Microsoft Corporation (MSFT) Earnings Call Transcript & Summary

Hi. This is Josh Baer, software research analyst at Morgan Stanley. Welcome, everyone, to the Sustainable Futures Conference. I am joined today by Kristen Roby Dimlow, Corporate VP, Total Rewards, Performance and HRBI from Microsoft; and my colleague, Mark Carlucci. Need to start off with a disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Kristen, thank you so much for joining us. We're happy to have you.

Great to be here. Thank you.

Awesome. I think it would be helpful for a bit of an introduction, if you could provide us with a little bit of an overview on your role and your responsibilities at Microsoft.

You bet. So as you mentioned, I'm the Corporate Vice President of Total Rewards, Performance and HR Business Insights. And so that's basically compensation, benefits, performance and development and then HR business insights. And I think of my role is an important part of the HR function that's really thinking about the overall employee experience and trying to ensure that Microsoft is an exceptional place to work. So I work with my colleagues across HR to think about how we bring our programs and services together to make sure that they really support our employees so that we -- our goal is that we empower our employees so they can empower the planet.

Awesome. That's a great overview. So I wanted to start and just think about -- thinking about Microsoft and its scale, 175 employees, I think, and obviously customers around the globe. Can you provide some context or a bit of an overview of how Microsoft navigated COVID just from a remote work perspective over the last -- I guess it's going to be almost 1.5 years?

Yes. It's amazing. So I think -- when I think back to the last year, it really started in sort of the December conference in our China offices. And they -- we learned a lot from them. We -- they did shut down offices. They were working remotely. And so when things started to happen in the United States around the March time frame, we very quickly took action. And Satya, who's our CEO, and the senior leadership team who are his direct reports got together very quickly and thought about what are our principles here. And their #1 goal was sort of help customers stay up, and let's make sure our employees are safe and healthy. And so they also paid a lot of attention to guidance from the WHO and the various health organizations, public health organizations, governments, and very quickly decided that most of us would work remotely. And it was wild. I think many of us probably thought -- I know I thought when this happened that, all right, in the United States, we'll be home for a couple of months. Probably by Memorial Day, we'll be back. And here we are, 1.5 years later, still working remotely. And it was pretty neat. I think that we shifted everybody on to Teams and 365. We were lucky that we were able to have the tools. Sometimes, I think to myself, what if this had happened 20 years ago? I'm not sure that the world could have stayed up and been as productive for as long. And so we very quickly had people work from home. We tried to ensure that they would have resources, a little bit of extra resource for some of their productivity at home, so getting them extra monitors and keyboards. We even had, hey, if you want to go in and get your office chair, feel free to do it. Just let your group admin know you're doing it. And so very quickly, people adopted to working from home. But as things wore on, we realized that we needed to do more. And so within my own group, I have the HR business insights team, and we have all the employee listening systems. And so we very quickly pivoted our daily pulse as well as we have a lot of data coming into our Ask HR site to start to mine insights on what employees needed. And we were able to start to respond that way. Some of the things we did, we put in leave policies. So we gave everyone sort of 2 weeks' grace period. Many who are parents with younger age -- school-age children were really struck by surprise that the kids were also at home. So they were trying to work from home, teach from home. And so we very quickly put together pandemic support globally, a pandemic leave. Also, as things wore on into the summertime, we -- and realized that schools weren't going to come back necessarily particularly in the United States, we put together resources for parents to support schooling from home, things like Sittercity for backup care. We gave our data center employees backup care. We also tried to really think about how do we support our customers. And so we put a lot of resources up for customers to use in terms of how we were supporting the pandemic and also advice for them. Satya really had a mandate that -- in the very beginning especially, that he wanted us to be the first responders to the first -- he wanted us to be the digital first responders to the first responders. And so sometimes, when we were looking at overloads in customer support, we were trying to triage that support so that we were giving it to people who were providing health care and sort of frontline essential work. And so I would just say it's been really an exercise in flexibility and learning and trying to understand what was important. We also partnered really closely what we call Viva Insights now, formerly Workplace Analytics, and sort of married the data that was coming out of our systems and how people were using tools and when they were using them with our employee listening system, which is based more on employee sentiment, to really mine the critical insights on what was going on. So I could probably talk for about 3 hours on all the things we did, but maybe that's a little bit of an entry point. And if there's anything you really want me to focus on, let me know.

