Microsoft unveiled its much anticipated and sweeping restructuring, designed to deliver what it has been talking about for the past year ‘ a company focused on devices and services; and integrated functions and R&D which span different product areas and break down siloes. There is logic to this in a world where cloud services and user experiences have to work across wide varieties of products. But the famously successful reorganizations of the past have nearly always involved two key elements ‘ a new chief executive, and the painful jettisoning of key businesses of the past. IBM’s retreat from mainframes under new broom Lou Gerstner is a much cited example, and some analysts have been comparing the ‘new Microsoft’ to that bold shift to services. However, CEO Steve Ballmer remains, as do many of the aspects of Windows that have dragged down the Redmond giant’s recent efforts to shine in web services, mobility and multiscreen platforms.
These changes, for all the big words, look like the latest in a series of Microsoft reshuffles which are not sufficiently brave to address the real issues ‘ the need for new leadership and a new platform. There is no new blood at a senior level, and indeed, no job cuts planned, which does not suggest a root-and-branch rethink. Microsoft is delivering on its promise to refocus on devices and services, and break down siloes in its business. But despite some big words and logical ideas, this looks far too little and too late to transform Microsoft.
In an internal email to employees, Ballmer explained that the firm would be structured by function, which would span different product areas. The aim is to place engineering at the heart of the company; to deliver new products and services more quickly; and to break down all kinds of barriers ‘ no separation between operating system or consumer/enterprise offerings, for instance, to make the overall platforms more flexible.
The five business units – Windows, Server and Tools, Microsoft Business Division, Entertainment and Devices and Online Services, each with its own president and CFO ‘ are axed. The three operating systems (Windows, Windows Phone and Xbox) are placed in a single division, breaking down the PC/mobile divide and looking towards broader multiscreen.
Functions such as marketing and engineering are placed in centralized groups. Engineering will be a consolidated operation, split between four main areas ‘ operating systems, applications, cloud and devices. These four cornerstones, spanning different platforms and user bases from enterprise to mobile, will underpin the new Microsoft.
Other functions which will now address all the firm’s markets will include marketing; business development and evangelism; advanced strategy and research; plus finance, HR, legal and COO.
“We will consolidate our technologies coherently into these groups pulling together some things that have been spread out in our current business group structure like cloud infrastructure, operating systems, mail and identity, to name a few,” Ballmer wrote.
The process of restructuring will take the rest of the year “as we figure things out and as we keep existing teams focused on current deliverables like Windows 8.1, Xbox One, Windows Phone etc’, Ballmer cautioned. However, he wants to start throwing out proof points that Microsoft really will deliver something new soon ‘ and the focus on devices, however risky (given the firm’s past history everywhere but the Xbox), is almost Apple-like.
Ballmer has bought into the notion that Microsoft needs an integrated and optimized hardware/software experience to drive uptake of its services, though he has stopped short of placing hardware and software in the same organization. This is not so far from the Wintel heritage, except that the firm now believes it is best placed to lead that experience, not hardware partners ‘ a stance which will raise all kinds of conflicts of interest.
However, Microsoft said it plans to deliver a far broader family of devices than its current Surface tablet and Xbox games console. While the Xbox itself will broaden its functions to become a home media center and set-top box, Microsoft will also develop handsets, more tablets, PCs and hybrids, TV-attached devices and others.
This is the thinking that has been developing at Microsoft since it devised the Surface and relegated partners like HP and Nokia to second place in devices. But there is nothing radical about the changed team that will deliver the reworked vision. Not only is Ballmer still in place, but those gaining broader responsibilities are all well established insiders.
The heads of the four new engineering groups are familiar names. Two are vital to the push into mobile and post-PC devices, though Microsoft has not gone as far as Apple in placing hardware and software in one structure.
Terry Myerson, currently head of Windows Phone engineering, is promoted to lead the whole OS group, covering Windows, Windows Phone and Xbox (all of which have been converging anyway, and are based on a common NT core). Anything that attaches directly to these OSs, such as Xbox Live, reports to this unit.
And Julie Larson-Green, current head of Windows and Surface engineering, now runs engineering for the new Devices and Studios group, which includes all the hardware, including Surface, Xbox, mice, keyboards, games and entertainment.
Meanwhile, Qi Lu moves from heading the online services group to lead Applications and Services, with responsibility for engineering for Bing, MSN, Office 365, Office servers and clients, Dynamics CRM and ERP, Skype, Yammer and Lync. Satya Nadella, head of Servers and Tools, now heads the new Cloud and Enterprise group, which covers Windows Server, System Center, SQL Server, Visual Studio and the Global Foundation Services operation.
Kurt Delbene, president of the Microsoft Business Division up until now, is retiring from the company; Don Mattrick, president of the Interactive Entertainment business unit, recently moved to be CEO of Zynga; and Craig Mundie is “stepping off” the senior leadership team to work on an unspecified “special project” for Ballmer, and from next year will work as a consultant.
The centralized supporting functions are also putting new responsibilities on well established executives. Tami Reller, marketing and finance chief for Windows clients and Surface, will head the cross-organizational marketing function while Skype president Tony Bates will lead the
evangelism and business development group. One of his roles will be to oversee strategic partnerships including Nokia and Yahoo. For now, there are no changes to the organization of the sales/partnering divisions and COO Kevin Turner keeps his job, though losing his central marketing responsibility.
Overall, this is not the radical change Microsoft watchers had hoped for. It does bring the three OS together, paving the way for a unified platform, but it does not integrate Bing and Xbox with Windows, which would be a stronger signal of a powerful web and media engine in the future; nor does it align hardware and software, despite all the talk of Apple-style harmony in this area. This is the first major reorganization since Ballmer created seven product units (later reduced to five) in 2002. Since then, he has tinkered with structure, made grand statements, and largely refused to acknowledge the decline of the PC ‘ and of the Windows type of user experience ‘ until it was too late. The new structure may remove some obstacles in the way of fixing Windows credibly for the new mobile/cloud age ‘ less red tape, more collaboration between engineering units, perhaps some improvement in the often-toxic corporate culture. Microsoft is never short of new ideas, or of R&D, but only a few of these make it to the core of the offering (even Xbox, the modern star of the show, was initially poorly executed, and is still not being turned into the face of the company in the consumer world, as it should be). Moving established executives round the chess board, and keeping a CEO who just wishes the old Wintel order could be restored, is not the way to get all those innovations out to market so Microsoft can compete effectively in the new world.