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CASE STUDY: How Satya Nadella overhauled Microsoft's cutthroat culture and turned it into a trillion-dollar 'growth mindset' company

Ashley stewart,shana lebowitz   .

Lehtikuva, Markku Ulander/AP Photo; Yuri Gripas/Reuters; Fabrizio Bensch/Reuters; Ruobing Su/Business Insider

Satya Nadella is the CEO of Microsoft. Steve Ballmer and Bill Gates are the former CEOs.

• Microsoft is a trillion-dollar company thanks largely to a culture shift led by Satya Nadella.
• Since Nadella became CEO in 2014, he's encouraged the entire company to adopt a growth mindset, or the belief that skills are developed through hard work and challenges are opportunities to learn.
• Before Nadella took over, Microsoft was characterized by competition between teams and between individual employees.
• Now, in keeping with a growth mindset, Microsoft evaluates employees' performance based partly on how much they helped their colleagues succeed. The company also looks to learn from its former rivals in the tech industry.
• Business Insider spoke with a range of company insiders and organizational researchers to get the inside story on how to change the culture of a 150,000+ employee software giant.
• Microsoft is a case study in how a growth-mindset culture can help companies succeed in the future economy.
• Click here for more BI Prime content.

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A cartoonist once drew an illustration depicting Microsoft's organizational chart as warring factions.

Take a look and you'll see three separate gangs: one blue, one green, one yellow. The gangs are assembled in pyramid-shaped hierarchies, with one leader at the top, two or three deputies at the next level, and so on.

A hand sticks out from each pyramid, pointing a gun directly at one of the others. It's clear. This is war.

And then Satya Nadella became CEO.

Nadella described the era of warring gangs in his 2017 memoir-manifesto, " Hit Refresh :" "Innovation was being replaced by bureaucracy. Teamwork was being replaced by internal politics. We were falling behind."

That particular cartoon - drawn in 2011 by a Google employee named Manu Cornet , no less - made changing Microsoft's culture Nadella's No. 1 goal as CEO.

"As a 24-year veteran of Microsoft, a consummate insider, the caricature really bothered me. But what upset me more was that our own people just accepted it," Nadella wrote. "When I was named Microsoft's third CEO in February 2014, I told employees that renewing our company's culture would be my highest priority."

Since becoming CEO, Nadella has been credited with a grand reinvention of Microsoft, exemplified by its market value exceeding $1 trillion, one of just a handful in history to hit that mark. When Nadella first took over, its market value was around $300 billion. The company has shifted from a has-been to a cloud powerhouse.

One of the keys to this transformation is a psychological concept that's become a mantra at Nadella's Microsoft: growth mindset .

Microsoft has traded a fixed mindset for a growth mindset

Growth mindset describes the belief that skills are developed through hard work and that challenges are opportunities to learn. Fixed mindset, on the other hand, refers to the belief that talent is innate and that struggling is a sign of failure. Research on the difference between growth and fixed mindset - and how they predict success - was pioneered by Stanford's Carol Dweck.

Early on in her career as a developmental psychologist, Dweck visited children at school and presented them with a series of increasingly difficult puzzles. Her goal was to better understand how people cope with failure. Some students, she found, weren't fazed by it.

In her 2006 book, " Mindset ," she recalls one 10-year-old boy who "pulled up his chair, rubbed his hands together, smacked his lips, and cried out, 'I love a challenge!'"

Dweck would spend the next five decades trying to figure out the difference between people who relish a good challenge and those who fear failure. Scores of studies published under her name suggest that people who see intelligence and abilities as learnable are more successful, personally and professionally, than people who think they're static.

Recently, Dweck coauthored a study that drew a link between growth mindset and organizational success . Employees who think their companies have a fixed mindset, the study found, interpret the company's culture as less collaborative, less ethical, and less willing to take risks than employees who think their companies have a growth mindset.

Given the rapid pace of technological change , these research findings are hyper-relevant. Across industries, adopting a growth mindset may be the only way to survive, and certainly the only way to thrive. When neither executives nor rank-and-file employees can predict what their jobs will look like next week, they need to embrace the resulting vulnerability, and get excited about learning.

Plenty of companies, in industries from telecommunications to early education, talk about cultivating a growth mindset , and about looking for job candidates who have it . But Microsoft is perhaps the most powerful example of an organization that has used growth mindset, and the psychology behind it, to rebuild its culture.

In many ways, fixed mindset and growth mindset can describe Microsoft before and after Nadella.

Nadella has encouraged Microsoft employees to be 'learn-it-alls' instead of 'know-it-alls'

Bill Gates is the founder and former CEO of Microsoft. He was famous for his meltdowns.

Gates was famous for meltdowns and browbeating - so much so that Microsoft cofounder Paul Allen once described working with Gates as "being in hell." Gates would only back down if you could convince him you knew what you were talking about, Allen said.

Gates' successor, Steve Ballmer, also known for an explosive temper, later presided over the atmosphere depicted in that cartoon Nadella was determined to address. Ballmer was known for cultivating a culture in which Microsoft teams warred with each other, as previously reported by Business Insider .

Nadella, who joined Microsoft as an engineer in 1992, came up in this culture, before becoming CEO in early 2014.

By that point, the company's bid to compete in the smartphone market through the purchase of Nokia was proving to be a burden and would lead it to write off nearly the entire $7.6 billion acquisition price. The personal computer market was shrinking, leading to declines in Microsoft's flagship Windows operating system business, and the Xbox One console's poorly received launch made it a punchline.

Microsoft's history as a tech-industry pioneer wouldn't help the company compete, Nadella wrote in an email to employees on his first day as CEO. The company needed a change in mindset.

"Our industry does not respect tradition - it only respects innovation," Nadella wrote on Feb. 4, 2014, in a memo to employees days after taking on the CEO role. "Every one of us needs to do our best work, lead and help drive cultural change. We sometimes underestimate what we each can do to make things happen and overestimate what others need to do to move us forward. We must change this."

Nadella's leadership philosophy evolved into the adoption of a growth mindset. He asked employees to be "learn-it-alls," not "know-it-alls," and promoted collaboration inside and outside the organization. Employees are now evaluated partly on how much they've helped others on their team.

Microsoft introduced a new performance-management framework based on growth mindset

With any company culture shift, executives run the risk of promoting jargon more than action, and of HR representatives being the only ones who know there's a culture change underway.

Microsoft has tried to avoid that fate, not only by training its employees on the psychology of growth mindset, but also by embedding the concept into its daily work flow.

Prompts to adopt a growth mindset appear on posters throughout Microsoft's campuses ( something at which employees sometimes poke fun ). At the start of a meeting, a manager might remind colleagues to approach an issue with a growth mindset.

And in one of the most significant manifestations of growth mindset, Microsoft has eliminated stack ranking .

Stack ranking was famously used by Jack Welch when he was CEO of General Electric. Ballmer used the system at Microsoft to evaluate employees, although he did start phasing it out prior to his departure. Microsoft managers had to rank their employees from one to five in equal measure. Which meant that, no matter how good the employees were, some of them had to get the lowest ranking of a five.

Performance was defined in stack ranking as the quality of individual work, and that emphasis on individual performance was linked to fierce competition among Microsoft employees. It was also a barrier to Microsoft's innovation, since it facilitated a culture that rewarded a few standout team members and even gave employees incentive to hope their colleagues failed.

As Microsoft's chief human resources officer, Kathleen Hogan has overseen the adoption of a growth mindset.

Dweck's research helps explain this trend, too. Her studies suggest that stack ranking's emphasis on "star" employees can leave everyone else afraid to try anything new, for fear of failing. In turn, that means companies are less innovative.

Microsoft leadership says its new system for evaluating employees instead rewards collaboration. Managers and employees meet often to discuss performance , in keeping with the general trend of companies nixing annual reviews and having managers regularly speak with employees about their work.

"What we really value is three dimensions," said Hogan , Microsoft's chief people officer. "One is your own individual impact, the second is how you contributed to others and others' success, and the third is how you leveraged the work of others."

To use Hogan's examples, maybe a more seasoned employee helped someone new to the team, or a software engineer built on another engineer's work instead of reinventing it.

Microsoft recently applied growth mindset to a new framework for managers : model, coach, care. That's a combination of setting a positive example for employees, helping the team adapt and learn, and investing in people's professional growth.

To measure the impact of these initiatives in real time, Microsoft emails employees with a different question every day asking how they're feeling about the company and its culture.

The shift from competition to collaboration might seem like it would be a breath of fresh air. And on the whole, it has been. But employees say it's presented its own challenges, too.

Nadella pushes Microsoft executives to take on stretch assignments

Peter Lee said becoming corporate vice president of Microsoft healthcare was a huge challenge.

It was 2017 and Lee - now corporate vice president of Microsoft healthcare - had long worked on broader technology problems as a key leader in Microsoft Research, the company's research division.

Nadella wanted him to take on a new challenge and lead the company's emerging health care business, using his background in artificial intelligence and cloud computing to find new ways to tune the products to the needs of healthcare companies.

"Taking on healthcare was something that really perplexed me at first," he said. "I joked Satya sent me out into the Pacific Ocean and said, 'Go find land.'"

Adopting a growth mindset can be uncomfortable, he said.

"Growth mindset is a euphemism because it can feel pretty painful, like a jump into the abyss," he said. "You need to be able and willing to confront your own fixed mindset - the things that make you believe something can't work. It's painful to go through personally, but when you get past it, it's tremendously rewarding."

The transition has been edifying, both in terms of his personal growth - Lee was recently named to the National Academy of Medicine - and Microsoft's growth in the industry, as it establishes itself as a meaningful player in healthcare tech.

Microsoft now sees the business case for letting go of its rivalries with other tech giants

Under Ballmer, Microsoft was notorious for prioritizing its Windows operating system and Office productivity applications businesses over the rest of the company - at one point, it even canceled the Courier tablet, which would have been an early, future-looking competitor to Apple's iPad, because it may have undermined Windows.

Likewise, Microsoft once shunned Linux, a free open-source operating system once considered the biggest threat to Windows. Ballmer once called it a "cancer." But early on in Nadella's time as CEO, Microsoft changed tack and proclaimed, " Microsoft loves Linux ."

It wasn't just Microsoft being friendly. There was a strong business case for blurring boundaries. At the time, Microsoft said it realized its customers used both Windows and Linux, and saw providing support to both as a business opportunity on-premise and in the cloud. That would have been unthinkable in the Ballmer years, but it's proven to be a savvy business move: Microsoft recently hinted that Linux is more popular on its Azure cloud platform than Windows itself.

Microsoft's relationship with Salesforce has followed a similar trajectory. Whereas Ballmer had frequent and public bouts with Salesforce CEO Marc Benioff , Microsoft under Nadella put aside its rivalry with Salesforce - which competes directly with Microsoft's customer-relationship-management Dynamics 365 product - in order to ink a big cloud deal that was good for the company overall.

Nadella even invites leaders from companies across industries to Microsoft's CEO Summit so the executives can learn from each other. Ballmer, meanwhile, famously snatched an employee's iPhone at a company meeting and pretended to stomp on it.

Which is not to say Microsoft always plays nice in the Nadella era. The company last summer changed licensing agreements to raise prices - often significantly - when customers choose to run certain Microsoft software on rival clouds including Amazon Web Services or Google Cloud. And it's been trading public barbs with AWS over the still contested $10 billion Pentagon cloud contract.

The Trump administration awarded the contract to Microsoft over AWS, but Amazon is challenging the decision in court, alleging political interference. In February, a judge ruled that Microsoft must stop working on the contract.

The culture shift at Microsoft is an ongoing process

The beginning of Microsoft's culture shift was rocky.

In "Hit Refresh," Nadella recalls a Microsoft manager who announced in the early days, "Hey, Satya, I know these five people who don't have a growth mindset." Nadella writes, "The guy was just using growth mindset to find a new way to complain about others. That is not what we had in mind."

Even today, Microsoft leaders acknowledge that the culture change isn't over . Things have improved under Nadella, but the company culture is still far from perfect.

Diversity is an opportunity for improvement at Microsoft. Much like the larger technology industry , Microsoft still employs relatively few women and people of color in leadership and technical roles.

One of Nadella's biggest gaffes as CEO happened early on in his tenure, when he suggested women should not ask for raises, but rely on "faith" and "karma." After these comments, Nadella sent out an internal memo admitting to his mistake, explaining how he planned to learn from it, and stating his belief in "equal pay for equal work."

Nadella writes in "Hit Refresh" that in some ways he's glad to have belly-flopped in public. "It helped me confront an unconscious bias I didn't know I had," Nadella writes, "and it helped me find a new sense of empathy for the great women in my life and at my company."

Kevin Oakes, who runs a human-resources research company that helped Microsoft with its shift toward growth mindset, sees Nadella as an exemplar of a leader during a transition. That's largely because Nadella practices the growth mindset he preaches. In a presentation at Talent Connect, an annual conference organized by LinkedIn (which is owned by Microsoft), Oakes said Nadella has been Microsoft's "culture champion." Nadella understands that organizational culture is critical to the company's performance, Oakes said.

But today's Microsoft is still far from perfect. The positive contributions of growth mindset have not yet matched up with diversity and equity for Microsoft's workforce, according to some employees. Microsoft is the subject of a gender discrimination lawsuit still pending , which was denied class-action status by a federal judge. Employees have also openly alleged sexual harassment and discrimination.

The company released its first diversity and inclusion report in 2019 to track its progress in hiring - and retaining - a more diverse workforce. Results from that report showed that minorities in Microsoft's US offices earned $1.006 for every $1 white employees earned. A closer look reveals that white men still held more high-paying leadership positions than women or underrepresented minorities.

Meanwhile, Microsoft leadership still has some philosophical differences with employees as it relates to employee activism. Employee groups have protested Microsoft and Microsoft-owned GitHub's relationship with Immigration and Customs Enforcement, and more recently, some employees have said Microsoft's relationship with oil and gas companies is at odds with the company's goal to become "carbon negative" by 2030.

The Xbox Adaptive Controller is designed to be used by people with limited mobility. It was advertised during the 2019 Super Bowl.

At that point, Neal recalled, a third meeting participant addressed the male colleague to ask whether perhaps he hadn't understood the female colleague's point. And Neal said it wasn't a passive-aggressive attack. Senior leaders are encouraged to "be curious and ask questions, versus making statements," as a way of modeling growth mindset, he added.

Microsoft has been equally vocal about diversity and inclusion within its customer base, building products that are accessible to as many users as possible. Ben Tamblyn, a 15-year company veteran and Microsoft's director of inclusive design, mentioned Xbox as a prime example. In 2018, Tamblyn helped oversee the release of the Xbox Adaptive Controller , which makes it easier for gamers who have limited mobility or physical impairments to play. (Interviews with Neal and Tamblyn were arranged by Microsoft's public-relations firm.)

Microsoft is a case study in growth mindset

Microsoft's culture shift, and its accompanying business turnaround, is already a case study in business schools and in reports from management consultancies and research centers . That makes sense to Mary Murphy, a professor of psychological and brain sciences at Indiana University and Dweck's co-author on the paper about growth mindsets within organizations.

Growth mindset is essential for innovation in the technology industry, Murphy said, where change rarely happens incrementally. Instead, there are big inflection points from which there's no return. Microsoft, Murphy added, needs to be on the "cutting edge" of growth mindset in order to stay relevant.

Nadella, for his part, has modeled a growth mindset from the top of the organization, not least in his response to his tone-deaf comments about gender and compensation. "I learned, and we will together use this learning to galvanize the company for positive change," Nadella wrote in the memo he sent apologizing for the comments. "We will make Microsoft an even better place to work and do great things."

Got a tip? Contact reporters Shana Lebowitz via email at [email protected] and Ashley Stewart via email at [email protected] , message her on Twitter @ashannstew, or send her a secure message through Signal at 425-344-8242 .

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Revitalizing Microsoft: Satya Nadella’s Cultural Transformation

Naresh Sekar

When Satya Nadella became CEO of Microsoft in 2014, the company was at a critical juncture. Once the undisputed leader in personal computing, Microsoft was facing significant challenges from competitors like Apple, Google, and Amazon. The company had become known for its competitive and hierarchical corporate culture, which was stifling innovation and collaboration. Nadella’s leadership brought a transformative change emphasizing a growth mindset and psychological safety, encouraging employees to learn from failures and collaborate openly. This case study explores the challenges faced by Microsoft, the solutions implemented by Nadella, and the outcomes and impacts of this cultural shift.

Background Information

Historical Context

Microsoft, founded in 1975 by Bill Gates and Paul Allen, became a dominant player in the technology industry, primarily due to its Windows operating system and Office productivity suite. By the early 2000s, Microsoft was a global leader, but it faced growing competition and criticism for being slow to innovate in emerging markets like mobile computing and cloud services.

Economic Factors

The technology sector is characterized by rapid innovation and fierce competition…

Written by Naresh Sekar

Loves Engineering Management at scale. Interested in learning via real-world case studies.

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Culture Transformation at Microsoft: From ‘Know It All’ to ‘Learn It All’

• Format: Print
• | Language: English
• | Pages: 17

About The Author

Francesca Gino

Related work.

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• Culture Transformation at Microsoft: From ‘Know It All’ to ‘Learn It All’  By: Francesca Gino, Allison Ciechanover and Jeff Huizinga

Case Study: Microsoft’s Cultural Transformation Through Storytelling

by Kam Amilthan | Feb 5, 2023 | Blog | 0 comments

Case Study: Microsoft’s Cultural Transformation Through Storytelling

Feb 5, 2023 | Blog | 0 comments

The Challenge

When Satya Nadella took over as the CEO of Microsoft in 2014, he inherited a corporate culture plagued by internal competition, division, and lack of collaboration. The company was struggling to innovate and keep pace with the rapidly evolving tech landscape. The ‘rank-and-yank’ culture was hampering the company’s growth and its ability to attract and retain top talent.

The Approach

Recognizing the need for cultural transformation, Nadella decided to tap into the power of storytelling to inspire change. He was determined to transition the company from a ‘know-it-all’ culture to a ‘learn-it-all’ one, emphasizing continuous learning, growth, and collaboration.

In his first email to the company, Nadella quoted Friedrich Nietzsche, “That which does not kill us makes us stronger.” This quote was a rallying cry, encouraging employees to embrace challenges and learn from failures.

Nadella began sharing stories from Microsoft’s past, present, and future to promote learning and innovation. For example, he narrated how Microsoft’s first product was a Basic interpreter for the Altair 8800, and it was not perfect but full of bugs. Still, it led to Microsoft’s eventual success in the software market.

He also shared personal stories, like his children’s struggles with severe disabilities. These stories not only demonstrated resilience in the face of adversity but also highlighted the potential impact of technology in making people’s lives better. This inspired employees to think about the purpose of their work and how it can contribute to the greater good.

By sharing these stories, Nadella sparked a cultural shift at Microsoft. Employees were no longer focused solely on personal achievements; they were encouraged to learn, collaborate, and contribute to the company’s mission of “empowering every person and every organization on the planet to achieve more.”

Employee engagement soared, and Microsoft started attracting top tech talent again. The company saw a resurgence in innovation, leading to successful ventures into cloud computing and artificial intelligence.

