This article is an excerpt from the Shortform book guide to "Hit Refresh" by Satya Nadella. Shortform has the world's best summaries and analyses of books you should be reading.
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What’s your approach to business competition? Should you build relationships with your competitors?
When Satya Nadella took over as Microsoft’s CEO in 2014, he changed the way the company looked at its competitors. He saw competitor collaboration as a way to encourage innovation, benefitting the industry as a whole. In Hit Refresh, he tells the story and shares three principles of strategic partnerships.
Read more to learn about Nadella’s approach to competitors and how it contributed to the transformation of Microsoft.
Relationships With Competitors
Nadella believes you should seek to build relationships with your competitors. This is the course he took when he assumed leadership of Microsoft. He admits that, for a long time, Microsoft was known as quite ruthless and “monopolistic” in its approach to business.
(Shortform note: Nadella mentions Microsoft’s antitrust case but doesn’t go into detail. In 1998, Bill Gates testified before the Senate Judiciary Committee to explain Microsoft’s dominance. The Department of Justice had filed an antitrust suit against Microsoft, alleging that the company was monopolizing the industry by forcing PC manufacturers to use Internet Explorer as their default browsers. The court ruled against Microsoft and ordered that it be broken up into two companies, but Microsoft filed an appeal and reached a settlement with the DOJ. Gates says that the antitrust case distracted Microsoft from developing its smartphone business and was one reason he stepped down as CEO in 2000.)
Nadella notes that it’s easy to be bitter that others like Apple and Google have raced ahead in areas like mobile. He also writes the press loves pitting companies against each other to fuel cutthroat competition. However, he doesn’t believe that envy and spitefulness are good drivers for success. Instead, he adheres to a lesson about competition that he learned from his cricket days: Be respectful of your rivals, and don’t let intimidation prevent you from taking pride in what you do and performing at your best.
Thus, Nadella changed Microsoft’s approach to competition: Instead of being weighed down by envy, he tried to learn from the successes and failures of Microsoft’s rivals. Importantly, he realized that it was in the customers’ best interest for Microsoft to coexist with its competitors—rather than seeing them as enemies who threatened Microsoft’s market share, they could tap into their complementary strengths so that they could all grow.
He took to heart his predecessor Ballmer’s three Cs: concepts, capabilities, and culture. Ballmer believed that concepts—or ideas—alone don’t lead to success. Instead, they must be backed by strong engineering and design skills (capabilities). This means Microsoft needs a culture that’s open enough to collaborate with other companies that have complementary concepts and capabilities to help Microsoft meet its customers’ needs. For example, instead of making customers choose between devices that could run Office or Apple devices that didn’t have access to Office, Microsoft worked with Apple so that Office could run on Apple’s operating system.
|Highlights of the Microsoft-Apple Rivalry|
Nadella doesn’t elaborate on Microsoft’s rivalries. The company’s most famous rivalry with Apple stems from the complicated relationship between Bill Gates and Steve Jobs:
1985: While Jobs and Gates initially collaborated on the Macintosh, things turned sour when Microsoft released Windows—Jobs accused Gates of copying his idea. Gates countered by saying they both got the idea of graphical interfaces from Xerox PARC, and no one had exclusive rights to it. This eventually led to personal attacks against each other. Jobs left Apple and started another computer company.
1996: In a documentary titled Triumph of the Nerds, Jobs claimed that Microsoft made “third-rate products.” In the same year, Apple’s then-CEO wanted to bring Jobs back, but Gates discouraged him, saying it would be a “stupid decision.”
1997: At Jobs’s first keynote address as Apple CEO, he announced a deal between Apple and Microsoft. This was met with boos from the audience, but the two companies remained somewhat amicable and collaborative in the following years.
Mid-200s: Jobs couldn’t resist saying that Microsoft was copying Apple and Google.
2007: Onstage together at a conference, Gates and Jobs only had high praises for each other.
2015: At Microsoft and Apple events, both companies demonstrated how Microsoft’s apps could run on Apple devices—a clear indication that they recognized the power of working together.
While the two companies have been working harmoniously in recent years, there are signs that their friendly relations may be coming to an end: In 2021, Microsoft criticized Apple for its gatekeeping of the App Store. The two companies are also going toe-to-toe in the emerging augmented reality market
The 3 Principles of Strategic Partnership
To make such strategic partnerships work, Nadella writes that companies should:
1) Be open. Nadella believes respectful dialogue opens you up to exciting new opportunities for competitor collaboration. For example, Microsoft agreed to work with Apple so that Office would run seamlessly on the iPad Pro. Nadella notes that there was much debate about the pros and cons of this partnership, but in the end, they could see how it would allow Microsoft to reach more customers, in keeping with the company’s mission of empowering every person and every organization to achieve more.
2) Think of the customer. Consider how you can create additional value for your market. If you have a strong product but aren’t in a position to reach a big audience, it’s best to partner with companies whose platforms have a larger reach. For example, Microsoft works with Facebook to ensure that its applications run on Windows products.
3) Look at the long-term potential or impact. Nadella acknowledges that it’s not always easy to work with other companies. When issues arise, he recommends remembering your long-term goals and letting them help you get through disagreements. He also cautions against burning bridges—it’s impossible to predict how technology and the business landscape will change, and you might need certain companies in the future.
|The Art of Competitor Collaboration |
Aside from Nadella’s tips of being open, considering your customers’ needs, and having a long-term view, keep these factors in mind when collaborating with your competitors:
1) Maintain clarity of purpose. Know what you hope to get out of the collaboration, and never lose sight of what your competitor is hoping to gain from the collaboration as well. Since you’re still competitors even while cooperating as partners, your objectives will still sometimes differ.
2) Set boundaries. Have a firm idea of what is and isn’t off limits to share with your competitor, and make sure your employees know what information, strategies, or resources need to remain confidential or for the company’s exclusive use.
3) Learn from your competitors. Pay close attention to opportunities for learning and growth based on what your competitors reveal about their own strengths, weaknesses, and approaches to your collaboration. You may learn valuable lessons that will help you refine your business strategies.
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- How Satya Nadella brought Microsoft back from its decline
- Actionable advice to help you reinvigorate your company
- A look at the ethical responsibilities of tech companies