'Post-merger integration is usually painful, slow and costly'

Microsoft Corp. CEO Satya Nadella, '97, outlined his vision for the company's future last week in a memo to employees, and plans to provide more details on what lies ahead for employees July 22 in the company earnings report. Reporters who are planning additional coverage on the topic may use comments in whole or in part from University of Chicago Booth School of Business.

"I am surprised that Mr. Nadella’s memo mentioned Nokia only once. How important is Nokia to Microsoft's plans? There are two interrelated issues. First, is it a key piece of the strategy puzzle, helping MS generate a multi-device platform tied to their Cloud services? If so, will Microsoft attempt to follow Google's lead (and Microsoft's own history) by focusing on operating systems more than hardware?

"Second, to the extent that Nokia plays a role, how will Microsoft achieve integration? Post-merger integration is usually painful, slow and costly. Typically integration focuses on key employees — in this case, those would likely be key R-and-D and strategy employees at Nokia — combined with layoffs among the workforce of the acquired company. Alternatively, might Microsoft plan to eventually spin Nokia off after integrating its products more closely with Microsoft's?

"More generally, Microsoft's history is not as a hardware company, but as an OS company. Now it is using a mix with Apple's approach (tablets, phones). I will be interested to see how that question plays out over the next five years.

"Microsoft has substantial advantages, despite recent challenges. It has an enormous installed base, particularly among corporate users, with high switching costs. Its products are generally close in features and quality to the competition, with a few interesting exceptions. It has always had an innovative workforce, though it hasn't always been given credit for this. If Mr. Nadella can clearly articulate a strategy that matches Microsoft's strengths with the competitive forces they face, and is implementable, he stands a good chance of focusing his considerable human and other resources effectively."

Professor Gibbs is available for further comment at michael.gibbs@chicagobooth.edu.