining us. As we're doing the All Markets Summit, I kind of want to jump in with a question on the general economic climate that you're seeing right now. Obviously, we're talking about rising interest rates, inflation. One of the questions that we're asking a lot of the CEOs is whether or not they're seeing signs that we're going towards recession. I kind of wanted to get your thoughts on that.

SATYA NADELLA: First of all, it's great to be with you, Dan. And overall, we definitely see constraints in the macro environment that are leading to customers and everyone essentially asking the question on, how do we drive productivity? I mean, at some level when we think about software and technology, this is, in some sense, sure time for enabling any company to be able to do more with less.

And so when I think about even, let's say, what's happening with cloud migrations, cloud migrations were super critical during the pandemic, even for resilience. And now, if you're not on the cost frontier of the cloud, then you're falling behind on productivity. If you're not on the efficiency frontier of cloud-native applications, you're falling behind on productivity. If you're not able to use the hybrid work infrastructure to bring everybody to be able to participate, collaborate inside the organization, you're falling behind, so this idea that everybody now needs to show the results of productivity, do more with less, whether it's the operating expenses and the leverage there or even your capital efficiency.

So that's what, in some sense, is-- I would say that all the macroeconomic headwinds which I think all of us-- face none of us are immune-- the tailwind, at least, we as a company have is our ability to deliver these solutions. Software is ultimately the biggest deflationary force businesses can use to tame all of the forces that are there around inflation.

DAN HOWLEY: Well, that's something that I want to touch on as well. Is Microsoft itself having to make adjustments? And then what kind of opportunities do you see in the current economic climate?

SATYA NADELLA: Yeah, the opportunity I see is for us to be able to take that entire stack, whether it's cloud infrastructure or the cloud-native databases and application development or something like Power Platform-- I mean, that's a great example of how you can involve everyone inside your workforce to help with automation and drive productivity up, and of course, everything that we are doing with Microsoft 365 and Teams and helping customers really deal with what does productivity and collaboration look like in a hybrid work environment. So we are definitely seeing tailwind there. We are seeing share gains there. We feel very, very optimistic about our own ability to deliver value to customers and do well in the marketplace.

But I think at the end of the day-- even, by the way, that also applies to Microsoft. We are applying it ourselves inside. How can we be more efficient, whether it's in our people operations or in our R&D or whether it's in our finance and our supply chain? So I think you'll see us, in some sense, take our own solutions and deploy them as efficiently as possible to drive productivity and leverage in operating expense and capital efficiency. Capital efficiency is another one, one of the things that I'm seeing a lot of businesses.

I mean, take the energy crisis that we have, in particularly more acute in Europe right now. Multiple things, right? If you move to the cloud, by definition, you have the most efficient use of the scarce energy resource. Second, let's take a manufacturing plant. If you create a digital twin of a manufacturing plant, one of the benefits is you can make it more power-efficient because you can do the simulation to do the power draw that's most efficient. In fact, you can reduce waste as well. So overall, things of that nature, I think, are going to drive up productivity.

DAN HOWLEY: I want to talk about the idea that we're moving towards a hybrid work environment. I know that's something that Microsoft has talked about. You've mentioned it earlier. What are you seeing there as far as customers moving to a hybrid work environment? Are they continuing to do so, and will that stick around?

SATYA NADELLA: Yeah. In fact, we just released some data called the Work Trends Index, which is survey data that's got good cross-section of customers, geographies, industries. And there are three points I would say that stand out. The first one is what we call the productivity paranoia. Basically, 85%-plus workers or members of the workforce think that they're being productive. 85-plus percent of the managers think that there's more to be desired on productivity. So there's that paradox.

And I think the best way to bridge that paradox is not to have more dogma but more data. Things like Viva Pulse can help everyone get to the same data. And more importantly, something like Viva Goals, an OKR system, can help everyone align. So instead of this being some kind of an argument, let the data really help us move forward.

The second one is people come for other people. People don't come to work or any place because of policy. They come because of the connection they want to have with other people. So I say that we all have to learn new soft skills as even leaders to facilitate those moments where people can come. And of course, even tools like Viva Connections, and so on, can help.

And then the last thing is just because you had an offer and you recruited somebody doesn't mean you don't need to re-recruit. And so this is where, again, everything about what you as a leader can do to re-recruit employees, help them with even their own career progress-- one of the things that we are seeing is skilling-- I want to be able to come in, I want to be able to make progress in my profession. And so anything that we can do to help show that we are re-recruiting them and then energizing them, I think, is all going to be very, very helpful.