Satya Nadella’s leadership and his use of storytelling as a tool for cultural transformation prove how powerful narratives can be in shaping a company’s culture. He turned around a struggling tech giant by inspiring employees with stories of resilience, growth, and purpose. His story teaches us that storytelling is not merely about sharing anecdotes; it’s about guiding and motivating people towards a shared goal. As Nadella said, “Our industry does not respect tradition. It only respects innovation.” Through storytelling, he instilled this respect for innovation in Microsoft’s culture, setting it on a path to regain its position as a leading tech innovator.

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Satya Nadella at Microsoft: Instilling a Growth Mindset

By herminia ibarra , aneeta rattan.

• Organisational Behaviour

When Satya Nadella took over as CEO of Microsoft in 2014, he inherited a firm fading toward irrelevance, plagued by internal fights and inertia. Earlier that year his wife, Anu, had given him a best-selling book by Stanford psychologist Carol Dweck entitled Mindset: The New Psychology of Success, suspecting it might give Nadella some ideas for Microsoft. He adapted the idea to encourage employees to shift from Microsoft’s historical “know-it-all” culture to embrace a “learn-it-all” curiosity. The case study provides background on Nadella’s challenges and context, as well as how he and his leadership team executed their culture change effort.

Learning objectives

• Show a leader’s thought process on the need for culture change, with particular focus on the vision for change as a reflection of the life experiences of the leader.
• Detail the execution levers that Nadella and his team identified and used during the change process.
• Introduce the concept of organisational culture, focusing on the process of culture change and the role of leaders and their teams in reinforcing or transforming culture.
• Introduce the idea of “mindsets,” focusing on how they affect behaviour and reflect organisational culture, and what leaders can do to inculcate a growth mindset as a means of making cultural change and enhancing organisational performance.

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PRESENTING: Satya Nadella employed a 'growth mindset' to overhaul Microsoft's cutthroat culture and turn it into a trillion-dollar company — here's how he did it

A cartoonist once drew an illustration depicting Microsoft's organizational chart as warring factions. 

Take a look and you'll see three separate gangs: one blue, one green, one yellow. The gangs are assembled in pyramid-shaped hierarchies, with one leader at the top, two or three deputies at the next level, and so on.

A hand sticks out from each pyramid, pointing a gun directly at one of the others. It's clear. This is war.

And then Satya Nadella became CEO.

That particular  cartoon  – drawn in 2011 by a Google employee named  Manu Cornet , no less – made changing Microsoft's culture Nadella's No. 1 goal as CEO.

"As a 24-year veteran of Microsoft, a consummate insider, the caricature really bothered me. But what upset me more was that our own people just accepted it," Nadella wrote. "When I was named Microsoft's third CEO in February 2014, I told employees that renewing our company's culture would be my highest priority."

Since becoming CEO, Nadella has been credited with a grand reinvention of Microsoft, exemplified by its market value exceeding $1 trillion, one of just a handful in history to hit that mark. When Nadella first took over, its market value was around $300 billion. The company has shifted from a has-been to a cloud powerhouse.

One of the keys to this transformation is a psychological concept that's become a mantra at Nadella's Microsoft:  growth mindset .

Subscribe here to read our feature: Satya Nadella employed a 'growth mindset' to overhaul Microsoft's cutthroat culture and turn it into a trillion-dollar company — here's how he did it

Watch: How one CEO went from rejecting an offer from Steve Jobs to an $11 billion IPO

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Transforming culture at Microsoft: Satya Nadella sets a new tone

At a glance.

By Harry McCracken

Satya Nadella’s corner office, on the fifth floor of Building 34 at Microsoft’s Redmond, Washington, headquarters, features a can’t-miss 84-inch Surface touch-screen computer that dominates one wall. But what demands even more attention are the vast quantities of books in the room.

They fill rows of shelves and are piled by the dozen on a long table next to Nadella’s desk.

The place looks more like a neighbourhood bookshop than the command centre for the third-most-valuable company on the planet. 

“I read a few pages here or a few pages there,” Nadella says, in his typically understated manner.

“There are a few books, of course, that you read end-to-end. But without books I can’t live.”

He is sitting in a turquoise armchair, with multicoloured socks peeking above his casual brown shoes. The stacks around him include heady tomes such as Bionomics and How Will Capitalism End? , but his taste is eclectic. 

At one point during our conversation he references a Virginia Woolf essay about illness; at another, Trinidadian author C.L.R. James’s literary take on cricket.

When explaining the impact of Microsoft’s Cortana AI assistant, Nadella eschews market-share data for Shakespeare: “If Othello had Cortana, would he have recognised Iago for who he was?”

"Bill's not the kind of guy who walks into your office and says, 'hey great job'."

One of Nadella’s first acts after becoming CEO, in February 2014, was to ask the company’s top executives to read Marshall Rosenberg’s Nonviolent Communication , a treatise on empathic collaboration.

The gesture signalled that Nadella planned to run the company differently from his well-known predecessors, Bill Gates and Steve Ballmer, and address Microsoft’s long-standing reputation as a hive of intense corporate infighting. (Programmer/cartoonist Manu Cornet crisply summed up the Microsoft culture in a 2011 org chart spoof that depicted the various operating groups pointing handguns at each other.) 

The reading assignment “was the first clear indication that Satya was going to focus on transforming not just the business strategy but the culture as well,” says Microsoft president and chief legal officer Brad Smith, a 24-year company veteran.

Taking the helm at Microsoft

The Microsoft that Nadella inherited was regarded by both Wall Street and Silicon Valley as fading toward irrelevance. The tech industry had shifted from desktop computers to smartphones – from Microsoft’s Windows to Apple’s iPhone and Google’s Android. (Windows’ market share on phones fell to below four per cent.)

Apple and Google had soared to record market valuations; Microsoft’s stock price had stalled, despite the fact that revenue had tripled and profits had doubled during Ballmer’s reign as CEO from 2000 to 2014.

“It was an enormously profitable company,” says Jackdaw Research analyst Jan Dawson.

“They were in no danger of going out of business soon – it was just a question of whether they’d go into permanent decline.”

Consequently, when Ballmer announced his intention to retire in August 2013, succeeding him was seen neither as a plum assignment nor an opportunity for business to continue as usual. A Bloomberg story about the search for a successor was simply titled “Why You Don’t Want to Be Microsoft’s CEO.”

“I was envisioning [someone with] more of a bull-in-a-china-shop mentality,” says Mason Morfit, the president and CIO of ValueAct , an activist hedge fund that had gotten a say in the new CEO hire by investing US$2 billion in Microsoft. “I was personally more inclined to lean toward an outsider.” 

So were most other Microsoft watchers. Nadella, who had joined the company in 1992 at the age of 25, was hardly a favourite, despite the fact that he was already running Microsoft’s cloud business.

(“There’s no question that I’m an insider,” Nadella says, with a touch of cheerful defiance. “And I’m proud of it! I’m a product of Microsoft.”) When his name was announced, some critics described the choice as a fallback.

Since then, Nadella has not only restored Microsoft to relevance; he’s generated more than US$250 billion in market value in just three and a half years – more value growth over that time than Uber and Airbnb, Netflix and Spotify, Snapchat and WeWork. Indeed, more than all of them combined.

Only a handful of CEOs – names like Bezos , Cook, Zuckerberg – can boast similarly impressive results. 

Microsoft’s shares have not only returned to their dotcom-bubble highs but surpassed them.

“[Nadella] has exceeded all my expectations,” says Morfit, now a member of Microsoft’s board. “I wish I could say we saw it all happening. That wouldn’t be honest.”

Culture shift

How Nadella turned things around comes back to the book he had his top lieutenants read, and the culture that took hold from there.

He has inspired the company’s 124,000 employees to embrace what he calls “learn-it-all” curiosity (as opposed to what he describes as Microsoft’s historical know-it-all bent) that in turn has inspired developers and customers – and investors – to engage with the company in new, more modern ways. 

Nadella is a contemporary CEO able to emphasize the kinds of soft skills that are often derided in the cutthroat world of corporate politics but are, in today’s fast-moving marketplace, increasingly essential to outsize performance.

“There’s a long list of other leaders Microsoft could have hired,” says Aaron Levie, CEO of Box, which made its name as a cheeky start-up by putting up billboards bashing Microsoft but now partners with the company on a variety of fronts.

“There aren’t a lot of case studies about cultural shifts of the size and scale that Satya is creating.”

It’s 8 o’clock on a Friday morning – which means that the members of Microsoft’s senior  leadership  team (SLT) are gathering around a horseshoe-shaped table in a boardroom down the hall from Nadella’s office.

As additional executives stream in, Surface devices in tow, Nadella, dressed in a black Microsoft AI School T-shirt, plops himself in a seat at the middle of the table and picks at a plate of grapes and pineapple chunks.

The meeting begins with a regular segment, instituted by Nadella, called “Researcher of the Amazing”, which showcases something inspiring going on at the company.

On this day in late June, engineers at Microsoft Turkey, in Istanbul, are patched in via video conference to prototype an app they’ve built for the visually impaired that reads books out loud. 

After an uplifting opening such as that, the weekly meeting can sometimes stretch for as long as seven hours. Initiated by Ballmer late in his tenure as CEO, the SLT session has become a hallmark of Nadella’s team-sport approach to running Microsoft.

He solicits opinions and offers positive feedback throughout, at one point nodding in vigorous agreement with someone’s point while holding a cardboard coffee cup in his clenched teeth, leaving his hands free to gesticulate expansively.

The gathering’s relaxed feel is quite a change from the days when collaboration at Microsoft involved a large dose of showing off how smart you were.

In the past, says president Smith, “all of us who grew up here knew that we needed to be well prepared for every meeting. There’s nothing wrong with that, but that meant trying to discern the answers before the meeting began and then being tested on whether your answers were right. Bill [Gates] and Steve [Ballmer] both used that to great effect to tease apart areas where the thinking needed to be developed further.”

When I ask Nadella for his own account of working with his predecessors, he’s blunt. 

“Bill’s not the kind of guy who walks into your office and says, ‘Hey, great job’,” he tells me. “It’s like, ‘Let me start by telling you the 20 things that are wrong with you today’.” 

Ballmer’s technique, Nadella adds, is similar. He chuckles at the images he’s conjured and emphasizes that he finds such directness “refreshing”. (Upon becoming CEO, Nadella even asked Gates, who remains a  technology  adviser to the company, to increase the hours he devotes to giving feedback to product teams.)

Nadella’s approach is gentler. He believes human beings are wired to have empathy, and that’s essential not only for creating harmony at work but also for making products that will resonate. 

“You have to be able to say, ‘Where is this person coming from?'” he says. “‘What makes them tick? Why are they excited or frustrated by something that is happening, whether it’s about computing or beyond computing?'”

His philosophy stems from one of the principal events of his personal life. In 1996, his first child, Zain, was born with severe cerebral palsy, permanently altering what had been a pretty carefree lifestyle for him and his wife, Anu.

For two or three years, Nadella felt sorry for himself. And then – nudged along by Anu, who had given up her career as an architect to care for Zain – his perspective changed. 

“If anything,” he remembers thinking, “I should be doing everything to put myself in [Zain’s] shoes, given the privilege I have to be able to help him.”

Nadella says that this empathy – though he cautions that the word is sometimes overused— “is a massive part of who I am today. I distinctly remember who I was as a person before and after,” he says. “I won’t say I was narrow or selfish or anything, but there was something that was missing.”

Zain “is just such a joy at this point,” Nadella says of the ongoing inspiration he draws from his son, who turned 21 in August 2017. 

“Everything else that’s happening in my life is suddenly brought into perspective when I think about how he has endured through all his challenges. The one thing that he can communicate is, when I get close to him, he’ll smile. And that makes my day, and makes my life.”

Life with Zain helps explain Nadella’s keen interest in ensuring that Microsoft takes responsibility for making both its workplace and its products accessible to the disabled.

Well before he was named as CEO, he became executive sponsor for the company’s community group for disabled staffers; today, he meets with the group on a quarterly basis and speaks at its annual Ability Summit, which attracted about 850 attendees in 2017. 

“I’ve found him to be a learner, curious, a listener, but very decisive when needed,” says chief accessibility officer Jenny Lay-Flurrie. “Moving things forward in a very collaborative way.”

Paying his dues

Growing up in Hyderabad, India, young Satya Nadella liked computers almost as much as he did cricket. When he was 15, Nadella’s middle-class parents bought their only child a computer kit from Bangkok.

On his 21st birthday, Nadella arrived in the US to study computer science at the University of Wisconsin-Milwaukee. After graduation, he spent a couple years at Sun Microsystems before being lured to Microsoft. It was Microsoft’s boom years – the 1990s – and Nadella found himself steadily promoted. 

“Saying, ‘Well, I’m waiting for the next job to do my best work’ is the worst trap,” he contends. “If you say, ‘The current job I have is everything I ever wanted’, life becomes just so much more straightforward.”

Doug Burgum, who ran Microsoft’s business solutions group and is now governor of North Dakota, became a mentor. 

“Early on,  Jeff Bezos  was trying to recruit him [to Amazon],” says Burgum of Nadella. “It was my job to re-recruit him.” 

Though Amazon had already begun to spread its reach, Burgum successfully argued that the opportunities available at Microsoft beat anything a mere bookseller could offer.

“I was wrong about my characterisation of Amazon,” Burgum admits, “but I was right about convincing Satya to stay.”

"When everybody's celebrating is when you should be most scared."

Burgum groomed Nadella to be his successor. In 2007, at Burgum’s last customer conference at Microsoft, he lavished praise on Nadella in front of an audience of thousands and then handed the keynote off to him. But right after the conference, Ballmer stepped in, reshuffling the staff.

He decided that Nadella would be more valuable running a different group, the engineering arm of Windows Live Search, later known as  Bing .

It wasn’t a no-brainer that the search assignment was a better opportunity than the business solutions one, which carried profit-and-loss responsibility. 

“Steve was very clear,” recalls Nadella, describing the position, which he felt he couldn’t refuse.

“He just said, ‘Look, this is the most important challenge I have. I don’t think this is maybe even a smart decision for you, but I want you to do it. Think wisely, and choose. And by the way, if you fail, there’s no parachute. It’s not like I’m going to come and rescue you and put you back into your old job’.”

In search, Microsoft was an extreme underdog to Google. To compete, it had to operate in a looser way than it did in other domains. 

“I remember when most of the senior execs at Bing carried around iPads to meetings,” says Mark Johnson, who worked at the company after Microsoft acquired the start-up where he worked and who is now CEO of geographic-data provider Descartes Labs. “It was seen as very hip and a symbol of defiance against the Microsoft machine.”

Nadella honed an outsider perspective at Bing, which was enhanced when Netflix CEO and then-Microsoft board member Reed Hastings invited Nadella to shadow him at Netflix meetings. Nadella did so on and off for about a year. 

“Oh, my God, I learned so much,” remembers Nadella. “One of the things I felt was a big handicap for me was, having grown up at Microsoft, I’d never seen any other company.”

Though Nadella cut his Netflix adventure short when he was given control of  Azure , Microsoft’s web-tools division that competes with Amazon Web Services, he leveraged the experience to make a case for his promotion to CEO. 

“Netflix pivots very quickly based on new data,” ValueAct’s Morfit recalls Nadella telling him. “He thought that was very interesting compared to the bureaucracy Microsoft had built up.”

Repositioning Microsoft

Microsoft saw Nadella’s ascent as an opportunity to reset how it presented itself to the world.

In the Ballmer era, “lots of times you’d go to Microsoft events and there’d be big Microsoft banners and logos and lights and loud music,” says Steve Clayton, who, as the company’s chief storyteller, is responsible for its public image.

“We said this event should reflect Satya. That’s not really his style.”

Eight weeks after he got the job, Nadella made his first public appearance as CEO at a purposefully low-key San Francisco press conference, striding out without any introductory hoopla – dressed in black, enthusiastic but calm, a trifle owlish in his chunky black-frame eyeglasses.

It made for a sharp contrast with the often bombastic Ballmer, and that was before Nadella began paraphrasing T.S. Eliot to describe Microsoft’s goals: “You should never cease from exploration, and at the end of all exploration, you arrive where you started and know the place for the very first time.”

During the press event, Nadella announced the first version of Office for Apple’s iPad. It was a meaningful way to mark a new era for Microsoft, even though the software had been in the works long before he took the helm. 

“We’re not going to say, ‘Only use this device,’” Nadella tells me, referring to Microsoft’s Surface tablet and other Windows devices.

The company had long aimed to control its ecosystem; by putting ambitious versions of Word, Excel, and PowerPoint on Apple’s tablet – before it had comparable touch-screen-friendly versions ready for Windows – Microsoft was forging a new direction.

Nadella “is bringing Microsoft into [today’s] more open and integrated computing environment,” says Scott McNealy, cofounder and former CEO of Sun Microsystems, one of Microsoft’s principal rivals in the 1990s and Nadella’s first employer. “He’s brought a level of diplomacy to it.”

When Nadella hired Peggy Johnson from Qualcomm in 2014, it reinforced this message. Her job, as executive VP of business development, would be to strengthen Microsoft’s ties with Silicon Valley and pursue deals with companies it once solely considered rivals, such as Box and Dropbox. 

“Satya was already on a regular cadence of visiting the Valley, which was new for the CEO of Microsoft,” Johnson says. “And he said to me, ‘I want you to be outside of Redmond as much as you are inside of Redmond’.” 

Today, some of the start-ups that once would have defaulted to Amazon Web Services are choosing Azure, which – though still playing catch-up —posted 93 per cent revenue growth in the most recent quarter.

Nadella also updated Microsoft’s mission statement – once, in Bill Gates’s words, “A PC on every desk and in every home, running Microsoft software” – with a more modern mantra: “To empower every person and every organisation on the planet to achieve more.” Then he began refining the company’s efforts to reflect it. 

Gone are the days when Microsoft glommed onto every new trend in technology, often unsuccessfully. (Exhibit A: The Zune music player, which became so synonymous with failure that its cameo in  Guardians of the Galaxy Vol. 2  provokes audience laughter.)

Instead, Nadella has leaned into areas with ambitious strategic promise (Surface, HoloLens) and pruned smaller-impact initiatives like the Fitbit-esque  Microsoft Band  (which he had proudly sported the first time I met him, during a press dinner at a Tuscan restaurant near Microsoft headquarters in November 2014). 

When Nadella first saw the top-secret HoloLens project, before being named CEO, “the mean time from ‘I don’t understand this’ to ‘this is the future of computing’ was the fastest I’ve ever seen,” says Microsoft mixed-reality honcho Alex Kipman. “And he’s been a strong supporter ever since.”

Nadella wrote off Ballmer’s US$7 billion acquisition of Nokia’s mobile phone business as a loss, eliminating more than 20,000 jobs in a tacit acknowledgment that Windows was not going to catch the iPhone and Android on mobile any time soon.

Rather than clinging to Windows like a security blanket, the company has released more than 100 iOS apps and even embraced Linux, the open-source Windows rival. Microsoft joining the Linux Foundation was a hell-has-frozen-over moment, given that Ballmer famously called Linux “a cancer”.

