The trajectory of ‘cultural change’ matters, as Microsoft demonstrates

There are a number of reasons that I follow the goings on at Microsoft very closely. First of all, as an analyst tracking work technologies I am interested in the direction they are going and the technological advances the product teams achieve. Secondly, their strategic direction has a big impact on the markets they play in, like enterprise software, games, operating systems, and cloud computing. But lastly, the manner in which their organizational and management changes are taking place — and in such a public manner — also stands as a case study on a large, successful high tech business attempting to respond to a changing and highly competitive marketplace. So instead of zooming in on the specifics of Sharepoint integration with EMC Syncplicity (see here) or other technology-heavy news, I’m going to use Microsoft as an example in talking about ‘cultural change’ in business, and specifically the trajectory of cultural change.

What do I mean by trajectory of cultural change? It’s helpful to think of change in business as having a point of origin somewhere in the organization, and a means of transmission to other points. This is like the epicenter of an earthquake and its resulting groundwave, or the way an innovation idea spreads through a society. And in stratified cultures — like most companies today — there can be a up/down dimension to cultural change, so it is reasonable and useful to think about and talk about very different sorts of change, like top-down corporate cultural change, outside-in product change, and bottom-up work cultural change.

What sorts of cultural change are we seeing at Microsoft, and what can we learn from that?

Microsoft’s leaders are talking up cultural change at the present time. The term ‘cultural change’ is often used as a proxy for other, less appealing and less high-minded activities. Take for example this snippet from the new Chairman of Microsoft, John Thompson, who was until recently the head of the CEO search committee, who selected Satya Nadella (see Satya Nadella now Microsoft CEO, Gates steps down as Chairman). Adam Lashinsky asked Thompson, ‘Does Microsoft’s culture need to change?’, to which he replied in this way:

Adam Lashinsky, Microsoft culture must change, chairman says

I think that’s a better question for Satya. But I would argue that there are some attributes to Microsoft today that do look vaguely like IBM circa 1990. The Windows monopoly is in fact under attack, and therefore we’re going to have to change or think differently about the management systems and the associated culture of the company as time goes on.

Thompson characterizes the need for product change at Microsoft: specifically the outside-in trajectory of a shifting market of operating systems. If a company with a dominant position in a changing market fails to stay ahead of market needs, that is the indicator of a cultural problem (often mistakenly called a ‘strategy’ problem).

In the Microsoft case, Steve Ballmer‘s era was studiously bad at responding to market signals and dismissive of advances that have eroded its leadership. Ballmer’s laughter when asked about the newly released iPhone is iconic, saying the price was too high and it had no keyboard. It reminds me of the newly minted MBA at a VC form I was visiting years ago who had suggested to the managing partner that the firm shouldn’t invest in a restaurant chain he had researched because the prices were too high and the lines to get in were too long.

So Thompson’s ‘under attack’ line can be translated to ‘we fumbled the future because of willful blindness’.

The next part of the sentence is Thompson asserting that this willful blindness is the side effect of ‘management systems’. I parse this — because of recent steps by Satya Nadella to consolidate control of Microsoft’s marketing and engineering in the hands of a much smaller senior leadership team (SLT) — as a faster acceleration away from the siloed fiefdoms that existed for most of Ballmer’s time as CEO.

And the last bit — ‘the associated culture of the company’ — is Thompson making the trajectory of this change clear: Nadella and the SLT are going to make large changes and those farther down in the Microsoft hierarchy will need to sign up to the new program, or get out.

Nadella made this extremely clear in his recent memo in which he announced a realignment of functional roles and the departures of some senior people (see Satya Nadella consolidates roles and trims Microsoft leadership team).

One of my consistent themes has been a point I made in my original mail – we all need to do our best work, have broad impact and find real meaning in the work we do. Coming together as teams fuels this on a day-to-day basis. And having the Senior Leadership Team (SLT) set both pace and example means a lot to me.

I have discussed this point in various forms with the SLT and have asked for their “all in” commitment as we embark on the next chapter for the company. We need to drive clarity, alignment and intensity across all our work.

Nadella is pruning away senior people, to make a smaller and more aligned team at the top, one that is committed to a top-to-bottom realignment around some core principles: clarity, alignment, and intensity. As I said at the time, this is Nadella aspiring to the cultural milieu of a, entrepreneurial start-up: a small elite set a grand goal — like bringing a revolutionary new social tool to market — and they attract a team of committed followers who sign up for a marathon push, and all have to get on board with the plan. The desired mindset is like that of the Conquistador Cortés, who scuttled his boats in Mexico when some of his men tried to seize a boat and escape to Cuba.

Nadella is running Marissa Mayer‘s playbook. I wouldn’t be surprised if we hear about remote work no longer being in vogue at Microsoft.

The trajectory of this change is top-down. But ultimately actual change can only happen when the individuals in the organization change their own behavior, and in top-down change, when the directions laid out by the senior team come to inform decisions being made, and alter the products being built.

Contrast this with what might have happened if Microsoft had been open to outside-in change over the past decade or so? Instead of laughing at iPhone, ignoring mobile and web apps, product leads would have been experimenting, and keeping up with market innovations.

But the third trajectory — bottom-up — is the most infectious. Inside of Microsoft, developers are adopting the mindset of lean and agile development, for example. The acquisition of Yammer has led to a major impact of the development teams for Office 365, Sharepoint, and other projects. I interviewed Kris Gale in November, who oversees all product development engineering at Yammer, and he related some very innovative approaches they’ve taken (see The New Visionaries: Kris Gale). In a nutshell, Yammer’s approach to managing development work doesn’t involve managers assigning tasks. As he put it,

The breakthrough was realizing that we didn’t have to assign work through our reporting hierarchy. Instead of the head of engineering breaking a goal up into what the X team needs to do and what the Y team needs to do, then assigning those things to the managers of the teams to be further broken up into tasks, we said we’d just take an engineer from X team and one from Y team and dedicate them to solving the business problem however they best saw fit, then move on to something else. All of Yammer’s organizational methodology in engineering came from that: How do we build mechanisms to force all of our work to happen in small, temporary, fully-dedicated, autonomous, cross-functional teams? Or: How do we scale engineering so that all problems get solved the way we’d have solved them in the first year of the company?

And that brings us back to what Nadella wants to do: get people moving in the right direction, and operating with the intensity and clarity that successful start-ups have in their first year.

The question is, which way to get there? Will Nadella’s top-down push lead to getting the company to act like a start-up, or will it simply peter out in as a series of reorganizations and change initiatives? He has certainly pegged his future on making a serious turnaround in the business by cultural change. Alternatively, will he try to find the examples of start-up culture and replicate them in development, marketing, sales, and other functional groups across the company?

I’m betting he’ll go top-down, but bottom-up is the trajectory that would actually work.