Breaking Silos: How Microsoft Innovates

"The key to an innovation mindset is in the culture we call a growth mindset. At Microsoft, we elevate learning, and kind of learn, above everything that we do.”

In this episode, we welcome Nicholas McQuire, Director of Growth Innovation and Strategy, Strategic Missions and Technologies at Microsoft. His passion: Artificial intelligence, emerging technologies, and enterprise innovation.

In this very entertaining exchange, we talk about the three pillars that form the foundation of the future of the cloud, the innovation vision of Microsoft. By means of some concrete examples, we further take a look ahead and shed light on the question of what innovation at Microsoft will look like in the future (keyword: technological convergence) and how Microsoft as a global player will manage to expand beyond silos to innovate at scale. Curious to learn more? Then tune in.

Below you will find the full transcript for the episode.

Chris: All right, that's great. Now let's, you know, let's start exploring how Microsoft innovates, and this is maybe one of the broadest questions I actually could ask you, right? But, you know, what, what is, in your terms, what is Microsoft's vision for innovation? And I know that's a broad one.

“Every company in every industry can innovate.“

Nicholas: Yeah, it's a broad one, but it's a really important question. Satya Nadella, our CEO talks a lot about, you know, how you establish longevity and business is about either reinventing yourself or inventing the future. So the process of this continuous innovation piece is vital to how we look at our vision for innovation. And it really, I guess, breaks down into the kind of three key pillars, if you like, you know, first, we talk a lot about how innovation has to be meaningful in that it has to be available for our customers to access and to innovate on for their purposes, and their own unique needs. You know, we have a core belief that breakthrough innovations aren't necessarily going to come from the technology providers, right? Every company in every industry can innovate. So, I'd say that the first piece around meaningful is key. The second one is very much about applicability. So innovation has to be applicable. It has to be put into action and made real, and then the third one becomes essential. With our customers, we talk a lot about this, and we believe innovation also has to be responsible in ways that ultimately earn trust. So it's not just about what technology can do to support innovation, in our case, but also what it should do. So I think it's these three pillars, if you like, meaningful, applied, and responsible, that kind of make up a core belief system in terms of how we, how we vision, our innovation strategy overall.

Chris: So that's also a comprehensive value system, right when you say those three, those three key pillars if you want to make up the vision, also the long-term vision, for innovation, now, you know, you have that, and then obviously, you know, Microsoft is as maybe one of the highest values or value organizations across the globe in terms of market cap and many more, aspects of that. How is it even possible to spark and cultivate a culture that embraces and also constantly emphasizes continuous innovation?

Nicholas: Yeah, it's a great question. It’s one across the business that's fought long and hard about and as a company of nearly 180,000 employees, we are not immune to the cultural challenges of innovating at scale, right? Like it's not easy. And we don't have all the answers by any stretch of the imagination, but I think, really, the answer that I think it kind of breaks into three key areas. The first for companies is to have that company-wide vision for innovation that I just highlighted in our case. Embedding it top down, bottom up, and left to right across the organization is an important starting point in the culture. I think then how you organize to execute that vision is also key from a process perspective, which obviously impacts culture as well. There are many examples, and I'm reasonably new to Microsoft. I'm always blown away by the examples, in terms of, the organizational side within Microsoft that helped facilitate this. But I would highlight specifically, our regular approach to hackathons, which I think is, is an excellent example of this organizational piece. What we do as a business, we go through these at least four times a year. There are dedicated kind of time, space and resource to focus on innovation across the business, particularly in the engineering side. So the idea is that, a week each semester, the teams can go away, and they can think about, you know, trying to fix anything that's broken. They can hack together on a new product idea, for example, or they can just go and learn something new, that's interesting, that can improve things. So, I think that the organizational piece is probably the second area - that's key.

“The key to an innovation mindset is in the culture we call a growth mindset. At Microsoft, we elevate learning, and kind of learn, above everything that we do.”