Yes. That's excellent. And to dig in maybe on one piece around the key technologies that you used, and you certainly mentioned Microsoft Teams and we know very well about the rapid adoption of Teams across the world. You mentioned monitors and stuff like that. But are there any other technologies that really helped to enable remote work?

I think we were -- Teams was enormous for us, and Teams has just grown exponentially during the pandemic. So that has been really big. I think also the -- our in-house IT department has done just a great job of trying to help people keep all their devices sort of online. They've been moving more and more of our internal systems onto phones so that for some of the basic stuff that we would do, some of the information that's available to employees that they could have it on their phones. And then obviously, Microsoft 365 has been phenomenal in able to -- the ability to collaborate on work and those sorts of things.

Great. And you also mentioned about your ability to get some of the data and insights. So like what was the feedback from customers on that experience? Like what was the good? What was the bad?

Yes. I think that -- so the customers, I think -- I'm not -- for external customers, I'm probably not the expert on this, but my sense is that we were very engaged with what was going on. I heard amazing stories about people actually sleeping in data centers. In certain countries, there was huge lockdown. And so we would have our own employees choose to sleep in the data center because they were worried they'd get stuck at a roadblock trying to go home. So I think that in terms -- I think generally, customers felt supported. I think in some cases, we were giving free Teams, 6 months of Teams to certain customers, especially first responders who needed help. And so I -- the other thing I would say, and I'm sure many of us have felt this. I really felt like companies came together in a great way. So I feel like there wasn't a monopoly on sort of one company sort of leading the response, but there was really an effort to lean in together with partners and customers to come up with solutions. I know in my own line of work, I was working with other people in other companies in roles like mine to share, hey, what are you doing for your employees? What do they need? What are you hearing about this part of the world, that part of the world? And that spirit of cooperation has continued. Even recently with the India spike, there's a group of about 200 CHROs who are working together to support their teams in India and share best practices. So in terms of employees, what we heard was needed support -- one of the things they said is we see that you're giving us leave, but we're not really sure we're allowed to take it. I'm not really sure that my manager is going to be supportive of my doing this. So we were able to feed that back to managers and say, "Hey, managers, really try to be supportive here." And the other thing we saw is that managers were the ones who were really taking the brunt of sort of the challenge. They were supporting their employees, trying to help their employees get productive. They were also occasionally filling in for employees when employees needed to take these leaves. They were trying to help people in terms of mental wellness, trying to think about how to hire people remotely, trying to think about how do you onboard. We've always had huge intern classes, and we had shifted to virtual overnight. So that was one of the things we learned from our data, is the managers were particularly stretched. And so we were able to give them advice and also air cover, if you will, in terms of prioritization.

Great. I wanted to just take a moment. For any investors listening in, there's the ability to ask questions on the portal, and we'll also try to get to those. So now, Kristen, I wanted to shift a little bit into -- ask a few on culture. So from my seat on the software team, we've been really watching the culture change under Satya for years. And it's been a shift more to innovation and openness both with technology and partnerships. And so I'm wondering from your perspective, how has culture evolved over your career at Microsoft? And how are you able to maintain that culture through the pandemic?

