Davos 2022: Microsoft's Satya Nadella on the metaverse, hybrid work and leaders' changing roles

What role should business play in our lives? Microsoft's Chief Executive Officer Satya Nadella participated in a wide-ranging talk with World Economic Forum Founder and Executive Chairman, Professor Klaus Schwab on the changing expectations for leaders, and how it has adapted to shifts such as COVID and hybrid work. He also explains how technology businesses can help protect people and how it has responded to challenges such as the Ukraine conflict.

Read the transcript below.

Klaus Schwab: Good afternoon and welcome to, what is for me, always one of the most exciting sessions because like you Satya, I'm by origin an engineer. So, talking about technology and having written this book about the Fourth Industrial Revolution is one of the most exciting moments I have.

Now, of course, to talk about technology with Satya Nadella, the CEO of Microsoft is of course even more exciting. It's more exciting. And you have joined Microsoft, if I'm not mistaken, to two years ago. You are the CEO since 2014, you just have to look at the value creation then you know how successful those years were. And I should also mention Microsoft, to the World Economic Forum — you are one of our most engaged strategic partners. I asked my people and I heard we are engaged together in 36 different initiatives, which the Forum is running. So, great thank you.

Now we just have a discussion and not big speeches. And when we look now, we discussed a lot during this meeting how the world has changed completely since we met last time. And so leadership style must also have changed.

How did you adapt or what did you see as necessary adaptations in your leadership style compared to before? Let's say the crisis came and overwhelmed us.

Satya Nadella: Yeah, one of the biggest, I think, points of reflection I have is you know, we went, all of us, simultaneously for the first time into a tail event together. Right. So, the pandemic was where the entirety of the planet were faced with a crisis together. And the thing that at least I came out of this with is a much more keener sense of what caring looks like. So, for example, just before we went into the pandemic, Microsoft had this management training program we put in place called Model Coach Care. I must say it was just great timing because that caring became the currency during the pandemic, because every one of us had to care for each other. Every manager had to care for the connection they had with their people. So if you asked me this, what is that leadership quality that I think each of us has to build more muscle in? It's that caring, because the reality is, all of us are going to have tail events that are going to be different. So when we now think back of whatever is the normal life, I think we have to realize that that ability to be in other people's shoes, have a sense of caring, I think is probably one of the most important things.

Klaus Schwab: So brains is not enough — you need to heart today?

Satya Nadella: Yeah, for sure. If we are going to make it together, I think you need your heart and your brain functioning together.

Klaus Schwab: Yeah. Now, turning to technology. Microsoft, of course, is a leader in technological development. If you look a little bit more to the future, what excites you most?

Satya Nadella: Look, I mean, I think when you think about technology. The point to reflect on is what's the opportunity to be ten x hundred x better? Right. What's the thing that we can be doing today, investing in today, that's going to change something which is ten x hundred x better. I always go to three layers of technology and all, in fact, if you look at all the enterprise value creation throughout the history of at least digital technology, it has always come down to what I think of as the core infrastructure, the core middleware and the core interface.

So, if you sort of take let's take the infrastructure layer. The cloud as we know of it- take Ukraine today. The reason why the Ukrainian government and a lot of critical infrastructure is able to continue to function in a very resilient way is thanks to the cloud infrastructure. So, in fact, we were able to work with the Ukrainian government, migrate their systems and in some sense have the continuity. So, cloud is becoming more and more ubiquitous. And another great example I came across recently is, you know, NASA for the International Space Station, they need to keep the integrity of the suits very high. So for the gloves, you can't have any malfunction. So, they have now computation that is happening in the space station because the latency is too high. So, the infrastructure itself, thanks to 5G, thanks to space, is really spreading everywhere.

The second layer, of course, is what's happening with these large AI models. Weused to think about speech being separate from, you know, natural language in vision. Guess what? Going forward, when I look at what we have done with our partner, OpenAI in terms of building these large, dense multimodal models like GPT three, they are showing real emergent intelligence. In fact, we put something called the copilot into GitHub. So if you take the white collar job of software developer, 30% of the code of anybody who is writing code in Visual Studio and GitHub is being generated by these large scale AI models. So, I think having a copilot for every cognitive task is right within our grasp.

