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ANNOUNCER: Please welcome Chief Operating Officer for Microsoft, Kevin Turner. (Applause.)

KEVIN TURNER: It's great to be here. It's great to be. And you know what? I'm excited to be able to share our agenda with you for driving business excellence. Many of you know I came here almost a year ago—about 11 months ago—from a career of nearly 20 years at Wal-Mart, 14 of those years in the IT department, where I was eventually the chief information officer for Wal-Mart. The last three years I was there I ran a business for them called Sam's Club. It's a $37 billion business, and I learned a lot in that experience as well.

But I've been a long-term Microsoft customer. And really when you think about the last—I've been buying technology, or did for about 14 years prior to joining the company. What an exciting time it has been. And over the last 11 months I can honestly tell you I learned a ton and had a great experience.

But I also thought it would be important to really talk about my role, what is my role, which I get a lot of questions about. And one of the things I wanted to answer in and around that, my role is really about helping facilitate executing excellence in the marketplace with our customers and with our partners. And the importance of that, I think, ladies and gentlemen, is that executing excellence ultimately helps us drive shareholder value, and I think that that's an important part, because that's a large reason about why we're here today.

And so over the last 11 months, I've been around the world a couple of times, talked to thousands of our customers, thousands of our partners, as well as our own people, about what is going on in the marketplace and where do we need to go and how do we get there. And really over these past 11 months, and particularly the last four months, I crafted this agenda that we're driving right now, and I want to share that with you, because I think that's an important part of operationalizing our strategy and our framework. But this is how I think about things. These are my priorities. And, in essence, this is where we're going as a company about driving today business excellence in the marketplace.

The other thing I would tell you is that one of the things we made clear with our team is that we have to seek perfection in these areas, in these six areas, to achieve excellence. That's an important part it. And the other part I would tell you is finding that balance between being strategic and operational is another thing that we're deeply committed to. But this is a company, both from a history and a legacy and a culture, that is deeply committed to business excellence, and that's something that's been very exciting for me, and I'm proud to be a part of that.

So let me jump into this agenda and talk about kind of what is the operational agenda for the company and how do we do that. It all starts with people. The fact of the matter is everything begins and ends with people. People are the foundation of any company, and certainly this company. And people want to ask me, what's different about Wal-Mart and Microsoft? Let me tell you what's the same: The fact of the matter is they're both people businesses, and that's so important.

There's an incredible culture here that I'm proud to be able to share with you some of what I've learned about it. The first thing is we have the coolest mission statement in all of business: enabling people and businesses throughout the world to realize their full potential. That mission statement, in and of itself, galvanizes us as an organization, and is really an aspiration that makes us inclusive in this quest that we are all a part of something bigger than ourselves. And that's a fundamental thing that's very important.

The other thing I think is important for you to know is the six values of the company, their integrity and honesty and open and respectful and big challenges. This is a company that one of their values is big challenges—a willingness to take on a big challenge—their passion. They're accountable and they're self-critical. The last value is self-critical. Sam Walton called that having a divine discontent, and that was something he believed strongly in as well. This is a company that is self-critical internally without getting de-motivated. And, again, these are important things that we can't talk too much about with our people.

The element of it that's important though is we have to continue to change what we do without changing who we are. Our culture and our values are who we are as a company, but everything else is subject to change. And we've had a lot of initiatives over the past six months really talking about how we get our people more grounded in the success of the company. And it's about an initiative we launched called My Microsoft. And it's about investing in our people and the development of our people. It's about diversity and being inclusive. And it's about having world-class talent, both that you hire and that you develop, being very important.

But everything begins and ends with people, and that's why it's the foundation in our agenda.

Now, one of the things that I also wanted to point out to you that's been amazing to me is that hitting our numbers as a public company is no longer enough. The society and business expects more of us. So we have to hit our numbers and live our values. And that's important. And when we do that well, the world notices, because one of the things that's cool, as you see this slide, from all the different places around the world, this is truly a global organization, and an area that we have to continue to nurture that talent and develop it.

The other thing I think is important for you to know: that this is a company that attracts winners. And I think that's really special. Attracting winners is important. And my belief on that is, the reason we're able to attract winners at Microsoft is because this is a company that has big dreams. Big dreams attract big people. And that's something again that's very important for us. And if you look at our turnover numbers and where we're at from a productivity standpoint, both of those again continue to improve, and we continue to show progress in that area.

