If you’re not a fan of centralized decision making overseen by a single CEO then the restructuring plan that Microsoft announced yesterday probably won’t impress you. However, IT and business analysts have cautiously welcomed the move, even if many are unsure how Steve Ballmer is going to put everything he plans in place.
Details of the restructuring, which is the biggest strategic change in the company since 2002, were contained in a memo that was sent to employee’s yesterday morning.
There was undoubtedly a certain amount of relief in all the units as it became clear that the restructuring wouldn't involve any lay-offs. Once that was out of the way, what is to be implemented over the next six months could be analyzed critically.
The plan envisages cutting the number of business units down to 4 from 8 and places the focus firmly on hardware and internet services for a workforce that is increasingly mobile and which Microsoft has been slow to respond to over the past two years.
There’s no getting away from the impact of mobile computing on Microsoft’s traditional desktop market and Ballmer, probably for the first time ever in writing, acknowledged this.
As technology moves from people’s desks to everywhere in their lives, it should become simpler, not more complex…And our products and services should operate as one experience across every device.”
In this, from a product perspective, we have the essence of the restructuring. Just like Meg Whitman over at HP, Ballmer has said it is not dumping its traditional fare, but developing its products to make them more responsive to the rapidly changing market.
Microsoft Restructuring, Ballmer
The financial markets responded positively and almost immediately to the news. The company has been dogged by stagnant growth figures for a long time and investors have been looking for signs that things might improve.
This may have been just the sign they were looking for. Shares in Microsoft rose to US$ 35.69 at the close of business yesterday, the highest price since 2007, pushing the stock value up by 34% this year alone, where the Standard & Poors share price index for the same period has only gained 17%.
But there is another element here that needs to be considered going forward. Steve Ballmer has been at the helm of Microsoft since 2000 and investors have been concerned about the future leadership of the company. It has never been clear whether he was going to continue on, or bow out gracefully after more than a decade of leading one of the biggest companies in the world.
The restructuring effectively answers that. Once the reorganization is complete, this will be a company managed and run by Steve Ballmer.
When he took over from Bill Gates, he had underlined the importance of internal collaboration and then effectively set up the structure that saw 8 different units with their own leadership and operations. It may have been a good idea the time, but with an information technology market that is changing as quickly as it is, it doesn’t really work anymore.
It nearly lost the cloud market as it developed under its feet, and its mobile strategy around three operating systems doesn’t appear to have worked.
Boss Man Ballmer
The new company will attempt to deal with this by stripping away the red tape and giving Ballmer a more hands-on role in the entire production process across all products.
It remains to be seen as to whether this is workable strategy or not. Some analysts say that the individual business units were not such a bad thing and that the restructuring could have worked within those existing units.
The argument now goes that with a more centralized management, the scope for innovation within each of the individual areas of the company is lessened with less room to develop strategies for individual products. But that’s the way Ballmer wants it and under the new catchphrase “One Microsoft” he will push these changes as far as he sees fit.
And make no mistake about, this is Steve Ballmer’s company for the foreseeable future. The new product leaders that we outlined yesterday will report to him and as yet there isn’t even the suggestion of someone that might take over from him.
Cited on Reuters news service, Gartner analyst David Smith had this to say:
There's still no heir apparent or any succession strategy that has become apparent… sounds like he wants to run it in a more centralized style."
From a technology perspective, what does it mean? At the moment Microsoft is the world’s biggest software company with revenues of US$ 74 billion that have been dependent to a large extent on its place in the PC market and its flagship Office and Windows products.
However, in the past three years the IT world has changed dramatically and it has now been placed on the back foot by the emergence of cloud and mobile computing that have seen Google and Apple growing at a rate that no one could ever really have foreseen.
Forrester analyst David K. Johnson sees the restructuring as a positive move as technology companies are forced to balance the wants -- as opposed to the needs -- of “capricious consumers” and the needs and abilities of “cash strapped…enterprise IT buyers.”
In a blog post on the restructuring he says the choice of Satya Nadella as head of the Cloud and Enterprise Engineering Group makes a lot of sense for a company that is looking to be more agile.
…Satya Nadella and Scott Guthrie both have done a great job of driving Agile development and continuous delivery into every team in STB and that is resulting in faster moving and more compelling products and services. They deserve a lot of credit for this and so putting even more under them seems a good thing. The key is whether it is the right things…” he said.
However, he also points out that OS-related cloud services have been given to Terry Myerson in the OS Engineering Group and that his has the potential to cause conflict between the Cloud and OS divisions in the future.
The OS Engineering group is what was formerly the Windows Division and the server part of the Server and Tools Division. Johnson says that this emphasizes how important developing the Windows user experience is going to be in the future. Everything else, Johnson says, is going to line-up to feed into, and improve the Windows experience no matter what device Windows is operating on.
The development and building of devices in the new structure will also change with all devices coming under the one umbrella and on equal footing to the the OS, cloud, and apps groups. This should enable Microsoft create better experiences across devices while at the same time improving their supply chain.
Microsoft Moving Forward
Ultimately, this restructuring is about addressing the shifting face of business and consumer computing. Microsoft has always had huge resources -- both human and material -- but doesn’t really appear to have managed them very well in recent times.
The advantages of this is that it provides, in theory at least, all the resources needed to all the different development and production chains in the company, to get the best out of everyone and everything.
However, speed is going to be crucial here and, in particular, how quickly it can get the restructured company moving. If the changes are finally implement by Christmas and the new Microsoft is operational in the New Year, the most optimistic estimates of the time it will take for the changes to impact will be two years after that.
Two years ago, the computing marketing was a totally different market than we see today. In two years from now, what will it be like, and will the new Microsoft be able to respond to it? That’s the US$ 74 billion question. Maybe Steve Ballmer has the answer.