And then there’s Nadella’s US$26 billion deal for LinkedIn. Investors have largely applauded the move. Combining LinkedIn’s 500 million professional users with the 85 million people who use Office 365 gives Microsoft a formidable data hoard from which it can glean insights – arguably as valuable and impossible to clone as Facebook’s social network or Google’s search engine. (In January 2017, Microsoft acquired a hotshot star-tup in Montreal called Maluuba with technology geared to parse such data.) 

“We get very excited about this unique Microsoft AI,” says Harry Shum, executive VP of AI and research at Microsoft.

Live and learn

Nadella doesn’t seem to be letting all this activity and achievement swell his ego. As he told me at one point, describing the benefits of the dark-horse perspective he developed during his ascent at Microsoft, “When everybody’s celebrating you is when you should be most scared.”

Nadella’s management worldview is deeply influenced by Stanford professor Carol Dweck’s book  Mindset , which outlines two types of thinking.

Those who operate with a fixed mindset are more likely to stick to activities that utilise skills they’ve already mastered, rather than risk embarrassment by failing at something new. Those focused on growth make it their mission to learn new things, understanding that they won’t succeed at all of them.

Nadella’s wife, Anu (whom he asserts is the real reader in the family), turned him onto the book a few years before he became Microsoft’s CEO. They found its guidance useful as parents.

But it’s easy to see why Nadella would apply its concepts to Microsoft, a company whose philosophy was once so fixed that it could be summed up as “everything has to be on Windows and God forbid we do something that works well on another platform,” as Creative Strategies analyst Carolina Milanesi puts it.

After Nadella’s promotion to CEO, as he was crafting a new manifesto for Microsoft employees, he consulted with Dweck and incorporated themes from her work.

“We needed a culture that allowed us to constantly refresh and renew,” he explains. For her part, Dweck pronounces Microsoft a “spectacular” example of a large organisation with a hunger for new knowledge, and praises Nadella for leading by example. 

“We’ve seen a lot of places where leaders preach growth mind-set but don’t practice it,” she says. “It’s not easy to grasp it and implement it, especially in a culture of scientists, who tend to worship natural ability.”

Nadella admits that some Microsoft managers have misunderstood the concept of fixed and growth mindsets, seeing them as unalterable personality traits rather than behaviours. He says that some of his colleagues have even attempted to sort members of their team into these two buckets. Mostly, though, he believes that people get it.

 “No one at Microsoft is inspired by growth mindset because of Satya Nadella, the CEO,” he says. “It’s because of what it means to them as a better parent, a better partner, a better colleague.”

Encouraging a growth mindset among all employees, Nadella adds, carries some responsibilities, including “flying air cover for someone at some point when they’ve gotten something wrong.”

So it was in March 2016, when the researchers at Microsoft’s Future Social Experiences (FUSE) Labs unveiled Tay, an AI-based chatbot trained to converse in the slangy patois of an 18- to 24-year-old American woman (“omg totes exhausted”).

Twitter trolls discovered that if they pummelled Tay’s account with racism, sexism, and other hateful rhetoric – a scenario Microsoft had not accounted for – she would spew some of it back.

Over the course of one day, trolls brainwashed the bot, who tweeted 96,000 times in increasingly vile fashion, turning Microsoft’s public experiment in AI into a humiliation. 

“In the morning it was great, and by the evening it wasn’t so great,” says Lili Cheng, FUSE Labs’ general manager.

“Satya was just so sweet,” Cheng adds, smiling at the memory of his response.

Offering encouragement to Tay’s creators, he wrote in an email, “Keep pushing, and know that I am with you.” And push they did: That December, Microsoft launched Zo, another bot similar to Tay, but designed to be more troll-resistant. (She’s available on Facebook Messenger and Kik, but so far not the mean streets of Twitter.)

A rare misstep

The CEO experienced his own difficult lesson in growth just eight months into his tenure.

Invited to participate in a Q&A at the Grace Hopper Celebration of Women in Computing, a major annual event, he told the largely female audience that women in the tech industry should forgo asking for raises and instead trust that the system would reward them appropriately. The negative reaction was swift, with attendees quickly tweeting out their pushback.

Nadella realised his mistake, and the next day issued an apology. “I answered that question completely wrong,” he wrote in an email to Microsoft employees. Today, he describes his onstage comments as “a nonsense answer from this privileged guy.”

But Nadella did more than deliver a mea culpa; he explored his own biases – and pushed his executive team to follow suit. 

“I became more committed to Satya, not less,” says Microsoft chief people officer Kathleen Hogan, the former COO of worldwide sales, whom Nadella promoted into her current role soon after the kerfuffle. 

“He didn’t blame anybody. He owned it. He came out to the entire company, and he said, ‘We’re going to learn, and we’re going to get a lot smarter’.”

It was a rare public falter for Nadella, but Microsoft got stronger. In the aftermath, one long-time rank-and-file Microsoftie told me, the company stepped up internal messaging that encouraged employees to respect diversity and combat their unwitting biases.

Nadella set an example for the rest of the company: We make mistakes, but we can learn to do better.

Nadella and Hogan’s efforts to change how Microsoft thinks have had a formality to them, typified by the tastefully-framed aphorisms on the walls in Redmond and other company outposts. (Examples: “Designing products for 7.4 billion starts with design for one” and “The world is better viewed through a window than a mirror”.) 

Other nods to empathy, inclusion, and accessibility are tucked all over campus like Easter eggs. A cafeteria napkin holder encourages employees to be lifelong learners (and includes a plug for Bing); an elevator door is decorated with the Chinese symbol for “listen”; a tiny placard stuck in some outdoor foliage promotes a computer science co-teaching program.

Even the coffee containers are part of the effort – which caused a minor moment of angst when one employee felt that it would be disrespectful to chuck one with a portrait of Gandhi and an inspiring quote into a recycling bin.

You don’t have to be a hopeless cynic to wonder how far signage and cups can go to change behaviour in a company with more than 120,000 employees, many of whom spent years thriving inside the earlier, sharper-elbowed Microsoft. 

Nadella, however maintains that the effort is less about re-education than stimulating empathy that was there all along. “It’s just a question of invoking it,” he says. “And expressing it.”

Trying something new

One of the places where Microsoft employees now express that empathy is an annual hackathon, which Nadella instituted as part of an event called OneWeek that replaced Ballmer’s annual meeting, which involved filling a stadium with cheering employees. (“I started realising that I’d stopped going unless and until I had to speak,” Nadella explains.) Over its first four editions, the hackathon has grown to include 18,000 participants in the US, China, India, Israel, and beyond.

After one visit to Nadella’s Building 34 office, I cross the Microsoft campus to check in on the local portion of the hackathon, where 2,000 people – employees, customer and non-profit guests, and students – have been cranking away at passion projects at folding tables in two tents pitched on a soccer field.

Though many of their efforts involve cutting-edge technology – I don a virtual-reality headset to experience life in rural Kenya – one team is simply working on cleaning up Windows’ settings so it’s easier to find and tweak accessibility features for the vision- and hearing-impaired.

The group’s hope is to have something ready to ship as part of the next update to Windows, code-named “Redstone 4”.

At first, the effort struck some at Microsoft as too straightforward to be worthy of the hackathon. But 30 developers, product managers, researchers, and marketers joined the team, won over by the potential to reach millions of people around the world.

“We’re passionate, but we’re not zealots,” explains one team member. “It’s because it’s achievable. That’s what Satya has done.”

If you rummage around on YouTube, you can unearth an entertainingly archaic 1993 Microsoft “DevCast” video, produced in the pre-broadband days for distribution to developers via satellite uplink.

Nadella, then a youthful technical marketing manager a little over a year into his time at the company, appears an hour and 45 minutes into the clip. He sports bushy black hair, and his accent is pronounced. Watching the confident but raw effort today, it’s clear just how far he’s come.

At Microsoft’s Build developer conference in May 2017, Nadella publicly wrestled with the implications of artificial intelligence. Within the first few minutes of his keynote address, he’d flashed on a screen the covers of George Orwell’s 1984 and Aldous Huxley’s Brave New World as he warned of technology’s dark possibilities.

Sitting in the audience, I tried to envision Facebook’s Mark Zuckerberg or Google’s Sundar Pichai indulging in anything so foreboding as part of a public address, and failed.

Backstage after his keynote, in the bowels of Seattle’s Washington State Convention Center, I asked Nadella why he chose to bring up his AI fears. 

“Everyone in our industry should be able to acknowledge that there are unintended consequences of technology,” he says, leaning forward and laughing dryly.

“Our company’s identity is fundamentally about creating technology so that others can create more technology. And it’s essential that it is being used for empowering more people.”

Global community

Nadella’s sense of responsibility, for Microsoft and global society, has been on display in the political realm as well.

When President Donald Trump signed his initial immigration order in January 2017, Microsoft called it “misguided and a fundamental step backward,” and Nadella personally critiqued it citing his own experience as an immigrant: “[There’s] no place for bias or bigotry in any society.”

Nevertheless, in June Nadella travelled to Washington, DC to participate in the first meeting of the American Technology Council – a group run by presidential son-in-law Jared Kushner and former Microsoft CFO Chris Liddell and charged with exploring ways to modernise government services.

Along with Tim Cook, Jeff Bezos, and others, Nadella met with Trump in the White House’s State Dining Room and participated in breakout sessions.

Four days later, back in the Washington on the other side of the country, I sit in Nadella’s office and tell him that my editor and I had puzzled over the expressions on his face in photos from the event, which showed him seated to Trump’s left, head down with lips curled into a half-smile.

What, we wondered, was on his mind? He quickly responds with a statement that manages to be pro-American Technology Council but otherwise Trump-neutral. 

“There cannot be a more important conversation for us to be having with the government, and I’m sort of thrilled to engage in it,” he says.

“Quite frankly, this is not about one administration versus the other. It’s not about one party versus the other. It’s about American competitiveness, and I’m glad to see this administration take that on.”

Most major tech CEOs have been loath to poke at the administration, though some in the industry assert that prominent immigrants such as Nadella have a particular duty to speak out, especially in light of comments by former White House chief strategist Steve Bannon expressing concern about the number of South Asian and Asian executives in Silicon Valley, which he made during a 2015 Breitbart satellite radio interview with then-presidential candidate Donald Trump. 

“I don’t think it’s unreasonable or unusual, if Steve Bannon says we shouldn’t have Indian-American CEOs at tech companies, to say, ‘Excuse me, I am one and I think you’re wrong,'” maintains Fog Creek Software CEO Anil Dash.

In Hit Refresh, Nadella’s new book melding personal memoir and technological futurism, the CEO seemingly alludes to Bannon’s remark without mentioning him by name, writing, “Even when some people in positions of power have remarked that there were too many Asian CEOs in technology, I’ve ignored their ignorance.”

He adds that it “infuriates” him to think of his kids and their friends having to grapple with racial slurs. Yet that’s as far as he goes. 

“I was not elected by anybody,” he tells me. “And so I want to make sure that we don’t act like we have a mandate.”

At Microsoft, however, Nadella has certainly earned a mandate, and in the wake of the white supremacist riot in Charlottesville, Virginia, in mid-August 2017, he expressed his vision for leadership in the context of the national conversation, showing just how powerful Nadella’s approach can be.

In an email to his senior staff and direct reports on the Monday after the weekend’s violence and racial animus, he shared the “profound impact” the “horrific” event had on him.

“In these times,” he wrote, “to me only two things really matter as a leader. The first is that we stand for our timeless values, which include diversity and inclusion…. The second is that we empathise with the hurt happening around us. At Microsoft, we strive to seek out differences, celebrate them and invite them in… Our growth mindset culture requires us to truly understand and share the feelings of another person… Together, we must embrace our shared humanity, and aspire to create a society that is filled with respect, empathy, and opportunity for all.”

Used with permission of Fast Company. Copyright © 2018.

INTHEBLACK Digital Magazine

More in people.

How Microsoft made the stunning transformation from Evil Empire to Cool Kid

“Every person, organization, and even society reaches a point at which they owe it to themselves to hit refresh—to reenergize, renew, reframe, and rethink their purpose.” — Satya Nadella,  Hit Refresh : The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone

When Satya Nadella was named the CEO of Microsoft , in February 2014, one of his first acts was to ask all the top executives at the famously combative software company to read Marshall Rosenberg’s  Nonviolent Communication , a book about how to communicate and collaborate effectively using compassion and understanding rather than competition and judgment.

With that request, Nadella signaled to the company’s leaders that he wanted to  make a big change in the culture  of the world’s largest software company. Bill Gates, the company’s longtime CEO, had been known for berating employees.  Steve Ballmer , who succeeded Gates, made  cringe-worthy YouTube bait  with his on-stage screaming and sweaty-faced antics at company product launches. Both endorsed hardball business tactics that competitors feared and admired but customers loathed.

Nadella was cut from a different cloth. Calm, and described by some as beatific, Nadella was  born in India  and has an enduring love of cricket. He also embraces Buddhist beliefs and has long enjoyed a reputation for calm responses even in the most contentious circumstances and for focusing on positive feedback to reinforce good habits.

Move fast, fix things, be nicer

From his first day on the job, Satya Nadella believed that things needed to change, and to change quickly. Microsoft was fading away. It had lost the battle for smartphones. Its primary revenue stream, from software licenses, was perceived as vulnerable as businesses moved away from desktop and server licenses and embraced cloud computing. Linux, the open-source operating system, was set to overtake Windows as the most widely used server operating system. In cloud computing, Amazon was well ahead of both Google and Microsoft’s fledgling Windows Azure cloud service. Because the desktop- and server-license business lines controlled so much revenue, the company struggled to move talent to much smaller but faster-growing business lines. And the powerful Windows unit internally moved to quash any attempts to usurp its power.

As a result, Microsoft was in big trouble, even if it remained insanely profitable. Ballmer had tripled revenues and doubled profits, but Microsoft’s stock price remained largely flat, a clear signal that investor perception was of a future not all that bright. At its core, this was a problem of lack of innovation, of a company trapped by its reliance on a revenue stream that, though enticing, was sure to fade, coming from a legacy product that was on the wrong side of history.

Nadella recognized this and moved swiftly. A former engineer from Sun Microsystems (recognized as one of the most prolific producers of software visionaries), when he came to Microsoft, Nadella eventually became the executive running the nascent cloud business. He had spent time in sales and other management functions and had somehow managed to survive and thrive despite a mellow disposition. He knew that in order to safeguard the company’s future, he needed to set an entirely new tone for it and revamp its culture to make space for innovation and allow new initiatives to grow and succeed. He believed that central to this would be building empathy—a skill and mindset not previously associated with Microsoft.

Nadella made changes both small and large, both symbolic and immediately consequential. In his first public appearance after being named CEO, Nadella said that his company was all about mobile and cloud computing, two fields that were growing very quickly but in which Microsoft was playing second fiddle. He rushed to release the Office productivity suite for iPhones, a move that Microsoft executives had previously blocked out of fear that they would be helping rival Apple and undermining a key motivation for business users to purchase the failing Windows Phones.

More subtly, Nadella began removing the word Windows from conversations. He stopped referring to Microsoft’s cloud as “Windows Azure,” signaling that Azure had its own important product line, distinct from the Windows unit. Then, in late March of 2014, he moved to remove Windows from the cloud product line’s name, making his intentions even clearer. The future of Microsoft did not lie in trying to prop up the Windows dynasty for as long as possible.

Flipping the culture switch

As a manager and a leader, too, Nadella made it clear that the old, aggressive behaviors were no longer welcome. Never raising his voice or showing overt anger at employees or executives, Nadella constantly worked to create a more comfortable environment. He never wrote angry emails, and he refused to tolerate anger or yelling in executive meetings. 

At the same time, he promoted a culture of curiosity and learning. He urged the company’s 120,000+ employees to embrace a “learn-it-all” curiosity, in contrast to what he categorized as Microsoft’s traditional “know-it-all” worldview. In the marathon Friday executive-team meetings, Nadella instituted a regular feature wherein Microsoft researchers would phone in to talk about their innovations—reminding the company’s leaders of the company’s advances and encouraging them to focus on the future rather than maintain the status quo.

In a break from the past, Microsoft no longer publicly touts hated enemies or bugaboos. Tensions remain, naturally: Microsoft regularly clashes with Amazon over matters of the cloud, and Nadella has gently prodded potential customers with the reminder that Amazon may one day try to eat their lunch. For the most part, though, Nadella has focused on burnishing the company’s battered reputation. He has warmly embraced the open-source software community, giving Microsoft a credibility boost among developers, and has shown a willingness to partner with competitors, under the right circumstances. He has struck deals with Salesforce (which competes with Microsoft’s CRM products) and Linux reseller Red Hat (which competes with Microsoft’s Windows Server division) to encourage them and their customers to use Microsoft’s Azure cloud.

More importantly, Nadella has laid out a bold strategy and made bold moves. To begin with, he wrote off the entire Nokia acquisition and halted Microsoft’s smartphone efforts in acknowledgment that it was a lost cause. In 2016, he oversaw  the purchase of LinkedIn , the social-media network for business executives; and, in 2018, GitHub, the social coding network housing  the greatest proportion of the world’s software projects . These are of a pattern: focusing on the future and revenue streams that are complementary to a vision of collaboration and selling cloud-based products and services. Those two purchases contrast with the Nokia purchase, a seemingly desperate attempt to salvage a mobile hardware future and a vision of Windows dominance that did not conform with reality. (Incidentally, both GitHub and LinkedIn are worth considerably more today than what Nadella paid for them.)

Nadella’s clearest and most consequential move, though, came in March 2018, roughly four years after taking over as CEO. In an email to all employees titled “Embracing our future: Intelligent Cloud and Intelligent Edge,” Nadella announced that he would split the old Windows Development Group into two separate engineering groups, one called “Experiences and Devices” and the other called “Cloud + A.I. Platform.” This move cemented the company’s commitment to moving away from Windows and putting the bulk of resources into projects fueling innovation rather than stagnation. It was a bold move and one that met with much grumbling from insiders and people on the old Windows teams. But Nadella was certain that this was Microsoft’s best path. In reality, it was the final big step in Nadella’s plan to reorient the company: it left him, and the rest of Microsoft, free to face the future.

The results of Nadella’s efforts have been nothing short of spectacular. The company’s market capitalization has nearly increased by an order of magnitude, from roughly $300 billion at Nadella’s ascension to about $2.5 trillion today, and Microsoft has become the most valuable company in the world, surpassing Apple and Google. Contributing to this market validation are several successes. First, Microsoft has been wildly successful in converting desktop Office and Windows licenses to subscriptions to the Office365 suite of online productivity products, swapping its lucrative license model for an even more lucrative and stable Software-as-a-Service (SaaS) business model.

Next, Microsoft Azure, now in second place to Amazon’s cloud properties, is making steady headway against them, and is enjoying strong growth in sales of a host of more lucrative SaaS offerings, including its CRM and business analytics platforms.

Even the Microsoft Surface tablet has emerged as a quiet market success, taking some of the dominant iPad’s market share.

Finally, amidst all this, sales of Windows operating systems on PCs and of Windows Server continue to grow slowly and remain highly profitable; so pulling revenues away from legacy products with slow development timelines may turn out not to have hurt their sales much after all.