And I think thirdly, and this is a big topic: innovation mindset. So a key to having an innovation mindset is about the culture around what we call a growth mindset. And growth mindset is a fundamental aspect of the Microsoft culture, where we elevate learning and kind of learn-it-all kind of culture above everything that we do, as opposed to the type of a know-it-all culture, if you like, and, you know, we walked the walk as well as talked the talk on that. So, for example, you know, growth mindset principles are embedded into dimensions of our reward systems each year, for every employee, you know, recently from, from a team perspective, our team, you know, we had an off-site, and one of the key areas on the agenda was to invite an external speaker, we had Jai Jiang. He's a well-known YouTube influencer and the author of a book called “Rejection-proof”. And he came in to present to us, you know, a YouTube series he created called 100 days of rejection, and it was basically about the art of dealing with rejection. So in our view, kind of growth mindset and kind of the ability to deal with rejection kind of go hand in hand because it creates that psychological safety, if you like, that removes some of the barriers and helps some sort of creating this culture, you know, where invention really can flourish, right? So we don't have all the answers here. But these are some of the kind of examples I've observed that are fundamental to how we integrate into that culture, you know, the vision top down the organizational side. And, of course, the growth mindset are all key elements of that.

From H1 to H3: Microsoft's dynamic innovation landscape

Chris: Right. I think this is particularly important, because there is, of course, a difference when it comes to speed of change, speed of technology, technological change as per industry, right? So it might be, you know, specifically in the case of Microsoft being  in, of course, so many businesses at the same time, but of course, being rooted in technology in software. And everything around their cloud SaaS and also collaboration, you guys are certainly more exposed to accelerating technological change than maybe some chemical industries, for example, right? So there is a difference in how you might want to approach and cultivate an innovation culture over time. I think that continuous thing is that you  have all these formats such as hackathons and stuff. Now, but when we dive deeper into, into what you're doing in innovation, so you could, for example, apply the horizon model right and again, there are so many models that try to describe and catch the complexity of how innovation works in organizations and across organizations. But if we would take the horizon model - H1 to H3 and in what dimensions does Microsoft think? Do you have some examples for each horizon? 

“Horizon one is very much about proving the existing business, the current portfolio today, shorter timescales there. Horizon two tends to be about  improving the existing business but evolving it, in the context of, new business models, for example, three to the five-year type of term horizons out in terms of timescales.” 

Nicholas: So let me paint it out for you. Because I think it's a really important, fundamental question. And we get a lot of questions on this from our customers. It's one of the vital customer workshop topics around how we look at innovation, and the horizon principles are kind of attached to that very closely. So obviously, for those of you that are maybe not that familiar, you know, we apply McKinsey's horizon framework to our approach to innovation; we operate a balance of both visionary and practical projects, you know, across the horizons across Microsoft.  We call this approach “full spectrum innovation”, which is key to how we think about creating a kind of innovation as a platform if you like within the company, which allows us to have kind of a centralized approach as well as  a distributed model inside the organization. So, if we think about it, we break it down, horizon one is very much about proving the existing business, the current portfolio today, shorter timescales there. Horizon two tends to be about  improving the existing business but evolving it, in the context of, say, new business models, for example, three to the five-year type of term horizons out in terms of timescales. And horizon three tends to be,  five years plus and they tend to be about moonshots, right so, you know, game-changing areas that have the potential to open up entirely new markets and categories, and they also have the potential to not manifest into anything material as well. Still, the opportunity is such that it's worth the risk and the drive to do it. So, we have 1000s of projects and examples across Microsoft that, you know, manifest across these horizons. I would stress the crucial point that we approach the rise not in isolation.

“And horizon three tends to be,  five years plus and they tend to be about moonshots, game-changing areas that have the potential to open up entirely new markets and categories, and they also have the potential to not manifest into anything material as well.”

So it's really important to have connections between the horizon, so a good example of this is kind of how we approach our large-scale transformer natural language AI models and our supercomputing resources that support those solutions in Microsoft. So, for example, these are mainly coming out of Microsoft Research at the moment, but you can think of, say, our cheering family of AI models or the work that we do with open AI in the context of GPT3. More recently, this year, we announced Megatron 530 billion parameter mapping, a former model, so models are escalating massively. Still, the critical point is that this innovation is manifested across the horizon. So, for example, these solutions, which we call AI at scale, manifest themselves in products from Bing to Office. We can see features in PowerPoint that these massive machine learning models are powering GitHub - we've made announcements recently as well. So that's on the horizon one sense, but they are now increasingly becoming available as platforms in their own right in horizon two sense for some customers to build on and customize for their own unique needs. Novartis is a great example here; we're working with them. They're using our AI at scale these natural language models as a business platform to speed up some of their research and discovery processes for their new drug business. That's horizon two, but then we also have, you know, we're starting to see AI at scale and these natural language models also begin to facilitate a new paradigm of computing in our horizon three senses. And as we start to look to combine these large scales AI models with quantum computing in the future, for example. We're going to have a natural uplift in terms of how we can solve tricky challenges in areas like molecular dynamics, for example. So it's essential to understand that, you know, some of our kind of incubation, some of our research areas are spanning these horizons as well. So it's not just the horizons but the connectivity and integration between them. That's just as important in terms of how we see innovation as well.

