Interview with Craig Mundie, Microsoft

In this interview with CSR Europe, Microsoft's chief research and strategy officer Craig Mundie talks about the role of information technology in addressing societal challenges around the world.

Craig Mundie is chief research and strategy officer of Microsoft Corp., reporting to CEO Steve Ballmer. He oversees Microsoft Research and other technology and research initiatives, the company's health and education businesses, and a number of technology incubations. Mundie also works with government and business leaders around the world on technology policy, regulation and standards.

Mundie's discussion with CSR Europe's Kerstin Born and Jan Noterdaeme is the first in a series of interviews on the future of responsible enterprise with business leaders from CSR Europe's member companies.

You can watch 7 short videos from the interview or read the summary below. 

Part 1: On technological change

Part 2: On the role of technology in addressing societal challenges in emerging markets

Part 3: On new business models for emerging markets

Part 4: On technology in healthcare and education

Part 5: On tomorrow's leaders' skills in the connected world

Part 6: On knowledge economy in Europe, US and other parts of the world

Part 7: On the strategic importance of basic scientific research

Interview with Craig Mundie

Jan Noterdaeme: What do you see as some of the products and services that will allow Microsoft to gain new sustainable markets of growth in the future?

Our business is a technologically driven business, and we invest a lot in research and development to be prepared for or create some of these revolutionary capabilities and technology. But our world is not one where we invent our own technology exclusively - we are an integrator of many other people's development activities.

What we see now is a major change in the technical underpinnings of the computing environment, where two new things emerge - both substantially more capable than what people know today.

One is the microprocessor itself which becomes much more powerful. Similarly, through the connectivity in large-scale computing facilities that were born of the internet, we create a programmable platform that people call "the cloud", which we only think of as half of the new platform.

So for us, the future is about intelligent devices that are near you coupled to this very large-scale computer environment. This powerful technology leads you to ask the question: what do you do with it?

There is almost no field of engineering or science or even social activity today that doesn't require aggressive use of information technology. It is almost like a magical, malleable technology that is an ingredient now in solving problems in almost every space.

From a business point of view, for us, that is a good thing as long as we can continue to make it morph into what the marketplace wants.

One big thing is that today there are 6.5 billion people on the planet and we know that will grow to about 9 billion people over a fairly short period of time. Of all those people, only 1.5 or 2 billion get any real benefit from information technology software today.

We see that as a big latent opportunity - if technology could be used to address some of the fundamental needs of this underserved population that is 80 percent of the people on the planet.

At the same time, if you look at the developed two billion, a big part of their GDP is invested in areas like healthcare and education. Those numbers are trending up, not down, and no one is happy with the outcomes.

There is an opportunity for Microsoft to step forward, not merely with the solutions, but with the tools that people use to get the solution, like we did with Word, PowerPoint and Excel.

A lot of what I am trying to drive in the strategy of the company addresses each of these three parts: how do you advance the platform itself, how do you use that to refresh and expand the kind of capabilities that people have already come to expect from computers, and how do you look at the investments needed for a transformative change that could be induced through advanced information technology - and then try to move Microsoft in a direction to provide those capabilities.

Jan Noterdaeme: Many companies find that in order to effectively operate in emerging markets they need to radically revisit some of their business models. Is this something that Microsoft is also working on?

The tricky part about this emerging economy environment is that they don't start with enough money to buy the technology in the form that we have delivered it in the rich world. You have to decide how it can be acquired in a way that it tends to spin up the total economic output of that part of the world.

It is not a philanthropic or a welfare activity - it is essentially a self-help model. I think that is essential because, particularly given the current economic stresses, the rich world will find itself even less capable and likely to want to revert to its own resources to deal with the welfare requirement. There is now an opportunity to say "look, no one is going to come in and help you, you're going to have to help yourself."

At Microsoft, a few years ago we started a new division called the Unlimited Potential Group. Sometimes they actually build new products specifically for these emerging markets, sometimes they re-engineer our existing products and offer them under different business models.

For instance, our business has primarily been driven by licensing or subscriptions, and in the rich world we never had advertising as a way to provide a monetized system. But in emerging markets, things like cell phones show that if the acquisition cost can be low or financed in return for some recurring revenue stream, that's interesting for consumers.

Today, many of these people use our technologies, but they pirate a lot of it because the business model we offer it under isn't conducive to them buying it at an affordable price. In many cases, we can actually make more money in the aggregate by changing the business model or the financing of the product, and not changing the product at all.

Kerstin Born: When you look the people working in your team today and what is needed from the leaders of tomorrow, what capabilities should they have to contribute to building new sustainable growth?

One thing that we struggle with today, even being as international a company as Microsoft is, is that a great many of our managers still don't have a very broad view of the world. They may drive parts of the company who do business in many parts of the world, but their own knowledge of these other parts of the world can be quite limited.

I think more and more businesses will find, in this highly interconnected, economically-interdependent world, that they will need to be more aware, more sensitive, have more exposure to that expanding universe.

