Microsoft’s Secret to Becoming the World’s Most Valuable Company
Microsoft recently became the most valuable company in the world. These past four years under its new CEO, Satya Nadella, Microsoft’s value increased about a quarter of a trillion dollars, and Nadella was recently named CEO of the year.
To what would you attribute this remarkable turnaround? For me, the secret is culture change.
In Part One of this series, I wrote about how Agile represents not merely practices like Scrum and Kanban but is rather built on a foundational set of values. In Part Two, I examined the mindset behind the principles we use to make decisions that align with those values.
Now, in Part Three, we look at how behaviors support and reinforce Agile principles and values. By looking at these three aspects individually and together, we can identify a more effective approach to Agile organization change. And what company has witnessed more Agile organizational change in the last decade than Microsoft?
Backed into a Corner, Forced to Evolve
Financial pundits have asserted Microsoft’s success can be attributed to such things as Microsoft’s lack of reliance on the fickle phone hardware market (compared to Apple). Or Microsoft benefiting from its prior regulatory battles (compared to Facebook facing it now). Or Microsoft’s emphasis on cloud and enterprise computing. Microsoft certainly did not set out to become proficient at international regulatory compliance until they were challenged to do so, and recall how Microsoft bombed out of the phone business after wasting $8B on Nokia. Indeed, these are fortuitous strategies, but they are strategies Microsoft mostly backed into by accident.
At the root of Microsoft’s turn-around is their surprising ability to create culture change.
To understand Microsoft’s recent turn around, we need to take a deeper look. A few years ago, I had the privilege of helping convene a Learning Consortium for a cohort of eleven companies that were each on their own Agile transformation journey. The companies banded together to visit and learn from each other. We executed nine site visits, in four US states and in three foreign countries, and ultimately wrote about our experience. The 4,300-person Microsoft Develop Division (DevDiv) was one of the members of this cohort.
When it came time to visit Redmond, WA, and see what was happening at Microsoft, I recall standing outside their offices that morning, asking myself, “Why are we here? Why is Microsoft even a member of this Agile Learning Consortium? What possibly could be happening at Microsoft that looks anything like Agile?”
Nadella Brings Culture Change
Anyone in PC technology over the years and even users of Microsoft’s products have come into contact with the culture at Microsoft. Agile values such as “respect for people” did not seem high on Microsoft’s list of priorities in the early years. Microsoft was well known for its brutal antics like the Netscape browser wars.
By the time he became only the third CEO in Microsoft history in 2014, Nadella was intimately familiar with Microsoft’s culture as a Microsoft employee of 25+ years. He brought unique insight into what needed to change. Much of this journey, he outlines in his 2017 book “Hit Refresh.” Fast Company’s technology editor Harry McCracken summarized it well when he said Nadella set out to “run the company differently from his well-known predecessors, Bill Gates and Steve Ballmer, and address Microsoft’s long-standing reputation as a hive of intense corporate infighting” – which was wonderfully satirized by programmer/cartoonist Manu Cornet in this 2011 org chart spoof.
If Nadella has succeeded, we can credit his focus on culture change for it.
I personally saw evidence of this during my participation in the Learning Consortium. Nadella’s mission from the start was to “drive cultural change from top to bottom” to “renew the soul of Microsoft.” The first few years his work was to get “the flywheel of change spinning.”
Indeed, Microsoft is hardly alone in needing organizational culture change. “While many companies are striving to become Agile, only four percent of survey respondents have completed an organization-wide transformation” the latest McKinsey research finds. The No 1. problem they cite is culture.
What is the Difference Between Mindset and Culture?
The term culture is often used interchangeably with mindset and culture can be a “vague and amorphous term” as Microsoft CEO Satya Nadella writes in “Hit Refresh.” Indeed, we know culture is important, and in the Agile coaching and consulting world we frequently quote Peter Drucker who said: “Culture eats strategy for breakfast.” Nadella defines culture this way:
“I think of culture as a complex system made up of individual mindsets.”- Microsoft CEO, Satya Nadella
From Nadella’s insight we can see “culture” is the system that emerges from a collection of individual mindsets. I would therefore propose that culture follows what economist John Kay calls the principle of Obliquity which Kay defines as complex goals that are best achieved indirectly. As early Apple employee, author, and speaker Guy Kawasaki explains to entrepreneurs, “If you set out to make meaning, you will likely make profit, but if you set out to make profit, you will likely make neither meaning nor profit.”