I have seen a massive shift in culture since I've been here. I'm a 22-year Microsoft veteran, and I left about 6 years ago to run HR for another tech company and ended up boomeranging back to Microsoft. So I was -- I sort of left at the time Steve Ballmer was leaving, and then came back probably 2 years into Satya's CEO leadership. And I'll tell you I felt it on the first day I was back. So one of the things that Satya talks about is this idea of growth mindset. And I want to tell you that, that has been such a powerful concept. And so it's really what our culture is focused on. It's this idea of growth mindset. And what that means is really being open to others' ideas. Satya says, "I want a company full of learn-it-alls, not know-it-alls. I want people who are open to criticism, who are comfortable giving their colleagues feedback and trying to work together to make things better." And I really absolutely can feel it. The way we got there -- so I think Satya did a great thing when he came in. He went on a listening tour. He talked to his senior leadership team. He talked to Board members. He talked to customers. He talked to the top 200 leaders across the company to talk about what does this company need to do. And I think Satya is someone who's espoused growth mindset. His -- I used to support him a long time ago. I was his HR leader. And this is who he really is. He's always been very open to other ideas. He's been very open to working open platform with others. And I think that was tremendously helpful for sort of helping Microsoft start on its transformation. I -- so anyway, he got all these people together and worked with the senior leadership team to identify culture pillars that they wanted to work on. So in addition to growth mindset, we also focused on customer obsession, which was important for Microsoft. I think there was some sense that we had gotten a little internally focused. We think a lot about diversity and inclusion, which has been profound for us and something that we're continuing to work on. I think we'll never be done, but just this idea of being much more open and bringing in different skill sets, different points of view, welcoming those perspectives. And so they aligned on culture, and then we went on a journey to try to really ensure that our programs and practices were aligned with that. And just this morning, there was an all-employee Q&A, and I thought it was interesting for this. I wanted to just share with this audience -- they actually shared a new culture video for us. So we've been working on this for 6 years. And we're constantly trying to up our game and remind people of what we're trying to do. And I think the thing that Satya said that was great is there's sort of this idea of an espoused culture and espoused values, and we want to make sure that our lived experience is as close to that, that we're closing the gap on those things. And so there is real focus. In my own world, I spend a lot of time thinking about my programs and services and how I can support the culture. So a really big one is performance and development. And probably about 6 years ago -- right about all this time that this was happening, we shifted the performance and development approach from sort of a monolithic annual review process to something that's more agile, where we do sort of 3 to 4 connects a year where manager and employee get together. And within those connects, we have core priorities. So we ask people to think about the 3 to 5 top things they have to do. And in addition to that, we have a shared diversity and inclusion core priority for the whole company that makes it very clear that this is very important. And then we also recently introduced a core priority for manager excellence. That's another piece that we think is huge. About a year ago, we introduced something called model, coach and care for managers. This is the aspiration of how managers lead. We had never spent a lot of time thinking about consistency of managers and sort of thinking about teaching them how we want them to be. And in fact, we consider them to be ambassadors for the culture. They're the ones who are sort of the last mile of culture really in ensuring that they are managing in a way and trying to help employees understand what aspire-to culture looks like. And so with the P&D system, the HRBI system, we measure insights on culture. We have something called a culture index. So every program and service we have is really in service of that. The other thing I want to say about P&D is in the olden days at Microsoft, it was very much focused on individual. We used to have a forced distribution. And really, it sometimes focused on individual heroics, which at times was at the cost of working together as a team. Now we really focus on what we call 3 circles. So first circle is really what do you do as an individual to drive business and customer outcomes? Then the next circle is what are you doing to help others? So what are you doing to teach others, to help others with their things? If you call it -- I think of it as rewarding the assist. And then the third circle is what are you doing to leverage others? And it used to be -- Microsoft's engineering teams used to be competitive with each other, and they wanted to build their own code instead of sharing code. And that was not great for customers and it was not great for us. And so our P&D system is really, really grounded in the aspire-to culture. And there are many examples, but those are just a few of how we do it every day, and we're not done. And I love that there was a new video today. So 6 years in, we're still trying to push ourselves on culture.

That's great. I want to ask one more on culture, and then I'll ask a few on the future of work and then pass it over to Mark.

Perfect.

So sticking to culture for a moment, over the last 15 months, as you've been hiring and onboarding employees, how do you keep that company culture that you've been describing when a lot of teams haven't even met people in person?

Yes. This has been one of the happiest surprises to me about COVID. So I was stunned to see data that new employees are saying -- they basically are rating their experience with their managers on onboarding higher post-pandemic when everything is virtual than they were before. And I think I attribute that to the fact that managers really understand that in these virtual environments, they need to lean in really hard with new employees to get them up and productive. And I also think -- and this is a little bit of a scary thing as we think about the future of work. It's many of us were working from home, and so we were all in the same boat. And so one of the things we're thinking about really hard is when -- how do we enable a truly hybrid environment? How are we going to tweak our tools so that people can be calling in from Michigan or Atlanta, and it feels the same as if they're sitting in the conference room. I think many of us at Microsoft, and probably you all have experienced this, too, that pre-pandemic, the people who were in the room had a slight advantage over the people online. A lot of times, the people online, you'd sort of forget they were there. You'd start talking to -- all at once. Nobody could follow what was going on. So I think that is maybe one of the reasons why the data was better than I expected and why new employees are doing so well. And then we have a lot of training. So we have some mandatory trainings, and then we also have invested heavily in manager excellence. So we have a learning path for all managers, which is 40 hours that they're expected to do over 18 months. And the idea is really to inculcate some of these ideas around model, coach and care and then also the culture attributes. So -- and then on the diversity and inclusion side, I mean what a year we've had. I think that the -- from -- the murder of George Floyd has really been a catalyst for us to re-up our game on diversity and inclusion. And we have done a huge amount of work. And some of it -- one of the things we do is we have mandatory allyship training, and 90% of all employees have taken that. We're always hiring new employees. So some of the catch-up is some of those newer employees. But also, we've done a lot of work which is more self-determination. So we did, for example, a 2-day Include conference where we brought in experts from across the globe on issues like this. And it was really opt-in for employees, and they loved it. And so I do think that there have been these moments. Sometimes challenge brings opportunity. And the challenge of COVID and the challenge of racial injustice in the United States have really been also opportunities for us to double down. And it pays off, right? It's paying off. One of the things I think about is employee engagement. And also, when you're thinking about attracting talent, talent today is not just interest in compensation and benefits. They care a lot about the companies they work for. And they really are looking for companies that are sincerely behind what they say, so not just what they say but what they do on these matters. So...

