Microsoft's Re-org: Much Ado about Absolutely Nothing

By Tony Rizzo July 15, 2013

Last Thursday, Microsoft finally got around to announcing its long rumored "major" top-to-bottom reorganization. We've made note of Microsoft's overall organization structure for a long time; in fact, we've probably been carping about it on and off for over two years now, dating back to the original release of Windows Phone 7 back in late 2010. Given that lengthy period, rather than jump in late last week and provide the new head-by-head accounting, we thought we'd sit back a few days and let the changes sink in a bit.

Here is the quick summary of three years of carping while watching Microsoft fail at mobility and watching MSFT hover around $27 per share for what now feels perpetually (although to be fair about it MSFT has been in the $35 range since mid-May 2013). Also to be fair about it, the price hasn't changed since the re-org was announced, which tells you something. In any case, the carping has revolved around one core issue: the fact that Steve Ballmer is incapable of taking Microsoft to new levels of innovation.

Our carping about this has never failed to note that Ballmer has, in fact, been an outstanding CEO. The problem has long been that Ballmer’s outstanding quality is his ability to protect Microsoft's long-time core businesses. Ballmer has emerged as a superstar "value stock" CEO. The problem is that being a value-focused CEO is mutually exclusive with being the CEO of a hugely innovative and risk-taking operation; can Ballmer call down the thunder and bring on the hell?

Ballmer is incapable of pulling off the latter, and unfortunately it is the latter that Microsoft needs in order to move forward as an innovator. Ballmer dooms Microsoft to being a value stock; but, let's be clear about this -- for many investors, that is the perfect thing to be. The upshot of the announced re-org -- the thing that stands out starkly -- isn't who the new players in charge of stuff will now be. It actually doesn't matter.

The one takeaway that matters from the re-org is that, after the dust settles, it is still value-centric Steve Ballmer who ends up sitting in the CEO's chair. So all in all, it's a lot of change that ultimately changes nothing. We ourselves had hoped to hear about CEO succession plans. This entire issue -- or at least Microsoft's version of it -- had cropped up back when Steven Sinofsky left the company. Sinofsky himself did tell his own version of the tale. The truth of the matter is that not much ends up changing.

The Moves

Essentially, Ballmer has looked to streamline the upper end of the organization into an Apple-esque structure. Apple has a core set of SVPs who own the chief organizational components of Apple, with each reporting directly to CEO Tim Cook. Ballmer looks to imitate this structure and has come up with the following four "engineering" groups (leaving aside the CFO, HR, etc.), each of them hierarchical equals to each other:

  • Operating Systems Engineering Group, to be headed by Terry Myerson (who currently runs the Windows Phone operation). This group includes all operating systems.
  • Devices and Studio Engineering, to be headed by Julie Larson-Green, who currently runs the Windows Group.
  • Applications and Services Engineering, to be headed by Qi Lu. Office will end up here.
  • Cloud and Enterprise Engineering, to be headed up by Satya Nadella.

It's an interesting collection of folks. Myerson moves up to the big Windows from "little" Windows, and Larson-Green, who as far as we know has very limited "device" experience, takes over the now hugely important devices group. The others are long-time Microsoft players. Nadella once reported to Lu, and Nadella is believed by some to be Ballmer's likely successor.

It would have been hugely interesting to hear how Ballmer sees life beyond Ballmer for Microsoft; no such luck though. Instead, we've gotten an interesting new mix of new lieutenants, all of whom will still have to deal with all the various collections of Ballmerisms that have manifested themselves over the years. What happens as these four look to be the next Sinofsky or the next possible CEO successor? Will Ballmer give them a gentle push out the door in turn as each aspires to the possibility?

The first critical issue will be to see how well the four play with each other. Will they integrate well and truly become a successful mobile-centric team? There is no way to tell at this point. Ballmer will be moving fairly slowly to get these new players set up; he noted that it will take the rest of the year to pull it all together, and he noted that he doesn't feel a need to rush it all. It's an interesting point of view.

At the end of the day, however, we're still left with Ballmer firmly in control and we're still left with the same question: Can he call down the thunder and bring on the hell? The answer, as it was the last time around, is that we very much doubt it. So the more things change, the more they are likely to stay the same.

That will bring the score to: Value-based Microsoft 2, Innovation-based Microsoft 0.

Edited by Rich Steeves

TechZone360 Senior Editor

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