In the same way cultural change is an outcome. If we want culture change, change mindsets. Collectively if mindsets change, the outcome will be a changed culture. And we go about changing mindsets by changing the linked system of values, principles and practices, which together make up a mindset.
Myself (left) with Steve Denning at the start of our 2015 Microsoft Learning Consortium site visit
How Do You Change an Organization’s Culture?
McCracken gives us some hints about how Nadella started his change initiative: “One of Nadella’s first acts after becoming CEO, in February 2014, was to ask the company’s top executives to read Marshall Rosenberg’s Nonviolent Communication, a treatise on empathic collaboration.” I was surprised and delighted by this, because I have been a fan of Rosenberg’s work for decades, had been with Rosenberg in his workshop, and I assign this same book for my university students in their Agile and entrepreneurship courses. I believe that Nadella set out to change Microsoft’s culture by changing mindsets, specifically by changing behavior.
Agile Methods Establish and Reinforce Behavior Change
Nadella’s change effort at Microsoft started by replacing the communication habits of traditional management with ones that are more consistent with the new culture he intended to build, a more Agile culture. “[Non-Violent Communication] requires the development of new habits of thought and speech,” writes Rosenberg with quite prescriptive exercises such as “Observing Without Evaluating” (a habit as a consultant and entrepreneur I have found particularly difficult) or “Making Requests Consciously” or “Asking for Reflection.”
How different this is from the role of a traditional manager, which is typically to communicate directives downward, exert control, and report back. Non-Violent Communication is a different communication system based on a different set of values and principles.
The Microsoft DevDiv also helped along its transformation by establishing new Agile practices like Scrum and others. These methods create new habits that start “the flywheel of change spinning” – presuming the underlying change in values and principles are also being addressed.
Change Takes Time
“We didn’t decide we were going to be Agile starting tomorrow. There was gradual buy-in with teams and leadership.” — Aaron Bjork, Microsoft
Change is hard, and it takes time. The DevDiv organization learned this first-hand. The Learning Consortium findings concluded that the “implementation of the goals, principles and values takes time: Beginning the journey is one thing. It is only over time that leaders and their organizations come to understand the scope, pitfalls, challenges and opportunities of the journey. After the journey begins, the process of organizational transformation is a matter of learning by doing, with constant inspection, adaptation and reflection, drawing on the lessons of setbacks, building on successful practices, learning from others, and deep listening.”
This is why coaching and training are constant companions on these types of change journeys. The Microsoft DevDiv we visited in 2015 had already been on their transformation journey several years before Satya Nadella started his company-wide efforts. Aaron Bjork, Principal Group Program Manager within the DevDiv, described it as a journey that was anything but a straight path from A to B.
But Meaningful Change Is Worth It
Nonetheless, with consistent leadership and continuous improvement, meaningful change can occur, and be sustained. “Microsoft’s CEO has stopped in-fighting, restored morale, and created more than $250 billion in market value. All it took was focusing on what matters most,” writes McCracken.
During our Microsoft site visit, I remember speaking with one developer at random, an engineer team member who had spent many years operating in the old ways and now four years with this new Agile way:
Me: “How has this transformation gone for you?”
Him: “It has not always been easy.”
Me: “Would you go back to the way it was before?”
Him: (Smiling) “No way!”
I had started out that day wondering what signs of Agile could be found at Microsoft? By the time we left Redmond, I thought, “This is one of the most amazing places I have ever been to and would gladly work here.”
By understanding what makes up an Agile mindset and skillfully creating the conditions to transform the values, principles and behaviors, we can help make a lot more places like what Microsoft is becoming: places where people are glad to get up in the morning and go to work, where they are highly engaged, doing innovative work, and satisfied that their work delights many.