Next, I want to talk about customers and partners as a second layer of the agenda. And we're zeroing in on this idea of the art of selling, which may seem odd. I don't think you've heard that before at a Microsoft analyst meeting. We're zeroing in on this idea of becoming great sellers and the art of selling with our customers and relationship selling with our customers and our partners. And tremendous progress has been made over the last four or five years in improving our customer and partner satisfaction, and I'll show you some of that.

But there's another initiative called Trustworthy Computing that Craig Mundie is very focused on to help with our engineers as well as with research that is focused on security and privacy and reliability and business practices. Those are fundamental things that our customers and society expects from us, and we're very wired into that and making sure that those are things that we think about and work towards and aspire to have.

The other thing is that's important is when a customer buys Microsoft is the belief that they are buying innovation. This is an innovation technology company. This is a company that backs it up with products and investment. And that's an important part when we're out talking with our customers and our partners. I'd also share with you here that a lot of our customers and partners talk to us about open standards and interoperability and Jeff Raikes and Chris Capossela and we're partnering together on XML in making sure that we do the right thing. We're partnering with Craig Mundie on interoperability.

These are things that we're tackling as a company and looking at from a product standpoint to make sure that we aren't excluded from certain deals, and we're really taking feedback from our customers and partners and really learning that and doing it a product at a time, a scenario at a time. And that's an important part of making sure we're customer-focused.

The last thing I would tell you about customers and partners is the fact that we've got to continue to create value. Our customers and partners want us to create business value and that's important. But let me show you the progress that we've made. This is a chart, and I had to take the numbers off of it because we don't release it externally, but it is the actual chart without the numbers and up is better. So up is improvement.

If you look over the last four years, our customer satisfaction and partner satisfaction have continued to improve. This has really allowed us to continue to build on that and take it up to the next level. So over the past four years tremendous progress has been made. And the fact of the matter is we're a world-class innovation company and we've really laid down the challenge with our sellers to say, "Okay, we want to be a world-class sales organization and create that reputation that we have to uphold," which I think is very important to make sure that we drive people in that direction.

Having an unyielding commitment to serve our customers and our partners better than our competition because the fact of the matter is they're not standing still. We have to continue to push, and that's something we're focused on. But it’s about dialing our game up and getting better at it and making sure that we're outside in and taking that feedback and cranking it back in, so the product development is really what we're focused on.

And the other thing that I would tell you is this journey and aspiration that we have now, we've laid down the big bold goal with our folks last week, at our sales conference, is about our objective to have the best customer and partner satisfaction for every audience in every market.

Now, four or five years ago that would have been a far-out dream for our people to really get their hands around it. But so much of the progress has been made that now we can see it, we can begin to drive toward that, and that's the next flag in the stand that we're going to push toward. Is not accepting that somebody is going to out-hustle us as it relates to customer and partner satisfaction.

And also we launched last week something called World Class Sellers where we're really engaging our people about having a proactive, ongoing dialogue with our customers about tough topics. Tough topics on security, tough topics on licensing, tough topics on problems. Making sure that we step forward with our customers in times of need and have these conversations on a proactive basis is important. Creating conditions of satisfaction with them is critical.

That just simply says that we've asked you what does great customer satisfaction feel like? And we've put it on a goal sheet together and documented and formalized that. And we're going to aspire and work towards that. But it's also about having professionalism and discipline in the basics. And that means that we're going to do the little things better than other people. That we're going to work and focus on the little things because it's the little things, ladies and gentlemen, that make customers and partners get satisfied and get delighted. And that's important to us.

And next up, I want to talk to you about and show you something about is operational excellence. So we did people; we did customers and partners. Now let's talk about operational excellence. Now, certainly, a lot of my career has been spent on operational excellence. A couple of things I want to talk to you about.

This is about improving our efficiency and our effectiveness. Now I have a personal belief that efficiency is critical for survival and effectiveness is critical for success and we have to be great at both. The fact of the matter is there are some areas of opportunity here. One of them is our internal IT systems and tools that I'll talk about. Another one is engineering excellence within the product groups, which just says we're going to make sure that we have good processes and regular rhythm of product releases. And how can our customers and our folks in the field count on those? And that's an important part of it.

