The Insiders Guide to Innovation at Microsoft (Dean Carignan, JoAnn Garbin) (Z-Library)

ADVANCE PRAISE FOR THE INSIDER'S GUIDE TO INNOVATION AT MICROSOFT   “The gods must be crazy: I’m giving a blurb to a book about innovation at Microsoft. But this book provides a comprehensive look into the mechanisms and mindsets that have driven Microsoft’s continuous reinvention and sustainability. By revealing insider strategies and first-hand insights, this guide equips readers with the tactics Microsoft has used to enhance its edge, influence, and market cap.” —Guy Kawasaki, Chief evangelist of Canva, former chief evangelist of Apple, and host of the Remarkable People podcast  “This isn’t just a book—it’s your golden ticket to Microsoft’s factory of creativity and constant learning.  Full of  case studies  on how to  innovate well, you’ll need not just one, but two highlighters. If you’re ready to dive into a world of self-disruption where innovation is as natural as breathing, come on in, the water’s fine! Crisp, clear, captivating.” —Whitney Johnson, bestselling author of Disrupt Yourself, CEO, Disruption Advisors, co-founder of Clayton Christensen’s Disruptive Innovation Fund  “Similar to the way Blue Ocean Shift guides the implementation of Blue Ocean Strategy, The Insider’s Guide to Innovation at Microsoft unlocks the innovation playbook at the heart of Microsoft.” —Renée Mauborgne, Professor of Strategy and Co-Director of the INSEAD Blue Ocean Strategy Institute, coauthor of Blue Ocean Strategy, Blue Ocean Shift, and Beyond Disruption.  “This book delves into how Microsoft has transformed its entire value chain, from organizational structures to customer engagement strategies, to drive sustained innovation and create significant value. It is a compelling

read for anyone looking to understand how to build a robust innovation strategy.” —Gary P. Pisano, the Harry E. Figgie Jr. Professor of Business Administration at the Harvard Business School and author of Creative Construction: The DNA of Sustained Innovation  “My time at Microsoft was marked by rapid transition: from Balmer to Satya, license to usage, disk to download, on-prem to online. But Microsoft has always been evolving, often in ways not seen by the public...until now. Carignan and Garbin have collected case studies from across Microsoft eras to open the curtain on what makes the world’s most fundamental tech company so successful.” —Matt Wallaert, MattWallaert.com, Founder at BeSci.io, Author of Start At The End: How to Build Products that Create Change  “The Insider’s Guide to Innovation at Microsoft could easily be titled ‘The Insider’s Guide to Making Amazing Things Happen Anywhere.’ It offers a rare, behind-the-scenes dissection of how one of the world’s most successful companies activates the kind of entrepreneurial spirit and behavior needed to achieve transformative results.” —Kaihan Krippendorff, Founder, Outthinker Networks and author of Driving Innovation from Within: A Guide for Internal Entrepreneurs  “[It’s] not just a collection of success stories; it is a comprehensive guide to building an innovative culture that prioritizes both technological advancement and social good. Whether you are an entrepreneur, a C-suite member or a changemaker, this book will inspire you to integrate purpose into your innovation strategies and build a legacy of profitable positive impact.” —Susan McPherson, Founder and CEO of McPherson Strategies, Author of The Lost Art of Connecting  “The Insider’s Guide to Innovation at Microsoft offers a vital blueprint for educating the next generation of responsible business and technology leaders. It bridges the gap between academic theory and real-world practice, making it an indispensable resource for business schools committed to