Chris: And talk about those technologies, and also the interaction of technologies. The way we see things is that many technologies are increasingly intersecting, as you mentioned before, right? So that's, of course, when you apply them in real-world scenarios, right? So, AI is a good example. Take AI and 5G or 5G and its applications in space, right? And there are many more examples. So what is your opinion on this? Is this happening? Are we maybe even observing technology convergence for some of those techniques you guys are working on? If that holds true? How can you possibly, given that Microsoft is such a large and global organization, how do you guys expand across silos and co-innovate?

Nicholas: Yeah, it's a great question. And we see the convergence of several key technologies being a critical aspect of how we think about innovation in the future, which ultimately kind of think of coming together around how we think about the future of the cloud. Satya talks a lot today about today's innovations that are enabled by the intelligent cloud and the intelligent edge, which focused on three major tech shifts, ubiquitous computing and a progression towards edge computing, AI and the progression there. And, of course, how we see the inner experience between humans and machines evolving from an immersive experience perspective. So those are three elements of a key paradigm in terms of the technology shifts that are happening today. Now, tomorrow, however, we're going to start to see disruptions shaping the future of the cloud and our future, which will involve many more of the intersection of these technology areas. And, well, actually, I think of this kind of paradigm as such; it talks about pretty significantly. So, for example, and I think you touched on this, you know, our notion of ubiquitous computing will be expanded by 5G and space technologies. And that's going to create a new paradigm for applications. It's going to bring us closer to the problems that businesses are going to need to solve. And that's just one element. When you think about AI, and I talked earlier about the convergence between AI and quantum at scale, we're going to see a lot more precision around problem-solving in the context of improving what classical computers can do today. And then lastly, a key aspect to how we see the future of immersive experience is around how humans and machines will co-reason together and solve problems that are fundamentally underpinned by a lot of these disruptions, but it's going to transform a lot in terms of how humans and machines are going to interact in the future. So this vision is very much a facet of new technologies, 5G, space, quantum computing. So to your question, how do we realize it across the site across these, if you like, in some respects siloed technology areas. So one way that we're starting to see this manifest is by focusing on some of the new categories and some of the latest customer scenarios that these disruptions now are beginning to facilitate today. So incubating these scenarios in many ways can act as a forcing function to bring down some of these existing silos. So a good example of this is the announced fascinating horizons two work with Ferrovial this year at Built. It featured a keynote that was all about intelligent highways in the future and the project you know is going to materialize over the next couple of years. But it spans many domains within Microsoft AI edge computing and horizon two technologies like private 5G networks and space technologies. So, to be successful with Ferrovial, we had to remove some existing processes around these technologies from the beginning. So in some ways, we think, some of this incubation horizon two projects can really help establish kind of the new processes for intersecting technologies and can really, as I said earlier, act as a forcing function to kickstart that process of bringing down so some of the inhibiting silos that may occur when you're starting to think about some of these new future projects.

Chris: I would love to learn more about  your role and your areas of responsibility in that, but before we do that, Nick. What I would actually love to do is to play a quick game with you. And the game is called “Either-Or”.  And this is how it works - really simply. I will want to give you two options, Option A or Option B; you choose one of those options and then spend maybe one sentence each to briefly explain your choice. So that's going to be interesting. As a starter,number one, Nick, that's an easy one: Do you prefer working in a home office or in a real office? And why? 

Nicholas: Oh, what a question. You can't say both. That's a cop-out. I think working in a home office, although I need both. The reason for that, I think, is my work and our work involves quite a lot of collaboration globally that can happen face to face. But also involves quite a lot of thinking time as well, so that downtime and I can organize my day around that much easier at home.

Chris: Right, and talking about, you know, tearing down silos, obviously you wouldn't need to be, you know, at many different locations in the world at the same time, not possible. So, connecting virtually and digitally is just one way to do that, and then you can do this in the home office as well. Sure. All right, the great one, okay. Okay, number two: Nick, in the future, in the, let's say, H2 future, that's all not too far out. But H2. Do you see artificial intelligence as a friend or a foe? And why?