This is important for economies like Europe and the United States which increasingly have to be knowledge economies more than manufacturing economies. A big part of they have to aspire to is to be able to export knowledge - sometimes in the form of products, or sometimes in our case it is basically knowledge encapsulated in software as a delivery vehicle for that insight and understanding.

Kerstin Born: Does this separation of knowledge economies and manufacturing economies create a new divide in the world?

I think people don't always understand the speed with which countries now seek to move from an agricultural economy to a manufacturing economy to a knowledge economy.

Thirty years ago China was almost completely an agricultural economy. They then became the world's factory, but now their leadership has already decided that China's future is a knowledge economy.

In fact, what you see is a continuum. The real question is whether the knowledge economies will be able to sustain that in the long term as the rest come up.

Today, in Europe and the United States we have only 10 percent of the world population but about 40-50 percent of the global GDP. Up to now, the knowledge-driven economy has created a 5:1 multiplier in terms of the quality of life that derives from the percentage of GDP you have.

But now that the Western world has exported a big part of its training capability, the ability to yield IQ in other parts of the world is coming up the scale.

It will boil down not only to the quality of the institutions, but to the fundamental questions of how well prepared people are. Are you bringing together the maximum amount of IQ? Do you have an immigration policy that aims at being a gatherer of IQ, not necessarily an indigenous grower of IQ?

The more you fail to gather it, the higher the probably that it matures somewhere else. How can you then sustain your differential advantage as a knowledge economy against all other people who are working their way up the ladder? I think this is one of the great questions for the more developed economies.

Kerstin Born: Looking ten years ahead, besides attracting and keeping the best talent, what do you see as key to developing innovative products that address current societal trends and challenges?

I actually think that people don't fully appreciate the strategic importance of basic scientific research.

Over the last 20-30 years, both Europe and the United States have cut back on public funding for basic research. The long term effect is that, as universities can't depend on public sector financing, a survival tactic is to essentially rent your talent out to corporations to do applied research.

That shortens the time horizon and narrows the range of exploration, because to satisfy the buyer, you take lower risk approaches.

The other effect is that the companies who would say "I need to be doing some longer term research myself" say "I don't to take on that expense because I get this subsidized applied research by just contracting it out to the universities."

As you fail to do that, you become less and less prepared for the uncertain future. It also becomes harder and harder to mature a big enough crop of the absolutely top tier people. In this sense, you end up cutting off your supply from both the top and the bottom.

I also think that we collectively have failed, in our media-driven culture, to get enough kids into math and science in their early school years. We don't really encourage or celebrate science and engineering, and so we are not yielding enough of our IQ into that environment. 

Kerstin Born: What does this mean in the future for partnerships between the public sector and companies, or universities and companies?

All of them need to stretch out the timeline.

In my opinion, the biggest problem in the great democracies today is the short cycle of the media and the polls driving policy-making. For companies, the short cycle of the financial markets is nothing new, and they make their own decisions about that trade-off - Microsoft has always opted to invest in long term research, and today we make the largest investment in research outside the energy sector.

I think the more insidious problem is when the other two sectors, academic and the government funding, end up in this sort of collapsed time horizon for planning and investment.  

Government needs to able to provide the infrastructure to support basic science on a time horizon of ten to fifty years. If you do that well, you will have a better academic research capability, and those technologies will flow out to some extent to the whole world.

Businesses then need to be staffed and prepared to ingest this longer cycle research. They can't just be doing the development of the next product that is one year away - otherwise the gap between basic science and companies' ability to incorporate it and derive new products from it is too big.

It forces an elongation of the planning horizon for companies as well, and I think that would be beneficial.

Jan Noterdaeme: You mentioned that future leaders need to be more sensitive, have more exposure to different cultures. Would you say we need leaders with more emotional intelligence, more creativity?

I think people need to be encouraged to be collaborative - and technology is now shifting to support even more collaboration at a distance.

We went through a period where people said that television and computer games would make kids anti-social, but if anything, those kids - given cell phones, video games, internet connectivity - are more connected and more social than anybody I ever grew up with. I don't worry about that, but I think we need to give encouragement to the idea that collaboration is a good thing.

I do think we operate in media culture today. If you ask young people what they want to be when they grow up, you are more likely to get kids who say they want to be an athlete or a rock star, because the media culture promotes these things.

We also had a period where a disproportionate part of the world's highest IQ was being siphoned off into the financial market. Paul Volcker, the ex-chairman of the Fed, recently said that one of the biggest benefits of the financial collapse is that many of these people will no longer be attracted to financial engineering, they will go to real engineering.

If there is a sunny component to this cloud, it may be that some of the brightest people in the world will find that they get fulfilment at the highest competitive level not because they take jobs in the financial sector but in other areas. I think that would actually be good, given the world's need for this kind of advance.

 

Interview by Kerstin Born and Jan Noterdaeme
Edited by Laura Maanavilja and Caroline Milne