Microsoft: From Know-It-Alls to Learn-It-Alls

Rich in Profits, Poor in Teamwork

On paper, Microsoft was doing well in 2014. In the fiscal year that ended June 30, 2014, it earned $22.1 billion in net income on $86.8 billion in revenue, and it employed about 128,000 people full time. Yet in a 2019 article, Herminia Ibarra and Aneeta Rattan wrote that by early 2014 Microsoft was in danger of becoming irrelevant as technology moved toward smartphones and the cloud, and that its stock price had gone flat. They also described the culture inside the company: coworkers were set up as rivals, innovation and risk-taking were discouraged, and the prevailing mindset was to play it safe rather than learn and grow.

One big reason was the way Microsoft reviewed its people. Under a system known as “stack ranking,” managers had to fit their teams onto a bell curve, labeling a certain percentage of employees as top performers, another group as good performers, and so on down to poor performers. According to Ibarra and Rattan, employees competed every six months for spots ranging from top to poor. Critics argued that the system pushed talented people out of the company.

Ending the Curve

The first major change came before a new CEO arrived. On November 12, 2013, Lisa Brummel, Microsoft’s executive vice president of human resources, sent an email to employees announcing that the curve was gone. Managers would no longer have to sort people into set percentages, numeric rankings would be eliminated, and rewards would no longer follow a preset target distribution; instead, managers could divide their reward budgets as they saw fit. Reviews would also put more weight on teamwork and on how employees worked with others, not just on individual results. The change came while outgoing CEO Steve Ballmer was reorganizing the company under a strategy called One Microsoft.

A New CEO With a Learning Agenda

On February 4, 2014, Microsoft’s board named Satya Nadella CEO. Nadella had joined Microsoft in 1992, had most recently led its Cloud and Enterprise group, and had overseen the building of one of the world’s largest cloud infrastructures, which supported products such as Bing, Xbox, and Office. Ballmer had announced in August 2013 that he would retire once a successor was chosen. Founder Bill Gates gave up the chairman’s seat and took a new board role as founder and technology advisor, supporting Nadella on technology and product direction, and board member John Thompson became chairman.

Nadella had read psychologist Carol Dweck’s research on fixed and growth mindsets, and he made the growth mindset the center of his plan for the company’s culture. The goal was to turn a company of know-it-alls into a company of learn-it-alls. He started with his own leadership team. Its members went on a listening tour, were assigned the book Nonviolent Communication as required reading, and added customer visits to their yearly off-site meeting, where they worked out what a growth mindset should mean at Microsoft. In 2015, Nadella introduced a new mission: “to empower every person and every organization on the planet to achieve more.” Microsoft later listed four culture goals built on the growth mindset: obsessing over what matters to customers, becoming more diverse and inclusive, operating as One Microsoft instead of separate siloed businesses, and making a difference in people’s lives.

Nadella also had to practice what he preached. At the Grace Hopper Celebration in Phoenix in 2014, Maria Klawe, then president of Harvey Mudd College, asked him on stage what advice he had for women who were uncomfortable asking for a raise. He said they should trust the system to reward them over time. Klawe disagreed on the spot and advised women to research what fair pay looks like and practice asking for it. Nadella apologized on Twitter and in an email to employees, writing, “I answered that question completely wrong.” In his 2017 book, Hit Refresh, he wrote that the incident helped him confront unconscious bias.

Paying for Teamwork and Talent

Microsoft connected its culture to how it rewarded people. Its annual report for fiscal 2022 said that managers recommend rewards based partly on how well employees build on the work of others and contribute to their colleagues’ success. In fiscal 2021, the company made all employees eligible for stock awards through its annual rewards process. It also invested in skills. Each of its more than 27,000 people managers had to complete 20 to 33 hours of required manager training, and in fiscal 2022 employees completed more than 4.7 million courses. To hear from workers, Microsoft collected more than 75,000 responses to its Daily Pulse survey that year, and 70% of employees took part in its Employee Signals survey.

Pay decisions shifted with the job market. In May 2022, with tech companies competing hard for skilled workers, Nadella told employees that Microsoft was nearly doubling its global budget for merit raises and raising annual stock award ranges by at least 25% for employees at levels 67 and below, a group that generally reached up to senior directors. A year later, the picture had changed. Microsoft had announced 10,000 layoffs in January 2023, and business customers were spending more cautiously. In May 2023, the company said full-time salaried employees would not receive base-salary increases that year, though it would keep investing in promotions, bonuses, and stock.

Where Things Stand

Microsoft’s results grew enormously under Nadella, who is now both chairman and CEO. For fiscal 2026, which ended June 30, 2026, the company reported revenue of $331.8 billion and net income of $133.7 billion ($128.8 billion when effects of its investment in OpenAI are excluded). The company has also kept making hard people decisions. By July 2025, Microsoft had laid off more than 15,000 employees that year. In a July 2025 memo, Nadella wrote that the cuts had been weighing heavily on him and that Microsoft needed to rethink its mission for a new era shaped by artificial intelligence. Some employees were disheartened by the cutbacks, and one wrote on LinkedIn that the company’s stated values did not seem to apply to its biggest business decisions. As of October 2026, Microsoft’s leaders face a version of the challenge Nadella took on in 2014: keeping a very large workforce learning, collaborating, and motivated while the technology around it changes quickly.