developing leaders who can drive both innovation and positive societal impact.” —Cary Krosinsky, author, Senior Advisor, Co-Founder Sustainable Finance Institute and Lecturer at Harvard, Brown, Yale, and NYU  “What makes The Insider’s Guide rare and essential is that its authors have actually lived successful innovation for decades, seen it in its many forms and functions, and distilled in its pages the patterns and insights that move us from theory and myth into the reality of what it takes to thrive in this necessary human pursuit. The Insider’s Guide is a must have, must read.” —Larry Robertson, Founder, Innovation Advisor Lighthouse Consulting, Award-winning author of The Language of Man and Rebel Leadership  “We often celebrate grand ideas and breakthrough moments, but we tend to underestimate how true innovation results from consistent, daily practices. Dean Carignan and JoAnn Garbin have beautifully decoded the innovation process, making this book an essential guide for every leader and entrepreneur.” —Dr. Ieva Martinaityte, Creativity Scientist, Author of Productive Creativity Method, and Workplace Creativity Professor  “Innovation and sustainability are inextricably linked. Building regenerative or net positive businesses is the next great evolution of business, and The Insider’s Guide to Innovation at Microsoft provides some much-needed advice on the innovative mindset and practices that get us there.” —Andrew Winston, leading advisor, speaker, and bestselling author on strategy and sustainability

  A POST HILL PRESS BOOK ISBN: 979-8-88845-284-4 ISBN (eBook): 979-8-88845-287-5   The Insider’s Guide to Innovation at Microsoft © 2025 by Dean Carignan and JoAnn Garbin All Rights Reserved   Cover art by Richard Borge Cover design by Dan Greenwald Illustrations by Kent Pilcher   This book, as well as any other Post Hill Press publications, may be purchased in bulk quantities at a special discounted rate. Contact orders@posthillpress.com for more information.   This is a work of nonfiction. All people, locations, events, and situations are portrayed to the best of the author’s memory.   No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author and publisher.   Post Hill Press New York • Nashville posthillpress.com   Published in the United States of America

  This is dedicated to our families: Flavia, Lucas, and Eric Jane, Tim, Ed, and George

      This book is for all those who dare. We believe innovation is value creation, and we worked tirelessly to write a book worthy of that definition. We hope you keep it no more than an arm’s length away on your desk next to your other cherished reference manuals, full of underlines, notes in columns, dog-eared pages, asterisks, question marks, and exclamation points. We hope you will pick a tool or two and practice with them. Above all else, we hope in some small way that we empower you to innovate more. We’re excited to share Microsoft’s stories with you and grateful you took the time to explore them with us. Onward!

      Rudolf Diesel, on the differences between ideation, invention, and innovation: “The origin of an idea is the happy period of creative mental work; when everything seems possible because so far it has nothing to do with reality. The carrying out is the time for preparing all the means that will assist in the realization of the idea; still creative, still happy, the time when natural obstacles are overcome; from which one emerges steeled and exalted even when beaten. The introduction is a time of struggle against stupidity and envy, apathy and evil, secret opposition and open conflict of interests, the horrible period of struggle with man, a martyrdom even if success ensues.” Die Entstehung des Dieselmotors, Berlin, 1913

TABLE OF CONTENTS Foreword Introduction   THE CASES Xbox: Cultivating a Culture of Innovation Visual Studio Code: Embracing the Innovator’s Dilemma Microsoft Office: Unlocking Value with Strategic Design Cognitive Services: Overcoming Defeat Through Extreme Collaboration Microsoft Research: Building Bridges to the Future Bing: Leveraging the Underdog Advantage Responsible Innovation: Moving Fast Without Breaking Things   THE PATTERNS Pattern #1: Innovating Every Day—Making Innovation Standard, Structured, and Reliable Pattern #2: Innovating Over the Years —Achieving Continuous, Adaptive Innovation Pattern #3: Innovating With Everyone —Igniting Change by Leading with Emotion Pattern #4: Innovating More Than Technology —Transforming the Entire Value Chain   Conclusion Endnotes