And then the last area is the metaverse, right? The idea that you can have the digital and the physical come together as in fact what you envisioned in the Forum itself with the Global Cooperation Village, I think is a great example of the three areas where infrastructure becoming more ubiquitous, AI changing pretty much every application experience and having much more immersive experiences.

Klaus Schwab: I just read this project which we are working together [on]. It is for the public good and it shows also how you can apply new technologies and be pioneers in applying new technologies for the public.

Satya Nadella: Yeah it is in fact so fascinating. Professor Schwab came up with this idea of saying what does multilateralism look like or multi-stakeholder cooperation, collaboration look like between business, governments, civic society and academia in a world where we can- how do you create a space like that using the metaverse? So we, along with Accenture, cooperated using a mesh platform, built this exhibit for the 1 trillion trees, which is pretty phenomenal. If you go visit it, I think what you come out with is a deeper appreciation of how collaboration can be enhanced when you have that core presence, when you are together in a physical space, which you immersively are able to feel. Your understanding, in this case, you’re in the Sahel, you see the baobab tree, you understand the importance of reforestation.

Klaus Schwab: You keep the fruit in your hand?

Satya Nadella: Yeah, you have the baobab fruit. You can even understand how if that was marketed, it could help in fact, that region. And so I think your deeper understanding of the challenge and the opportunity I think is fantastic. And the other I would say the story behind this is these are four different organizations across six time zones cooperating. So they built the digital twin of the space. So even the design process was pretty phenomenal to see, and the fact that they could land here and within less than a day get it all functioning, I think it also tells the story of what can happen.

Klaus Schwab: It was only five months ago when we had the first phone call to discuss this initiative. And it's amazing what you can do when you have a clear vision, what you always had for the company. Let me come back to our discussion in the earlier years. We talked a lot about regulations and regulations to data and privacy and now what is needed today, you feel I mean, regulation is still- the newest regulations of the EU and so on. What is your thinking and how can reassure us the right regulation to protect the consumer?

Satya Nadella: Okay. So first of all, at this point, given the pervasiveness of digital technology in our society, in our lives, in our work, I think it's inevitable to have stronger regulatory regimes around all facets of technology. If anything, I think the responsibility of stakeholders like ourselves or businesses like us is to both anticipate and adapt to regulation versus ignore it or expect not to have regulation. Obviously, with privacy, European Union with GDPR took the lead, and now even with digital services regulation, I think even with Internet safety and moderation, I think there's a lot of regulation coming out of the European Union which I think are going to set standards. In fact, the way we even took GDPR, for example, we took the subject rights of GDPR and made it worldwide. So that is, I think, the approach we will take.

The other thing about regulation, though, is you have to ensure that you have the design process, right? So, it's not about just how do you meet the regulatory standard, how do you ensure that the entire organization's process of building technology ensures that the regulatory framework around privacy, ethics, internet safety, are all things that you take into account, starting at the design side. Because in technology many times, it's very hard to fix things at scale. Yeah, you have to start by really thinking about regulation at unit of scale of one versus 7 billion people.

Klaus Schwab: So it's adapting to regulation by design.

Satya Nadella: That’s right.

Klaus Schwab: Now, one of the issues we also discussed previously is the trust in the systems, the digital system. You have to have trust not only, let's say, related to technology, but also how it affects the trust inside society. I mean, we see it, we see social media and so on. And suddenly you have an additional complication, which is cybersecurity, cybercrime. My question is: You are so much exposed, something could happen — how does Microsoft deal with this whole cybersecurity and trust issue?

And you mentioned already, but I would like to come back to the Ukrainian crisis because it increases the alertness even of, I may add here, for the World Economic Forum, you can imagine we have a great cyber security team, but you can imagine how much we invested to protect our system here when we felt particularly vulnerable. But Satya, what do you do?