Nicholas: Friend. I think it will be a remarkable tool for not just technologists but business professionals. We're starting to see it as a tool in our everyday lives. There are risks to that. But the kind of uncharted territory we're in at the moment is it being an accurate business decision-making tool support tool and creativity support tool. We're seeing many use cases where it can add value to your everyday work environment. So for me, it's that way.

Chris: Yeah, I love it. So no dystopian answers right now on AI. That's just about brilliant. Great. Okay. And finally, okay, you have to choose one. And you know, you're asked right now, would you instead run a country or a business?

Nicholas: What an interesting question. I would rather run a business. I think, even though the uncertainty is tremendously high. I think the forces of progression on technology can be harnessed, I think, to form some good advantages. I think there's a lot less volatility there than it would be running countries at this current moment of time. So I would go with the business.

Unleashing Innovation: Microsoft's growth and strategy insights

Chris: Interesting. All right. That's fair. All right. Now, let's get back and thanks for the answers. And let's talk about your area of responsibility, you know, in you know, growth, innovation and strategy, strategic missions, technologies and so on. Can you talk about that? What is your area of responsibility? And also, you know, what is not?

Nicholas: Yeah, yeah, sure. So maybe first, our function within SMT. So I talked about SMT being our incubation and scaleup arm within Microsoft. Growth, innovation and strategy division within our organization, within Microsoft is about 3000-6000 employees, but our team is much smaller than that, where a centralized function in our unit is designed to help and support the business units within strategic missions and technologies. To help incubate and accelerate the creation of these new business categories. And these next what we believe are the following $10 billion businesses for Microsoft, so we focus a lot on business acceleration. The notion of Business Acceleration is an entirely different kettle of fish around new business than it is around the well-oiled engine within Microsoft that focuses on growing our existing businesses.

“We have a team of experts in incubation strategy and planning, thought leadership, product development, customer engagement, that works with the units around a lot of these horizon two scenarios, but also just supporting these core businesses quantum computing, telecoms and 5G, space and also US federal government, to help accelerate them into that potential.”

So this new business creation is a real, the real focal point of our business and our function. Still, it's an entirely different process than what we see within Microsoft within the core business. So we have a team of experts in incubation strategy and planning, thought leadership, product development, customer engagement, that works with the units around a lot of these horizon two scenarios, but also just supporting these core businesses quantum computing, telecoms and 5G, space and also US federal government, to help accelerate them into that potential. So my role specifically within that covers several different areas of strategy and planning. But in the main, I focus a lot on thought leadership and customer engagement across all our strategic missions and technologies areas so that involves doing work with customers and involves building narratives and helping drive awareness of some of the work that we're doing, you know, across our customer demographic overall. So that kind of breaks it down.

Chris: Super interesting, and you know, I was trying to cheat a little bit before the recording day, and I tried to get a glimpse of, you know, what's, what's next. He already gave some great examples. Next, H2 and H3: I tried to visit, microsoft.com, you know, trying to understand that right website. So what I found was interesting, but what I found is, I saw this as mainly, you know, directly to consumers, but at least I could read a lot about in the Office and Windows, MS Teams, Microsoft Cloud and Azure, for sure. That's B2B. So my question would be, given that you want to create an MBA on storytelling and other significant topics around communication, how can you help customers understand what's next? Right, so H2, H3 technologies, as you know, the website per se is maybe more focused on communication towards H1.

Nicholas: Yeah, that is correct. And we have several ways to educate and engage customers on future products and innovations. We have a dedicated page innovation.microsoft.com, our main landing page for many of these inspirational stories and research projects coming out of MSR. And a lot of the new scenarios that we're, we're working with customers around. So that's one avenue; we also find that increasingly customers want to know more about not only in terms of how Microsoft approaches innovation, but also some of our customers' learnings as they apply AI at scale in their businesses, for example. So we also do a lot of engagement with customers through our AI business school, which is a precious resource, particularly for business decision-makers. They want to kind of come up to speed with a variety of innovations of the future and what they look like from an industry perspective. What are other customer scenarios and stories they can learn from in their industries or other industries, etc. And I think we've walked well over a million business users through that program, hugely valuable sorts of content. But I guess our primary way is to work directly with our customers. So we run some workshops throughout the year with customers, you know, one-to-one, sometimes one to many, but mainly one-to-one, you know, on these topics, including things like the future of cloud and Microsoft innovation, quantum, 5G, etc. So, if there is interest, feel free to contact me if you're interested in us. Can we set these types of workshops up, so they don't often appear on the website. But they are hugely important in how we engage customers on this topic.