Acknowledgments Works Cited

FOREWORD Innovation is often discussed in sweeping and vague terms, overshadowing the underlying forces that drive and sustain it. At its heart, innovation is fueled by deep curiosity and active imagination, energized by optimistic visions of possibilities. However, even the most brilliant ideas first crystallize at a considerable distance from real-world impact. Bridging the gap between great ideas and innovations requires that promising proposals and initiatives are nurtured and recognized within a dynamic, supportive, and learning organization. Innovation must be encouraged at every level and embodied by colleagues and leaders alike. I joined Microsoft in 1993 after my AI startup, launched as I neared completion of my doctoral work at Stanford University, was acquired. As a young entrepreneur, I was concerned that the inventive spirit of our team might be dulled by joining a large organization. As we formed one of Microsoft’s first AI research teams, I recall telling my co-founders that we’d strive to maintain our innovative edge and view Microsoft as “our new startup.” I have not been let down. Over the past three decades, I have had the exhilarating experience of both witnessing and contributing to numerous innovative journeys at Microsoft. Throughout my tenure—spanning multiple leadership roles at Microsoft Research to my current position as Chief Scientific Officer—I’ve collaborated with three CEOs and countless leaders, engineers, and researchers. I can confidently say that Microsoft’s commitment to innovation has been unwavering, rooted in its earliest days and continuing robustly today. Sustaining such a rapid pace of innovation over five decades merits close examination. The Insider’s Guide to Innovation at Microsoft provides a unique opportunity to explore the fertile ground and dynamics that inspired some of Microsoft’s most groundbreaking products and services. The

insights are especially valuable for those in the technology sector but also hold broader appeal, with lessons applicable across various fields and organizations. Co-authors Dean Carignan and JoAnn Garbin draw upon their rich experiences in innovative environments to offer insights and lessons. Dean’s career, spanning multiple sectors including 20 years at Microsoft, reflects his work on strategic initiatives like Xbox and his support of AI efforts at Microsoft Research. Currently, Dean leads frontier projects for the Office of the Chief Scientific Officer. JoAnn brings a wealth of entrepreneurial experience at the intersection of sustainability and technology, working with companies large and small. Over the past 15 years, she has focused on distilling lessons from innovators and developing best practices for individuals and teams. Dean and JoAnn’s complementary backgrounds enrich the narratives and analyses presented in the book. Through a set of informative case studies, they recount some of Microsoft’s most significant achievements over its nearly 50-year history. They share captivating stories of innovation, illustrating how teams seized opportunities and overcame challenges. Leveraging extensive research and in-depth interviews, the authors uncover behind-the-scenes forces that enabled major accomplishments. The Insider’s Guide to Innovation at Microsoft is not only a fascinating journey through Microsoft’s impactful achievements but also a compilation of valuable lessons relevant to innovation in any field. Whether you’re a tech enthusiast or a curious learner, these histories and reflections are sure to provoke thought and inspire you.   Eric Horvitz, July 2024 Redmond, Washington

INTRODUCTION Imagine it. It’s the year 2000, and you work at Microsoft. You are part of the team working to establish a video game console business. To say your project is on life support would be generous—being on life support means at least some of your systems are operating properly. Your prototype, on the other hand, is held together by duct tape and chewing gum and seems to only work when it feels like it. You are widely expected to fail, not just by your competitors and the entire gaming community but also by many skeptical peers within Microsoft. You have a tiny team and less than 18 months to roll out your nonexistent platform globally—a feat that typically takes industry giants like Sony and Nintendo at least five years to accomplish. At this point, you find yourself about to sit down face-to-face with Bill Gates and Steve Ballmer, two of the fiercest and most successful technology leaders in the world. With no more than a preliminary plan in hand, you’re going to look them in the eyes and tell them that you are not going to use Microsoft’s flagship operating system. And while, yes, incorporating Microsoft Windows was a direct ask by BillG himself, you’ll explain that you know better. Windows, while perfectly suited for office productivity, is too bloated and slow to give gamers the experience they expect. But that’s not all. Not long after, your team will insist to Microsoft leadership that you don’t want the Microsoft logo anywhere on your packaging—that any association with the company would be lethal to the street cred you are looking to build with your audience. After all, Microsoft conjures images of cube farms, fluorescent lighting, and office parks. Microsoft is calendars, spreadsheets, emails, and word processing—the furthest thing possible from the freedom and adventure of gaming.