Satya Nadella: Yeah, in fact, it's very related even to the previous the conversation we were having on regulation. But trust, I mean, fundamentally, I think it's not something you can claim. It has to be earned. I think that's sort of the place to start. And having said that, I also think of trust, at least from a Microsoft perspective or a business perspective, you've got to start up something much more foundational, right? Which is the social purpose of the company. The business model of the company needs to have trust with the broader society, because after all, if you don't have that, then pretty much anything you do is not going to be trustworthy.

But assuming you are a trustworthy participant, because when you do well, the world around you is doing well, then I think all these considerations — privacy, cybersecurity, ethics, internet safety, to take four — I think are super important criteria. In all of these, what, at least we call in engineering ‘shift left’, is very important.

What I mean by that is: take something like cybersecurity. Before we think about protection, you want to make sure by design you're building systems that are secure. So, this is a place where some of the best design work, tooling work, testing work needs to be done, such that any digital system that's being built is secure by design. So, we are investing, same thing with AI ethics, right, what does debugging a biased AI model look like? What are the tools available to a software engineer so that they can make sure that bias doesn't get introduced or even moderation with internet safety? I think these are all very important.

Governance and privacy, for example. You can't say we will deal with privacy as an after effect, but you won’t to have real governance on all the data. So to me, that's, I think at the core.

So what happened, for example in the Ukrainian case, was we were able to, because of our cyber capability, because of the trillions of signals we see long before, quite frankly, the attack started, the Russian activity on critical Ukrainian infrastructure. And we were able to work then with the Ukrainian government to really evacuate them effectively into our cloud and protect them. And we published last month a very detailed report, because our stance is that we will always be there for any partner of ours in their defence. And so we're going to use both our security products, as well as our security signal, to ensure that we protect any organization that is under attack and publish all of that information so that it can be broadly shared. So I think cyber is a place where, again, multiple stakeholders coming together to improve the cyber readiness of all of our organizations, I think is going to be very, very important. This is between governments and private organizations and between private organizations across the globe.

Klaus Schwab: If I just my follow up here, you mentioned you did an analysis of, let's say, protection in Ukraine. Could you share with us what the key conclusion of the analysis was?

Satya Nadella: Well, I mean, the key conclusions were that you have multiple cyber actors, sponsored in this case by the state, going after critical infrastructure that can completely compromise the functioning of a government or the broader society. So, the other piece is the weakest link can be exploited to then hit hard at everything else. So that's the other issue with the connected world. There is no such thing as an isolated system. So, one weak link. That's why even in the United States, we care so much about every municipality, every state has to be protected, because otherwise you can start with an attack in one small place and it can easily spread.

Klaus Schwab: I come back to your answer to my first question where you said a ‘caring leadership’. Now, you know Satya, we have a lot of discussions going on and the Forum was very much engaged into the development of ESG metrics. And some people, of course, would be opposed, and it has become very much also a technical battle. But you could argue, I mean, it's not a technical issue — it's an issue of corporate success, Because, without taking care of people, without taking care of the planet, you don't have the trust of the people anymore. Would you agree? And would you would you feels that company trust comes only out of how you lead a company, and how people feel, or do you have to document your performance in some way?

Satya Nadella: Yeah, it's a great it's a great question. Right. I mean, I go back in some sense. The question is: what's the social purpose of a corporation or a business? Do we need businesses or not? I mean, it's a good question to ask and, obviously, I believe that there is a social purpose of a corporation. In fact, I like that definition, Klaus, that Colin Mayer came up with, where he talks about the social purpose of a corporation is to create profitable solutions to the challenges of people and planet. And the key word for me being profitable, because after all, corporations do need to allocate their resources well so that they can generate profit for their shareholders. But the solutions are to the challenges of people and planet, which is the broad stakeholders. But I would even add one additional thing to that definition. I think every company like ours also now has to earn the license to operate in every country and community at a time, right? So when people look at a multinational company and say it's a soulless place, I mean, where do you belong? You actually have to prove that you belong everywhere you operate by creating local surplus, local benefits to the community.

