For a long time, Microsoft avoided the sort of sclerosis that seemed to affect big companies like IBM, AT&T, and Xerox. People attributed it to things like Microsoft's amazing decentralization of responsibility (in which each VP operates much like the CEO of his or her own startup) to the "Program Manager" role that separated the job of collecting requirements from the job of progamming them. But over the last decade, things seem to have gradually frozen up.
I was at Microsoft at the same time Dick Brass was (and even reported into his organization for a while), so I'm going to beat up on him a little. (He won't mind.) We really wanted Tablet PC to be viable without a keyboard because it made such a difference in weight and size. There are a number of problems with operating such a device that way, but simply logging into it was a bear. Virtual keyboard and handwriting recognition solutions were both miserable, so we looked at biometrics. Now for a Tablet PC, the obvious biometric is signature verification, but one powerful individual in Dick Brass's organization had such a passion for fingerprint verification, that he effectively stopped us from even evaluating signature verification systems. Never mind that the fingerprint systems were extra hardware, stuck out the side, were easy to break off, etc. -- this individual was impervious to reason. Dick could have broken the logjam, but wouldn't get involved. Ultimately, we did nothing, and no serious keyboardless Tablet PCs were ever made (that I know of). This wasn't the only reason, but it was enough by itself.
This pair of problems -- the non-technical guy who kills ideas and can't be reasoned with plus upper management that can't get involved -- seems to have become depressingly common across the whole company. Bright people get discouraged and leave. People who thrive on stifling other people stay.
Where I do disagree with Dick is that I think a VP still has enough autonomy to make his/her own org successful. Microsoft's top management could still fix this problem if it consistently focused on getting and keeping the right VPs and eliminating the bad ones. I think the problem and the solution start and end in the same place.
--Greg