Microsoft CEO candidate Nadella: Here's what Ballmer taught me

Satya Nadella -- one of a small handful of alleged internal candidates for the Microsoft CEO job -- has been at the company for 21 years. Since 2011, he's been running Microsoft's lucrative server and tools businesses (His official title, as of the July 2013 reorg, is Executive Vice President of Cloud and Enterprise.)

For the last three years, Nadella, who is a member of Microsoft's senior leadership team, has reported directly to Ballmer.

While there are plenty of critics who've lambasted Ballmer for being slow to respond to changing industry dynamics -- of being a follower instead of a leader -- Nadella said he felt Ballmer struck a better balance than for what he's credited, in terms of cadence and priorities.

Ballmer "is perhaps one of the most grounded people I run across in this place around what our current realities are," Nadella told me during a sit-down interview in Building 34 in Redmond at the end of November, when I talked with him about outgoing Steve Ballmer's legacy.

Nadella recalled a performance review he had with Ballmer two or three years ago.

"I went to him and sort of said, 'Hey, you know, how am I doing?" The first thing he said is,'Dude, you're going to know it, I'm going to know it, so don't keep asking me. You know, we're all going to know what is happening because it's going to be in the air.'

"The second thing I asked him, 'Hey, what about all these past grades and how did they do? And how am I doing relative?'" Nadella said. "He said, 'Why does that matter? Look, this business is not about longevity of any idea. It's all about inventing new formulas. So the thing that I would want to really evaluate you on and I want you super focused on is not how I did or anyone else did with any opportunity we had, because that's not going to tell you anything about the future opportunity.'"

While Ballmer is extremely detail-focused, Nadella said there's never been a meeting in which Ballmer asked something like "have you optimized this CAL (client-access license) with this thing or what have you." Instead, it's "mostly all about what is the next play," Nadella said.

The notion is "there's nothing in this industry -- and definitely in this particular segment -- that's built to last," Nadella continued. "It's all about being able to reinvent yourself.

"And that, I think, is his lasting legacy," said Nadella of Ballmer. "As he would say, it's about batting averages. You're not going to take everything and be a hit. It's not like, oh, we have a great enterprise business. In fact, we have had many enterprise business births and deaths in his tenure."

In the enterprise specifically, Microsoft has evolved from a client-enterprise, to a client-server-enterprise, to a server-workload business. The current phase is cloud. But even that business-model and architectural shift has roots in the so-called Energizer project -- via which Microsoft's IT department provided customers directly with services starting back in 2005.

Nadella said Ballmer told him "all formulas have a timeline or a half-life. And if you don't sort of get focused on inventing the new formula at the right time, you're dead in this business."

At the same time, because everything about Ballmer's approach has been about the long-term, he hasn't been a leader who makes changes haphazardly.

Nadella cited device management as an example.

"There is a very important (management and security) construct called domain join we invented. You could say the IT folks may have misused it to screw up some of the experiences in some cases. But you don't throw the baby out with the bath water.

"You have to reimagine and build new constructs, which we have done with this workplace join," Nadella continued. But we also have to grandfather in other devices into this concept. That doesn't mean we somehow go away from speaking about the virtues. In fact, the fascinating thing that we're seeing now is customers are all realizing, in fact, even our competitors are realizing that this information assurance is probably what enterprises need. They can't willy-nilly let any device come into the enterprise, install any application with no data protection and no ability to test to the device state."

Nadella said Ballmer's often is the first to question new ideas. He cited Microsoft's Windows Intune device security and management service as an example. When Nadella first pitched Ballmer about the evolving bring-your-own-device (BYOD) dynamic and the need to repivot to become more of a cloud service for managing Windows and non-Windows, he got a lot of pushback from Ballmer about the branding, to the concept, to the business model. Why not just continue to rely on System Center, Ballmer wanted to know.

"You come up with an idea, he'll say, 'That's the dumbest thing.' Or, 'I don't buy that,'" Nadella said. "But with him, you've got to just keep going back. You keep going back."

This is a trait Ballmer shared with Chairman Bill Gates, Nadella said. (I can confirm it from an outsider perspective, having been on the receiving end of more than one "That's the stupidest question I ever heard" rants from Gates back when he was CEO.)

"They (Gates and Ballmer) yell at you, they'll scream at you, they'll sort of say you're crazy and you're destroying this place," Nadella said. "And all the melodrama aside, you come back at it with the data, with the -- with your own conviction, because a lot of that stuff is all to test whether you know what you're talking about."

The result: Ballmer may change his position. Sometimes in very big ways.

"I keep my score on that. And whenever he does, and he'll sort of say, 'Yeah, you were right.' And he'll move on," Nadella said.

Ballmer may be the first to acknowledge he isn't a tech guy, but he really does understand tech-product detail, Nadella maintained.

"He's one of our best and most critical users of all our stuff, as we find out the hard way," Nadella (who, himself, has a bachelor's degree in electrical engineering and master's degrees in computer science and business administration) admitted.

Ballmer did a lot of the heavy lifting that helped turn Microsoft into an business powerhouse, with between 55 and 58 percent of the company's revenues coming from enterprise sales. But his full set of contributions, especially in reframing the company and getting new cloud and device capabilities built, has not come to fruition yet, Nadella said.

"Steve's contribution to broadly computing as well as to this company I think will be better told, quite frankly, in five, ten years when there's more distance," Nadella said. "It'll be shaped by, in fact, what we do next."

(As far as what's next for Nadella, regarding Microsoft's ongoing CEO search, there were no comments, hints or winks, sad to say....)