And so I think that that's at least, when I look at Microsoft, I feel that that's the core sense of purpose we have and the social contract we have in every country. When we come to Switzerland, I should be able to point out how the small businesses of Switzerland are more productive because we are participating, or the public sector more efficient, or the large multinationals of this country that are globally successful because of some input of ours. So, I think that that core is super important. But the interesting thing, though, is to your ESG point, it's not even let's do some ESG on the side. It's integrated into your core business.

Klaus Schwab: Yeah.

Satya Nadella: Right. So, when we think about growth, it's got to be equitable growth, right? So when we are working, let's say, in Africa, we've got to ensure that we are working to create broadband connectivity infrastructure. In fact, we have done that with some of the work we have done there for around 7 million people. Or we're making sure that our own operations are planet positive. So we are doing that with our own sustainability commitments. So I think that that approach to ESG, where it's not on the side, but it's integrated into the core business model and operation, I think is how we'll all be measured.

Klaus Schwab: I think this word integration is very important, because I even have some difficulties to accept when people speak about social responsibility, because a company, on the one hand, is certainly an economic unit to create prosperity, and certainly to create profits. But on the other hand, a corporation is a social unit. It's part of society. So social responsibility is a natural consequence of looking at a company as a social organism who has to take care of society.

Satya Nadella: Yeah, absolutely. Because I think the core license to operate comes from that. You can't you don't get a license to operate as an economic agent. I believe you get it because you created surplus for the society at large.

Klaus Schwab: Now if I take a social dimension, and I look particularly at your employees, Satya, the last two years have created a completely new conception of the nature of work. And I know you also had home office, and so on.

How did the last two years since the pandemic change, let's say, your relationship with your employees?

Satya Nadella: Yeah, It’s sort of very related even to the very first question you asked, as to what's that leadership principle that perhaps you've learned, and I talked about caring. But, you know, one thing that I've been thinking a lot about in our relationship with our own employees and going forward, what does it look like? I think we have interestingly enough, coming out of this pandemic, gotten to a point where we need to refound the company, because I borrow this phrase from one of my colleagues on the Microsoft board, Reid Hoffman, who wrote about refounding as something that needs to happen from time to time in companies. And I feel that this is a great time to think about refounding, because after all, here's the thing I used to say we hired 60,000 people, clubs over the last two years, a lot of growth. You know, that's like 40% of the company itself. And then we said, oh, we now need to onboard. Then I realized that it's not the 60,000 people. In fact, the entirety of the company needs to be re-onboarded. And so, we are going through that. So essentially conceptualizing re-founding the company for a changed world, changed times because I think none of us are coming out of this pandemic assuming we are going to go back to 2019. We have to find a new way going forward. And in that context, employees and their expectations are paramount. And so I think that it's a great place for I think all of us, they are the one of the most important stakeholders. We always talk about employees — without employees, there's no company — whether it's about their compensation or whether it's about their need for flexibility, and that changed expectations from leadership and management. The lived culture experience, I think, are all places where we have to re-found our mission and our culture, and that's definitely something that we are hard at work at.

Klaus Schwab: I would define it in the following way: when, before the pandemic, we were very much talking about life-work balance. But now, after the pandemic, we have to talk about work-life integration, because if you have professional life at home, we should also enable probably people when they are at work to take care of their family. Would you agree?

Satya Nadella: Absolutely. In fact, I think when people talk about flexibility, that's what that is, which is all of us have to harmonize our work in life, as you said. And in order to do that, each of us needs flexibility.

In fact, one of the interesting data points I have is, on LinkedIn if you go and look at the jobs, which now publicize the flexibility they provide, it's the fastest growing attribute of new jobs. So I think it's now becoming an expectation that the workplace will integrate with people's need for flexibility so that they can achieve what you just described as the harmony between work and life.

Klaus Schwab: You could also take this point a little bit forward, more forward, and you could say that in order to create this harmony, the purpose of the work is much more important, because in the old world you went (to) work in order to earn your living. But now in this new world, when you have to combine, actually you speak about your lifes purpose.

