"Culturally, I think we have operated as if we had the formula figured out, and it was all about optimising, in its various constituent parts, the formula," Nadella said in an interview with The New York Times published yesterday.
"We've had great successes, but our future is not about our past success. It's going to be about whether we will invent things that are really going to drive our future."
Nadella, who was named earlier this month to succeed Steve Ballmer at the helm of the tech titan, said Microsoft needs to move faster in innovation.
"Everything now is going to have to be much more compressed in terms of both cycle times and response times," he said.
"You have to be able to sense those early indicators of success, and the leadership has to really lean in and not let things die on the vine," he added.
Nadella's appointment coincides with Microsoft founder Bill Gates stepping back in as a "technology advisor," giving up his title of chairman.
The Indian-born CEO said Gates's role will not really be new.
"The outside world looks at it and says, 'Whoa, this is some new thing.' But we've worked closely for about nine years now," he said.
"So I'm very comfortable with this, and I asked for a real allocation of his time. He is in fact making some pretty hard trade-offs. And one of the fantastic things that only Bill can do inside this campus is to get everybody energised to bring their 'A' game. It's just a gift."