And then we'll touch on field productivity and business simplicity. But let me tackle systems and tools with you first. The fact of the matter is we have a great IT team here. We hired Stuart Scott a little over a year ago from General Electric—he's our applications CIO. Does a great job. We've really built the team out because I'm one of the few sales guys that I think you'll ever hear from who also has responsibility for the internal IT department at Microsoft.

So I would tell you—and that's a helpful thing, it's helpful when I'm talking to customers, its helpful when I'm talking to partners. And that's an important element of that. But the fact of the matter is its about having centralized, common systems. We have 37 customer databases in the company, and we need one.

We've got a plan right now to have two. That's costs associated with 37 different customer data bases. And those are examples. We have to improve our licensing system and our flexibility. We have to have world-class people systems and HR systems and we have to continue to have a global, integrated marketing platform that allows us to know where all the money goes and what we get for it. What are the perception changes, what are the customer's changes, what are the volume changes related to those dollars that we spent?

And then making sure that we helped build out this scalable, flexible, live infrastructure that you heard a lot about. But we're focused on IT internally to make sure that we have a common infrastructure that we run common systems. That they're simple and easy to use and that we consolidate and collapse. And that we consolidate and collapse the business unit IT groups. And we've made a lot of progress on that over the past year and we're going to continue to do that. And Stuart and his team are leading the charge, and he knows how to run big systems—coming from GE—and certainly I spent a lot of time on big systems at Wal-Mart. So that's something that we're doing inside the company to mature that. And make sure that we continue to drive the efficiency and our effectiveness of our internal IT systems.

Another area, field productivity. This is about improving field productivity to drive sales excellence. We worked hard to make sure that we can improve our planning process that we've got things in place such as quarterly accountability and making sure that we have clarity and alignment on rolls. And simplicity of our financial reporting.

It's also important that we improve and we have more selling time for our people in the field. We actually made progress this past year and took 11 percent of their time that they were spending administratively and put that back into the field. And we're not quite at 50/50 yet, but we're working, that's our next aspiration over the next year; to get at least 50 percent of our time where we're literally in front of a customer, and that's a key metric that we're tracking internally to know where we're at.

It's also about asking people from the bottom up to participate. No one needs to be a victim of corporate as it relates to driving productivity, so we've really asked and challenged our folks out in the field to do what I call being a participant in your own rescue. So we're on a hunt right now for eliminating the unnecessary, we're on a hunt right now for eliminating duplication, we're on a hunt right now for making sure that we can streamline the company and that it starts from the bottom up, and we have to give them air cover from the top down.

Driving that productivity again is something that the company is very receptive to, and we've got a whole lot of initiatives going along in that area, but it is something that I'm very excited about, and we've got a big opportunity to continue to improve.

I also wanted to show you licensing—you always hear about licensing. The fact of the matter is when I came to Microsoft I said, boy, we've got to do something with the licensing. Well, you know what, Joe Matz—the gentleman that runs our worldwide licensing and pricing—I sat down with him, sat down with our LCA—our legal and compliance folks—and guess what, we're taking our number of licensing agreements in the company from 92 to 26 over this next year. That is a huge improvement, because fewer has to be better so that we can get our arms around licensing as we're encouraging people to get into those conversations, and have that conversation with our customers and our partners.

We've also got online tools available. He's on his third version right now of a tool called the Microsoft Product Licensing Advisor. It's an online tool that both customers and our people can use to know where we're at on the licensing standpoint. But shorter agreements, fewer signatures, and fewer agreements; that's business simplicity to make it easier to do business with us, which is what this initiative is really about, and we're seeing a lot of progress.

And I think it's important for you to note that discounting is making a lot of progress. We don't share those numbers externally, but you should know that we've done fewer discounts over the last year, and we'll continue to improve our discounting. Discounting, as you all may know from my background, is not something that I encourage or believe in, and so making sure that we have better agreements and healthier agreements with our customers and our partners makes a big difference, and that's something that I'm proud of the progress that the team has made.