Satya Nadella: Yeah. In fact, people talk about, you know, what's happening in the labor market as ‘great resignation’. The reality is, if you look at the data, it's really not the great resignation — it's the great reshuffle. Because people are actually not leaving the workforce, they're changing their jobs because they want either a different profession, a different industry or a different company. And so, one of the things to your point, it is about really finding the meaning in your work where what you want and what the company is doing are resonating. And I think that that's going to become very, very important. And it's fantastic. I think in general, an empowered employee, an empowered labour movement, I think is a much-needed thing for companies to really get to a place where they're able to thrive. Because otherwise, if work is transactional, I think the company suffers.

Klaus Schwab: Yeah, but Satya, in reality, I mean in the daily life of the company of Microsoft, how do you implement it? What would you say what are the key facets of this integration?

Satya Nadella: To me, that's why I think I look at even my job and the job of every leader and every employee. It's a lived culture. Ultimately, what is a company? Company is what happens to me every day when I walk into the company. Am I able to bring my best, do my best, and get deep satisfaction and meaning? If that is not achievable, it's very, very hard to sort of talk about a lot of concepts in the abstract. So I think I always bring it down to lived experience. And that lived experience is not going to be perfect. No company is going to be perfect all the time. In our case, one of the greatest blessings we've had is we took Carol Dweck’s work on child psychology and growth mindset, took that and adopted that as our cultural meme, in terms of confronting our fixed mindset each day. And that is being super helpful, Klaus, because it gives- even me every day I'm not perfect, but can I go learn and help get better? And that attitude or that approach to culture, I think is the only way to help everyone, to your point, implement a lived culture that really thrives and strives to get better.

Klaus Schwab: To change for a moment, we have just some minutes left, but to change the subject and to take something up which is very much in the mind of participants here. It’s the value chain, and how do you home shore or reshore to create much more resilience in your system? And I coined the expression of trust, surely, which means you have to look at not only a company partner to have trust into him, but also the government which is behind. Does this have an influence on your corporate policies?

Satya Nadella: Yeah, for sure. I mean, I think what the world sort of realized is perhaps a couple of things. One is a super optimized value chain may not be the most resilient value chain in times of crisis. So therefore, thinking about the tail event impact on what your resilience is now, I think not a tabletop exercise, but I think every board, every company, every country is going through.

But take Ukraine, it's actually very interesting. If Ukraine, in the name of sovereignty, did not have the ability to migrate all of their critical systems to a public cloud that's running in Europe, it wouldn't be resilient. So, I think even the definition of what resilience looks like and continuity looks like also has multiple dimensions. But there is a certain amount of near-shoring, a certain amount of reconfiguring, a certain amount of multiple sourcing. This, I think, is all going to become very, very key because in other words, you have to test for all kinds of tail events. The next tail event may not be the type of thing that we had, and this may not be a pandemic. It may be something else. But the point is, do you have resilience? And I think that that's definitely an exercise that every business in every country is going through. But I do believe that connectivity is still important because that is not, you know, in some sense, connectivity is needed for resilience, but what type of configurations are there in the connective tissue? That's, I think, the real question.

Klaus Schwab: So it's the interoperation ability?

Satya Nadella: I think of it in terms of network paths. See, the thing is, whenever you have a graph that has got only a single path, it's problematic. But if you have multiple paths, then you can traverse the graph much more easier. That's why it's a supply web and not a supply chain.

Klaus Schwab: One very last question. You are now, if not to my highest valued company, the world is the limit. You’ve had tremendous success in the last years. Where do you see a limit, if there is a limit?

Satya Nadella: At the end of the day, our growth is subject to the following limit. Right, which is the world around us. I always say this, which is Microsoft will only do well when the world around us is doing much better. So, in other words, there is no way for Microsoft to be successful given our business model, if the input we produce, which is digital technology, is not creating tons of value added output that is leading to economic growth in the world. So if one thing that I think we all have to still strive for is inflation-adjusted economic growth in the world that is aligned with the planet, that is more equitable. That to me is going to be the most important thing that we will have to achieve in the world in order to earn our right to continue as a business.

Klaus Schwab: So I think on behalf of the participants, I wish you a good path in your job.

Satya Nadella: Thank you.

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