Chris: Absolutely. That is super helpful. Now when talking about and also to do a little recap what we have right now, right?  How to expand across silos, to co-innovate, the strategy, the vision, the culture, continuous innovation, the horizon model by McKinsey and all that stuff. What would be your three key actionable recommendations that listeners will take away from this episode with you?

Nicholas: Yeah, I mean. I think the first is probably more kind of a statement around not losing sight of the fact that every organization has the capacity to foster innovation. It doesn't exist in a vacuum either because it can come from anywhere in the organization. I think that point is so important. It's not, it's not just the tech providers that do this, you know, where we see the level of innovation across our customer footprint is fantastic. And so I think for those customers that are maybe a bit skeptical about what they can achieve compared to a big tech company, I guess. I think that that point is important to consider. Secondly, I will go back to, how you think about this, creating a platform for innovation in your company or thinking about having the vision, the organizational processes best support that vision and execute that vision, and kind of, you know, how you do that innovation mindset. So how do you instill a culture, possibly using growth mindset principles, which has been successful for us but may not be successful for everyone to address that culture. I think that that's a really important piece as well. And then third, I guess, and finally: start to plan today around some of these future technology disruptions that we've been talking about,  that are fundamentally shaping not only the future of the cloud, which is really how we see it, but also, business as a whole, not only just Microsoft's businesses but industries as a whole. So I think they will impact your business. I think they are also really good launchpads to start, kickstart some innovation projects, where you can apply some new learnings as well. And you know, we have many more learnings from Microsoft and our customers that we can share. So, you know, feel free to get in touch on that. But I would say those three things, the vision, the notion that every organization can innovate, and then and then finally, that planning around kickstarting, action around some of these new technology disruptions today that are coming down the line.

Chris: Yeah, so that is very helpful advice and Nick, before we are because we are pretty far with that episode, but before we wrap up this episode, I need I do need to ask you, you know what, when you look at the professional career so far, and it's been quite a while, what would you say? And I'm interested to hear that what would you say was your most amazing Innovation Rockstar moment, so far, Nick?

Nicholas: I don't know about rockstar because I appreciate the level of, you know, kind of contributions you've had on this on this channel. But for me, I guess there are two things: one, I was very recently completed, you know, constantly learning. So it was part of the growth mindset. And I learned all cultures, you know, we don't have all the answers. And I certainly don't have all the answers around innovation. I recently completed a fellowship on corporate innovation here in London, which is attached to the mayor's program for innovation in London, affiliated with the Royal College of Art and London partners, which is the vehicle to accelerate growth in London. A great program. For me, that was a rockstar moment. I worked with many of our customers on that, but it was just a great platform to share ideas and get some experiences from other industries and companies around innovation. That was one, I think, from Microsoft's perspective. I had the opportunity just this year to run a live demo of that Ferrovial smart highway of the future scenario I talked about earlier, a live demo I built. It was very nerve-wracking. Our team had many people involved, but it was just phenomenal. So I think that was probably a more prominent, more immense achievement from a team perspective within Microsoft, so those two things.

Chris: Yeah, well, that one is quite huge because I can tell how live demos typically work, right? There's always something you hadn't thought of before. So congratulations to you know, you and the team pulling this off. That's amazing. And without, I would say, with that moment in mind, we wrap up this episode, Nick. It was a pleasure to talk to you about everything innovation and how Microsoft thinks and  lives these days. So yeah, thanks for being my guest. It has been a pleasure.

Nicholas: Chris, thank you for having me. I enjoyed the conversation. I love what you guys are doing here. So, yeah, we'll hopefully see you again soon. 

Chris: And thanks to everybody listening and watching. If you liked the show, then as always, leave us a rating or a review and share the podcast with whomever you deem this could be interesting. And if you want to get in touch, simply shoot us a message. The email address is, as always, info@innovationrockstars.show. Now that's it. Thanks for your time. See you in the next episode. Take care and bye-bye. 

About the authors

Dr. Christian Mühlroth is the host of the Innovation Rockstars podcast and CEO of ITONICS. Nicholas McQuire, Director at Strategic Missions and Technologies Microsoft.

The Innovation Rockstars podcast is a production of ITONICS, provider of the world’s leading Operating System for Innovation. Do you also have an inspiring story to tell about innovation, foresight, strategy or growth? Then shoot us a note!