Steve Ballmer’s grand plan to reinvent Microsoft has garnered mixed reviews
from industry analysts, ranging from enthusiastic endorsements to frowning
skepticism.
Some predict the reorganization will accomplish its goal of making Microsoft
more efficient and innovative, and thus better able to compete against rivals
like Apple, Oracle, IBM and Google. Others are concerned that internal
accountability will drop and the company will become less responsive to customer
needs and market inflections.
Microsoft CEO Steve Ballmer
At the heart of the restructuring, announced Thursday, is the dissolution of
the company’s five business units—the Business Division, which housed Office;
Server & Tools, which included SQL Server and System Center; the Windows
Division; Online Services, which included Bing; and Entertainment and Devices,
whose main product was the Xbox console.
They’re being replaced by four engineering groups organized by function,
around operating systems, applications, cloud computing and devices, and by
centralized groups for marketing, business development, strategy and research,
finance, human resources, legal and operations.
Ballmer wants the company to operate more cohesively, so it can build
blockbuster products that cater to the needs of people both at home and at work
in a variety of ways.
“The form of delivery of our value will shift to really thinking about
devices and services versus packaged software,” Ballmer said during a press
conference Thursday.
“We need to move forward as one Microsoft, with one strategy and one set of
goals,” he added.
Teams will work in an interdisciplinary fashion on all major projects to make
sure efforts are in sync with the overall goals of the company, according to
Ballmer.
Tom Austin, a Gartner analyst, is skeptical of this shift from business units
to functional groups.
“The business of business is business. Companies should be organized by major
business units, not by functional units,” he said.
With this new setup, it may become harder for outsiders such as customers,
partners, investors and analysts to decipher Microsoft’s strategy and evaluate
its performance, he said. In short, he fears there will be less transparency and
visibility into the company.
“I would have preferred that there was a clear message they were going to
continue to manage and report by business. Whether they structure [the company]
that way or not is less material,” Austin said.
“The value of transparency is that it lets customers and investors make more
informed decisions as to the level of accuracy or spin that are in Microsoft’s
executive statements,” he added.
IDC analyst Al Gillen views the plan with more optimism, saying Microsoft is
making necessary, bold changes.
“Microsoft’s core business is being undermined by changes in the market and
the company needs to be more responsive and think about things differently than
it has in the past,” he said.
Among the main challenges Microsoft faces are the weak position of Windows in
smartphones and tablets, where it lags far behind Android and iOS, and the
increased competition against Office from rivals like Google that offer less
expensive, cloud-hosted alternatives.
Microsoft has responded to those threats with Windows 8 and Windows Phone 8,
and with Office 365, a suite that includes cloud-delivered versions of its
productivity apps like Word, Excel and PowerPoint, and Web-hosted versions of
its server products like SharePoint, Lync and Exchange.
However, Windows 8 and its version for ARM devices, Windows RT, launched in
October, weren’t well-received, prompting Microsoft to prep an update called
Windows 8.1 that will be released this year. Meanwhile, Office 365 continues to
battle Google Apps and other competing communication and collaboration suites.
For example, Microsoft spent US$1.2 billion a year ago to buy Yammer and boost
SharePoint’s enterprise social networking capabilities.
The four new engineering teams are the Operating Systems Engineering Group,
led by Terry Myerson; the Devices and Studios Engineering Group, led by Julie
Larson-Green; the Applications and Services Engineering Group, led by Qi Lu; and
the Cloud and Enterprise Engineering Group, led by Satya Nadella.
“We’ll pull together into fewer core engineering groups, and we’ll pull
together all the other functions and disciplines under leaders that work for me
directly,” Ballmer said.
The Operating Systems Engineering Group will focus on Windows development for
gaming consoles, mobile devices, PCs and back-end server systems, including OS
cloud services. With this realignment, Microsoft is seeking a unified, common
Windows presence and experience across those devices and systems, which it
doesn’t have today and which enterprise customers especially could find
compelling.
“It’s important and a positive move to integrate all operating system
development into a single team,” Gillen said.
At the Devices and Studios Engineering Group, Larson-Green, until now one of
the two Windows OS chiefs, will focus on all hardware development and their
supply chain strategy. This group will also be in charge of “studios
experiences” including games, music, video and other entertainment. Microsoft
seems interested in boosting its efforts to build its own hardware, building on
its experience developing the Xbox console and the Surface tablets, thus
mimicking to an extent Apple’s successful model.
The Applications and Services Engineering Group will be in charge of
applications and services technologies in productivity, communication, search
and other information categories. It will be interesting to see how the
realignment works in this group, since the Office stack and the consumer online
services had traditionally belonged to separate groups.
However, with Office 365, those lines are blurring, in particular with the
recent decision to mesh Skype, which is primarily a consumer IM and VoIP
service, with its enterprise equivalent, Lync. In the press conference, Qi Lu
said that whether it’s Bing, Office or Skype, Microsoft applications are all
about helping people complete tasks and get work done.
Meanwhile, the Cloud and Enterprise Engineering Group will be in charge of
back-end technologies, including technologies for data centers, databases and
enterprise IT systems and development tools. Its leader, Nadella, had been in
charge of the Servers and Tools group, which had been performing well
financially. A focus for this group will continue to be the company’s Azure
cloud platform.
The Dynamics enterprise software products will continue to operate separately
under Kirill Tatarinov, but report to Lu, Chief Operating Officer Kevin Turner
and Tami Reller, the other former Windows chief who will now head the Marketing
Group. As part of the plan, Craig Mundie will work on a “special project” until
the end of this calendar year, and assume a consultant role starting in 2014.
Office chief Kurt Del Bene resigned from the company Wednesday, though his
official last day will be Dec. 31.
Michael Osterman, from Osterman Research, views as positive the shift away
from product-centric, siloed teams to a more unified approach that is focused on
what customers need from devices and services.
“This is a good thing,” he said. “They need to realign the company to be more
responsive to customers.”
The reorganization may yield a sharper marketing focus and strategy, an area
where Microsoft has at times been weak, Osterman said.
Frank Gillett, a Forrester Research analyst, concurs. “This demonstrates a
commitment to build an integrated, coherent Microsoft experience. It wasn’t
incoherent before, but it also wasn’t well-coordinated,” Gillett said.
What’s not clear to Gillett is how exactly this will be carried out, and he
foresees it being a major endeavor. “I’m not seeing an overall head of products.
That concerns me,” he said.
Others view the “One Microsoft” effort with skepticism, especially if it
results in a doubling-down on what critics call the “Microsoft first” strategy,
which they blame for Microsoft’s reluctance, for example, to fully port Office
to other operating systems like iOS and Android despite massive demand, in order
to give Windows a competitive advantage.
“[One Microsoft] should do wonders for CIOs who are all in for Microsoft, but
it should strike fear in the heart of CIOs who were hoping that Microsoft would
decouple Office from Windows,” Austin said.
Over the years, Microsoft critics have suggested the company’s product lines
are too diverse, and that certain businesses should be spun off as autonomous
subsidiaries or even independent companies. Clearly, Ballmer has taken the
opposite tack.
The implementation of the plan should take at least three months, maybe more,
said Gillen, who considers this the company’s biggest reorganization ever.
Microsoft will need to continue tweaking the plan in the coming years based on
market changes.
“Is this the only and last thing they’ll have to do? No. They’ll have to
continue responding to changes in the industry, and they’ll have to continue
adjusting the organizational structure,” he said.
Or as Gillett put it: “They needed to do something and they’re making big
changes that make sense. Now we’ll have to wait and see how it plays out.”