What enabled these dramatic changes were the new culture of humility, acceptance of change, and openness to external ideas. The resulting successes bear out Nadella’s  Hit Reset  claim that “Culture eats strategy for breakfast,” and Microsoft’s reinvention has clearly sown the seeds of further success.

Excerpted from the book From Incremental to Exponential , by Vivek Wadhwa and Ismail Amla with Alex Salkever, Copyright © 2021. Reprinted by permission of Berrett-Koehler Publishers, www.bkconnection.com.

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One of the world’s most successful culture transformations is unfolding before our eyes. Given the ubiquity of Microsoft’s technologies, the impact reaches well beyond the company’s 140,000 employees. CEO Satya Nadella has written about his journey at the helm, and Chief People Officer Kathleen Hogan has shared early insights on progress. But I wanted a closer look behind the magic. In my 30 years of organizational consulting, I’ve had to enter organizations to clean up my fair share of failed culture-change efforts. They’re usually cosmetic efforts creating the illusion of change by announcing new values with sloganeering campaigns that amount to nothing more than flashes in the pan rhetoric, void of the long term work it takes to truly transform a company’s culture. 

I sat down with Hogan to learn about Microsoft’s journey to see what insights leaders hoping to change their culture might glean. Hogan readily qualified our conversation at the outset, “By no means are we declaring victory. We have a ways to go, and we have to earn our aspired culture every day. We have momentum, but we’re always trying to close the gap between our aspired culture and the daily experience of our employees. You can’t freeze culture in a declaration.” That said, given the staying power of Microsoft’s 40 year culture coupled with the fact that Nadella is only their third CEO, the progress they’ve made is measurably impressive. If you are embarking on, or salvaging, a culture transformation, Hogan’s insights will provide reliable compass headings to guide your journey.

Start with a deep diagnostic.  I’ve seen many culture change efforts do little more than a survey and a few focus groups to assess the current culture. The problem is that a mere snapshot can’t reveal deeper origins of behaviors to be preserved, and behaviors to be changed. Microsoft spent nine months in deep, engaged listening across the organization. Says Hogan, “We spoke with experts, senior leaders and VPs, and numerous focus groups with a wide variety of diverse employee groups to learn about their experience, the culture they desired, what we were passionate about preserving from our history, and what we needed to leave behind.”

When they were done, they had more than 50 different ways to describe their aspirations. They assembled a “culture cabinet” to boil it down to simple statements and act as evangelists to roll it out. These statements embodied the Growth Mindset they wanted to embed – being customer obsessed, diverse and inclusive, and to accrue up to one Microsoft.  Hogan says, “Together, these would allow us to make the difference we wanted to make in the world.”  Microsoft’s history of taking on bold technological challenges with real impact, and giving back to the world, were examples of cultural attributes they desired to retain. But a highly individualistic and internally competitive culture that feared failure, struggled to collaborate, and as Nadella called it, a culture of “ know it all’s ,” were attributes it was time to shed. Says Hogan, “We knew we couldn’t just put out dogma or platitudes. It takes time to tap into something people really care about and want to achieve. That power has real teeth. If people recognize your final destination as someplace they want to go, they will help you get there.”

Measure, learn and course correct.  Many culture change efforts fall short because they don’t monitor progress honestly and apply what they’ve learned. In the absence of measurable evidence that change is happening, the gravitational pull of familiar norms leads to inevitable regression. Says Hogan, “We leveraged our technological DNA. We collect daily pulse data from employees to gain real-time insights about their experience and where we are falling short. We also use data to help disconfirm unfolding misperceptions.” Beyond tracking progress, the use of honest data has a secondary benefit.  Acknowledging shortfalls about culture efforts further enables change. In a culture where people struggle to admit they don’t know something, calculating risk can be tricky. Hogan says, “Being open about failure helps us balance a growth mindset with accountability. We are learning to not just reward success, but also reward people who fell short while getting us closer. We don’t need people to show up in meetings having memorized pages of information to look smart. We want it to be perfectly acceptable to say, ‘I don’t have that information, but I can get it.’  Learning from our mistakes gets us closer to our desired results –that’s a new form of accountability for us. That’s the journey.” 

Hogan shared her personal experience of this. She and her HR team mistepped on the rollout of an HR program.  She anxiously approached her boss, Nadella, about how to handle it. She’d drafted an email apologizing to employees with a plan for how she and her team would rectify the problem. She reflected, “I’m not in the habit of having my boss proofread my emails, and I was uneasy about how he might respond to the mistake we’d made. My team was down the hall equally anxious about what I would hear. But Satya just said, ‘You’re overly apologetic. You’ve acknowledged the mistake, stated what you’ve learned and how you intend to fix it. Now move on.’ I felt like a huge weight was lifted.” How leaders act in tough moments when someone skins their knees shapes how a culture treats failure and learning.

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Ground culture change in purpose. It’s not news that employees today want to know their contributions are making a difference. Nadella has stated that he wants every Microsoft employee to discover a deep sense of purpose in their work. Many well-intentioned culture change efforts set out to reach and inspire all employees. But “reaching” and “inspiring” can translate to mere momentary interactions lacking sustainable engagement. Says Hogan, “We are trying to enlist every one of our 140,000 employees in this effort. We need them. We’ve activated our 18,000 managers with tools and approaches to help them engage their teams. In hindsight, I wish we’d done even more to engage managers – the role of leaders can’t be overstated. They have to embody the culture. Having Satya as an amazing role model has made a huge difference.” 

Hogan described a leadership offsite where Nadella’s team sat casually on couches (vs. a conference table) talking about their own sense of purpose in the world, and how they hoped the Microsoft platform would enable them to realize it. Hogan says, “That ability to connect our own purpose to the mission sustains us. When you can zoom out and see how we are making a difference, that’s energizing in the face of the day to day challenges. We’re feeling like a united team more than ever. While strategy will evolve, your culture and sense of purpose should be long-lasting. Culture paired with a purpose-driven mission allows your employees to use your company platform to realize their own aspirations and passions.” And they’ve cascaded that down through the organization. The Microsoft annual meeting used to be a global, five day barrage of presentations “talking at” people, but has been repurposed to include a “hackathon,” with highly interactive product expos and learning sessions. The more engaged in change people are, the more they believe their contributions matter, resulting in a genuine sense of purpose.

Integrate multiple levers.  The most successful culture change efforts choreograph a set of integrated activities around the levers that shape people’s behavior. Communication practices, strategy and resource allocation processes, and the full gamut of HR activities from hiring to rewards and promotion, all play vital roles in changing behavior. But too many culture change efforts fail to pull these levers in a holistic fashion, strafing the organization with random, disconnected efforts that work at cross-purposes and confuse employees. Hogan says, “You have to embed culture change into who you are. We’ve shifted our performance review emphasis on individual contribution to a more balanced focus that adds contribution to others (collaborating and helping) and leveraging others (asking for help and building on other’s ideas). By evaluating and rewarding a more cohesive set of behaviors , people are learning to work more collaboratively.” Microsoft has also built a new leadership platform focused on developing leaders who “model, coach and care.” Together, these shifts in performance focus are helping leaders and employees change how they contribute. Hogan has also overhauled hiring practices from “ screening out to screening in ,” creating a more inclusive and diverse workforce. They used to hire from only a few top universities, but now recruit top talent from more than 500 universities. 

Consistent and constant communication has also been critical. While many organizations ratchet up “information disbursement” during culture change that do little more than clog inboxes, Microsoft figured out that people feel communicated to when they are talking. For example, employees are able to join (in person or virtually) Nadella’s monthly Q&A to hear from him as well as ask direct questions. Through Yammer and Skype, they give real-time feedback, which helps leaders understand what resonates and what doesn’t. Says Hogan, “There are no silver bullets.  You can’t have a ‘favorite’ culture lever, or over index on any one tactic. Culture change is a complex set of levers that you have to pull in concert. Be prepared for three steps forward, two steps back. It’s a learning journey.”  

Shape the narrative . Successful culture change is an epic story within the larger context of the organization’s past and future chapters. The stories you do, and don’t tell create the folklore and legend that transmit through the organization. Soon into his time as CEO, Nadella instituted a practice on his team called “research of the amazing.” At each Friday’s leadership meeting, one member of the team is responsible for researching a story from somewhere in the Microsoft ecosystem of employees doing amazing things and embodying the aspired culture. They discovered stories like an innovation director at Microsoft’s Cambridge R&D lab whose compassion led to developing a hand-stabilizing watch for a women suffering with Parkinson’s disease. They’ve heard stories of employees helping customers transform business models, enabling more efficient cancer research and helping teachers be more effective in their classrooms. 

Says Hogan, “We now have almost five years of weekly stories about living our purpose to make a difference while embodying our culture. Can you imagine how that many stories have shaped the narrative of our culture?” Of course, this doesn’t mean ignoring stories of cultural failure. But in the face of difficult challenges and cultural setbacks, having a bounty of representative stories helps fuel leaders with needed energy during protracted seasons of change.  Importantly, the narrative around you has to reconcile with the narrative within you .  Says Hogan, “One of the hardest parts of the journey is hearing stories where we’ve failed to live up to our aspired culture – where an employee’s experience didn’t match what we’ve promised. We all want Microsoft to be an exceptional place to work, and when we fail, it’s painful. I also know that with 140,000 employees, no matter what decision I make, I’m going to disappoint someone. That’s the reality of leadership. I have to stay centered on what we’re trying to accomplish, remain grateful and grounded in my own purpose, and on days we fall short, let my inner yardstick be the narrative that helps me see the forest for the trees.”  No change effort goes unopposed . There will always be critics on the sidelines jeering about how your change isn’t working. Prevent those voices from hijacking the story of your culture journey by proactively narrating the entire story for the organization.

Stay humble .  No leader embarks on cultural transformation prepared for its grueling requirements. Many cover up feelings of fear and inadequacy with contrived confidence, or prematurely declare victory at the smallest sign of change. Humility is a powerful antidote to these traps. Says Hogan, “You’re never done. Culture is something you have to earn every day and you’re only as good as your last day. But the greatest joy I have is seeing people being their authentic self , bringing their A game, and being their best self. That’s the privilege of this role.” But Hogan reflects that it didn’t start that way. As a seasoned executive leading Microsoft’s services business, she didn’t grow up in HR. She says, “The steep learning curve kept me humble. I had to surround myself with technical experts in HR who complimented what I didn’t bring to the table. I spent time with my industry CHRO peers learning how they onboarded into their roles. I had a lot to learn, and there’s lots more to learn.” 

Hogan’s gracious posture of humility models a profound example of “learn it all” in a historically “know it all” culture.” By making her learning journey transparent, she has no need to fake it. As a seasoned executive, owning that she still has things to learn enables others to embrace their learning journey. 

To be sure, transforming enterprise culture is one of the greatest challenges any management team can take on. I’ve seen some do it remarkably, and others fail miserably. Those that succeed stay the course over time. They avoid superficial approaches that temporarily cover up old behavior, and do the hard work that drives lasting change. Hogan’s insights on Microsoft’s cultural journey offer a wisdom-tested masterclass for any leader contemplating the audacious task of cultural transformation.

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Empathy and innovation: How Microsoft’s cultural shift is leading to new product development

• Susanna Ray

The young Microsoft software engineer had just moved to the U.S. and was trying her best to stay in close touch with her parents back home, calling them on Skype every week.

But their internet connection in India was poor, and Swetha Machanavajhala, deaf since birth, struggled to read their lips over the glitchy video. She always had to ask her parents to turn off the lights in the background to help her focus better on their faces.

“I kept thinking, ‘Why can’t we build technology that can do this for us instead?’” Machanavajhala recalled. “So I did.”

It turned out her background-blurring feature was good for privacy reasons as well, helping to hide messy offices during video conference calls or curious café customers during job interviews. So Machanavajhala was one of the people who influenced the decision to develop similar features for Microsoft Teams and Skype , and she soon found herself catapulted into the spotlight at Microsoft – as well as into the company’s work on inclusion, a joy to experience after having been excluded at a previous job where her deafness made it hard to fully participate.

Microsoft software engineer Swetha Machanavajhala and her parents. Photo by Swetha Machanavajhala.

Microsoft employees say those twists and turns of innovation – aiming for A and ending up with a much broader B – have become more common at Microsoft in the five years since Satya Nadella was appointed chief executive officer.

Nadella’s immediate push to embolden employees to be more creative has been exemplified by the company’s annual hackathon . Machanavajhala and others say the event has helped spark a revival where employees feel energized to innovate year-round and to seek support from their managers for their ideas – even if those have nothing to do with their day jobs.

“The company has changed culturally,” Michael A. Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management who wrote a book about Microsoft 20 years ago, recently told The New York Times . “Microsoft is an exciting place to work again.”

Chris Kauffman, a marketing manager in product licensing who has worked for Microsoft for 13 years, said Nadella’s focus on fostering collaboration was a turning point for her, as she noticed silos being torn down. Kauffman also realized the advent of artificial intelligence (AI) could help business people like her broach the realm of engineers and IT specialists. She and her team capitalized on both of those developments to create a chatbot and virtual colleague, answering thousands of licensing questions from around the world and helping to handle the accelerated pace of Azure cloud computing service updates.

“I went to my first hackathon three years ago and fell back in love with Microsoft,” Kauffman said. “I realized that I now have permission to talk to anyone I want to. I’m no longer limited by my job function or level. And my experience with the chatbot is a great example of how technology can be democratized and used by everybody.”

That new openness has led to an explosion in new products or fine-tuned improvements across Microsoft, for customers as well as for internal use. Employees say the resurgence is showing up both in product improvements and internal events such as TechFest, an annual showcase of Microsoft research that takes place in a few weeks.

Participants at the inaugural Abbey Road RED Hackathon November 2018. The first company-wide annual hackathon took place in 2014 in Redmond and inspired many others at Microsoft locations around the world. Photo by Archie Brooksbank.

Nadella, only the third chief executive in Microsoft’s four decades, made his innovation intentions clear from the first email he sent to employees on his first day as CEO in February 2014. In short order, he had clarified his vision for the company to “empower every person and every organization on the planet to achieve more.” His book “ Hit Refresh ,” published in 2017, emphasized empathy as the way to accomplish that goal.

The message: Empathy leads to understanding and collaboration, which helps innovation push its way through the often-messy journey toward helpful products.

“My personal philosophy and my passion … is to connect new ideas with a growing sense of empathy for other people,” Nadella wrote. And later, “My approach is to lead with a sense of purpose and pride in what we do, not envy or combativeness.”

That’s something Rene Brandel experienced firsthand.

Brandel joined Microsoft two years ago on the Skype team in Prague and was impressed to find that employees there were encouraged to take a couple days off every quarter to work on new ideas or interesting concepts that previously lacked support.

A project from one such hackathon quickly gained traction, and Brandel and his colleagues soon launched an all-in-one service for job interviews for developers, by combining Skype and Visual Studio. Skype Interviews allows recruiters to observe coding skills during interviews with just one click, getting rid of the awkwardness of downloading separate programs and messing with logistics. The team then developed a scheduling tool that proved even more popular and is now being used by mentoring programs, consulting services, small businesses and others looking for an easier way to set up meetings, without the back-and-forth hassle of email calendaring.

Brandel said the product’s quick launch – from hackathon to shipment in only one month – was a direct result of Nadella’s emphasis on collaboration. The CEO led the way after he saw a description of the project by sending an email connecting Brandel’s team with others who could help – and they did, smoothing out wrinkles within hours.

“There’s this feeling of empathy among teams now to try to make each other successful, instead of so much internal competition,” Brandel said. “I’ve never talked with Satya in person. But he fosters this culture of learning and of respectfully questioning each other, to try to understand the other perspectives. The whole emphasis on empathy is really shining through in situations where there’s a dire need to innovate and create something individuals need and want.

Success always hinges on passionate people who care about something greater than themselves and can motivate and attract like-minded collaborators with unique skill sets.

The mantra of empowering everyone to do more prompted a flood of innovative solutions that use AI for people with disabilities – Seeing AI, Soundscape, Immersive Reader, Eye Control and live captions for Skype and PowerPoint , to name just a few. Support for those projects is rooted not only in the desire to help people achieve more, but also to help Microsoft achieve its business objectives.

“People with disabilities are the ultimate early adopters and in many ways are ahead of the curve in terms of tech,” said Saqib Shaikh, a software engineer in London who leads Microsoft’s Seeing AI research project. “They have a lot more to gain so are willing to try things out a lot earlier on, when things aren’t quite ready yet, and then they help that technology mature into something for mainstream use.”

Until 2014, Shaikh had tried to hide his blindness as much as possible at work, saying he “just wanted to be a regular developer.” But then he noticed “a buzz” around the new CEO and Nadella’s talk of culture change. That encouraged him to see his disability as his strength and to experiment with a dream he’d had since his university days, of eyeglasses that could see for him and tell him what was happening around him. A collaborative effort with colleagues resulted in a smartphone app called Seeing AI that can read menus and documents, identify currency, recognize people – along with their facial expressions and emotions – and more.

When the app launched in 2017, the team was swamped with messages from the blind community as well as from sighted people and people with learning disabilities who all appreciated its usefulness in different ways.

A teacher who is blind taught Seeing AI to recognize his students and then put his smartphone on a stand pointing toward the door, where it calls out the names of the kids as they arrive; a sighted system administrator started using the app to read the serial numbers on the backs of computers, rather than having to crawl under desks; and a blind man in Puerto Rico used it to help him navigate after a hurricane – if Seeing AI recognized the space in front of him as a pathway, then he knew it was clear of debris. The technology behind the app is being used to improve other AI projects at Microsoft as well.

“Disability is a driver for innovation, not a charity case,” Shaikh said. “It’s a field worth watching for what comes next.

Microsoft Product Strategist Amos Miller demonstrates his Soundscape app on Microsoft’s Redmond, Washington, campus. Photo by Scott Eklund/Red Box Pictures

Amos Miller had a similar experience with his Soundscape app, which provides a map in 3D sound. Miller, a product strategist with Microsoft Research, envisioned his app helping people with vision loss to participate more fully in their surroundings as they navigate through cities, with non-textual audio cues that guide without intruding. But when a group of sighted Tennessee high-schoolers got their hands on it for an audio scavenger hunt earlier this year, they surprised him with ideas for how it could help them and their friends with challenges such as reading difficulties, attention deficit disorder, post-traumatic stress disorder and anxiety.

Innovation often blooms from personal experiences, highlighting the importance of diversity in the workforce as well as getting out of “the bubble” of company headquarters.

Miller, who lost his sight to a genetic disease that left him blind by the time he’d finished his computer science degree, made sure his team of developers and engineers designed Soundscape out in the field, away from their computer screens. That helped them better understand and meet the needs of their customers – such as building the app to work hands-free so a user can hold an umbrella and a guide dog’s harness, for example.

“Diversity of thought and creativity will be imperative to designing the technology of the future,” said Jill Bender, a software engineer for Azure IoT who worked on a hackathon project to create a tool that evaluates job descriptions to help weed out language that would only appeal to limited groups. The company’s Dynamics 365 for Talent product team has been looking at how that work could be incorporated into recruiting products.

Finding time to get out and pursue one’s passions and turn them into helpful tools isn’t always easy, and the paths of innovation are often crooked. But many at Microsoft now say they’re heartened by the efforts they see to smooth out the process.