On top of all that, this is all unfolding after BillG has publicly stated that Microsoft makes software and everything else is a distraction. The man across the table from you knows better than anyone on the planet that software is a low-cost, high-margin product. On the other hand, hardware is very expensive and has a very low margin. In fact, gaming companies typically sell their hardware at a loss, hoping to recoup their investment in the sale of video games. Yet there you are, insisting that the only way to succeed is to build your own console. Not only that, but you also plan to do so without leveraging any of the existing hardware Microsoft already uses for its computers. Forget cost efficiencies; you need to design and build every detail from scratch to have a shot at attracting gamers. Now, one may ask, how did any of these meetings end in any other way than with your entire team being escorted to the parking lot by security, your personal effects piled up unceremoniously in cardboard boxes? More to the point, how did your team convince BillG and SteveB to invest a billion dollars against all odds and obvious reasoning? That’s a story about a team and a product and how both evolved across two decades. The Xbox case is one of seven case studies shared in the first half of this book. Each chapter explores a unique tale of innovation, starring a different cast of characters who work to overcome a specific set of challenges. On its own, each chapter seems one of a kind. But when examined as a whole, four patterns of practice emerge that are explored in the second half of the book. Together, these patterns describe how innovation happens at Microsoft. Not just day in and day out and year in and year out, but also with everyone and across every aspect of business. Why This? Why Now? Why Us? The world is full of books on innovation. From Peter Drucker’s Innovation and Entrepreneurship—published in 1985 (and still relevant)—to the thousands of books on creativity, problem-solving, and collaboration published since—like The Innovator’s Dilemma, Zero to One, The Lean Startup, Seeing Around Corners, and topical analyses like Net Positive and The Age of AI. These books explore different facets of innovation across

companies and industries. Many of these books are referenced throughout this one. Each contains great examples of frameworks, tools, and stories. This book differs in two key ways: the subject and the authors. Rather than explore patterns of innovation across the top of many companies—like many other books do—the chapters that follow delve deeply into just one company. Why Microsoft? For one, it’s the most diversified tech company on the planet—it’s active in a wide array of categories, from enterprise software and consumer devices to social media and large infrastructure. In essence, it’s many companies in one, but the shared parent organization provides a common denominator for the analyses. April 2025 marks 50 years since the founding of Microsoft. Over those 50 years, there have been only three CEOs: Bill Gates, the trailblazer who wanted to put “a computer on every desk and in every home,” a goal that has been largely realized; Steve Ballmer, the competitor with a win-at-any- cost ethos that, ironically, led to some significant losses; and Satya Nadella, the transformer who recognized that all innovation starts with how people work together. Three distinct eras of leadership of one organization with hundreds of innovative efforts to be explored. Microsoft is also one of the most valuable companies in the world and has been for most of its 50 years. These factors—a wide range of innovative challenges and opportunities in one company over many years—combine to provide fertile ground for the study of innovation and the development of transferrable practices. This kind of exploration is possible only because the authors are Microsoft insiders, the second distinction of this book. Dean and JoAnn are innovators, still leading from the core within Microsoft. They are actively managing people and programs, sleeves rolled up; leading strategy and execution; and living through the emergent realities that Diesel so acutely captured in the opening quote. This book started as a conversation between peers who had much in common despite traveling two very different paths. At the time, Dean was a 17-year veteran at Microsoft—a repeat intrapreneur with deep institutional knowledge and firsthand experience with several of the company’s most innovative organizations. JoAnn was just one year in at Microsoft but had a career’s worth of entrepreneurial insights from building four profitable