Next, I want to talk about marketing. So we've talked about people, customers and partners, operational excellence, and now, marketing. This is about pulling together our marketing, our branding, our public relations, our citizenship, and mobilizing all of these activities and inflection points and aligning them to support our business initiatives.

And we've got some great things to talk to you about in this area. We have obviously one of the strongest brands in the world, which has been a very humbling experience to me to understand how global the Microsoft brand is.

But, really, it's about changing perception, and Mich Matthews and her team have made a tremendous amount of progress with our customers and our partners about changing perceptions on citizenship and security and total cost of ownership and business value and the value that we bring with our customers and our partners—a tremendous story and tremendous progress has been made there. This next level—the level that we're talking about—is about metrics and accountability, because Mich and her team have worked hard to operationalize the science of marketing. It's about scorecarding and knowing, what are you going to get for that? And how do we do that? And then it's about this return on marketing investment that we've really done to align the priorities across the company with all the product groups as well as what we're doing in the Central Marketing Group to make sure that we have a consistent framework to drive execution.

But we obviously have a strong brand and an incredible asset that we have to continue to build on. And here's a ranking—there's some of the rankings around the world that I think are important. But as these are coming up, the one thing that I share with our people is, you know what? We have a tremendous responsibility because of the brand that we're entrusted with. Really, our brand gets created by what our people do every day. And that's the brand that we have to live up to. And that's the importance that we're putting with our people about that brand ownership.

And when you think about this company and how global we are, and how broad the portfolio is, and the fact that we have to go across business and productivity and entertainment and developer—and trying to find that right balance between commercial and consumer marketing is something we're constantly dialing and working on. And that's one of the things that we've got to make sure that we have, a good, healthy balance in that area. And broader innovations from—for a broad set of customers is something that, again, this alignment that we're working on is very important to us.

And I would tell you, it's about expanding our reach. One of the things that Mich and her team have done, that I believe there in marketing is this whole digital marketing outreach—how we've expanded our reach through digital marketing—and the fact that we're a pioneer, I think, in that particular area is something that she and her team have done a tremendous job on and one that we're proud of.

Next, I want to talk to you about the People-Ready software customer campaigns. Now a lot of press about People-Ready, really what we've done is we've really greased the skid with all the People-Ready commercials that you've seen. This is about putting people at the center—enabling people to create value. This is about getting alignment across the company with all of our products and solutions to make sure that we go after these eight customer campaigns. And you can read them there on the slide. The Windows Vista and Office launches are critical to us, and they're the foundation across all of these people campaigns.

But, I want to show you because one of the things we haven't done is, we haven't taken it to the marketplace yet down a level as it relates to really bringing one of these eight customer scenarios to life, to be able to take the People-Ready air cover that we've given to date and really show people how one of these scenarios plays out. And let me give you just a small sampling of the “Enable Your Mobile Workforce” and how that customer scenario comes to life. Please roll that.

(Video segment.)

KEVIN TURNER: So again that's about bringing those to life. That's a 30-second commercial we're going to run. That's about bringing those customer campaigns to life and connecting the solutions across the portfolio.

We're super excited about that. That's what our customers have been telling us they want, and we're real excited about the opportunity as we evangelize these eight different customer campaigns.

So let's go next to innovation. Innovation: This is the only company that I know of that really has the ability to connect the digital lifestyle and the digital work style. And you heard from the presidents of the division—Robbie and Jeff and Kevin—you heard about how they're connecting and working on both at the same time, and that's so important. The question for our field is, how good are we at evangelizing that, how good are we at articulating that? That's something we have to continue to step our game up and improve upon and really get after that.

It's also about investments and patents. We filed over 3,000 patents last year, and we continue to license IP and the importance of intellectual property in the marketplace, and knowing again from a customer's perspective that you can, and when you make a Microsoft decision you made an investment in innovation.

It's about having the best people. And I've met some incredible people around the world that are absolutely unbelievable in the research area and the product development area, and doing great things to ensure that as a company that it's important that we have more dreams than memories, and that's about making sure that our investments are right, and that's the focus that we have on the innovation side.

But now I want to talk about the products coming into the marketplace and how I think about those. It's been said or publicized that we have an estimated up to 20 billion in prior years’ R&D spend coming into the marketplace during FY '07. I think it's an incredible asset, and really a unique point in time in the history of business to be able to leverage this incredible asset and gift that we've been given in the field.