Great.

I get long-winded. Sorry.

No, no. These are very interesting insights. And I know Mark has some follow-ups on diversity and inclusion. Just wanted to round out the conversation on the future of work for Microsoft specifically, and we got a preview and an overview of that. I'm just wondering like how this next year really compares to the last 15 months. And longer term, what does the working environment really look like for Microsoft?

Right. I think, again, we have learned so much in the last year that some of the dinosaurs like myself have learned that there's a different way of working. And I really feel like we are leaning in hard on what we're calling hybrid, which is allowing more flexibility into the system. So currently, if you're aligned with a Microsoft work site, we're only expecting a post of what we call Stage 6 internally, which is when it's full return to the office when it's safe to do so. Employees really get to make a decision. They can work with their manager to flex their schedule. Basically, if you want to be part of a work site, we'll say, "You only have to show up 50% of the time to be considered sort of full time in that work site and you can work at home." That helps a lot in places where traffic is bad. I think one of the things we've all learned from this work from home during the pandemic is how much we hit our commutes and how productive we've been by not having to commute. So we're going to allow a little bit more flexibility. We'll also allow some employees to be fully remote. I've already had a number of employees tell me recently, as we're getting closer and closer to where we think things may return in the Puget Sound, a lot more people are saying, "You know what, it's working for me. Can -- do you really mean it? Can I work -- really work remotely?" And the answer is yes. And then also, we're finding that we're getting access to such better talent that that's helping us as well to be more flexible. So you might have the best data scientist in the world who doesn't want to leave Maine. And so now we can make that happen. So what we're trying to do is evangelize where the guardrails are. We are putting a lot of power in managers to make those decisions, but we're trying to give them the data to why this makes sense for them. Definitely, employees are more engaged. They're feeling -- we're seeing that there's stickiness from a retention perspective when people have these opportunities to control where and how they want to work. And then there's real challenges, too. I think one of our groups that was most impacted were the engineers. And they really like the opportunity or did like -- they had gotten used to the opportunity of being face-to-face and walking down the hall, grabbing a whiteboard to work on a problem. And so our Teams team is looking a lot at the future of work and trying to enable sort of those virtual rooms. We have whiteboards and things like that. We have work to do to make them even better and then even just thinking about meeting protocols. So when we return and some people will be in a conference room, how do we make that a really great experience for our people who are physically there and not physically there. So we're working hard on all of that. But I think it's -- like I do think that this is a huge silver lining. It's that it's really changed attitudes. And we were even commenting that of Satya's senior leadership team, 4 of them are not in the Puget Sound. And that's a big change culturally. And I think it's better because it's really important for employees to see that the leaders mean it, too.

Great. Microsoft is the leader in hybrid cloud on the software side. So it's fitting that you have a robust and flexible hybrid strategy when it comes to the workforce, too. I'm going to pass it over to Mark.

Great. Thanks, Josh.

Thank you, Kristen.

Thanks, Josh, and thanks, Kristen, for doing this. We appreciate it. I just want to follow up on some of the diversity comments you made earlier. And my first is through the turbulent social backdrop we had over the past year, one, if you could just elaborate on sort of what you did to support your employees. But two, when -- how does Microsoft go about thinking about when they should use their platform for a voice of change?

