In August 2012, Vanity Fair ran a long piece on Microsoft under a title that stung in Redmond: its "lost decade". Journalist Kurt Eichenwald interviewed current and former employees, and by his account every one of them pointed to the same thing when asked what was damaging the company from the inside. It was not product strategy or competitors. It was the way the company scored its own people1.
The system was called stack ranking. Managers rated each employee from 1 to 5, not against a standard but against one another, with the share of each rating fixed in advance: so many percent at the top, so many percent at the bottom2. A team of ten excellent engineers still had to have someone in last place.
Anyone who has worked under such a system can guess the result. Strong people avoided teams full of strong people. Sharing knowledge with a colleague became a risky decision, because the person you helped might be the one who pushed you to the bottom of the list.
The curve went first, the CEO second
What most retellings miss is that Microsoft dropped stack ranking before Nadella took over. On 20 November 2013, HR head Lisa Brummel wrote to the whole company: no more curve, no more predetermined distribution. Managers would have flexibility to allocate rewards within budget according to the team's actual results2.
Less than three months later, on 4 February 2014, the board named Satya Nadella CEO. He had joined Microsoft in 1992 and had been running its cloud and enterprise group3. When he took over, the company was worth a little over 300 billion dollars8.
Nadella chose an idea from Stanford psychologist Carol Dweck as the backbone of the new culture: the growth mindset, the belief that ability can be developed rather than being fixed from the start. He put it in a memorable pair of words. Microsoft had to stop being a company of know-it-alls and become one of learn-it-alls, because in his view the learn-it-all does better than the know-it-all4.
The test came sooner than expected
Eight months into the job, in October 2014, Nadella took the stage at the Grace Hopper conference for women in computing. The moderator, Maria Klawe, asked what advice he had for women uncomfortable asking for a raise. Nadella said they should trust in "good karma" and have faith the system would pay them fairly. Klawe disagreed on stage, describing how she herself had been underpaid for not speaking up, and the audience applauded5.
The backlash came within hours. Nadella emailed all employees, admitting he had answered the question "completely wrong" and saying he supported programmes to close the gender pay gap5.
Five years later Klawe, by then a former Microsoft board member, called the episode one of the best things that ever happened for the company6. The reason is in the culture slogan itself: a CEO who had just started talking about learning had to model learning, in public, in front of more than a hundred thousand employees.
Culture rewritten in the review form
Every company has slogans. What set Microsoft apart was that appraisal was rewritten to match the slogan. According to Kathleen Hogan, Brummel's successor as HR chief, each person is assessed on three circles of impact: their individual results, how they contributed to others' success, and how they built on the work and ideas of others to reach their own goals7.
The second and third circles are exactly what stack ranking used to punish. Under the old system, helping a colleague weakened your own position. Under the new one, helping nobody leaves a third of your review empty.
Ten years on, Microsoft was the world's most valuable listed company at around 3 trillion dollars8. It would be dishonest to credit culture with all of that. Cloud computing, Azure and the OpenAI investment were enormous business drivers. But it is hard to picture a company whose engineers avoided working together pivoting to the cloud as fast as Microsoft did.
What HR teams in Vietnam can take from it
Plenty of Vietnamese companies run culture programmes with core values on the wall while their appraisal system still forces a 20-70-10 distribution. The Microsoft story shows that when the slogan and the review form say different things, employees believe the review form. The year-end bonus is the most honest thing an organisation says.
The second lesson is the order of events. Microsoft removed the curve first and talked about growth mindset afterwards. Done the other way round, the speech about learning echoes inside a system that still punishes people for sharing.
