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How Microsoft Vanquished Bureaucracy With Agile

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Microsoft has rapidly rising revenues and today is the most valuable firm on the planet—worth more than a trillion dollars.

In 2004, I would never have predicted this. At the time, I was visiting Microsoft for a short consultancy. I was shocked to find how bureaucratic it was. After working for several decades in another notorious bureaucracy, I knew the problems bureaucracy caused. But Microsoft was worse: it was impossible to get decisions from within a labyrinth of silos and layers that called to mind Kafka’s The Castle.

What can other big old firms learn from Microsoft’s escape from bureaucratic strangulation?

According to The Economist, the reason for Microsoft’s turnaround is that Satya Nadella, the CEO since 2014, took the bold decisions of a heroic leader. He opted not to rely on the existing business (Windows) and chose not to be “rapacious.”

The more important lesson for most big old corporations, though, is not so much the individual decisions of a heroic leader, but rather how Microsoft as an organization overcame the disease of bureaucracy. By the time Nadella became CEO, Microsoft had already embraced Agile and was ready to implement his bold decisions.

The Decisions Of The Heroic Leader

According to The Economist, Microsoft’s triumph lies in decisions taken by Satya Nadella:

Microsoft missed social networks and smartphones because of its obsession with Windows, the operating system that was its main money-spinner. One of Mr Nadella’s most important acts after taking the helm was to de-prioritize Windows. More important, he also bet big on the “cloud”—just as firms started getting comfortable with renting computing power.”

Second, Nadella shifted away from “rapaciousness.”

Mr Nadella has changed Microsoft’s culture as well as its technological focus. The cult of Windows ordained that customers and partners be squeezed and rivals dispatched, often by questionable means, which led to the antitrust showdown… [Instead] work with regulators rather than try to outwit or overwhelm them.”

Breaking From Bureaucracy: Microsoft’s Agile Journey

The bold decisions that Nadella took were good decisions, but they would have had little effect if Microsoft had not been ready to implement them. An Agile transformation process had been underway for some years.

Image: Steve Denning

Thus in 2008, a developer (Aaron Bjork) had begun experimenting with Agile with his team. About a year later, several teams began implementing Scrum, and there were other pockets of Agile in various places.

In 2010, the Visual Studio Online team and the Team Foundation Server decided to “go Agile,” with all their teams operating with Agile practices, all in the same cadence. Based on the success of these efforts, in July 2011, corporate vice president Brian Harry publicly announced in his blog the commitment to Agile.

In late 2011, the entire Developer Division, of which Satya Nadella was the head, chose to “go Agile.”

While the rest of Microsoft mostly continued in a traditional fashion, the several-thousand staff of the Developer Division was actively implementing their work in an Agile fashion. By 2014, the questions from other units within Microsoft were less about “why do need to do Agile?” more about “How do we get what they are having?” In effect, Nadella’s ascension to CEO in 2014 is not unrelated to the success of Agile in the Developer Division. His nomination was as much about the kind of management that he was known for as it was about him as an individual.

Over ten years, the journey began with one team, then three teams, then 25 teams, then many teams, and then after about 7 years, the new CEO embraced it, and it spread across the entire firm and steadily became part of the culture.

As a result, by the time Nadella became CEO, Microsoft had already laid the basis for an Agile transformation. When firms in the SD Learning Consortium conducted a site visit to Microsoft in 2015, Microsoft no longer resembled a giant battleship that was strong and powerful but slow to maneuver and not always customer-friendly. It was more like a flotilla of speedboats operating and maneuvering in an orchestrated fashion.

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Several features of Microsoft’s journey are worth noting:

  • Bottom-up at first: For the first 7 years, the Agile movement was a bottom-up movement. It was only around 2014 when Satya Nadella became Microsoft’s CEO that the entire top management embraced Agile. A key fact in the journey is that the new CEO came from the very division of Microsoft that had embraced Agile.
  • The transition took time: The Agile journey at Microsoft has been underway for some ten years and continues to evolve. Firms that imagine they can transform rapidly usually run into problems.
  • A home-grown feel: There is less emphasis now on the language and processes of Scrum and Agile than in the early days. There is more emphasis on an Agile mindset, a culture of trust and business results.

Can Big Corporations Transition To Agile?

In a bureaucracy, “Strategy gets set at the top,” as Gary Hamel often explains. “Power trickles down. Big leaders appoint little leaders. Individuals compete for promotion. Compensation correlates with rank. Tasks are assigned. Managers assess performance. Rules tightly circumscribe discretion.”

Agile principles are the opposite. People do best when what they do is in the service of delighting others. When they are able to work on something worthwhile with others who love doing the same thing, the group tends to get better. By working in short cycles, everyone can see the outcome of what is being done. When communications are interactive and everyone is open about what is going on, problems get solved. Innovation occurs. Customers are surprised to find that even unexpressed desires are being met. Work becomes fun. While no organization is the flawless embodiment of these principles, many are now on a journey to get there.

Bureaucracies, with their disengaged workforces being told what to do, are structurally incapable of meeting today’s market requirement: continuously delivering instant, intimate, frictionless value at scale. They tend to spend their time defending the status quo and protecting their existing businesses. They fall into the traps of short-term shareholder value, share buybacks, cost-oriented economics, and backward-looking strategy. In those firms, people don’t come to work with a spring in their step.

Today, there are still many more public corporations operating in the bureaucratic mode than in a post-bureaucratic mode. And there are many more people at all levels of society still believing in, supporting, and promoting the traditional mode than the emerging one.

But the scene is changing. As recognized in this week’s announcement from the Business Round Table, the purpose of a firm is not, as thought by traditional managers, to make money for the firm and maximize shareholder value. Making money is the result, not the goal of a firm's activities.

Over time, examples like Microsoft are leading top executives to recognize the need for their organizations to up their game to cope with massive rapid change. As a result, the question shifts from “Why do we have to change?” to “Why can’t we have what they’re having?”

And read also:

Surprise! Microsoft Is Agile

Understanding The Agile Mindset

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