“There’s a good culture now around empowering individuals to come up with new ideas, so that’s the first step, but everyone is fighting their own battle to figure out how to go beyond that,” said Shaikh, whose boss gave him two months off his job developing features for Bing and Cortana in order to work on a presentation that eventually became Seeing AI. “It hasn’t always been rosy, and that’s the reality of innovation. But it’s becoming easier for people to change jobs and find ways to work on the projects they care about.”

The unexpected zigzags inherent in innovation mean it flourishes under leaders who are flexible and are comfortable with uncertainty and change, and who aren’t looking for an immediate financial payoff.

“Innovation is a non-linear process,” Miller said. “You can’t say to innovation, ‘Start over there when I tell you to.’ And there’s a risk of killing innovation by over-systematizing it.”

When Harish Kulkarni joined Microsoft Research’s NeXT Enable team , the explicit job definition was to create a wheelchair that could be controlled by tracking the user’s eye movements. It had been a challenge given to Microsoft by former NFL player Steve Gleason , who is paralyzed by amyotrophic lateral sclerosis, or ALS. An outgrowth of that project was an eye-tracking app to help people with ALS to better communicate with their loved ones, since the disease eventually robs them of their ability to talk.

The team began spending more time with various groups of people living with ALS, and they began to understand “a long trail of problems” that tech wasn’t addressing, Kulkarni said. Ultimately, people with motor and speech impairments wanted to use Windows the same way others do – to compose documents, manage their finances, play games, create music, make Skype calls with loved ones and more. But Kulkarni’s team wasn’t big enough to write all the apps necessary to meet those needs, and matters were complicated because each company making eye-tracking hardware had its own software.

[Satya Nadella] fosters this culture of learning and of respectfully questioning each other, to try to understand the other perspectives. The whole emphasis on empathy is really shining through in situations where there’s a dire need to innovate and create something individuals need and want.

Much of Kulkarni’s 18-year tenure with Microsoft had been spent in operating systems, however, so he understood how hardware gets integrated and knew the right people to reach out to. He also took advantage of Nadella’s “positive and very refreshing” emphasis on accessibility and the emerging value of “grass-roots innovation” to bring multiple parties together.

He and Eric Badger, who heads up the Windows Text Input development team, partnered on a prototype to introduce the feature to Windows leadership. Once the hardware manufacturers saw the close collaboration among Microsoft teams, they agreed to standardize their products, and this “little side project” by Kulkarni’s group was added to Windows last year for a whole new feature called Eye Control that works with any software operating within that system.

It’s not only bringing people with disabilities back into everyday communication with loved ones and business partners but could also help anyone who needs to access information or connect electronically without the use of their hands – such as cooks who are elbow – deep in dough yet need to look up a recipe online. And researchers from different teams are exploring ways the feature could help people conquer reading difficulties, boost productivity and more.

“This cross-pollination of ideas is happening more now, and the important thing is fostering a culture that actually supports that,” said Ann Paradiso , who’s in charge of user experience for the Enable team and has been with Microsoft for 17 years. “There’s a shift that’s been happening where leadership sees that the amount of problem-solving that goes into designing for the most constrained situations actually leads to all sorts of innovation that benefits a broader audience.

“Gnarly, impossible problems require creativity, resourcefulness, grit and resolve to work through,” she said. “And success always hinges on passionate people who care about something greater than themselves and can motivate and attract like-minded collaborators with unique skill sets.”

Paradiso and her team have made plenty of prototypes that failed and have seen lots of closets in the homes of people with disabilities that were filled with devices that didn’t end up being helpful. But none of that experience is wasted when different groups collaborate and end up making a huge impact, Paradiso said. Failures are never thrown away, she said, but instead the lessons are absorbed and projects are adapted to solve different problems in other contexts.

“ Eye Control was just this accidental twist that the hackathon wheelchair project took,” Kulkarni said, “but what we have now makes everything else possible.”

Top image: Microsoft software engineer Swetha Machanavajhala demonstrates the background-blurring feature on Microsoft Teams on Microsoft’s Redmond, Washington, campus. Photo by Scott Eklund/Red Box Pictures.

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Even one of the most valuable companies on Earth knows how hard it can be to shift a culture.

Fortunately, by focusing on the science of memory and behavior change, Microsoft was able to reduce complexity and make lasting changes to how employees work day to day. The key was embracing a willingness to change and instilling a new set of habits that all employees could remember and adopt. These are two essential steps outlined in NLI’s white paper, “How Culture Change Really Happens.”

From attitude to outcomes

Microsoft’s journey with the NeuroLeadership Institute began with growth mindset , the belief that skills are improvable; they aren’t set in stone.

CEO Satya Nadella professed that his company need to become one of “learn-it-alls,” not know-it-alls. People needed to see themselves, and the organization, as more fluid entities. The focus was on im proving, not proving, themselves.

From there, NLI worked with Microsoft’s senior leadership team to establish which principles the company wanted to focus on most. The prior set of principles ran into the dozens, and they accompanied multiple other sets of skills and behaviors that were expected of employees.

Neuroscience research tells us that humans have an extremely hard time remembering such exhaustive lists. This effectively makes them impossible to act on. NLI’s approach to leadership principles is to go simple — and sticky. The principles must not only be pithy, but easy to recall and use on a regular basis. They must also be coherent , in that people should have a hard time remembering one without the other two.

Ongoing collaboration helped Microsoft’s leadership principles shrink to just three, two-word phrases: Create clarity, generate energy, deliver success. Together, they capture Microsoft’s desire to reduce confusion, excite employees, and execute on its vision.

Impact you can see — and hear

Joe Whittinghill, Microsoft’s general manager for talent, learning, and insight, has said these principles exploded “like wildfire” throughout the company. People can ask themselves, Did we create clarity in that meeting? and How are we delivering success? In employing the principles to interrogate their own behavior, employees end up cementing them as integral to the work they do.

As we note in “How Culture Change Really Happens,” “when we blend the new behavior with current activities, it’s easier to latch on to, which makes it become an unconscious behavior more quickly.”

Microsoft used this approach to overhaul its leadership framework. But organizations of any size can use the framework to revamp all aspects of culture, from the broadest performance processes down to the subtlest biases.

This article is the fifth installment in NLI’s new series,  Culture Change: The Master Class , a 6-week campaign to help leaders understand the science behind creating — and sustaining — culture change.

Learn more about our culture change solutions here .

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Lessons in Cultural Change from Microsoft

• Tim Spriggs

We are on the cusp of the most exciting and disruptive wave of technology humankind has experienced, and with it comes the need for cultural change. How will HR leaders drive and enable progressive company culture in a climate of transformation, persistent quests for new ideas, and urgent need for continued relevance? ChapmanCG and Microsoft hosted an insightful HR leaders’ roundtable recently in Munich alongside Microsoft, focused around  culture change  driving business success in the current HR climate. Acknowledging that culture is the key building block of an organization, as  Inc:  stated “CEO, Nadella, changed Microsoft’s culture in a way that made current and potential customers feel that Microsoft cared about their success”, the roundtable discussed the importance of managing cultural change, using inspiring examples from Microsoft. Below are some of the key points discussed. Making a Difference Nadella being only one of only five CEOs to take the helm of Microsoft since it’s beginnings, renewed the company culture, which was continued and transformed from the Gates and Ballmer eras. It’s a culture anchored around openness, making big bold decisions, doing good, and making a difference. The Microsoft company culture truly embraces the growth mindset at its core, with the vision to empower every person and every organization on the planet to achieve more. The growth mindset focuses on being ‘customer obsessed’, and aims to be more inclusive and diverse, and foster a ‘one Microsoft’ approach. This has been a conscious evolution from the inherited culture where there were elements of the fixed mindset, an attitude of ‘knowing it all’, a legacy of hierarchical structure (as was the norm across industries) and internal focus when it came to learning, nurturing and risk taking. Customer Obsessed “The new Microsoft Culture understands that the core of the business must be curiosity and desire to meet a customer’s unarticulated and unmet needs with great technology. And that having a deep sense of customers’ unmet and unarticulated needs must drive company innovation…This is why a growth mindset culture matters.”  Forbes The customer-centricity and external focus became increasingly important to Microsoft. This was implemented with a wholesale shift in the mindset of employees, through powerful communication, training and the necessary people changes, particularly in the sales organizations who are at the coal face of the organization. Customer feedback was listened to early and often throughout the lifecycle and customer groups were included in product planning, which in turn helped to drive a more inclusive culture. Inclusive attitudes and behaviors were anchored at the core and D&I became a commitment, a key business priority. “We don’t just value differences, we seek them out, we invite them in. And as a result, our ideas are better, our products are better and our customers are better served.” From a diversity perspective Microsoft have a drive to represent the outside world. Some of the ways they did this included e-lessons on unconscious bias, the ‘ one week hackathon ’ initiative (a week where employees and interns from across the company come together to create, innovate, and hack on ideas that light them up), and most impactful was a strategy to ask new recruits with MBAs to run the company meeting. The leadership put ‘trust in the energy of the organization’ and were more in observational mode. This generated some interesting social impact projects within the organization. One Microsoft The concept of ‘one Microsoft’ is focuses on moving away from siloes and instead allowing employees to become more connected, sharing information, celebrating success a team and building innovation through cross-segment ideas. Having consistent physical offices globally to foster the concept of working without boundaries has been particularly successful. All offices are consistently designed as open workspaces with cross-functional industry spaces to drive collaboration, designed to put the solution in the middle. “Empowering the employees to work self-determinedly and flexibly increases motivation and creativity, and in doing so creates benefits for everyone involved, especially our customers and partners.” states  Markus Koehler , HR Director Microsoft Germany. Overhauling the new reward system was key to driving new behavior. Moving from a ‘one hero’ culture to working as a team, with the customer in the middle was fundamental to this shift. Reward and performance was also linked more to business impact versus activity, looking at what employees were achieving and how they work with others. As Satya Nadella put it: “You join here, not to be cool, but to make others cool.” Fostering this ethos by embedding an agile, open feedback process where employees are measuring success against themselves versus others, regular discussions with their manager rather than an annual discussion has created an inclusive meritocracy. Microsoft has been able to measure and understand the state of the culture through broad employee listening, utilizing a daily pulse survey on the employee experience assessing how they were doing on cultural experience. Leading from the front The top down leadership buy-in to change at Microsoft has been critical to their success with strong leadership principles, outlined below, and a visionaryCEO.

• Creating clarity

Synthesize the complex, ensure shared understanding and defining course of action

• Generating energy

Inspiring optimism, creativity and growth, creating environments where everyone does their best work, building organisations that are stronger tomorrow than today

• Delivering success

Drive innovation that people love, be boundary-less in seeking solutions, Tenaciously pursue the right outcomes. This genuine and authentic embodiment of the culture by leaders is critical when trying to drive change, and often a reason that other organizations struggle to change. HR can play a role in driving successful culture change. As an example shared at the roundtable, one organization delivered 360 feedback to their leadership team three times a year and mandated that these leaders share this feedback with their team. Individual coaches can be utilized to bridge gaps, and is most successful when a mindful leadership approach of open communication and a trust, already in place. When driving cultural change, fostering a dialogue between the old and the new, particularly when faced with resistance, is the best way to address ‘red-flagged’ leaders. We need to give people a chance to change attitudes and mindsets, and ultimately trust them to have the courage to make those changes. For Microsoft this cultural change has been an ongoing journey and one that will never end. It’s important for organizations to acknowledge that their cultural change journey won’t have a delineated timeframe or a defined end point but is an ongoing journey and HR has a key role to play in helping to shape this journey. To keep up with the latest HR trends,  subscribe to our quarterly newsletter  or follow us on  LinkedIn .You can also check out our latest global  HR opportunities , or contact our  consulting team  to discuss your search needs.

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Microsoft: A Case Study in Strategy Transformation

If you’re leading your team through big changes, this episode is for you.

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In early 2015, Microsoft’s senior leaders were facing a set of difficult decisions. The firm had been struggling to innovate and grow as fast as its competitors. Now they were considering new opportunities that would yield higher growth but lower margins — like shifting away from perpetual licensing to focus on subscription sales.

Harvard Business School professor Fritz Foley studied this period of transformative change at Microsoft for a business case study he wrote. In this episode, he shares how Microsoft’s leaders analyzed different options and worked to get both investors and employees on board with new ideas about growth. He also explains how the company’s risk-averse culture evolved in order to execute such a huge transformation.

Key episode topics include: strategy, growth strategy, business models, corporate governance.  

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

• Listen to the original Cold Call episode: The Transformation of Microsoft (2018)
• Find more episodes of Cold Call
• Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org

HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand selected to help you unlock new ways of doing business.

In early 2015, Microsoft’s senior leadership team was facing a set of difficult decisions. The firm had been struggling to innovate and grow as fast as its competitors. Now, they were considering new opportunities that would yield higher growth, but lower margins like shifting away from perpetual licensing to focus on subscription sales.

Today, we bring you a conversation with Harvard Business School professor Fritz Foley, who studied this period of transformative change at Microsoft for a business case study he wrote. In this episode, you’ll get a window into how Microsoft’s leaders analyzed different options and got both investors and employees on board with a different idea of growth. You’ll also learn how the company’s risk-averse culture had to evolve in order to execute such a huge transformation.

This episode originally aired on Cold Call in July 2018. Here it is.

BRIAN KENNY: Electronics enthusiasts in the 1970s looked forward to it every year: the January issue of Popular Electronics . That is because that issue was known for featuring the coolest up-and-coming products in the world of electronics. And when the January 1975 issue hit newsstands, it did not disappoint. The cover was adorned with the first available image of the Altair 8,800, the world’s first mini-computer kit. It may not have been the shot heard around the world, but many say that it was the spark that ignited the home computer revolution. That very magazine inspired a young Paul Allen and Bill Gates to turn their passion for computers into a business that subsequently became an empire.

Today, Microsoft Corporation is the third most valuable company in the world and the world’s largest software company. But after four decades of buffeting the headwinds of the very industry it helped to create, Microsoft is at a turning point and the way forward is not entirely clear. Today we’ll hear from Professor Fritz Foley about his case entitled “The Transformation of Microsoft.” I’m your host, Brian Kenny, and you’re listening to Cold Call .

SPEAKER 1: So, we’re all sitting there in the classroom.

SPEAKER 2: Professor walks in.

SPEAKER 3: And they look up and you know it’s coming. The dreaded cold call.

BRIAN KENNY: Professor Fritz Foley’s Research focuses on corporate finance. He’s an expert on investment capital structure, working capital management, and a range of related topics, all of which probably factor into the case today. Fritz, thanks for joining us.

FRITZ FOLEY: Thanks so much for having me.

BRIAN KENNY: So, everybody pretty much knows who Microsoft is, and I think people will be really interested in getting a glimpse into where they were at this turning point in the company’s history. Still a very, very important company in the landscape of the technology industry and beyond. So, I think people will relate right away to this, but let me ask you, if you could start just by setting the stage for us. How does the case begin? Who’s the protagonist and what’s on her mind?

FRITZ FOLEY: Yeah, so the protagonist is Amy Hood, who is Microsoft’s CFO. She also was a student here at HBS at the time that I was in the PhD program. So, I’ve known her for some time and she’s facing a set of choices that really revolve around whether or not Microsoft should try to pursue increased margin or increased growth.

BRIAN KENNY: Okay. What prompted you to write the case? Your connection with Amy obviously is part of that, but why Microsoft and why now?

FRITZ FOLEY: I think I have been struck by the transformation that they are in the midst of. This is a company that… I mean, it’s hard to remember this. In the early two thousands, the stock price was stuck in the 20 to $30 a share range. And there was a group of people who were calling for the firm to be managed essentially for cash distributions and for increased margins. And then there were some growth opportunities that the company faced simultaneously. So, there was a real choice as to what direction to head. And I think this is a compelling choice that many other companies face. So, it’s a powerful example for me to highlight in course I teach about chief financial officers.

BRIAN KENNY: Microsoft was the first player on this stage really, but then Apple came along and I think many people look at these two as fierce competitors. But can you just talk about the difference between these two companies in terms of how they manage their financial strategy?

FRITZ FOLEY: Yeah, I can say a bit about that. So, at one level, they certainly are similar. They’re in tech space and in fact, many things that Microsoft was attracted to phones in particular, is something that Apple has excelled at. And I think that at the time of the case, they were quite different in the eyes of investors, I would say. I would say that investors still viewed Apple as having a lot of a growth emphasis of a commitment to innovating new products and solving problems that people weren’t even sure they had. Whereas Microsoft was the older, more established tech firm that I think, in the eyes of some, had become not a relic of the past, but less relevant when thinking about future innovations. And in some sense, the cases about how Microsoft tried to shed that view and become a relevant growth-oriented entity again.

BRIAN KENNY: And they’d certainly been criticized over the decades for not moving quickly enough to innovate and getting caught up in their own. And you think about IBM maybe as a company that faced similar criticisms getting caught up in just their size and the bureaucracy of the place. What did Microsoft’s business look like in 2012? Because that seemed to be the beginning of the turning point?

FRITZ FOLEY: Yeah. I mean, it was one where there was varying performance across divisions. There was interest by value activist investors given the large cash holdings that the firm had. Obviously, their market share when it came to the office suite of products and windows, those were quite high. And they were obviously very successful in continuing to provide versions of that to a whole variety of users. They had emerging cloud business, but it wasn’t clear that they would win in that space and had really struggled in other spaces.

In search, Bing never got traction relative to Google. In phones, they were really struggling in 2012 right before they tried to make more headway in phones by buying Nokia, which also subsequently didn’t work out as well as they had hoped. So, I think along a series of dimensions, they were really trying to get some traction, trying to get footing in new spaces. And there were a group of investors that actually felt like that wasn’t what they should do. That they should just focus on Office, focus on Windows, enjoy the high margins that came with their on-premises server and tool business offerings. So, they faced some really hard choices.

BRIAN KENNY: And they were also, in terms of just the organization itself up against some issues, what were some of the things they were encountering culturally at the time?

FRITZ FOLEY: Yeah. I mean, it’s a fascinating story from a cultural standpoint. It was an environment where there were high returns to showing that you were the smartest person in the room. Some of the stories that I have heard are a little jarring. I am not sure I would’ve survived in this environment. There were these very long mid-year reviews that took place and were incredibly demanding. It was an environment that was beginning to really emphasize the desire to be efficient, to be right, and in fairness to them, and Microsoft was coming from a culture or their culture came from a place where they were selling a product that couldn’t really fail. People had very high expectations for the performance of everything Microsoft provided them. And unlike today where there’s more room to update things through online updates, a lot of the software, it shipped and it had to be close to perfect when it shipped.

BRIAN KENNY: Actually, I can remember a time when the launch of a new Windows system was similar to the launch of a new iPhone. People were really excited to get the new system, but inevitably there were bugs and those were highly publicized, and so they fell under a lot of criticism. They were really operating under a microscope for a long time.

FRITZ FOLEY: For sure. And we’re keenly aware that time to fail in their products, which is a measure of how long it took for some product or process to break down, had to be very long. Otherwise, they would meet with a lot of customer dissatisfaction.

BRIAN KENNY: Yeah. Okay. So, let’s move into the transformation phase for them. What was the fundamental shift they made in terms of changing or restructuring the organization?