And really what I tell our field sellers is, this is the year we have to turn the investment and the vision into what I call reality. And reality to me, ladies and gentlemen, is revenue, and that's what we're focused on. And when you think about a lot of the different things that we have on here, the complexity of the solution is unbelievable—whether you're talking about unified communications or business intelligence or security or high-performance computing or our infrastructure optimization initiative or the Live services. Those are unbelievably broad scenarios that connect a lot of solutions, and something that we have to continue as sellers improve our game.

But let me get to execution, because at the end of the day, from this year's standpoint, what we do today determines our future from an execution standpoint in the field. This is about driving execution excellence through common goaling and discipline. This is something where we've instilled a program right now where discipline is not the enemy of enthusiasm, but it is simply the enabler that we're going to do to go drive performance in the field, because I honestly believe, and you'll hear a lot about strategy and long-term innovation in a minute, but right now the focus that we're bringing to our field sellers is, look, strategy without execution is hallucination, and we have to continue to drive that execution and make sure we get the ROI out of the money that we've spent on it.

Now, I want to talk to you about a common framework, because I honestly believe that great execution is the separation between winning and losing, and so the importance of it with our field sellers and services folks is that we have to continue to get aggressive with this execution framework.

We have five things: win, drive, grow, innovate, people. We've told our people that these five things won't change; they won't change next year, they won't change this year. And so we've got a consistent framework that we're driving, because people have to know, to really execute and be a high-execution team you have to know what's expected of you. This is what helps our people separate what they can do from what they must do, and that's where we've really driven this thing from the top down with their input from the bottom up.

And this really has pulled out same-page thinking. So we've aligned ourselves around a scorecard, and this is the scorecard. So we're really about win, drive, grow, innovate, people. Win is about share; drive is about driving satisfaction; grow is about growing revenue and profit and productivity as well as our citizenship initiative; innovate is about making sure that we've got the right perception with our customers and our people; and then people are about attracting, retaining, and developing of our people for success.

So this is our commitment. And, ladies and gentlemen, when we make a commitment we're cutting away from all options and excuses. So we've got full commitment with the field that we're going to go drive execution to these five things this next year. And we're setting these—and obviously setting these expectations is not the end, it's the beginning. Because we've got a scorecard with 30 metrics for the company that was created with all the product groups—with Jeff and his team, with Kevin Johnson and his team, with Robbie and his team, all the product groups and the research folks—we've come together with the field and created one common scorecard for the company with 30 metrics on it.

Everybody has got it on their commitment sheets, everybody's got it on their review, their personal evaluation that they get annually, including myself, and we're going to go ourselves and track our progress every month, and that's important for us when we do that. And making sure that people understand the collaborative effort and cross-company goal sheet is how we're going to go drive that.

And the thing about it is we have one scorecard now as a company for success, and that's important.

I want to talk about the field growth framework. Now, this is the most detailed slide you're going to see from me, and it's a little busier than I'd like but it's important, because people ask me in the field: How do we grow, how do we get thoughtful and sophisticated about our growth framework?

Now, let me start at the top. It starts with customers, and, of course, the foundation is our products, solutions, and services. When you think about that, we've got two types of customers, existing and new. And you think about market growth, and you heard some numbers from market growth, whether it be PCs or servers, or whether it be enterprise spend or small-business growth; those are all marketplace opportunities.

And then you talk about fill-in and coverage. Now, what do I mean by that? I mean by the fact that we're actually in 102 subsidiaries today. We have offices in 102 places in the world.

But, ladies and gentlemen, we sell product out of 251 countries. So how many subsidiaries should we have?

If you take a look at the number of offices that we have in Russia for an example, we have 19 offices today. By FY '09 we're projecting that we will have 40. So as an example of that growth opportunity for us to fill in, in an existing market, is a big opportunity. The opportunity for us to go into new countries and actually open up subsidiaries from the 102 that we have today to the 251 that we sell out of is a huge opportunity.

And then it's about upgrading and deploying and getting utilization of what people already own, which is a big initiative that we're on. And it's also about the fact that we've got to sell in. You heard about a lot of the new products that we have for emerging markets and things that are new to get share, and how do we go about that.