businesses and countless programs and products. As Dean and JoAnn swapped stories from their careers, they realized they had encountered many of the same challenges and learned many of the same lessons. Over the course of a year of conversations, they became fascinated with learning how innovation actually happens at Microsoft, and they formed three hypotheses. The Hypotheses There are innovation truisms that are consistent from one initiative to the next. Dean and JoAnn began to suspect there were a series of red threads that ran through every innovation. Did it matter if it was hardware or software? Did it matter if it was an evolution of an older product or if it was a brand-new business? They decided it was worth the effort to find out. They committed themselves to learning everything they could by talking with people throughout the company, from the highest levels of management to the junior team members on the front lines. These truisms would be valuable to others in Microsoft. If there are, in fact, truisms that exist within every kind of Microsoft innovation, then sharing this news would benefit every Microsoft employee. Dean and JoAnn started summarizing and organizing their insights in a way their peers could use to navigate the creative process. As they worked, they imagined the lessons could take the form of a book given to all employees. They thought of it as a collection of cheat sheets or recipes: The Microsoft Innovation Cookbook, so to speak. The truisms transcend Microsoft and would be universally valuable to anyone, anywhere. The more they heard, the more they realized that the lessons filling their notebooks had little to do with the technologies—and everything to do with the people who created them. Shining examples of brilliant management. Unfortunate judgment calls. Operational prowess. Strategic misses. Trial. Error. Success. Failure. Few companies have Microsoft’s resources and technologies, but every company has people. And every company lives or

dies by its people’s ability to adapt and thrive at the relentless pace of change. Which meant this wasn’t just a Microsoft Innovation Cookbook after all. Any innovator in any industry or company of any size could apply the insights amassed in this book to their own business. The Cases To the outside world, many of the people in this book are legends. Icons. Pioneers. But to Dean and JoAnn, they’re coworkers. Normal, everyday people who share the same halls, coffee makers, parking spaces, and conference rooms. This kind of proximity gave the authors everyday access. Their primary method of investigation was interviews. A lot of interviews. They recorded the firsthand recollections and perspectives, faithfully embracing the personal narratives. Then they carefully researched and fact- checked each to provide context and to create an objective account of what happened. The interviews led to seven case studies, each exploring a different dimension of innovation. Xbox Cultivating a Culture of Innovation In a company of roughly 120,000 people focused predominately on software, a small group of Microsoft employees banded together with the dream of building gaming hardware. Before they made a single product, the Xbox team created a culture. At first, it was easy. Just a handful of hardcore gamers whose lives revolved around their obsession. They naturally had a shared vision. Shared values. Shared commitment. Shared accountability. But as their ranks began to swell, the Xbox leadership team had to work to preserve what made its core group dynamic unique. A culture so tenacious that it convinced a productivity software company to make gaming hardware. A culture so alluring it attracted top talent who would have scoffed at the idea a year before. A culture so shrewd it not only managed to undermine competitors with decades more industry experience—and change the very business model of gaming—but also reconfigured itself, repeatedly, to become one of the most powerful players in the gaming world today. Visual Studio Code

Embracing the Innovator’s Dilemma No matter how robust your share of the market is, no matter how deeply ingrained your product is in the hearts, minds, and lives of its users, change is looming. Typically, disruption comes at the hands of a rival company, a startup with a new idea, or a trend the incumbent company simply failed to recognize. But what if that disruption was carefully nurtured and orchestrated from within the same corporate walls? Visual Studio Code is the story of an upstart coding tool created for born-on-the-web developers that brought this emerging customer group into the Microsoft fold alongside its longstanding base of Windows developers. It is a story of self-disruption and integrated construction for mutual value creation. Microsoft Office Unlocking Value with Strategic Design If it ain’t broke, don’t fix it. No need to reinvent the wheel. Don’t rock the boat. There’s no shortage of folksy advice on leaving things well enough alone. In 2018, Microsoft Office generated $30 billion in revenue—more than “well enough” by any measuring stick. The boat didn’t need rocking. The wheel didn’t need reinventing. So why did the Office team take on the enormous task of overhauling the pervasive productivity suite? More to the point, why did they reimagine the internal structures that served them so well for so long? And how did they do it? Office is a case study of how to bring design into the process earlier, build stakeholder consensus from start to finish, and define success in terms of end-user value. Cognitive Services Overcoming Defeat Through Extreme Collaboration In 2016, the race to artificial intelligence (AI) was well underway, and Google and Amazon were the heavily favored frontrunners. Then, seemingly out of nowhere, Microsoft surged forward, making monumental strides in six areas that had confounded AI scientists for decades. To add even more intrigue to this unlikely story, it wasn’t a well-heeled team with bottomless depth and budget that pulled off this feat. It was a small team of mainly junior-level talent. Learn how their hyper-