Yes. Those are both great questions. So I think when -- a year ago, when all of the -- we had the George Floyd situation. We had Breonna Taylor. We had Ahmaud Arbery. We've had Trayvon Martin. Like this is just continuing, but I feel like last year, we hit a crescendo. And what was terrific is the senior leadership team got together. So Satya and his direct reports got together and said, "What do we do about this?" And then also, we have a very, very strong -- we have many strong ERGs, employee resource groups. But one of our strongest is the BAM community, which is Blacks at Microsoft, and they also leaned in. And the senior leadership team and sort of the BAM leadership team got together and said, "What can we do to ensure that our employees feel supported and safe? And also what do we do as" -- when we think of our mission, our mission is to empower every person and every organization on the planet to achieve more. And so diversity and inclusion is core to us. And I think that we felt like we could do more to support. And so anyway, they came out with statements. And then we also tried to not -- it's not -- I think one of the things I hear from the community is there's such a fear of -- there's cynicism where, "We have heard words before and we want companies who back up their words with real action." And so it's very important to the senior leadership team and also HR leadership team and BAM leadership to think about what are we going to do that's different. And so we really thought about our response in terms of what do we do internally to continue to improve the culture to also think about how we use our ecosystem. So we have purchasing relationships. We have suppliers. We have investment opportunity. And then also what do we do with the community? So we have a big platform. What can we do to pull all of that together to weigh in on this issue? And internally, we did some mandatory trainings. We've used Juneteenth as a day of reflection, and in fact, we're going to continue that this year. So some companies have chosen to give Juneteenth as a holiday, and that's fine. But we said no. For us -- that may be fine for them. But for our company, we wanted it to be a day where people could really think about their own journey and their own learning in this space. And then again, we really used our employee-listening systems to see what was going on with employees and tried to equip managers and employees with resources to help them through. So we do not have it all figured out. Again, we spent a lot of times talking to other companies, trying to get a sense of what they're doing. We've tried for many years to do more with the pipeline. We want more diverse hiring, and we have put some big investments in there and continue to do that. We also unleashed our philanthropy arm because I think a lot of employees were just so frustrated and wanted to do more. So we had -- we added an extra amount of match for the world so that we increased our match and gave people ideas of organizations they can contribute to if they wanted to support these activities. And then one of the biggest things we're doing is just trying to hold up the mirror to ourselves. So from an accountability perspective, we put in some pretty aggressive goals. And we are reporting on them both internally and externally. And I was sharing on one of our breakouts that there's nothing in Microsoft like having a goal. Like if you really want to get something done, you shine a light on it. And we -- hopefully, people have had a chance to look at our diversity and inclusion disclosure. I'd encourage you to do it. But it's not all happy news, and we're willing to stand up and say, "We're trying really hard." Some things are working, some are not. But anyway, that's a little bit.

Great. And I think we have time for one more question. And so maybe I'll just build on a point you just made around hiring. Just curious -- I know we've talked about COVID a lot, but just curious how that's -- any challenges or how you dealt with that in terms of trying to find new talent in this backdrop?

Great. It has been enormously challenging. And my hats are off to everybody involved, especially my colleague who runs Microsoft global staffing. We -- one example of herculean effort was trying to -- we hire about 3,000 interns every year, and they had to all go -- they all had to go virtual in a matter of weeks, and it worked. The other thing is like in the United States, you have to have proof of citizenship, and it's always been done in-person. So you had to have humans to check -- to fill out I-9 forms and things like that. We also had always had in-person onboarding, or it was primarily in-person onboarding. So all of that had to be shifted online, and I'm happy to say it went pretty well. Again, I'm sure there were a few hiccups. One of the things that's really challenging is we hire people from all over the world. And in some cases, we were hiring somebody from one country to work in another country and all the borders shut down. And so we have a number of people across the world right now who are on dual offers, and we're sort of waiting for borders to open. So we were -- definitely, necessity is the mother of invention. We scrambled and we figured it out, and it was not easy. And I'll also say burnout is a real thing. Like I think people have worked so, so hard. And I was really pleasantly surprised to see our annual engagement survey. Like sentiment went up on just about everything except work-life balance, which tanked more than we ever thought. It was like down 10 points year-over-year. And it's not surprising because of things like this. It's just really changed the difficulty of work. But I'd say the reason why the other things are up so high is people feel a tremendous sense of purpose and impact. And so that's helping. And we are trying really hard to give employees the resources they need to take care of their own well-being. And certainly, in some parts of the world, we're getting vaccines out. I hope that will mean people start taking vacations and get a bit of a break. So sorry. I get excited about this stuff. So...

No worries.

If anyone have questions, I'm [email protected]. I'm also on LinkedIn. Happy to answer any questions.

Wonderful. No. Thank you. That was extremely insightful. Josh, maybe I'll pass the call back to you to close this out.

Thanks, Mark.

That's it. Thank you, Kristen. We really appreciate it.

It was fun.

Great. Thank you.

Thanks, all. Appreciate it. Have a great day.