FRITZ FOLEY: In my view, I think that they did a variety of things to adopt more of a growth orientation. And some of this dealt with their metrics. Some of it dealt with very explicit changes to the culture, and I think some of it also dealt with a realization that pursuing growth would enhance value much more than trying to increase margins and have large dividend payouts or larger dividend payouts to shareholders. So this was, I would say in the 2012, 2013 timeframe, we began to see pieces of this. And they also faced significant managerial changes at that time. That’s when Steve Ballmer retired and they needed to pick a new CEO and could have gone a variety of directions there. And by picking Satya Nadella, effectively we’re committing to more of a growth path.

BRIAN KENNY: Can you think of an example of a company that chose the margins path? And I mean, these are both potentially successful choices, but I would guess.

FRITZ FOLEY: For sure. And it’s a very hard trade-off to make. In teaching my MBA students and executive education students I’m always struck, when I ask them, “Would you sacrifice some margin for growth,” how hard that question can be and how many people don’t have much intuition for it. So, other companies did go the margin route.

BRIAN KENNY: Yeah. Is it a situation where the margin choice is one that’s probably more comfortable and the returns are going to come sooner and the growth choice is a little riskier, and for a risk-averse culture probably harder to implement and you’re betting on the future? Is that fundamentally what the choice is?

FRITZ FOLEY: Yeah. I think that’s a really good way of putting it. Many people find it easier to see the benefits that come with cutting costs and looking for efficiencies and worry that what may come with growth could be elusive. And in some regards, I have heard senior finance managers say that they had to earn the permission to go after growth. They have to get the buy-in from a group of investors who feel as if the senior leadership team has credibility in pursuing growth.

BRIAN KENNY: So, here we have Microsoft, an enormous company, 130,000 or so employees, something like that, large by any measure about to pursue an option that is in many ways counter to the culture of the organization. How do you do that? How do you cascade this kind of a change through an organization of that size?

FRITZ FOLEY: On the cultural side, one thing that they did was very explicitly dropped a growth mindset culture. And Satya Nadella writes about this in his recent book, Refresh. The story is, for me, very compelling. It’s incredibly hard to get any organization to change its culture. Whenever I’ve been a part of an organization that tried to engage in a cultural shift, whatever the tagline was, quickly became the punchline for a set of office jokes.

BRIAN KENNY: I’ve been on the other side of that. I’m the guy who writes the punchlines most often.

FRITZ FOLEY: Yeah. So, you know how hard this is. And I think that they were very wise in picking Kathleen Hogan who had led one of the divisions of Microsoft to head up the charge to describe and roll out this cultural change. They brought senior leaders on board, and ultimately, I think there was a lot of demand for it that many people who were working at Microsoft were innovative engineers and a very creative set of employees who wanted to pursue growth. And when given the choice to move away from review processes and given the opportunity to go to meetings where they didn’t feel like they had to be exactly right in making a point, but could stimulate the beginning of a discussion set of ideas that could lead to something that was new, people embraced that.

BRIAN KENNY: And here we are in the age of the millennial worker. Millennials don’t want to work for the old Microsoft for sure. And Microsoft is competing with the likes of Google and Apple and other firms that are definitely perceived as open and innovative, and they want people with energy and ideas. So, they have to adopt that same personality, I guess.

FRITZ FOLEY: Yeah, I agree with that. I think there’s a new buzz about Microsoft, at least among my students, they’re much more intrigued by what it would mean to work there and what opportunities exist to do some things that would be truly novel and have a big impact on how people get work done.

BRIAN KENNY: So, let’s go back to our protagonists. Amy Hood in the case actually delves into her mindset a little bit. She’s getting ready to communicate these changes to the financial community. What are the kinds of things a CFO would have to think about? Because I can imagine the financial probably is more comfortable with the margin choice than the growth choice

FRITZ FOLEY: Yeah, for sure. It’s fun for me to imagine her faced with this choice really of, okay, I can go this path of growth, but if I do this, I am going to have to go to my investors and say, our margins are going to go down for some period of time, and you’re not going to like that. But there’s going to be some upside and it will take some time for that upside to show up. So, I think she needed to find ways to communicate or signal what that upside would be and how big it might be to the investors so that she wouldn’t lose credibility with them and would have the permission essentially to pursue growth.

BRIAN KENNY: Yeah. Now we hear it all the time about the emphasis on the short-term, short-termism in the financial community, and people want returns and they want them right away. In your experience, are you seeing a shift in the financial community, or are the analysts getting a little more comfortable with this notion of you can’t always go for the margins, you’ve got to find some sustainable growth in the long term?

FRITZ FOLEY: Yeah. It’s a great question. It’s one that troubles me or is something I think about our financial system generally. I happen to be probably more optimistic relative to many when it comes to how short-term-oriented, or really how financial markets aren’t as, as some might worry, or that concern about short-termism doesn’t resonate as much with me. I do think there is a big burden on senior finance teams to explain how value is created by thinking long-term and embracing growth opportunities. And in some sense, when I look at what Amy has been doing at Microsoft, I applaud her and her team for taking on that challenge. They quite explicitly set a target of a $20 billion run rate for their commercial cloud business, and once analysts had that number, they could begin to build off of it and get a feel for how much value could be created if Microsoft succeeded at pulling this off.

So, by having the courage to commit to that path and help analysts understand what the path meant, I think that they have been effective in pursuing it. More generally, I do worry that there are some analysts that simply take an earnings-per-share number and apply some current multiple and don’t think much about what the future will look like. I am hopeful that finance teams and organizations will play a role in educating analysts as to how they should think about the future, when growth opportunities do exist and are attractive.

BRIAN KENNY: Yeah. You mentioned earlier that you’ve talked about this in class, and I’m just curious, do the MBA students come at this differently than the executive education students who have been in fiduciary roles and organizations already?

FRITZ FOLEY: Yeah. That’s an interesting question. Let me reflect on that for a moment. I think the approach is fairly similar. I would say that some MBA students are probably less aware of the constraints that capital markets may put on senior management teams to pursue growth. They’re less aware of what an activist who wants cash now might push management to do, whereas executive education students tend to be keenly aware of those pressures. If anything, I find that MBA students, it’s a little bit harder for them to articulate what is the case for pursuing margin for Microsoft in 2012, 2013. Many executive education students are quick to come up with lists of things that could be done strategically financially in picking leadership.

BRIAN KENNY: Yeah, it’s interesting. And anybody who’s worked in an organization for any period of time, going back to that whole notion of how hard it is to change a culture, it’s pretty easy to think of reasons why not to pursue that path. So, I thought maybe some of the exec ed students might come at with those constraints already wrapped around themselves.

FRITZ FOLEY: Yeah, I agree.

BRIAN KENNY: Yeah. Fritz, thanks for joining us today.

FRITZ FOLEY: Thanks very much for having me.

HANNAH BATES: That was Harvard Business School Professor Fritz Foley in conversation with Brian Kenny on Cold Call . We’ll be back next Wednesday with another handpicked conversation about business strategy from Harvard Business Review.

If you found this episode helpful, share it with your friends and colleagues and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. And when you’re ready for more podcasts, articles, case studies, books, and videos with the world’s top business and management experts, find it all at HBR.org.

This episode was produced by Ann Saini and me, Hannah Bates. Ian Fox is our editor. Special thanks to Maureen Hoch, Adi Ignatius, Erica Truxler, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you, our listener. See you next week.

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• After successful test in Summer 2023 agency and the client decided to incorporate feed-based audience campaign as an evergreen approach for the holiday season. Because the feed-based campaign was performing well, client and the agency decided to expand in November and December.
• Audience ads were driving incremental revenue, delivered competitive media KPIs and outperforming other platforms in terms of ROAS.
• MediaMarktSaturn Brand resonated extremely well with Microsoft tech savvy audience and the workday consumer browsing and shopping on Microsoft properties like: Microsoft Start, Edge and Outlook.

To achieve high efficiency at scale and improve ROAS, the team created a remarketing campaign that leveraged Microsoft’s audience intelligence, and:

• Incorporated a feed-based audience campaign for the holiday season.
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• Nudity, drinking, smoking: Winston Churchill’s unusual diplomacy

His time at the White House serves as a case study in getting what you want

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Mr Churchill in the White House. By Robert Schmuhl. Liveright; 384 pages; $32. W.W. Norton; £25.99

S ome questions of diplomatic protocol are tricky. Others are not. For instance, should one meet a head of state clothed or nude? Winston Churchill , Britain’s former prime minister and the puckish hero of a new history, often chose to grin—and bare it.

He made quite an impression during his time as the guest of two presidents. The chief usher at the White House recalled that “In his room, Mr Churchill wore no clothes at all most of the time during the day.” Churchill’s bodyguard remarked how President Franklin Roosevelt knocked on the door of the prime minister’s suite during Churchill’s first White House visit in December 1941, only to find that “Winston Churchill was stark naked, a drink in one hand, a cigar in the other.” Roosevelt, clearly flustered, offered to leave, but Churchill demurred: “You see, Mr President, I have nothing to hide.” The two leaders then spoke for an hour.

Born to an American mother and possessing lifelong Atlanticist instincts, Churchill stayed at the White House four times during Roosevelt’s three terms in office (along with another four visits to Hyde Park, Roosevelt’s redoubt in upstate New York) and once during Dwight Eisenhower ’s presidency. Even allowing for the time and trouble of a long sea crossing, his visits were often protracted; the first lasted from December 22nd 1941 to January 14th 1942. It is doubtful that any foreign leader since has spent more time as a guest at the White House.

Churchill stayed in what is today known as the Queens’ bedroom. He was not the easiest houseguest, keeping odd hours and working and talking into the early hours of the morning. Eleanor Roosevelt said it “always took” her husband “several days to catch up on sleep after Mr Churchill left”. Padding around the White House halls barefoot in his “siren suit” (a romper that he began wearing during air raids on London), Churchill earned the admiration of the White House staff for his prodigious appetite. A Secret Service officer said that he “consumed brandy and scotch with a grace and enthusiasm that left us all open-mouthed in awe”.

Roosevelt and Churchill worked differently: the president was circumspect, restrained and cagey, while the prime minister was effusive, commanding and far more experienced in military affairs. Nonetheless, their meetings were productive: Churchill’s first visit laid the groundwork for a unified Allied command; his second, after the crushing defeat at Tobruk, for future operations in Europe; and the third for the landings at Normandy .

The fourth visit to Roosevelt was brief, lasting just 32 hours. Roosevelt had been sidelining—and at least once openly mocked—Churchill in an effort to get closer to Josef Stalin . Churchill’s last visit,   to Eisenhower, had a funereal cast. He was starting to show his age, and both the British Empire and Britain’s place in the world were much diminished. Churchill tried but failed to arrange a summit between himself, the president and Stalin. Despite Eisenhower’s respect for Churchill, he was yesterday’s man.

Yet Churchill still had his personal magnetism, and in essence this book is a case study in the savvy deployment of political “soft skills”. Churchill knew when to push and when to flatter, when to lead and when to follow (or at least give the impression of following), how to charm and how to inspire. He also knew the value of good publicity: whatever he actually felt about Roosevelt and Eisenhower, it suited him to have the world believe they were great friends, so that was the story he promulgated to the press and in public.

That not only kept the presidents onside and ensured he was kept in the loop, but it also made “the chubby little man with the fat black cigar”, as one newspaper described him, deeply popular across America. Such popularity has endured: American historians are still writing books about him nearly 80 years after his last White House visit. ■

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This article appeared in the Culture section of the print edition under the headline “Guest who?”

Culture August 31st 2024

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• Tewes Tralau 1 &
• Philip Marx-Stoelting   ORCID: orcid.org/0000-0002-6487-2153 1  

Traditional risk assessment methodologies in toxicology have relied upon animal testing, despite concerns regarding interspecies consistency, reproducibility, costs, and ethics. New Approach Methodologies (NAMs), including cell culture and multi-level omics analyses, hold promise by providing mechanistic information rather than assessing organ pathology. However, NAMs face limitations, like lacking a whole organism and restricted toxicokinetic interactions. This is an inherent challenge when it comes to the use of omics data from in vitro studies for the prediction of organ toxicity in vivo. One solution in this context are comparative in vitro–in vivo studies as they allow for a more detailed assessment of the transferability of the respective NAM data. Hence, hepatotoxic and nephrotoxic pesticide active substances were tested in human cell lines and the results subsequently related to the biology underlying established effects in vivo. To this end, substances were tested in HepaRG and RPTEC/tERT1 cells at non-cytotoxic concentrations and analyzed for effects on the transcriptome and parts of the proteome using quantitative real-time PCR arrays and multiplexed microsphere-based sandwich immunoassays, respectively. Transcriptomics data were analyzed using three bioinformatics tools. Where possible, in vitro endpoints were connected to in vivo observations. Targeted protein analysis revealed various affected pathways, with generally fewer effects present in RPTEC/tERT1. The strongest transcriptional impact was observed for Chlorotoluron in HepaRG cells (increased CYP1A1 and CYP1A2 expression). A comprehensive comparison of early cellular responses with data from in vivo studies revealed that transcriptomics outperformed targeted protein analysis, correctly predicting up to 50% of in vivo effects.

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Introduction

Given the at times heated discussions about regulatory toxicology in the political and public domain, the quite remarkable track record of toxicological health protection sometimes tends to go unnoticed. Not only are chemical scares such as the chemically induced massive acute health impacts in the 1950ies, 60ies and 70ies a thing of the past (Herzler et al. 2021 ), but in many parts of the world, there are now regulatory frameworks in place which aim at the early identification of potential health risks from chemicals. Within Europe, the most notable in terms of impact are probably REACH (EC 2006 ) and the regulations on pesticides (EC 2009 ) both of which still overwhelmingly rely on animal data for their risk assessments. This has manifold reasons, one being the historical reliability of animal-based systems for the prediction of adversity in humans. However, there are a number of challenges to this traditional approach. These comprise capacity issues when it comes to the testing of thousands of new or hitherto untested substances, the testing of mixtures, the ever-daunting question of species specificity or the limitation of current in vivo studies regarding less accessible endpoints such as for example immunotoxicity or developmental neurotoxicity.

Over recent years, so-called New Approach Methodologies (NAMs) have thus attracted increased attention and importance for regulatory toxicology. The United States Environmental Protection Agency (US EPA 2018 ) defines NAM as ‘…a broadly descriptive reference to any technology, methodology, approach, or combination thereof that can be used to provide information on chemical hazard and risk assessment that avoids the use of intact animals… ’. One instance of an attempt to replace an animal test with an in vitro test system is the embryonic stem cell test in the area of developmental toxicology (Buesen et al. 2004 ; Seiler et al. 2006 ). This stand-alone test was first evaluated for assessing the embryotoxic potential of chemicals as early on as 2004 (Genschow et al. 2004 ). While its establishment as a regulatory prediction model took several more years, one major outcome was the realization that the use of NAMs in general is greatly improved when used as part of a biologically and toxicologically meaningful testing battery (Marx-Stoelting et al. 2009 ; Schenk et al. 2010 ). It should be noted that despite all the potential of such testing batteries a tentative one to one replacement of animal studies is neither practical nor straight forward. The reason is not only the complexity of the endpoints in question but also practical constraints. This was recently exemplified by Landsiedel et al. who pointed out that with the number of different organs and tissues tested during one sub-chronic rodent study, and assuming that 5 NAMs are needed to address the adverse outcomes in any of those organs, it would take decades just to replace this one study. Any regulatory use of NAMs should hence preferably rely on their direct use (Landsiedel et al. 2022 ).

An example from the field of hepatotoxicity testing is the in vitro toolbox for steatosis that was developed by Luckert et al. ( 2018 ) based on the adverse outcome pathway (AOP) concept by Vinken ( 2015 ). The authors employed five assays covering relevant key events from the AOP in HepaRG cells after incubation with the test substance Cyproconazole. Concomitantly, transcript and protein marker patterns for the identification of steatotic compounds were established in HepaRG cells (Lichtenstein et al. 2020 ). The findings were subsequently brought together in a proposed protocol for AOP-based analysis of liver steatosis in vitro (Karaca et al. 2023a ).

One promising use for such cell-based systems is their combination with multi-level omics. In conjunction with sufficient biological and mechanistic knowledge, the wealth of information provided by multi-omics data should potentially allow some prediction of substance-induced adversity. That said any such prediction can of course only be reliable within the established limits of such systems such as the lack of a whole organism and incomplete toxicokinetics and restrictions on adequately capturing the effects of long-term exposure (Schmeisser et al. 2023 ). Regulatory use and trust in cell-based systems will, therefore, strongly rely on how they compare to the outcome of studies based on systemic data (Schmeisser et al. 2023 ).

Pesticide active substances are a group of compounds with profound in vivo data. Some examples for active substances commonly used in PPPs are the fungicides Cyproconazole, Fluxapyroxad, Azoxystrobin and Thiabendazole, as well as the herbicide Chlorotoluron and the multi-purpose substance 2-Phenylphenol. For these compounds, several short- and long-term studies in rodents have been conducted and multiple adverse effects in target organs like liver or kidneys were observed (see Table  1 ). Liver steatosis, as one potential adverse health outcome, has been associated with triazole fungicides, such as Cyproconazole, but other active substances such as Azoxystrobin are suspected to interfere with the lipid metabolism as well (Gao et al. 2014 ; Luckert et al. 2018 ). Potential modes of action for adverse effects include the activation of nuclear receptors, such as the constitutive androstane receptor (CAR), which has been shown for Cyproconazole and Fluxapyroxad (Marx-Stoelting et al. 2017 ; Tamura et al. 2013 ; Zahn et al. 2018 ). Notably, even when an active substance is considered to be of low acute toxicity, e.g. Chlorotoluron, Thiabendazole and 2-Phenylphenol (EC 2015 ; US EPA 2002 ; WHO 1996 ), they might still exhibit adverse chronic effects (Mizutani et al. 1990 ; WHO 1996 ). This is the reason why pesticide active substances and plant protection products (PPP) are assessed extensively before their placing on the market (EC 2009 ).

The target organs most frequently affected by pesticide active ingredients are the liver and kidneys (Nielsen et al. 2012 ). Hence, an in vitro test system aimed at the prediction of pesticide organ toxicity should be able to model effects on these two target organs. One of the best options currently available for hepatotoxicity studies in vitro is the cell line HepaRG (Ashraf et al. 2018 ). Before their use in toxicological assays, the cells undergo a differentiation process resulting in CYP-dependent activities close to the levels in primary human hepatocytes (Andersson et al. 2012 ; Hart et al. 2010 ). They also feature the capability to induce or inhibit a variety of CYP enzymes (Antherieu et al. 2010 ; Hartman et al. 2020 ) and the expression of phase II enzymes, membrane transporters and transcription factors (Aninat et al. 2006 ). Antherieu et al. ( 2012 ) demonstrated that HepaRG cells can sustain various types of chemically induced hepatotoxicity following acute and repeated exposure. Hence, HepaRG cells have the potential to replace the use of primary human hepatocytes in the study of acute and chronic effects of xenobiotics in the liver. In 2012, the European Commission Joint Research Centre’s European Union Reference Laboratory for Alternatives to Animal Testing (EURL ECVAM) coordinated a validation study finding differentiated HepaRG cells as a reliable and relevant tool for CYP enzyme activity studies (EURL ECVAM 2012 ). This led to the proposal of a respective draft test guideline by the OECD in 2019 (OECD 2019 ). Additionally, as part of the US EPA Tox21 project, HepaRG cells were used for an assay assessing toxicogenomics (Franzosa et al. 2021 ).