But then that's backed up by making sure that we get smart about revenue per socket and our piracy reduction. Revenue per socket is about up-selling people. It's about getting more money for every socket that people have, and that's a critical part of the execution framework. It's about these premium offers that we talked about, whether it be Enterprise Office or Windows Vista for the enterprise or the Enterprise CAL that we talked about. Those are up-sell opportunities.

So we're creating a framework with sophistication that drives that customer satisfaction, gives the field empowerment, and then enables us to really drive that growth from the bottom up in a controlled and disciplined manner.

Next, I want to talk about competitors. The fact of the matter is we have to compete to win. Now, this is a slide that I want to make sure that everybody understands that we've got one eye on the horizon in the marketplace, and we've got one eye focused on what do we got to do right now, this year, today to win in the marketplace.

And we are going to compete to win in the Linux and open source area. Tremendous progress has been made by the teams on open source and going against Linux. The fact of the matter is we've got real momentum in that space—we've got a better total cost of ownership, we've got a better story, we've got better manageability—it's getting that story out and continuing to be aggressive on competing to win. It's about winning in enterprise search, it's about taking the Windows Vista on the desktop, it's about SharePoint Server, it's about making sure that our Live services that we offer those, that we make sure that we get the market share on enterprise search, and that we don't lose that business. And it's about making sure that on IBM and Oracle that we really get after Notes seats, that we really go after and get aggressive at acquiring Notes customers, and make sure that we get after and compete with Oracle, as well as IBM, with SQL Server. We've got tremendous progress that Bob talked about earlier today with SQL Server.

But it's about getting aggressive. It's about making sure that we compete respectfully but making sure that we have focused concentration and intensity around competing. But we're going to compete and compete hard every day.

Now, as I said to you, so these are the six things that we're going to do to drive business excellence. This is the agenda that I've worked on really since I came, over the last 11 months, and the team has really rallied around.

But now I want to make sure that you understand that we've got an agenda to drive success in FY '07. We shared with our folks last week three things that I want to share with you, because I believe to get great execution you've got to make things clear and you've got to make them simple for people.

So now I want to share with you what we share with our people about winning this next year. All great performance starts with easy-to-understand, clear goals, and focus drives execution.

The first thing is this common execution framework, that we have one scorecard for success as a company, that we've collaborated to create that, that we're actually in synch together, both in Redmond as well as out in the field, that we have one definition for success, and that we're consistent and these things won't change. People want to know what's expected of them to really reach excellence, and this is the first fundamental part.

The second thing is about our arsenal. It's about turning our vision and our R&D investment into reality. It's about being great at demos and getting back to our roots. It's about making sure—and we're creating software road maps for our customers and our partners to be able to stand up with a customer and show them what is the software road map for that product line, when will I have new releases, and being able to articulate that and evangelize that is important.

But this whole idea of evangelizing our products and solutions and services and making sure that we do it in an effective and efficient manner is what we're focused on, but really this unique point in time says we've got to leverage our arsenal, and that's the second thing.

The third thing is really about people, our single biggest asset in the company. Helping people win and turning them loose; this culture has a history of that. And it's really about facilitating people so that they can achieve success and achieve things that they hadn't thought possible. It's about making sure that we as leaders connect people with our mission statement of enabling people and businesses throughout the world to realize their full potential. It's about making sure they have good clarity around what does that mean and what do I do every single day and how does it contribute to that. And it's showing and telling those stories in a thoughtful way for our people so that they get that and they understand that.

And the three things again—common execution framework; arsenal of products, and turning that into reality; and making sure that people are at the center, that you win in life with people, that nothing of significance is ever done alone—and making sure that that's the focus that we have, but it's really about getting our people focused and turning them loose.

And with that, a couple things I'd tell you, to wrap up. Number one, very simple, clear outline to be able to drive execution, a common, consistent framework that I showed you, the six steps that we're working on, and then the three things that we're going to operationalize and mobilize to be able to really drive execution is what I'm most proud of. And we're going to win in FY '07 in the marketplace and continue to drive for business excellence.

Now, with that, please help me bring up Mr. Craig Mundie. (Applause.)

END

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