In the wake of Microsoft's reorganization, more questions than answers

Sometimes a top-down reorganization is necessary. But sometimes it works better on paper than in practice.
Written by Andrew Nusca, Contributor
This terrible photo illustration: Andrew Nusca

While the rest of the world made knee-jerk reactions to Microsoft's announced reorganization yesterday, I waited, read through chief executive Steve Ballmer's memo about it instead and slept on it. Changes like this need at least 24 hours to sink in, I think.

You see, it's not the specific changes that interest me; I'll leave that analysis to the regular Microsoft watchers, who know far better than me what the implications are for Microsoft's various businesses (and the careers of their senior executives).

What I want to know is why the company felt it needed to make such a large change; why it felt the need to do it now, and in this fashion; why it felt the need to tell the world about it; and why Ballmer felt the need to address it in a 2,649-word missive sent from the corner office to the company's 100,000 employees. The theme was "One Microsoft," yet there was only one voice in the memo.

The changes

To summarize, Microsoft has rendered obsolete its five primary business units: Windows, Server and Tools, Business Division, Entertainment and Devices, Online Services. In their place are units distinguished by expertise that span the company: Operating Systems, Applications and Services, Cloud and Enterprise, Devices and Studios, etc. The new structure appears to favor technologies over specific products, further blurring the lines between consumer and enterprise, with the hope that the company's various divisions will be more in lockstep with each other.

"We are rallying behind a single strategy as one company — not a collection of divisional strategies," Ballmer wrote in the memo. "Although we will deliver multiple devices and services to execute and monetize the strategy, the single core strategy will drive us to set shared goals for everything we do. We will see our product line holistically, not as a set of islands."

A brief look at the company's activities over the last few years helps to explain this decision; Microsoft, like nearly every large corporation before and after it, has been criticized for moving too slowly in a fast-changing industry: from Windows Phone to Office 365 to Bing to Azure, the company continues to follow, not lead, the market. Even one of its undisputed winners, Xbox, stumbled out of the gate a bit during the launch of its next-generation console. (In time, we'll see if that really matters.) True, you can build a successful company without winning every race, but there's something to be said about execution if you're regularly playing catch-up to companies of a similar size.

And so we have these changes, which aim to—on paper!—integrate the roadmaps and value propositions of various products that are increasingly interconnected. It is clear to many, for example, that Xbox and Windows Phone and Windows 8 must be on the same wavelength. The question is whether it works in practice.

Better, or just different?

I am not convinced that Microsoft's reorganization enables better execution; it is merely a different way to work. There is no shortage of companies whose divisions and products are more deeply integrated with each other, but there is no shortage of companies who function better as separate entities, too. The grass is always greener on the other side.

The downside to a less integrated approach is obvious: conflicting strategies. In moderation, duplicated efforts are good: they allow a company to iterate solutions to a problem. In excess, they can turn a company against itself. Further, to a public company, duplication can appear to be waste that can be excised without harming the final product.

But there are substantial downsides to more integration, too.

A company of 100,000 people with so many different products and services, not all of them necessarily integrated at a technical level, may find it difficult to move in the same direction, even if the marching orders are the same throughout; the company may be too big to turn.

Consolidation by expertise and not product may accelerate execution for the company's most important products, but it may decelerate support for products that receive less priority. When a Windows 8 project and a Bing project arrive in the same queue, which do you think will reasonably be addressed first? Money talks

In theory, this shouldn't be a problem if centralized groups prioritize with fairness. But there is little incentive to do so. A company's smaller products will always benefit from having their own teams.

Finally, Ballmer emphasized speed in this realignment. "As a company, we need to make the right decisions, and make them more quickly, balancing all the customer and business imperatives," he wrote. "Each employee must be able to solve problems more quickly and with more real-time data than in the past."

He added, almost immediately after that: "Collaboration means the ability to coordinate effectively, within and among teams, to get results, build better products faster, and drive customer and shareholder value."

It is not difficult to see that these points can easily be at odds with each other. Rapid decision-making can be achieved with independence at the expense of a unified direction. Interdependence slows decision-making but ensures a more consistent result.

Carpe diem

So why did Microsoft make such sweeping change, suddenly, and announce it in such a declarative, top-down fashion? I believe the company is tacitly acknowledging many of its critics' views that it has been executing poorly relative to its resources. As they say, the definition of insanity is doing the same thing repeatedly and expecting a different result. Kudos to the sane ones in Redmond.

What concerns me, however, is the notion that a reorganization is a solution to the various problems throughout the company's former divisions. Ballmer made it clear that a "single strategy as one company" was key, even though that responsibility has always rested with him. Why Ballmer couldn't police that direction in coordination with his subordinates, and felt the need to institutionalize it instead, is not clear to me. A company's organization should be a manifestation of its strategy, not the other way around. If "One Microsoft" is a new strategy, there is precious little detail on that to justify the sweeping organizational change that is already underway. Every solution needs a problem.

The easy answer, of course, is to say that if it works for Apple, it will work for Microsoft. But the latter is almost twice the former's size. (Even then, Apple's organization has its own issues.)

Finally, the fact that this change comes from the top, all at once, and not from within the various levels of the company over time as needed, suggests that it is more flash than substance. If so many areas of the company were executing less effectively than they should, is it really logical that they should be addressed at the same time? Or is this move more about motivating employees, closing a chapter and insisting that it's a new day?

A company is a living, changing organism that should adapt to its environment—not an apartment to redecorate on a whim.

"Lots of change," Ballmer acknowledged toward the end of his memo. "But in all of this, many key things remains the same." That may be precisely the problem.

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