A promising test system for investigations of nephrotoxicity is the tERT1 immortalized renal proximal tubular epithelial cell line RPTEC/tERT1 (further referred to as RPTEC). These non-cancerous cells have been found to closely resemble primary counterparts showing typical morphology and functionality (Shah et al. 2017 ; Wieser et al. 2008 ). Aschauer et al. ( 2015 ) demonstrated the applicability of RPTEC for investigation of repeated-dose nephrotoxicity using a transcriptomic-based approach. Simon et al. ( 2014 ) showed similar toxicological responses of RPTEC and the target tissue to exposure to benzo[ a ]pyrene and cadmium. Conclusively, RPTEC can be a useful tool for toxicological studies.

In the present study, six pesticide active substances were analyzed in two cell lines, namely the liver cell line HepaRG and the kidney cell line RPTEC. Assays were performed following exposure to the highest non-cytotoxic concentration and comprised targeted protein and transcriptomics analysis. Triggered pathways were identified and compared with established results from in vivo experiments.

Materials and methods

All test substances were purchased in analytical grade (purity ≥ 98.0%) from Sigma-Aldrich, Pestanal® (Taufkirchen, Germany): Cyproconazole, CAS no. 94361–06-5, catalog no. 46068, batch no. BCCD4066; Fluxapyroxad, CAS no. 907204–31-3, catalog no. 37047, batch no. BCCF6749; Azoxystrobin, CAS no. 131860–33-8, catalog no. 31697, batch no. BCCF6593; Chlorotoluron, CAS no. 15545–48-9, catalog no. 45400, batch no. BCBW1414; Thiabendazole, CAS no. 148–79-8, catalog no. 45684, batch no. BCBV5436; 2-Phenylphenol, CAS no. 90–43-7, catalog no. 45529, batch no. BCCF1784. William’s E medium, fetal calf serum (FCS) good forte (catalog no. P40-47500, batch no. P131102), recombinant human insulin and l -glutamine were acquired from PAN-Biotech GmbH (Aidenbach, Germany), FCS superior (catalog no. S0615, batch no. 0001659021) from Bio&Sell (Feucht bei Nürnberg, Germany). Dimethyl sulfoxide (DMSO, purity ≥ 99.8%), hydrocortisone-hemisuccinate (HC/HS), hydrocortisone, epidermal growth factor (EGF) and neutral red (NR) were purchased from Sigma-Aldrich (Taufkirchen, Germany). Dulbecco’s modified eagle medium (DMEM) and Ham’s F Nutrition mix were obtained from Gibco® Life Technologies (Karlsruhe, Germany), trypsin–EDTA, Penicillin–Streptomycin and insulin-transferrin-selenium from Capricorn Scientific GmbH (Ebsdorfergrund, Germany).

Cell culture

HepaRG cells were obtained from Biopredic International (Sant Grégoire, France) and kept in 75 cm 2 flasks under humid conditions at 37 °C and 5% CO 2 . Cells were grown in proliferation medium consisting of William’s E medium with 2 mM l -glutamine, supplemented with 10% FCS good forte, 100 U mL −1 penicillin, 100 µg mL −1 streptomycin, 0.05% human insulin and 50 µM HC/HS for 2 weeks. Then, HepaRG cells were passaged using trypsin–EDTA solution and seeded in 75 cm 2 flasks, 6-well, 12-well and 96-well plates at a density of 20 000 cells per cm 2 . Cells in cell culture dishes were maintained in proliferation medium for another 2 weeks before the medium was changed to differentiation medium (i.e., proliferation medium supplemented by 1.7% DMSO) and cells were cultured for another 2 weeks. Thereafter, cells were used in experiments within 4 weeks, while media was changed to treatment media (i.e., proliferation media supplemented by 0.5% DMSO and 2% FCS) 2 days prior to the experiments.

The RPTEC cell line was obtained from Evercyte GmbH (Vienna, Austria) and cultivated as previously described (Aschauer et al. 2013 ; Wieser et al. 2008 ). Cells were grown in a 1:1 mixture of DMEM and Ham’s F-12 Nutrient Mix, supplemented with 2.5% FCS superior, 100 U mL −1 penicillin, 100 µg mL −1 streptomycin, 2 mM l -glutamine, 36 ng mL −1 hydrocortisone, 10 ng mL −1 EGF, 5 µg mL −1 insulin, 5 µg mL −1 transferrin and 5 ng mL −1 selenium. RPTEC were cultivated in 75 cm 2 flasks until they reached near confluence. Then, cells were passaged using trypsin–EDTA and seeded at 30% density in 75 cm 2 flasks for further sub-cultivation and 6-well, 12-well and 96-well plates for experiments. To obtain complete differentiation, cells in cell culture dishes were maintained for 14 days before they were used in experiments.

Test concentrations

All substances were dissolved in DMSO and diluted in the respective medium to a final DMSO concentration of 0.5% before incubation. HepaRG treatment medium and 0.5% DMSO in RPTEC medium served as solvent controls for HepaRG cells and RPTEC, respectively. At least 3 biological replicates, i.e., independent experiments, were performed for each assay.

Cell viability

Cell viability was investigated with the WST-1 assay (Immunservice, Hamburg, Germany), according to the manufacturer’s protocol and subsequent NR uptake assay according to Repetto et al. ( 2008 ). HepaRG cells and RPTEC were seeded in 96-well plates and incubated with the test substances for 72 h. Triton X-100 (0.01%, Thermo Fisher Scientific, Darmstadt, Germany) was used as positive control for reduced cell viability. At the end of the incubation period, 10 µL WST-1 solution was added to each well and incubated for 30 min at 37 °C. The tetrazolium salt WST-1 is metabolized by cellular mitochondrial dehydrogenases of living cells to a formazan derivative, the absorbance of which was measured at 450 nm with an Infinite M200 PRO plate reader (Tecan, Maennedorf, Switzerland). The reading of each well was related to the absorbance value at the reference wavelength of 620 nm, and blank values were subtracted before the relation to the solvent control.

Afterwards the NR uptake assay was performed, where incorporation of NR into lysosomes of viable cells is measured. One day prior to the assay, NR medium was prepared by diluting a 4 mg mL −1 NR stock solution in PBS 1:100 with the respective cell culture medium for HepaRG cells and RPTEC, and incubated at 37 °C over night. After the WST-1 measurement, the incubation medium was removed and cells were washed twice with PBS. Subsequently, 100 µL NR medium, previously centrifuged for 10 min at 600 ×  g , was added and incubated for 2 h. Afterwards, cells were washed twice with PBS, and 100 µL destaining solution (49.5:49.5:1 ethanol absolute, distilled water, glacial acetic acid) per well was added. Plates were shaken at 500 rotations min −1 for 10 min and fluorescence of NR was measured with an Infinite M200 PRO plate reader (Tecan, Maennedorf, Switzerland) at 530 nm excitation and 645 nm emission. Each reading was subtracted by the blank value and normalized to the solvent control.

Multiplexed microsphere-based sandwich immunoassays

Marker proteins and protein modifications were analyzed by Signatope GmbH (Tübingen, Germany) with a multiplexed microsphere-based sandwich immunoassay. Cells were seeded in 6-well plates and incubated with the test substances for 36 and 72 h. Protein extraction was performed by adding 250 µL pre-cooled extraction buffer, supplied by the company, to the cells in each well and subsequent incubation for 30 min at 4 °C. Cell lysates were transferred to 1.5 mL reaction tubes and centrifuged for 30 min at 4 °C and 15 000 ×  g . The supernatant was aliquoted in 60 µL batches and stored at -80 °C until shipment. After thawing, aliquots were directly used and not frozen again. Samples were analyzed for 8 proteins and protein modifications, each representing a marker for a certain form of toxicity (Table  2 ).

Quantitative real-time PCR and PCR profiler arrays

RT-qPCR was conducted to ensure well performing RNA for subsequent PCR profiler arrays. Cells were seeded in 12-well plates and incubated with the test substances for 36 h. RNA extraction was performed with the RNA easy Mini Kit (Qiagen, Venlo, Netherlands) according to the manufacturer’s manual. Yield RNA concentration and purity were analyzed with a Nanodrop spectrometer (NanoDrop 2000, Thermo Fischer Scientific, Darmstadt, Germany) and RNA samples were stored at -80 °C until further use. Reverse transcription to cDNA was conducted using the High-Capacity cDNA Reverse Transcription Kit (Applied Biosystems, Waltham, MA, USA) according to the manufacturer’s protocol with a GeneAmp ® PCR System 9700 (Applied Biosystems, Darmstadt, Germany) and cDNA samples were stored at – 20 °C. RT-qPCR was performed with Maxima SYBR Green/ROX Master Mix (Thermo Fisher Scientific, Darmstadt, Germany) according to manufacturer’s protocol. In brief, 9 µL master mix, consisting of 5 µL Maxima SYBR Green/ROX qPCR Master Mix, 0.6 µL each of forward and reverse primers (2.5 µM) and 2.8 µL nuclease-free water, was added to each well of a 384-well plate. Primer sequences are shown in Online Resource 1. Subsequently, 20 ng cDNA was added to each well to a final volume of 10 µL and RT-qPCR was performed with an ABI 7900HT Fast Real-Time PCR system instrument (Applied Biosystems, Darmstadt, Germany). In brief, activation took place at 95 °C for 15 min, followed by 40 cycles of 15 s at 95 °C and 60 s at 60 °C, followed by 15 min at 60 °C and default melting curve analysis. Data were processed using 7900 software v241 and Microsoft Excel 2021. Threshold cycle (C T ) was set to 0.5, melting curve was checked and manual baseline correction was performed for each gene individually. Yield C T -values were extracted to Microsoft Excel 2021 and relative gene expression was obtained with the 2 −ΔΔCt method according to Livak and Schmittgen ( 2001 ). GUSB and HPRT1 served as endogenous control genes for HepaRG cells, GUSB and GAPDH were used for RPTEC. Primer efficiency was tested beforehand according to Schmittgen and Livak ( 2008 ). Only RNA samples showing amplification in RT-qPCR were used for further analysis with PCR profiler arrays. For quality control purposes, yield 2 −ΔΔCt values from RT-qPCR and PCR profiler arrays were compared and had to be within the same range (Online Resource 1).

For performing the PCR profiler array, cDNA was synthesized from 1 µg RNA using the RT 2 First Strand Kit (Qiagen, Venlo, Netherlands) according to the manufacturer’s protocol with a GeneAmp® PCR System 9700 (Applied Biosystems, Darmstadt, Germany). Subsequently, the RT 2 Profiler™ PCR Array Human Molecular Toxicology Pathway Finder or Nephrotoxicity (Qiagen, Venlo, Netherlands) was conducted with RT 2 SYBR ® Green ROX qPCR Mastermix (Qiagen, Venlo, Netherlands) according to the manufacturer’s protocol. RT-qPCR was performed with an ABI 7900HT Fast Real-Time PCR system instrument (Applied Biosystems, Darmstadt, Germany), where activation of polymerase took place for 10 min at 95 °C, followed by 40 cycles of 15 s at 95 °C and 60 s at 60 °C and default melting curve analysis. Data were analyzed using 7900 software v241 and Excel 2021. C T was set to 0.2, melting curve was checked and manual baseline correction was performed. Yield C T -values were extracted and further analyzed.

• Pathway analysis

Further evaluation of PCR array data was performed with functional class scoring methods such as Gene Ontology (GO) enrichment and Kyoto Encyclopedia of Genes and Genomes (KEGG), as well as with the bioinformatics analysis and search tool Ingenuity Pathway Analysis Software (IPA). Following the manufacturer’s instructions, yield C T -values were uploaded to the Qiagen Gene Globe Webportal Footnote 1 and analyzed using the standard ΔΔC T method referring to an untreated control. A cut-off C T was set to 35, all 5 built-in housekeeping genes were manually selected as reference genes and their arithmetic mean used for normalization. Means of fold regulation and p-values were calculated and further evaluated with the bioinformatics tools following the protocol provided in Online Resource 2. The processed results from HepaRG cells and RPTEC were used as input data individually, as well as combined. For the combined analysis, duplicate genes that were present on both arrays were removed.

To generate a first overview, the percentage of differentially expressed genes (DEG) per pathway was determined as previously published (Heise et al. 2018 ). Genes were assorted to pathways as suggested on the manufacturer’s web page. Footnote 2 The percentage of DEG was calculated as number of genes whose expression significantly differed by a fold change of 2, as determined by Student’s t- test (p < 0.05), related to the total number of genes in the pathway.

GO enrichment and KEGG analysis

The freely available web tools GOrilla Footnote 3 and ShinyGO 0.80 Footnote 4 were used for GO enrichment and KEGG analysis, respectively (Eden et al. 2007 , 2009 ; Ge et al. 2020 ). Detailed protocols are provided in Online Resource 2 together with the R code for determining DEG and background genes (see Data availability), which was adapted from Feiertag et al. ( 2023 ).

Ingenuity pathway analysis

In addition to GO enrichment and KEGG analysis, further evaluation of PCR array data was performed with the bioinformatics analysis and search tool IPA (Qiagen, Hilden, Germany, analysis date: Nov. 2023) as previously published (Karaca et al. 2023b ). IPA is a commercial bioinformatics tool for analyzing RNA data, predicting pathway activation and functional interrelations using a curated pathway database. Using Fisher’s exact test, IPA identifies overrepresented pathways by measuring significant overlaps between user-provided gene lists and predefined gene sets. Means of fold regulation and p -values were uploaded to IPA following the protocol provided in Online Resource 2. Cut-off was set to – 1.5 and + 1.5 for fold regulation and 0.05 for the p -value. Fold regulation represents fold change results in a biologically meaningful way. In case the fold change is greater than 1, the fold regulation is equal to the fold change. For fold change values less than 1, the fold regulation is the negative inverse of the fold change. No further filtering was applied and an IPA core analysis was run. One Excel spread sheet per substance was obtained including all predicted diseases or functions annotations, the associated categories, the p-value of overlap as well as the number and names of the DEG found in the respective annotation (Online Resource 3). Predicted effects on other organs than the liver or the kidneys, such as heart or lungs, were discarded. For further comparison with in vivo data only the categories were used, combined with the p-value of the annotation, which was the highest.

Comparison with animal studies

The data obtained from targeted protein and transcriptomics analyses were compared with known in vivo observations from Draft Assessment Reports (DARs) of the pesticide active substances required for pesticide legislation. To facilitate the comparison of the data, the in vitro data was transformed into a more comprehensible form by applying evaluation matrices as shown in Table  3 .

The in vivo effects attributed to the pesticide active substances were taken from the publication by Nielsen et al. ( 2012 ). Additionally, the DARs of the two substances not reported in Nielsen et al . were analyzed and assigned accordingly. All in vivo effects identified by the authors for liver and kidneys can be found in Online Resource 1. Based on expert knowledge, descriptions of in vitro outcomes were combined with in vivo observations (see Tables  4 and 5 ).

Based on the combination of the in vitro and the in vivo data, it was possible to draw conclusions on the concordance of the predictions. In order to establish optimized thresholds for regarding an effect as in vitro positive, the analyses were performed by considering at least medium effects, strong and very strong effects, or very strong effects only (see Table  3 ) and comparing these to the corresponding in vivo effect. In case multiple in vitro predictors were connected to the same in vivo observation, a positive prediction from one was sufficient to be considered in vitro positive. For protein analyses, the comparison was performed for the data from HepaRG cells and RPTEC individually, as well as combined, where a positive prediction from one of the cell lines was considered sufficient and compared to hepatotoxic and nephrotoxic in vivo effects. For the gene transcription analysis, the categories obtained by IPA were compared to in vivo observations from DARs. A further evaluation integrating protein and transcriptional data was conducted, wherein a positive result from either data type was sufficient to classify a sample as in vitro positive. Online Resource 1 shows the combination of the results in detail. The percentage of concordance between in vitro prediction and in vivo observation was calculated. Indicative concordance was defined as percentage of in vivo positive observations that were predicted to be positive by the in vitro test system.

Statistical analysis

Statistical analysis was performed using R 4.2.1 and RStudio 2023.09.1 + 494. Data evaluation was done with Microsoft Excel 2021.

All experiments were performed in at least three independent biological replicates. Technical replicates, when applicable, were averaged and subsequently mean and standard deviation values were calculated from biological replicates. For targeted protein analysis, statistical significance was calculated with bootstrap technique using R package boot (Canty and Ripley 2016 ; Davidson and Hinkley 1997 ) to account for the high variability that results when the protein expression is affected. Data visualization was done using ggplot2 package (Wickham 2016 ). Calculation of statistical significance of altered gene transcription was performed using Student’s t -test, and R package ComplexHeatmaps was used for data visualization (Gu 2022 ). All R scripts can be found using the link provided in the Data availability section.

Impairment of cell viability

Each substance was tested for its effect on the viability of HepaRG cells and RPTEC. Based on these results, the highest non-cytotoxic concentration was determined and employed in further experiments together with a second concentration (i.e., 0.33 × highest non-cytotoxic concentration). For HepaRG cells, published data were used as a starting point for cytotoxicity testing and confirmed with WST-1 and NR uptake assays. The highest non-cytotoxic concentration, defined as the concentration determining a cell viability greater than 80%, is shown in Table  6 .

For RPTEC, a relatively new cell line, little data was available. At least 3 biological replicates were performed in technical triplicates to determine the highest non-cytotoxic concentrations (Table  6 ). The bar graphs in Online Resource 4 depict the concentration-dependent course of all tested concentrations per substance limited by solubility. Online Resource 1 provides a table with calculated approximations of substance concentrations in the target organ at LOAEL or NOEAL level based on in vivo toxicokinetic results from DARs. These approximations can be compared with the selected in vitro concentrations based on cytotoxicity experiments.

Effects on marker proteins

The result from multiplex microsphere-based sandwich immunoassays of treated HepaRG cells and RPTEC are shown in Figs.  1 and 2 , respectively. In HepaRG cells, incubation with the highest non-cytotoxic concentrations of Azoxystrobin, Chlorotoluron and Thiabendazole increased the expression of total LC3B, an indicator of autophagy, after 36 h (all three compounds) and 72 h (Chlorotoluron and Thiabendazole). Strong effects were observed on cleaved PARP, an indicator of apoptosis, after 36 h of incubation with 120 µM Cyproconazole (247 ± 147%) and 300 µM Thiabendazole (359 ± 204%). However, after 72 h incubation with 120 µM Cyproconazole, the level of cleaved PARP was strongly reduced. Expression of HIF 1-alpha, an indicator of hypoxia, was significantly increased after 36 h incubation with 45 µM Azoxystrobin (214 ± 24%). Fluxapyroxad and 2-Phenylphenol did not significantly increase the expression of any of the protein analytes.