And so a lot of what we have done, in particular with Microsoft 365 Teams and a new product suite called Viva, are all focused on that. But at the end of the day, these are tools. What is required is a little more enlightened management and leadership, and skills that all of us have to learn.

DAN HOWLEY: You talk about the productivity paranoia, and I know that's something that some employees are touching on now where they're nervous that if they don't go in five days a week alongside their colleagues, then they'll be left in the dust. I guess, how can organizations avoid that, for lack of a better term, discrimination against workers who are fully hybrid or fully remote?

SATYA NADELLA: Yeah. See, this is where I think one has to have, really, outcomes that need to be measured and goals that need to be aligned, and then having that data around them really define what's working or not working. We're not saying, obviously-- you remember even during the height of the pandemic, 50%, 60% of the global workforce was showing up at work because the front-line workers don't have an option of not being in the front line. So we are talking about knowledge workers, primarily, who are-- there's a structural change, and everyone's exercising that flexibility that they had during the pandemic now in the post-pandemic world.

So I think the way to manage that would be to really make sure that you're very clear as leaders and managers about what the goals of the company are or the team are, setting the norms for how people collaborate and communicate. Because you can't sacrifice, ultimately, what you have to deliver to your customers and your constituents. But then ensuring that the flexibility is not being misused, but in some sense, it becomes a competitive advantage for you. Because the tools are there. So one of the things at least we are trying to make sure everyone knows is between Microsoft 365 and Teams and Viva, I feel that the tools are there for one to really make hybrid work productive.

DAN HOWLEY: I guess one question that I want to touch on is diversity at Microsoft. Obviously, there's a big push there as far as trying to expand the employee base. What are some ways that Microsoft is working on that, and what kind of benefits does it see as a result?

SATYA NADELLA: Yeah. I mean, to start with the core business case, if you want to empower the world, you need to represent the world. So in some sense, Microsoft's own goals around representation are all about ensuring that we have a very diverse workforce. That then allows us to build products and services that empower the world, which is our mission.

In order to make progress on it, one of the things that we do is really create transparency around these goals. In fact, each year, we publish the report. We're just getting ready to publish our next report for the year where all of the data is available. And one of the things I also like is each year, we publish more data, so there's more transparency.

Well, the data-- that also comes with metrics that you set. We have a clear set of goals. In fact, compensation, even at the highest level, including mine, are triggered by us hitting these goals. So overall, I feel that we have the right process but a lot of progress that needs to be made.

And one of the things that we are also focused on is not just about bringing people in. It's also about the inclusion. The culture of inclusion is an everyday exercise. It doesn't matter what happened yesterday, but what is the lived experience of every individual? Aggregate data sometimes doesn't really represent the lived experience for any individual.

And so that's a continuous process. You can never claim anything. All you can at least do is to have a culture that allows every leader, every manager, and every employee to have both the confidence as well as the introspection capabilities to say let's just push and make sure that diversity and inclusion are key priorities for us.

DAN HOWLEY: And I just want to ask one last question. As far as Microsoft and the cloud, it's clearly one of the leaders in the industry. How is that helping with all of these various objectives, whether it's ensuring employees feel like they're wanted, eliminating that productivity paranoia, and then helping to help companies deal with the current economic climate?

SATYA NADELLA: Yeah, I mean, to me, the idea that digital technology has got transformative capabilities, I think, are very clear. Everybody recognizes that digital-- even in this macroeconomic headwind, no one is looking at their IT budget or digital budget as the first place to go to to cut because they realize that coming out of this constrained economic environment, they'll be stronger if they use technology to drive productivity.

So very specifically, to your point, people are looking to say, am I on the right cost curve? That's where something like cloud infrastructure is massive, right? Because after all, you only pay for what you consume. I mean, there cannot a more capital-efficient way to run things than the cloud economics.

The other way is if you're not building cloud-native applications-- I mean, just to put it in perspective, if you are just doing application development like you did even three years ago, four years ago, and are not using some of the things like the container technology or some of the stuff like our Cosmos DB, it's 100x different in terms of efficiency-- or using tools like Teams and Viva to drive hybrid work, because after all, that's the reality we all face.

So I think in each layer of this technology, you want to make sure that you are on the right cost curve, and you're using the best tools to drive productivity and your ability to do more with less. So that's what's exciting for us. We know that this is a great time, quite frankly, to be having all of these conversations with customers and also making sure that we're delivering for them.

DAN HOWLEY: All right. Microsoft CEO Satya Nadella, thank you for joining us.