Effects on protein abundance and protein modification of key proteins observed in HepaRG cells after 36 and 72 h of incubation with the test substances using a multiplexed microsphere-based sandwich immunoassay panel. Results are shown as means of 3 independent experiments, normalized to solvent controls. Statistical differences to the solvent control were calculated with bootstrapping (* p  < 0.05)

Effects on protein abundance and protein modification of key proteins in RPTEC after 36 and 72 h of incubation with the test substances using a multiplexed microsphere-based sandwich immunoassay panel. Results are shown as means of 3 independent experiments, normalized to solvent controls. Statistical differences to the solvent control were calculated with bootstrapping (* p  < 0.05)

In RPTEC, the abundance of p-elF4B, involved in eukaryotic translation initiation, was increased after 36 and 72 h incubation with 300 µM Cyproconazole (165 ± 45% and 201 ± 51%, respectively), all conditions of Fluxapyroxad, incubation with 3 µM Azoxystrobin for 36 h (166 ± 56%) and incubation with 900 µM Chlorotoluron for 36 and 72 h (238 ± 59% and 170 ± 44%, respectively). Thiabendazole exposure for 36 h resulted in an increase of cleaved PARP at both tested concentrations. Due to the high standard deviation, these results were not statistically significant.

Comparing the results from HepaRG cells and RPTEC, fewer effects were observed in RPTEC than in HepaRG cells. Effects of Azoxystrobin and Chlorotoluron on p-elF4B were observed in both cell lines, as well as increased levels of cleaved PARP after Thiabendazole exposure; yet these results were only significant in HepaRG cells. 2-Phenylphenol did not increase the expression of any of the tested proteins in either cell line, while Fluxapyroxad only affected p-elF4B in RPTEC.

A graphical representation of all data points from HepaRG and RPTEC including means and standard deviations can be found in Online Resource 4.

Changes at the gene transcription level

Changes at the protein level are often preceded by changes at the gene expression level. These were analyzed by RT 2 Profiler™ PCR arrays. Figures  3 and 4 show the results from HepaRG cells and RPTEC, respectively. The genes included in the array were assigned to certain pathways according to the information provided on the manufacturer’s web page. For data interpretation, the percentage of DEG was calculated. In HepaRG cells, most DEG were observed following the exposure to Chlorotoluron. Overall, genes categorized as CYPs and phase I were predominantly affected. Cyproconazole and Chlorotoluron exerted effects on genes associated with fatty acid metabolism (10 and 55%, respectively). Of all steatosis-associated genes, 47% were altered by Chlorotoluron. With regards to individual genes, the strongest increase was observed for CYP1A1 and CYP1A2 , both in the group of CYPs and phase I, after exposure to Chlorotoluron (479-fold and 57-fold, respectively) and Thiabendazole (330-fold and 215-fold, respectively).

Relative quantities of mRNA transcript levels observed after 36 h exposure of HepaRG cells to non-cytotoxic concentrations of the test substances using the Human Molecular Toxicology Pathway Finder RT 2 Profiler™ PCR Array. Data evaluation was performed using the 2 −∆∆ Ct method, according to Livak and Schmittgen ( 2001 ). All target genes were normalized to 5 housekeeping genes. Results are shown as mean of 3 biological replicates and statistical analysis was performed by one sample Student’s t -test (* p  < 0.05)

Relative quantities of mRNA transcript levels observed after 36 h exposure of RPTEC to non-cytotoxic concentrations of the test substances using the Human Nephrotoxicity RT 2 Profiler™ PCR Array. Data evaluation was performed using the 2 −∆∆ Ct method, according to Livak and Schmittgen ( 2001 ). All target genes were normalized to 5 housekeeping genes. Results are shown as mean of 3 biological replicates and statistical analysis was performed by one sample Student’s t -test (* p  < 0.05)

In RPTEC, the cluster encompassing most of the DEG was that associated with regulation of the cell cycle. Here, Cyproconazole, Fluxapyroxad, Azoxystrobin, and Chlorotoluron affected the expression of over 40% of the associated genes. Genes associated with apoptosis were altered following the exposure to all substances, particularly Cyproconazole and Chlorotoluron (47 and 37%, respectively). Cyproconazole additionally showed pronounced effects on genes encoding for extracellular matrix and tissue remodeling molecules (27 and 40%, respectively). All substances affected about 20% of all genes contained in the group of genes related to cell proliferation. Cyproconazole, Chlorotoluron and 2-Phenylphenol affected 25% of all oxidative stress-associated genes. In comparison to HepaRG cells, where CYPs and phase I was the most impacted group, in RPTEC only one of the DEG established for any of the substances belonged to the group of xenobiotic metabolism. At the level of individual genes, HMOX1, a nephrotoxicity marker, was induced over twofold after incubation with all substances, but highest for Cyproconazole (eightfold). Of all genes, the strongest induction was observed for IGFBP1 , a member of the insulin-like growth factor-binding protein family, which was increased 53-fold by incubation with Cyproconazole and over 52-fold after incubation with Chlorotoluron.

A graphical representation of all data points including means and standard deviations can be found in Online Resource 4 for HepaRG and RPTEC results.

Data analysis with GO enrichment and KEGG analysis

Gene expression results were analyzed with GO enrichment and KEGG analysis. All effects obtained in the analyses can be found in Online Resource 3.

The GO enrichment analysis of HepaRG DEG from the incubation with Cyproconazole pointed at changes in secondary and xenobiotic metabolic processes , and the combined analysis additionally resulted in significant enrichment of response to estrogen . DEG modulated by the exposure to Chlorotoluron were involved in 16 ontologies including metabolic, biosynthetic, and catabolic processes , with lipid metabolic process and organic hydroxyl compound metabolic process being the most statistically supported (i.e., p-value: 9.2 × 10 –8 and 7.7 × 10 –7 , respectively). In RPTEC, nucleic acid metabolic process was the only significantly enriched GO term for Chlorotoluron, while the combined analysis revealed a total of 23. Analysis of DEG from incubation with Thiabendazole resulted, among others, in hits for xenobiotic, terpenoid, and isoprenoid metabolic process in HepaRG and combined results. Although analysis of DEG from incubation with 2-Phenylphenol did not result in significantly enriched GO terms from the HepaRG or the RPTEC data; the combined data set showed 5 enriched terms with NADP metabolic process and myeloid leukocyte migration having the lowest p-values (6.9 × 10 –4 , both).

For KEGG analysis, the HepaRG data set for Fluxapyroxad and Chlorotoluron showed enrichment of drug metabolism-cytochrome P450 , as well as taurine and hypotaurine metabolism (Fluxapyroxad) and metabolic pathways (Chlorotoluron). Thiabendazole data revealed enrichment of steroid hormone biosynthesis , metabolism of xenobiotics by cytochrome P450 and chemical carcinogenesis-DNA adducts . RPTEC data set for Azoxystrobin and Chlorotoluron showed multiple cancer-related pathways. The combined data set only resulted in few pathways: hepatocellular carcinoma for Azoxystrobin, metabolic pathways for Chlorotoluron and mineral absorption for 2-Phenylphenol. All other analyses did not result in any significant enrichment.

Data analysis with ingenuity pathway analysis software

Gene expression data were further analyzed with the IPA software. In total 32 different categories of diseases or functions were predicted. Figure  5 shows the ten most frequently resulting categories. Liver Hyperplasia/Hyperproliferation is the only common category across all cell lines and substances. The statistical confidence of the pathway analysis was strongest for Chlorotoluron, which also induced most DEG. Comparing the three methodologies of input data, lower p-values were observed for HepaRG and combined analysis and most categories of diseases or functions were predicted by the combined analysis. Evidently, effects on the kidney were predicted from the input data from liver cells and vice versa.

Results obtained by analysis of transcriptomics data with Qiagen Ingenuity Pathway Analysis. The 10 categories most affected are represented. The x-axis shows the -log 10 value of the p-value obtained for the respective effect

In a final step, the data acquired from targeted protein and transcriptomics analyses were compared with known in vivo observations. Given that the comparison focused on aligning the responses from human cell lines with whole animal data, the analysis focused on the extent to which the omics-responses were indicative of the respective biological response in vivo (indicative concordance). To establish an optimized threshold for the evaluation of in vitro predictions, the in vitro data were transformed by applying evaluation matrices as shown in Table  3 . Based on that, activated key proteins and thus cellular functions were identified for each substance from targeted protein analyses. For the evaluation of gene transcripts, the p-values for the categories obtained by IPA were considered. Indicative concordance with known in vivo results is shown in Table  7 .

For the protein analysis, the indicative concordance ranged from 18 to 47% for the single cell lines and their combination, respectively. In contrast to the results from targeted protein analyses, the indicative concordance for the transcriptomic response was much stronger with greatest values of 55, 63 and 76% for the single cell lines and their combination, respectively. Likewise, for those cases where no effect was seen in vivo, no adverse indications were seen in vitro in 80, 91 and 78% of cases, respectively. For protein analysis, this value ranged from 78 to 86% and was 50% for the combined analysis of protein and transcriptional data. It should be noted, however, that these values decreased when the evaluation criteria were less strict (medium or strong instead of very strong).

In the present study, the pathways triggered by non-cytotoxic concentrations of six pesticide active substances were examined, employing targeted protein and transcriptomics analyses in the liver cell line HepaRG and the kidney cell line RPTEC. Utilizing evaluation matrices and prediction software tools, the observed cellular responses were interpreted and compared with outcomes from established in vivo experiments, in order to assess the relevance of our in vitro model systems in predicting the impact of pesticide exposure on human hepatic and renal cellular function. The primary emphasis of this investigation did not lie in delineating discrete effects attributable to individual substances; rather, it centered on discerning the predictive capacity of the system and serving as a case study to highlight the current challenges in the regulatory adoption of NAMs.

When targeted protein data were used to predict in vivo impacts in rodents, the best result was achieved by the combined analysis and setting the evaluation criteria to medium effects (47%). Regarding the indicative concordance based on transcriptional data, medium effects in HepaRG cells seemed the most promising resulting in a 55% match. This is notable given the systemic as well as species differences between the corresponding test systems. It also highlights that the “gold standard”, i.e., the reference standard used for comparison, is in fact not necessarily indisputable (Trevethan 2017 ). Various studies pointed at the shortcomings of traditional animal studies, such as interspecies concordance, poor reproducibility and unsatisfactory extrapolation to humans (Goodman 2018 ; Karmaus et al. 2022 ; Luijten et al. 2020 ; Ly Pham et al. 2020; Smirnova et al. 2018 ; Wang and Gray 2015 ). One example illustrating the difficulties in extrapolating data from rodents to humans is the question whether Cyproconazole causes neoplasms in the liver. Here, animal studies with CD-1 mice showed statistically significant positive trends for hepatocellular adenomas and combined tumors in male mice (EFSA 2010 ; Hester et al. 2012 ). Ensuing studies identified CAR activation by Cyproconazole as the underlying Mode of Action (MoA) (Peffer et al. 2007 ). Marx-Stoelting et al. ( 2017 ) investigated effects of Cyproconazole in mice with humanized CAR and PXR and demonstrated increased sensitivity of rodents to CAR agonist-induced effects, compared to humanized mice. In line with these observations the Joint FAO/WHO Meeting on Pesticide Residues (JMPR) concluded that Cyproconazole is unlikely to pose a carcinogenic risk to humans (JMPR 2010 ). Likewise, Cyproconazole was not considered to cause neoplasms in the liver when analyzed for this study. However, such detailed analysis of a substance’s MoA is scarce.

Another important factor impeding the comparison of in vitro and in vivo data are the different ontologies. The need for harmonized ontologies and reporting formats of in vivo data has been expressed by many researchers in the field of in silico toxicology and has been addressed in multiple projects (Hardy et al. 2012 ; Sanz et al. 2017 ). For example, uncertainty arises as to the reason if and why an effect for a particular organ is possibly not reported. Depending on the case and study in question, this might be because absent effects were simply not explicitly reported as negative, or because other organ toxicities occurred at lower doses and hence data for the remaining organs were omitted or not assessed, or because the focus of the study was another organ (Smirnova et al. 2018 ). While this does not pose a problem for when such studies are used for risk assessment, it does affect the comparison with in vitro results. Another major obstacle is the retrospective conclusive combination of large and comprehensive sets of mechanistic data in vitro with systemic and histopathological observations in vivo. This issue has recently been picked up by on-going European ONTOX project Footnote 5 (“ontology-driven and artificial intelligence-based repeated dose toxicity testing of chemicals for next generation risk assessment “) and has led the consortium to reverse the strategy and build NAMs to predict systemic repeated dose toxicity effects to enable human risk assessment when combined with exposure assessment (Vinken et al. 2021 ). A recent publication by Jiang et al. ( 2023 ) as part of the ONTOX project identified transcriptomic signatures of drug-induced intrahepatic cholestasis with potential future use as prediction model. However, not all pathologies have been analyzed so far, and those that have were often only studied for a limited number of chemicals, limiting their transferability. Hence, this study relied on the use of computational tools such as IPA, GO enrichment and KEGG analysis, to draw functional conclusions from transcriptomics data. While IPA results in categorized diseases or functions annotations, KEGG and GO analyses display enriched ontologies. Therefore, while KEGG and GO results were too ambiguous to be related to distinct in vivo observations, it was feasible to combine IPA results with in vivo observations. It is noteworthy that even though GO enrichment and KEGG analysis seem fairly similar, the results varied widely between the predictions from the various software tools. Soh et al. ( 2010 ) analyzed consistency, comprehensiveness, and compatibility of pathway databases and made several crucial findings such as the inconsistency of associated genes across different databases pertaining to the same biological pathway. Furthermore, common biological pathways shared across different databases were frequently labeled with names that provided limited indication of their interrelationships. Chen et al. ( 2023 ) demonstrated that using the same gene list with different analysis methods may result in non-concordant overrepresented, enriched or perturbed pathways. Taken together, these considerations may explain the divergent findings from the different transcriptomics analyses in the present study. Additionally, these findings underscore the challenges associated with integrating pathway data from diverse sources and emphasize the need for standardized and cohesive representation of biological pathways in databases.

Compared to the transcriptomic data, protein analyses from HepaRG cells and RPTEC cells resulted in a comparatively low indicative concordance. This challenges the notion that protein analysis may be superior in prediction (Wu et al. 2023 ). One likely explanation is that proteins often reflect molecular functions and adverse effects more accurately, and diseases frequently involve dysregulated post-translational modifications, which are challenging to detect and may be poorly correlated with mRNA levels (Kannaiyan and Mahadevan 2018 ; Kelly et al. 2010 ; Zhao et al. 2020 ). However, due to the relatively low number of protein markers as compared to the number of mRNA markers, the targeted transcriptomics analysis is associated with a higher likelihood of finding a match. In the gene transcription analysis with ensuing IPA evaluation, 370 genes were analysed for HepaRG. In contrast, the protein analysis conducted in this study focussed on 8 proteins or modifications, each indicative of a particular cellular function, that were analysed at two time points after incubation of cells with two concentrations of the test substances. Consequently, a cellular response to a stressor over time can be observed, such as the different levels of cleaved PARP after 36 h and 72 h of incubation with Cyproconazole in HepaRG cells. While elevated levels of this apoptosis indicator were noted after 36 h, reduced levels were observed after 72 h. Possible explanations for this include a cellular feedback mechanism or an advanced stage of apoptosis.

Another central observation is that combination of cell lines and methods significantly increases indicative concordance (up to 88%). In the case of targeted protein analysis, combination of results led to an overall value of 47%, compared to approximately 20% for each cell line. Similar trends were observed for transcriptomic data with 76% indicative concordance for combined results, albeit decreasing the cases where an in vivo negative effect corresponded to no adverse indication seen in vitro , as the total number of positive in vitro effects was increased. Nonetheless, the idea that including omics data in regulatory process will unreasonably increase positive findings and lead to overprotectiveness can be challenged as strengthening the evaluation criteria lead to a reversion of this trend. The shortcomings of stand-alone in vitro tests to replace animal experiments have long been known. For example, single tests do not cover all possible outcomes of interest or all modes of action possibly causing a toxicological effect (Hartung et al. 2013 ; Rovida et al. 2015 ). In the present study, reported in vivo effects such as lesions of biliary epithelium or inflammation of the liver may not be fully represented by a single hepatic cell line. Hence, regulatory toxicologists strive to implement so-called integrated testing strategies (ITS) (Caloni et al. 2022 ). Results from projects in the fields of embryonic, developmental and reproductive, or acute oral toxicity have shown that test batteries increase the predictive value over individual assays (Piersma et al. 2013 ; Prieto et al. 2013 ; Sogorb et al. 2014 ). To share these novel methodologies in ITS for safety evaluations in the regulatory context, the OECD Integrated Approaches for Testing and Assessment (IATA) Case Studies Project offers a platform where comprehensive information on case studies, such as consideration documents capturing learnings and lessons from the review experience, can be found. Footnote 6

While this publication’s scope did not extend to establishing a conclusive ITS for liver and kidney toxicity, it serves as a valuable starting point for future analyses in this direction and offers ongoing assistance and insights. Moving forward, it could prove beneficial when exploring testing protocols that integrate protein and transcriptomics analyses, enhancing the comprehensiveness of safety evaluations in this domain.

Data availability

The data sets generated during the current study are available in the Jochum-et-al-2024 GitHub repository, https://github.com/KristinaJochum/Jochum-et-al-2024 .

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Department of Pesticides Safety, German Federal Institute for Risk Assessment, Berlin, Germany

Kristina Jochum, Andrea Miccoli, Tewes Tralau & Philip Marx-Stoelting

Institute for Marine Biological Resources and Biotechnology (IRBIM), National Research Council, Ancona, Italy

Andrea Miccoli

Signatope GmbH, Tübingen, Germany

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NMI Natural and Medical Sciences Institute at the University of Tübingen, Reutlingen, Germany

Oliver Poetz

Department of Food Safety, German Federal Institute for Risk Assessment, Berlin, Germany

Andrea Miccoli & Albert Braeuning

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Conceptualization: Oliver Poetz, Albert Braeuning, Philip Marx-Stoelting, Tewes Tralau; methodology: Kristina Jochum, Philip Marx-Stoelting, Oliver Poetz; formal analysis and investigation: Kristina Jochum, Andrea Miccoli, Cornelia Sommersdorf; writing—original draft preparation: Kristina Jochum, Philip Marx-Stoelting; writing—review and editing: Andrea Miccoli, Cornelia Sommersdorf, Oliver Poetz, Albert Braeuning, Tewes Tralau, Philip Marx-Stoelting; funding acquisition: Tewes Tralau, Philip Marx-Stoelting; resources: Tewes Tralau, Philip Marx-Stoelting, Oliver Poetz.

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Oliver Poetz is a shareholder of SIGNATOPE GmbH. Cornelia Sommersdorf is an employee at SIGNATOPE GmbH. SIGNATOPE offers assay development and service using immunoassay technology.

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Jochum, K., Miccoli, A., Sommersdorf, C. et al. Comparative case study on NAMs: towards enhancing specific target organ toxicity analysis. Arch Toxicol (2024). https://doi.org/10.1007/s00204-024-03839-7

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Received : 03 July 2024

Accepted : 08 August 2024

Published : 29 August 2024

DOI : https://doi.org/10.1007/s00204-024-03839-7

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